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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended March 31, 1995
Commission File No. 1-4850
COMPUTER SCIENCES CORPORATION
[LOGO OF CSC]
Incorporated in the State of Nevada
Employer Identification No. 95-2043126
2100 East Grand Avenue
El Segundo, California 90245
Telephone (310) 615-0311
-------------------------
Securities registered pursuant Exchanges on Which Registered
to Section 12(b) of the Act: -----------------------------------
- --------------------------------- New York Stock Exchange
Common Stock, $1.00 par value Pacific Stock Exchange
per share
Preferred Stock Purchase
Rights
Securities registered pursuant to Section 12(g) of the Act: None
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
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. Yes No [X]
As of May 26, 1995, the aggregate market value of stock held by non-affiliates
of the registrant was approximately $2,856,000,000. Such amount excludes the
market value of 932,494 shares of common stock held by the registrant's
officers and directors. A total of 55,328,282 shares of common stock was
outstanding as of such date.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement, which will be filed with the
Securities and Exchange Commission within 120 days after March 31, 1995
(incorporated by reference under Part III).
TABLE OF CONTENTS
PART I
ITEM PAGE
- ---- ----
1. Business 1
2. Properties 3
3. Legal Proceedings 3
4. Submission of Matters to a Vote of Security Holders 4
PART II
5. Market for the Registrant's Common Equity and
Related Stockholder Matters 6
6. Selected Financial Data 6
7. Management's Discussion and Analysis of Operations
and Financial Condition 7
8. Financial Statements and Supplementary Data 11
9. Disagreements on Accounting and Financial Disclosure 31
PART III
10. Directors and Executive Officers of the Registrant 31
11. Executive Compensation 31
12. Security Ownership of Certain Beneficial
Owners and Management 31
13. Certain Relationships and Related Transactions 31
PART IV
14. Exhibits, Financial Statement Schedules and Note,
and Reports on Form 8-K 32
PART I
ITEM 1. BUSINESS
INTRODUCTION AND HISTORY
Computer Sciences Corporation ("CSC" or the "Company") was founded in 1959
and is the largest independent provider of information technology consulting,
systems integration and outsourcing to industry and government. One of the
first companies organized to provide computer software and related services,
CSC has expanded its technical capability and scope of services to include
management consulting and education and research programs in the strategic use
of information resources, and the design, engineering, development,
integration, installation, and operation of computer-based systems and
communications systems. The Company performs these services to customers'
contract specifications. Over the past several years, the Company has expanded
its commercial data processing outsourcing activities, whereby it provides
virtually all of a client's data processing requirements. CSC has further
enhanced its ability to provide total solutions to clients' problems in
information technology by the provision of proprietary offerings such as
consumer credit-related services, automated systems for health care
organizations and financial insurance services.
The Company's principal markets served are the United States federal
government, the U.S. commercial markets and international markets.
U.S. FEDERAL MARKET
Serving the federal market, the Company designs, engineers and integrates
computer-based systems and communications systems, providing all of the
hardware, software, training and related elements necessary to develop,
operate and maintain a system. CSC has extensive experience in the development
of software for aerospace and defense systems, and also provides systems
engineering and technical assistance in satellite communications,
intelligence, aerospace, logistics and related high-technology fields. In
addition, CSC is a major supplier of multi-disciplinary technical services in
engineering, software development, data processing and range operations.
Typical current activities include the development and integration of: an
image-based acquisition system for the Department of Defense that will
automate the way the government manages weapons systems information; a
nationwide, secure data communications network for the U.S. Treasury
Department; a command and control information processing system for the U.S.
Air Force; a logistics system for the U.S. Air Force; and engineering,
operations and maintenance services in support of military test ranges.
The Company also provides extensive software and other mission-critical
support to the National Aeronautics and Space Administration, develops
software for the Federal Aviation Administration for modernizing the air
traffic enroute support system, and is modernizing and automating the records
of the Bureau of Land Management using a distributed data processing system.
U.S. COMMERCIAL MARKETS
The Company provides consulting and technical services in the development
and integration of computer and communications systems to commercial
organizations, as well as various industry-specific information technology
services. CSC is also a major provider of outsourcing services, providing
clients with comprehensive information technology services, including systems
analysis, applications development, network operations and data center
management. The Company's experience includes business reengineering, the
setting of information technology strategy, the development of information
systems for a wide range of applications and the operation of computer
facilities.
The Company has expertise in information-system development for the
vertical-industry markets of consumer goods, distribution, financial services,
publishing, utilities, manufacturing, pharmaceuticals, communications and
insurance, and for state and local governments. Other capabilities, such as
office automation and communications network engineering, operation and
management, range across industry needs in general.
The Company is one of the leading suppliers of large-scale claims processing
and other insurance-related services to clients in the public sector. It has
extensive expertise in the development and operation of automated systems that
efficiently manage and process the large volumes of data associated with such
programs. CSC serves as the fiscal agent for the Medicaid program of New York,
and processes the health claims of coal miners for the black-lung program of
the U.S. Department of Labor. It also acts as statistical agent for the
Federal Emergency Management Agency's (FEMA) National Flood Insurance Program.
For the insurance and financial services industries, the Company provides
services for administering life and disability insurance for credit loans and
mortgages, collateral-protection insurance and warranty insurance. In
addition, CSC markets business information systems, software and services to
the managed healthcare industry, clinics and physicians.
Also in the financial services arena, the Company provides consumer credit
reports and account-management services to thousands of credit grantors
nationwide. These services are provided through CSC Enterprises (dba CSC
Credit Services, Inc.), a partnership with Merel Corporation and affiliates of
Equifax Inc., another major credit services company. Through another agreement
with Equifax, the Company is able to offer retail chains and other large
credit grantors the benefits of a national file of consumer credit histories,
enabling them to obtain credit information from a single source, instead of
dealing with multiple reporting services.
INTERNATIONAL MARKETS
The Company's international operations, with major offices in the United
Kingdom, France, Germany, Belgium, the Netherlands, and Australia, provide a
wide range of information technology services to commercial and public sector
clients. These services span the range of consulting, systems integration and
outsourcing. Current activities include major outsourcing contracts with
British Aerospace and Guinness Brewing Great Britain and developing a new
billing system for Belgium's state-owned telecommunications operator. As part
of the fiscal 1994 acquisition of Computer Sciences Australia from the
Australian Mutual Provident Society, CSC signed a 10-year contract to provide
outsourcing services to AMP.
REVENUES BY MAJOR MARKET
Revenue for the last three fiscal years, classified as a percentage of the
Company's major market sectors, is as follows:
1995 1994 1993
---- ---- ----
U.S. Federal government................................. 44% 48% 51%
U.S. Commercial......................................... 35 40 40
International........................................... 21 12 9
--- --- ---
100% 100% 100%
=== === ===
COMPETITION
The information technology market in which CSC competes is 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 CSC. Some of these are large industrial firms, including computer
manufacturers and major aerospace firms that have greater financial resources
than CSC and may have greater capabilities to perform services similar to
those provided by CSC.
2
The Company's ability to obtain business is dependent upon its ability to
offer better strategic concepts and technical solutions, lower prices, a
quicker response, or a combination of these factors. The Company believes its
technical competence in computer/communications engineering, systems software,
application systems, systems engineering and commercial data processing will
enable it to compete favorably in the technical services and outsourcing
markets. CSC intends to continue its policy of ongoing research and
development to maintain a competitive position.
EMPLOYEES
The Company employs approximately 32,900 persons, of which 22,500 are highly
trained professionals. The services provided by CSC require proficiency in
many fields, such as computer sciences, mathematics, physics, engineering,
astronomy, geology, operations research, economics, statistics and business
administration.
INTERNATIONAL
CSC operates in the United Kingdom, Belgium, Germany, the Netherlands,
France, Sweden, Canada and Australia through subsidiary companies. These
subsidiary companies offer technical services of the type provided by CSC in
the United States. In addition, entities domiciled in the U.S. operate
internationally either through established branch offices or by direct sales.
ITEM 2. PROPERTIES
APPROXIMATE
OWNED PROPERTIES SQUARE FOOTAGE GENERAL USAGE
---------------- -------------- -------------
El Segundo, California... 206,000 Office Facility
San Diego, California.... 178,000 Computer and General Office Facility
Norwich, Connecticut..... 149,000 Computer and General Office Facility
Falls Church, Virginia... 146,000 General Office
Moorestown, New Jersey... 99,000 General Office
Herndon, Virginia........ 87,000 General Office
St. Leonards, NSW
Australia............... 60,000 Office Facility
Sterling, Virginia....... 45,000 Office Facility
Various other U.S.
locations............... 101,000 Primarily General Office
LEASED PROPERTIES
-----------------
Washington, D.C. area.... 1,542,000 Computer and General Office Facilities
Houston and Dallas/Ft.
Worth, Texas............ 356,000 Computer and General Office Facilities
Mt. Laurel/Moorestown,
New Jersey.............. 272,000 General Office
United Kingdom........... 208,000 General Office
Germany.................. 355,000 General Office
Albany, New York......... 173,000 General Office
Boston, Massachusetts
area.................... 285,000 General Office
Various other U.S. and
foreign locations....... 1,513,000 Computer and General Office Facilities
Upon expiration of its leases, the Company does not anticipate any
difficulty in obtaining renewals or alternative space. Lease expiration dates
range from fiscal 1995 through 2021.
ITEM 3. LEGAL PROCEEDINGS
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 financial position.
3
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
YEAR FIRST
ELECTED AS TERM AS POSITION HELD FAMILY
NAME AGE AN OFFICER OFFICER WITH THE REGISTRANT RELATIONSHIP
---- --- ---------- ---------- ------------------------ ------------
Van B. Honeycutt* 50 1987 Indefinite President & CEO None
Leon J. Level* 54 1989 Indefinite Vice President and None
(*Director) Chief Financial Officer
Harvey N. Bernstein 48 1988 Indefinite Vice President None
James A. Champy 53 1993 Indefinite Vice President None
Milton E. Cooper 56 1992 Indefinite Vice President None
Denis M. Crane 61 1981 Indefinite Vice President and None
Controller
Hayward D. Fisk 52 1989 Indefinite Vice President, General None
Counsel and Secretary
Ronald W. Mackintosh 46 1993 Indefinite Vice President None
Lawrence Parkus 58 1985 Indefinite Vice President None
C. Bruce Plowman 58 1989 Indefinite Vice President None
L. Scott Sharpe 56 1981 Indefinite Vice President None
Thomas Williams 59 1993 Indefinite Vice President None
BUSINESS EXPERIENCE OF OFFICERS
Van B. Honeycutt was appointed Chief Executive Officer of the Company
effective April 1, 1995. He joined the Company in 1975 and was elected
President and Chief Operating Officer during 1993. Prior to his election he
was a Vice President of CSC and President of the Industry Services Group. He
formerly was President of CSC Credit Services, Inc., where he directed the
growth of this wholly owned subsidiary into one of the Company's major
commercial units. He has held a variety of other positions with the Company,
including Vice President and General Manager of its Business Services Division
and regional marketing manager for Infonet.
Leon J. Level joined the Company in 1989 as Vice President and Chief
Financial Officer of CSC. 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 Haskins
& Sells. He is a Certified Public Accountant.
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 and Jacobson in Washington, D.C.
James A. Champy joined the Company during 1988 as a result of the
acquisition of Index, where he served as President. Before joining Index, he
was executive vice president of the Massachusetts Institute of Technology
Alumni Association. He was elected a Vice President of the Company and
appointed Chairman of its Consulting Group during 1993.
Milton E. Cooper joined the Company in 1984 as group vice president of
program development. He was named President of Systems Group in December 1991
and a Corporate Vice President in January 1992. He has held senior sales and
marketing positions with IBM Corporation and Telex Corporation. A veteran of
26 years in the information industry, he is a graduate of the United States
Military Academy.
4
Denis M. Crane joined the Company in 1973 with prior experience in public
accounting. He was named Vice President, Finance for the Systems Group and
held that position until his election as Vice President and Controller of the
Company in 1981. He is a Certified Public Accountant and is responsible for
corporate-wide policy matters of general accounting, operational analysis,
systems and procedures.
Hayward D. Fisk joined the Company in 1989 as Vice President, General
Counsel and Corporate 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.
Ronald W. Mackintosh joined the Company as a result of the Index
acquisition, where he was Managing Director of its London office. Previously
he was a partner in the London office of Nolan, Norton & Company. In 1991, he
was named chief executive of the Company's UK Operations and, subsequently,
president of the European Group. In 1993 he was elected a Vice President of
the Company.
Lawrence Parkus joined the Company in 1985 and was elected Vice President
for Corporate Development, where he is responsible for planning and executing
acquisitions and other projects related to the Company's growth and
development strategies. Prior to joining the Company, he was division manager
for international business development for AT&T Consumer Products and held
prior assignments in business development and strategic planning.
C. Bruce Plowman joined the Company in 1982 as Director of Corporate
Communications. In 1989, he was elected a Vice President with responsibility
for investor relations, marketing communications, public relations and
employee communications. Prior to joining CSC, he spent 16 years at
Continental Airlines, where he was Director of Public Information.
L. Scott Sharpe joined the Company in 1968. He progressed through four
divisions of the Company before moving to the Company's headquarters in 1978.
He was elected a Vice President of the Company in 1981. He is responsible for
all human resource programs, including benefits and compensation, recruitment,
employee relations, management development, and organization and staffing.
Thomas Williams joined the Company in 1970 and has held a number of
managerial and technical positions within the corporation. Previously he
served as President of the Technology Management Group and Applied Technology
Division, Vice President, Engineering and Range Operations, and associate
project manager of CSTA. In 1993 he was elected a Vice President of the
Company and named as President of the Aerospace Systems Division and deputy
chief executive of the European Group.
5
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common stock of Computer Sciences Corporation is listed and traded on the
New York Stock Exchange and Pacific Stock Exchange. The ticker symbol is
"CSC."
As of June 9, 1995, the number of registered shareholders of Computer
Sciences Corporation's common stock was 7,824. The table shows the high and
low intra-day prices of the Company's common stock on the New York Stock
Exchange for each quarter during the last two calendar years, and to date in
1995. No cash dividends have been paid during this period. Per share prices
have been adjusted for a 200% stock dividend distributed January 13, 1994.
1995 1994 1993
------------- ------------- -------------
CALENDAR QUARTER HIGH LOW HIGH LOW HIGH LOW
---------------- ------ ------ ------ ------ ------ ------
1st............................ 52 1/4 47 1/4 41 3/4 31 5/8 26 7/8 24 5/8
2nd............................ 54 1/4 46 1/2* 44 35 1/4 28 1/4 23 3/8
3rd............................ 45 1/4 39 3/4 31 5/8 27 1/4
4th............................ 52 5/8 41 33 5/8 29 7/8
- --------
* Through June 16, 1995
ITEM 6. SELECTED FINANCIAL DATA, FIVE-YEAR REVIEW
MARCH 31, APRIL 1, APRIL 2, APRIL 3, MARCH 29,
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS
Total assets............ $2,333,660 $1,806,380 $1,460,922 $1,375,386 $1,006,821
Debt:
Long-term............. 310,317 273,344 295,316 349,410 108,867
Short-term............ 126,317 17,772 6,220 17,963 28,864
Current maturities.... 11,111 32,685 10,503 22,337 3,828
---------- ---------- ---------- ---------- ----------
Total............... 447,745 323,801 312,039 389,710 141,559
Stockholders' equity.... 1,148,559 805,680 695,380 606,810 526,226
Working capital......... 303,593 195,875 332,273 265,563 262,865
Property and equipment:
At cost............... 905,469 695,796 525,742 435,332 251,526
Accumulated deprecia-
tion and
amortization......... 375,330 302,760 241,990 165,165 117,039
---------- ---------- ---------- ---------- ----------
Property and equip-
ment, net............ 530,139 393,036 283,752 270,167 134,487
Current assets to cur-
rent liabilities....... 1.4:1 1.3:1 1.8:1 1.7:1 1.7:1
Debt to total capital-
ization................ 28.0% 28.7% 31.0% 39.1% 21.2%
Return on equity, before
accounting change...... 12.2 12.1 12.0 12.0 13.2
Book value per share.... $20.82 $15.92 $13.94 $12.33 $10.89
Stock price range
(high)................. 52.63 41.75 26.83 28.00 22.17
(low).................. 35.25 23.33 19.00 17.67 12.29
Year-end price earnings
ratio.................. 24 20 16 16 17
6
FIVE-YEAR REVIEW (CONTINUED)
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS
Revenues................ $3,372,502 $2,582,670 $2,479,847 $2,113,351 $1,737,791
---------- ---------- ---------- ---------- ----------
Costs of services....... 2,685,603 2,065,023 2,006,449 1,723,973 1,447,367
Selling, general and ad-
ministrative........... 311,177 227,003 210,217 179,578 144,751
Depreciation and amorti-
zation................. 172,625 130,704 118,668 81,701 40,203
Interest, net........... 25,645 10,857 15,804 15,626 5,408
Other items, net........ 3,740 460 3,250 (2,480)
---------- ---------- ---------- ---------- ----------
Total costs and ex-
penses................. 3,198,790 2,433,587 2,351,598 2,004,128 1,635,249
---------- ---------- ---------- ---------- ----------
Income before taxes..... 173,712 149,083 128,249 109,223 102,542
Taxes on income......... 62,973 58,153 50,100 41,046 37,551
---------- ---------- ---------- ---------- ----------
Earnings before
cumulative effect of
accounting change...... 110,739 90,930 78,149 68,177 64,991
Cumulative effect of ac-
counting change for in-
come taxes............. 4,900
---------- ---------- ---------- ---------- ----------
Net earnings............ $ 110,739 $ 95,830 $ 78,149 $ 68,177 $ 64,991
========== ========== ========== ========== ==========
Earnings per common
share before cumulative
effect of accounting
change................. $ 2.09 $ 1.77 $ 1.55 $ 1.37 $ 1.34
Cumulative effect of ac-
counting change for in-
come taxes............. 0.09
---------- ---------- ---------- ---------- ----------
Earnings per common
share.................. $ 2.09 $ 1.86 $ 1.55 $ 1.37 $ 1.34
========== ========== ========== ========== ==========
Shares used to compute
earnings per
share.................. 52,974,949 51,385,204 50,275,506 49,646,760 48,518,202
Note: Per-share amounts are restated for a three-for-one stock split,
effective December 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
REVENUE
Revenue for fiscal 1995 was $3.37 billion, 31% higher than fiscal 1994's
revenue of $2.58 billion, which was a 4% increase over the $2.48 billion in
revenue reported for fiscal 1993. Revenue growth in each of these years was
achieved across CSC's entire range of services--management consulting,
business reengineering, systems consulting and integration, other industry and
professional services, and outsourcing. During fiscal 1994, revenue growth was
partially offset by the phase-out of two contracts with the U.S. government
and a New Jersey contract as described below. Revenue also expanded due to
several acquisitions, which accounted for approximately one-third of the
fiscal 1995 increase.
The Company's revenue from the U.S. government increased 22% to $1.49
billion for fiscal 1995. The increase was led by the award of a NASA contract
valued at $1.1 billion over eight years if all options are exercised. The
higher federal revenue also includes the effect of an acquisition at the end
of the third quarter of fiscal 1994. During fiscal 1995, CSC was awarded
federal contracts with a value of $1.8 billion, compared with $2.0 billion the
prior year. During fiscal 1994, federal revenue declined 2.5% to $1.22
billion. The decline was the result of the phase-out of two large contracts,
offset in part by the fiscal 1994 acquisition.
CSC's non-federal ("commercial") revenue comprised 56% of total revenue for
fiscal 1995, versus 52% for fiscal 1994. Commercial revenue from the Company's
U.S. operations rose to $1.17 billion for fiscal 1995,
7
an increase of 13% compared with fiscal 1994. This followed a 5% increase for
fiscal 1994 versus fiscal 1993 reflecting growth in consulting and systems
integration activities, offset in part by the expiration of a New Jersey
claims processing contract. CSC's U.S. commercial revenue growth for fiscal
1995 was led by large increases in commercial outsourcing. Notable outsourcing
contracts providing this revenue improvement were signed with the Hughes
Aircraft Company, American Medical Response, Scott Paper, San Diego Gas &
Electric, the Mutual Life Insurance Company of New York, and Polaroid.
The Company's international revenue, as described in Note 9, increased 122%
to $713 million for fiscal 1995, up from $321 million for fiscal 1994 and $235
million for fiscal 1993. The bulk of fiscal 1995 international revenue growth
came from significant increases in outsourcing and consulting. Important
international outsourcing clients adding to revenue included British
Aerospace, Ford of Europe, Guinness Brewing Great Britain, ICI Paints and
Toyota of Belgium. During fiscal 1994, the Company's international revenue
increased 36% over fiscal 1993. Slightly more than half of that growth came
from the acquisition of Computer Sciences of Australia, while the remainder
was achieved through consulting and outsourcing efforts.
COSTS OF SERVICES
Costs of services of $2.69 billion for fiscal 1995 were 30% higher than
fiscal 1994, comparing favorably with the 31% fiscal 1995 revenue increase.
1994 costs of services of $2.07 billion were 3% higher than the $2.01 billion
of costs for fiscal 1993, again comparing favorably with the 4% fiscal 1994
revenue increase. As a percentage of revenue, costs of services improved to
79.6% for fiscal 1995 from 80.0% for fiscal 1994 and 80.9% for fiscal 1993.
The favorable change during fiscal 1995 is primarily related to the shift in
the mix of business toward commercial, which carries higher margins than the
Company's federal business. The fiscal 1994 change was due to broad
improvement across the Company.
SELLING, GENERAL AND ADMINISTRATIVE
Fiscal 1995 selling, general and administrative (SG&A) expenses of $311
million increased by $84 million or 37% compared with $17 million for fiscal
1994. Fiscal 1994 SG&A was, in turn, 8% greater than fiscal 1993. The most
significant contributor to these increases was the continued expansion of the
Company's commercial outsourcing and consulting activities.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for fiscal 1995 of $173 million
increased 32% compared with fiscal 1994. This followed an increase of $12
million or 10% for fiscal 1994 versus fiscal 1993. The increases during both
fiscal years reflect growth in fixed and other assets from internal expansion,
especially from CSC's outsourcing activities. Depreciation and amortization
also grew in each of these years due to several acquisitions.
INTEREST AND OTHER ITEMS
Interest expense, net of interest income, was $25.6 million for fiscal 1995,
up from $10.9 million for fiscal 1994 and $15.8 million for fiscal 1993. The
higher interest expense for fiscal 1995 is due principally to higher borrowing
to fund the Company's outsourcing contracts, acquisitions, and increased need
for working capital. During the fourth quarter of fiscal 1995, the Company
received $196.3 million in proceeds from a four million common share public
offering. Approximately half of the proceeds were applied to reduce bridge
financing used to support the Company's acquisition of Ploenzke AG and the
Hughes Aircraft Company outsourcing contract. The balance was temporarily
invested in short-term instruments. The reduction in net interest expense
during fiscal 1994 was due to both decreased interest expense from lower
borrowing costs and increased interest income from higher invested cash
balances.
8
Other items for fiscal 1995 consist of the loss on sale of the Company's tax
processing operation. During January 1995, the sale resulted in a pre-tax loss
of $3.7 million. The loss was reduced by related income tax effects of $2.8
million, yielding a net loss of $.9 million. For fiscal 1993, other items
included: (i) the Company's settlement of certain claims on completed
contracts, resulting in a gain of $4.7 million in excess of estimated
recoverable amounts and (ii) provision for severance payments and
restructuring charges of $5.1 million relating to the Company's European
operations, particularly Belgium. The Company completed the phase-out of
certain unprofitable operations in Belgium during fiscal 1995.
INCOME BEFORE TAXES
Income before taxes increased $24.6 million or 17% to a total of $173.7
million for fiscal 1995, up from $149.1 million for fiscal 1994. Compared to
the 31% revenue increase for the same period, the fiscal 1995 income before
taxes grew at a lower rate of 17%. This lower rate of growth is due to
proportionately higher SG&A costs, higher net interest expense, and the
adverse effect on earnings of ending certain consulting activities in the Far
East. The adverse effect was largely offset by the favorable resolution of
sales tax issues in the Company's U.S. operations.
The higher SG&A costs and net interest expense are primarily associated with
the Company's revenue growth, particularly with respect to commercial and
outsourcing business. The higher SG&A and interest cost levels for fiscal 1995
were offset in part by the favorable change in costs of services as a
percentage of revenue and by continued improvements in CSC's European
operations. During the second half, overall European operations attained
profitability following the completion of restructuring efforts begun in
Europe during fiscal 1993.
Fiscal 1994 income before taxes increased $20.8 million or 16.2% to $149.1
million. Fiscal 1994 income before taxes included net foreign operating income
of $5.3 million, versus fiscal 1993 net operating losses of $15.9 million. Of
this improvement, approximately half was achieved in Europe, although losses
persisted there, with the remaining improvement achieved in the international
operations of U.S.-based entities and from the acquisition of Computer
Sciences Australia. Overall, CSC's increase in income before taxes for fiscal
1994 was mainly the result of revenue growth, cost of services improvement and
net interest expense reduction.
TAXES
The provision for income taxes as a percentage of pre-tax earnings was
36.3%, 39.0% and 39.1% for fiscal 1995, 1994 and 1993, respectively. Compared
to prior years, the fiscal 1995 tax rate was reduced most significantly by
lower amounts of non-deductible foreign operating losses and by the favorable
tax treatment of the loss on sale of TACS, the Company's tax processing
subsidiary.
The slight decrease in the rate for fiscal 1994 was achieved despite the
increase in the U.S. federal statutory rate and the cumulative effect of the
August 1993 tax legislation. The Company was able to reduce the tax rate by
offsetting European tax losses against taxable income from operations located
outside Europe.
Effective in fiscal 1994, the Company adopted Statement of Financial
Accounting Standard ("SFAS") 109, "Accounting for Income Taxes," and reported
additional net earnings of $4.9 million, or $.09 per share as the cumulative
effect of an accounting change.
NET EARNINGS
Net earnings of $110.7 million for fiscal 1995 were 22% higher than fiscal
1994 earnings of $90.9 million (before the effect of the adoption of SFAS 109)
which were 16% higher than the $78.1 million for fiscal 1993.
The upward trend of net earnings for the three years reflects that the
Company's revenue growth has outpaced the increase in costs of services. The
total growth of net earnings has been somewhat offset, however, by the higher
paced increase in SG&A costs, depreciation, and net interest expense.
9
As the Company has won a number of large contracts in recent months, the
growth in net earnings has lagged revenue growth due to the combination of
several effects. First, the higher SG&A costs described above reflect the
number of new contracts for which the Company has submitted bids. Second,
costs of services tend to be disproportionately high in the beginning stages
of many large outsourcing contracts. Third, many outsourcing contracts call
for the purchase, financing and subsequent depreciation of a significant
amount of capital goods. Management takes these effects into consideration
when bidding on available contracts and plans for the gradual expansion of
margins over the lifetime of the contracts.
CASH FLOWS
Historically, the majority of the Company's cash has been provided from
operating activities. Cash flows from operating activities were $227.4
million, $191.8 million and $193.8 million for fiscal 1995, 1994 and 1993,
respectively. The fiscal 1995 increase is primarily due to higher earnings and
non-cash charges (depreciation and amortization), offset in part by higher
working capital requirements. When compared with fiscal 1993, the slight
decrease for fiscal 1994 reflects that higher earnings and non-cash charges
were offset by reduced growth in current liabilities.
Net cash used in investing activities was $402.8 million, $309.7 million and
$129.9 million for fiscal 1995, 1994 and 1993, respectively. Fiscal 1995
investments included $193.3 million in capital expenditures, versus $118.6
million for fiscal 1994 and $95.4 million for fiscal 1993. The increase in
capital expenditures for fiscal 1995 is the result of Company growth,
primarily in outsourcing. Investments for fiscal 1995 also included $103.3
million of initial outlays pursuant to outsourcing contracts, including the
purchase of related assets, compared to $114.4 million for fiscal 1994. In
addition, fiscal 1995 investments included $76.9 million for acquisitions,
compared to fiscal 1994 expenditures of $93.0 million. The 1994 expenditures
were partially offset by liquidations of short-term investments.
As noted earlier, the Company received $196.3 million in cash from a public
offering. The total net cash provided by financing activities, including the
offering, was $204.0 million for fiscal 1995. Net cash provided by financing
activities was $133.3 million for fiscal 1994. During fiscal 1994, a $250
million bank borrowing was replaced with a commercial paper program of the
same amount, with no net change in principal outstanding. Net cash used in
financing activities was $68.1 million for 1993. The use of cash for financing
during 1993 was principally due to payments of $68.7 million on long-term
debt.
FINANCIAL POSITION
The balance of cash, cash equivalents and short-term investments was $155
million at March 31, 1995, $127 million at April 1, 1994 and $155 million at
April 2, 1993. During this period, the Company's earnings growth has added
substantially to equity. During fiscal 1995, equity was augmented by the
Company's four million common share offering. At the end of fiscal 1995, CSC's
ratio of debt to total capitalization was 28%.
For fiscal 1994, equity growth--mainly through retained earnings, in excess
of additional borrowings--enabled the Company to strengthen its financial
position, finishing the year with a ratio of debt to total capitalization of
29%, an improvement from the end-of-year ratio of 31% for fiscal 1993.
In the opinion of management, CSC will be able to meet its cash needs for
the foreseeable future through the combination of cash flows from operating
activities, unused borrowing capacity, and other private financing activities.
If private resources need to be augmented, major additional cash requirements
would likely be financed by the issuance of CSC public debt and, or, equity.
DIVIDENDS
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.
10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Financial Statement Schedules
FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report.............................................. 12
Consolidated Statements of Earnings for the fiscal years ended March 31,
1995, April 1, 1994 and April 2, 1993.................................... 13
Consolidated Balance Sheets as of March 31, 1995 and April 1, 1994........ 14
Consolidated Statements of Cash Flows for the fiscal years ended March 31,
1995, April 1, 1994 and April 2, 1993.................................... 16
Consolidated Statements of Stockholders' Equity for the fiscal years ended
March 31, 1995, April 1, 1994 and April 2, 1993.......................... 17
Notes to Consolidated Financial Statements................................ 18
Quarterly Financial Information (Unaudited)............................... 31
SCHEDULES
Additional Note to Consolidated Financial Statements...................... 36
Schedule VIII--Valuations and Qualifying Accounts......................... 38
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.
Separate financial statements of the registrant have been omitted since it
is primarily an operating company, and the minority interests in subsidiaries
and long-term debt of the subsidiaries held by other than the registrant are
less than five percent of consolidated total assets.
Financial statements (or summarized financial information) for
unconsolidated subsidiaries and 50%-owned companies accounted for by the
equity method have been omitted because they are inapplicable, or do not,
considered individually or in the aggregate, constitute a significant
subsidiary.
11
INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS, ADDITIONAL NOTE AND
FINANCIAL STATEMENT SCHEDULE
Board of Directors and Stockholders
Computer Sciences Corporation
El Segundo, California
We have audited the accompanying consolidated balance sheets of Computer
Sciences Corporation and Subsidiaries as of March 31, 1995 and April 1, 1994,
and the related consolidated statements of earnings, stockholders' equity and
cash flows for each of the three years in the period ended March 31, 1995. Our
audits also included the additional note and financial statement schedule
listed in the Index at Item 8. These financial statements, additional note and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements, additional note and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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
and Subsidiaries at March 31, 1995 and April 1, 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, such additional note and financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in fiscal
1994 the Company changed its method of accounting for income taxes and for
postretirement benefits other than pensions to conform with pronouncements of
the Financial Accounting Standards Board.
Deloitte & Touche LLP
Los Angeles, California
May 26, 1995
12
CONSOLIDATED STATEMENTS OF EARNINGS
FISCAL YEAR ENDED
-------------------------------------
MARCH 31, APRIL 1, APRIL 2,
1995 1994 1993
----------- ----------- -----------
IN THOUSANDS EXCEPT PER-
SHARE AMOUNTS
Revenues..................... $ 3,372,502 $ 2,582,670 $ 2,479,847
----------- ----------- -----------
Costs of services............ 2,685,603 2,065,023 2,006,449
Selling, general and adminis-
trative..................... 311,177 227,003 210,217
Depreciation and amortiza-
tion........................ 172,625 130,704 118,668
Interest expense............. 28,841 17,219 20,475
Interest income.............. (3,196) (6,362) (4,671)
Other items, net (note 4)...... 3,740 460
----------- ----------- -----------
Total costs and expenses..... 3,198,790 2,433,587 2,351,598
----------- ----------- -----------
Income before taxes.......... 173,712 149,083 128,249
Taxes on income (note 6)....... 62,973 58,153 50,100
----------- ----------- -----------
Earnings before cumulative
effect of accounting change. 110,739 90,930 78,149
Cumulative effect of account-
ing change for income taxes
(note 1).................... 4,900
----------- ----------- -----------
Net earnings................. $ 110,739 $ 95,830 $ 78,149
=========== =========== ===========
Earnings per common share
before cumulative effect of
accounting change........... $ 2.09 $ 1.77 $ 1.55
Cumulative effect of account-
ing change for income taxes. 0.09
----------- ----------- -----------
Earnings per common share
(note 1)......................$ 2.09 $ 1.86 $ 1.55
=========== =========== ===========
(See notes to consolidated financial statements)
13
CONSOLIDATED BALANCE SHEETS
MARCH 31, APRIL 1,
ASSETS 1995 1994
------ ------------- -------------
IN THOUSANDS EXCEPT SHARES
Current assets:
Cash and cash equivalents (note 1)............... $ 155,310 $ 126,820
Receivables, net of allowance for doubtful ac-
counts of $30,432 (1995) and $32,244 (1994)
(note 2)........................................ 824,963 665,253
Prepaid expenses and other current assets........ 101,232 65,046
------------- -------------
Total current assets........................... 1,081,505 857,119
------------- -------------
Investments and other assets (note 1):
Purchased and internally developed software, net
of accumulated amortization of $48,904 (1995)
and $34,187 (1994).............................. 45,473 36,284
Purchased credit information files, net of accu-
mulated amortization of $26,785 (1995) and
$24,146 (1994).................................. 26,768 29,407
Excess of cost of businesses acquired over re-
lated net assets, net of accumulated amortiza-
tion of $44,349 (1995) and $35,419 (1994)....... 431,074 324,145
Other assets..................................... 218,701 166,389
------------- -------------
Total investments and other assets............. 722,016 556,225
------------- -------------
Property and equipment--at cost (note 3):
Land, buildings and leasehold improvements....... 164,941 149,334
Computers and related equipment.................. 661,100 470,550
Furniture and other equipment.................... 79,428 75,912
------------- -------------
905,469 695,796
Less accumulated depreciation and amortization... 375,330 302,760
------------- -------------
Property and equipment, net.................... 530,139 393,036
------------- -------------
$ 2,333,660 $ 1,806,380
============= =============
(See notes to consolidated financial statements)
14
MARCH 31, APRIL 1,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
------------------------------------ ------------- -------------
IN THOUSANDS EXCEPT SHARES
Current liabilities:
Short-term debt (note 3)........................ $ 126,317 $ 17,772
Current maturities of long-term debt (note 3)... 11,111 32,685
Accounts payable................................ 181,983 228,674
Accrued payroll and related costs (note 5)...... 152,438 128,478
Other accrued expenses.......................... 258,181 199,459
Federal, state and foreign income taxes (note
6)............................................. 47,882 54,176
------------- -------------
Total current liabilities..................... 777,912 661,244
------------- -------------
Long-term debt, net of current maturities (note
3)............................................... 310,317 273,344
------------- -------------
Deferred income taxes (note 6).................... 52,601 35,578
------------- -------------
Other long-term liabilities....................... 44,271 30,534
------------- -------------
Commitments and contingencies (note 7)............
Stockholders' equity (notes 1 and 8)..............
Preferred stock, par value $1 per share;
authorized 1,000,000 shares; none issued.......
Common stock, par value $1 per share; authorized
75,000,000 shares; issued 55,385,555 shares
(1995) and 50,807,452 shares (1994)............ 55,386 50,807
Additional paid-in capital...................... 316,241 106,497
Earnings retained for use in business........... 770,180 659,441
Foreign currency translation and unfunded pen-
sion adjustments............................... 11,931 (6,470)
------------- -------------
1,153,738 810,275
Less common stock in treasury, at cost, 215,047
shares (1995) and 201,752 shares (1994)........ 5,179 4,595
------------- -------------
Stockholders' equity, net..................... 1,148,559 805,680
------------- -------------
$ 2,333,660 $ 1,806,380
============= =============
(See notes to consolidated financial statements)
15
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED
-------------------------------------------
MARCH 31, APRIL 1, APRIL 2,
1995 1994 1993
-------------- ------------- -------------
IN THOUSANDS, INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
Cash flows from operating activi-
ties:
Net earnings.................... $ 110,739 $ 95,830 $ 78,149
Adjustments to reconcile net
earnings to net cash provided:
Depreciation and amortization. 172,625 130,704 118,668
Provision for losses on ac-
counts receivable............ 7,658 10,123 6,328
Cumulative effect of account-
ing change for income taxes.. (4,900)
Changes in assets and liabili-
ties, net of effects of ac-
quisitions:
Increase in receivables..... (129,017) (69,397) (64,212)
Increase in prepaid ex-
penses..................... (25,461) (6,497) (6,347)
(Increase) decrease in other
assets..................... (4,602) 3,829 10,802
Increase in accounts payable
and accruals............... 78,304 17,969 52,371
Increase (decrease) in in-
come taxes payable......... 10,032 12,946 (2,884)
Other changes, net.......... 7,079 1,182 893
------------- ------------- -------------
Net cash provided by operating
activities................... 227,357 191,789 193,768
------------- ------------- -------------
Cash flows from investing activi-
ties:
Short-term investments.......... 43,590 (29,312)
Purchases of property and equip-
ment........................... (193,325) (118,635) (95,423)
Outsourcing contracts........... (103,280) (114,403)
Acquisitions, net of cash ac-
quired......................... (76,924) (92,961) (1,900)
Purchased and internally devel-
oped software.................. (23,906) (18,793) (4,687)
Other investing cash flows...... (5,397) (8,526) 1,391
------------- ------------- -------------
Net cash used in investing ac-
tivities....................... (402,832) (309,728) (129,931)
------------- ------------- -------------
Cash flows from financing activi-
ties:
Borrowings under lines of cred-
it............................. 209,778 105,273 24,612
Repayment of borrowings under
lines of credit................ (215,667) (93,549) (37,581)
Proceeds from term debt issu-
ance........................... 150,000
Principal payments on long-term
debt........................... (40,525) (11,276) (68,742)
Outsourcing contract financing.. (114,403) 114,403
Proceeds from equity offering... 196,290
Proceeds from stock option
transactions................... 17,449 17,200 11,195
Other financing cash flows...... 1,043 1,231 2,417
------------- ------------- -------------
Net cash provided by (used in)
financing activities........... 203,965 133,282 (68,099)
------------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents............. 28,490 15,343 (4,262)
Cash and cash equivalents at be-
ginning of year.................. 126,820 111,477 115,739
------------- ------------- -------------
Cash and cash equivalents at end
of year.......................... $ 155,310 $ 126,820 $ 111,477
============= ============= =============
(See notes to consolidated financial statements)
16
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK
------------------
FOREIGN
CURRENCY
EARNINGS AND
ADDITIONAL RETAINED UNFUNDED COMMON
PAID-IN FOR USE IN PENSION STOCK IN
SHARES AMOUNT CAPITAL BUSINESS ADJUSTMENTS TREASURY
---------- ------- ---------- ---------- ----------- --------
IN THOUSANDS EXCEPT SHARES
Balance at April 3,
1992................... 16,599,791 $16,600 $ 76,536 $519,099 $(2,216) $(3,209)
Stock option transac-
tions.................. 212,040 212 12,493 (760)
Net earnings............ 78,149
Currency translation ad-
justment............... (758)
Unfunded pension obliga-
tion................... (766)
---------- ------- -------- -------- ------- -------
Balance at April 2,
1993................... 16,811,831 16,812 89,029 597,248 (3,740) (3,969)
Stock option transac-
tions.................. 358,639 358 17,468 (626)
Net earnings............ 95,830
Currency translation ad-
justment............... (2,840)
Unfunded pension obliga-
tion................... 110
Effect of 3-for-1 stock
split.................. 33,636,982 33,637 (33,637)
---------- ------- -------- -------- ------- -------
Balance at April 1,
1994................... 50,807,452 50,807 106,497 659,441 (6,470) (4,595)
Issuance of common
stock.................. 4,000,000 4,000 192,290
Stock option transac-
tions.................. 578,103 579 17,454 (584)
Net earnings............ 110,739
Currency translation ad-
justment............... 19,037
Unfunded pension obliga-
tion................... (636)
---------- ------- -------- -------- ------- -------
Balance at March 31,
1995................... 55,385,555 $55,386 $316,241 $770,180 $11,931 $(5,179)
========== ======= ======== ======== ======= =======
(See notes to consolidated financial statements)
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include those of Computer
Sciences Corporation, its subsidiaries, and those joint ventures and
partnerships in which it exercises control, hereafter referred to as "CSC" or
"the Company." All material intercompany transactions and balances have been
eliminated.
INCOME RECOGNITION
The Company provides services under fixed price, cost-based, time and
materials, and level of effort contracts. For fixed price contracts, income is
recorded on the basis of the estimated percentage of completion of services
rendered. Losses, if any, on fixed price contracts are recognized during the
period in which the loss is determined. For cost-based contracts, income is
recorded by applying an estimated factor to costs as incurred, such factor
being determined by the contract provisions and prior experience. For time and
materials and level of effort types of contracts, income is recorded as the
costs are incurred, income being the difference between such costs and the
agreed-upon billing amounts.
Revenues from certain information processing services are recorded at the
time the service is utilized by the customer. Revenues from sales of
proprietary software are recognized when delivered.
DEPRECIATION AND AMORTIZATION
The Company's depreciation and amortization policies are as follows:
Property and Equipment:
Buildings......................... 20 to 40 years
Computers......................... 3 to 6 years
Furniture and other equipment..... 3 to 10 years
Leasehold improvements............ Shorter of lease term or useful life
Investments and Other Assets:
Purchased and internally developed
software......................... 2 to 10 years
Credit information files.......... 20 years
Excess of cost of businesses
acquired over related net assets. Up to 40 years
Deferred contract costs........... Contract life
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 on the straight-line method.
Depreciation commences when the specific asset is complete, installed and
ready for normal use. Investments and other assets are amortized on a
straight-line basis over the years indicated. Included in purchased and
internally developed software are unamortized capitalized software development
costs of $19,326,000 and $10,029,000 for fiscal years 1995 and 1994,
respectively. The related amortization expense was $6,659,000, $7,485,000, and
$2,757,000 for fiscal years 1995, 1994, and 1993, respectively.
Included in other assets are deferred contract costs related to the initial
purchase of assets under outsourcing contracts. The balance of such costs, net
of amortization, was $98,610,000 and $91,324,000 for fiscal 1995 and 1994,
respectively. The related amortization expense was $11,601,000, $6,169,000 and
$6,203,000 for fiscal 1995, 1994 and 1993, respectively.
18
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company evaluates at least annually the recoverability of its excess
cost of businesses acquired over related net assets. In assessing
recoverability, the current and future profitability of the related operations
are considered, along with management's plans with respect to the operations
and the projected undiscounted cash flows.
ACQUISITIONS
During the three years ended March 31, 1995, the Company made a number of
acquisitions, none of which, either individually or collectively, are
considered material. In conjunction with these purchases, the Company acquired
assets with an estimated fair value of $63,102,000, $125,912,000, and
$8,168,000; and assumed liabilities of $85,465,000, $76,815,000, and
$6,131,000, for fiscal 1995, 1994, and 1993, respectively. The excess of cost
of businesses acquired over related net assets was $103,626,000, $54,531,000,
and $4,768,000 for fiscal 1995, 1994, and 1993, respectively.
CASH FLOWS
Cash payments for interest on indebtedness and taxes on income are as
follows:
FISCAL YEAR
-----------------------
1995 1994 1993
------- ------- -------
IN THOUSANDS
Interest.......................................... $23,733 $17,513 $21,465
Taxes on income................................... 54,800 56,404 59,609
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.
EARNINGS PER SHARE
Primary earnings per common share are computed on the basis of the weighted
average number of shares of common stock plus common stock equivalents (stock
options) outstanding during the year. Fully diluted earnings per common share
are not presented since dilution is less than three percent.
During February 1995, the Company issued an additional 4,000,000 shares of
common stock through a public offering, resulting in net proceeds of
$196,290,000. The proceeds were used to reduce short-term indebtedness and for
general corporate purposes, including the financing of working capital needs
and capital expenditures. If the reduction of indebtedness and the offering of
related shares had occurred at the beginning of fiscal 1995, the corresponding
effect on earnings per share for the year would not have been significant.
During December 1993, the Board of Directors declared a three-for-one stock
split in the form of a 200 percent stock dividend distributed January 13, 1994
on the Company's common stock, with no change in par value.
Shares used to compute earnings per share, restated for the stock split, are
as follows:
FISCAL YEAR
--------------------------------
1995 1994 1993
---------- ---------- ----------
Average shares outstanding............... 51,425,723 50,234,161 49,436,079
Common stock equivalents................. 1,549,226 1,151,043 839,427
---------- ---------- ----------
52,974,949 51,385,204 50,275,506
========== ========== ==========
19
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING CHANGES
Effective April 3, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and SFAS 109, "Accounting for Income Taxes."
Under SFAS 106, the Company changed from the cash basis of accounting for
postretirement benefits other than pensions to the accrual of the estimated
costs of such benefits during the period that covered employees render
services (see Note 5). The adoption of SFAS 109 changed the Company's method
of accounting for income taxes from the "deferred method" to the "asset and
liability method." Under the asset and liability method of SFAS 109, deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases (see Note 6).
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements in order for them to conform to the current presentation.
NOTE 2--RECEIVABLES
Receivables consist of the following:
MARCH 31 APRIL 1
1995 1994
-------- --------
IN THOUSANDS
Billed trade accounts................................... $637,580 $505,449
Recoverable amounts under contracts in progress......... 157,838 122,711
Other receivables....................................... 29,545 37,093
-------- --------
$824,963 $665,253
======== ========
Amounts due under long-term contracts include the following items:
MARCH 31 APRIL 1
1995 1994
-------- --------
IN THOUSANDS
Included in billed trade accounts receivable:
Amounts retained in accordance with contract terms,
due upon completion or other specified event......... $ 6,496 $ 9,735
======== ========
Included in recoverable amounts under contracts in
progress:
Amounts on fixed price contracts not billable in ac-
cordance with contract terms until some future date.. $ 69,807 $ 63,714
Excess of costs over provisional billings, awaiting
clearance for final billing or future negotiation.... 10,786 11,369
Accrued award fees.................................... 9,546 7,597
Amounts retained in accordance with contract terms,
due upon completion or other specified event......... 7,358 6,440
Amounts on completed work, negotiated and awaiting
contractual document................................. 2,754 2,996
Unrecovered costs related to claims................... 9,569 12,029
-------- --------
$109,820 $104,145
======== ========
20
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--RECEIVABLES (CONTINUED)
The recoverable amounts under contracts in progress which have not yet been
billed comprise amounts of contract revenue not billable at the balance sheet
date. Such amounts generally become billable upon completion of a specified
phase of the contract, negotiation of contract modifications, completion of
government audit activities, or upon acceptance by the customer.
All items relating to long-term contracts shown above are expected to be
collected during fiscal 1996 except for $9,569,000 of unrecovered costs
related to claims and $60,916,000 of other items to be collected during 1997
and thereafter. The unrecovered costs related to claims are recorded at net
realizable value and consist primarily of amounts due under long-term
contracts which are pending determination by negotiation or legal proceedings.
NOTE 3--DEBT
SHORT-TERM
At March 31, 1995, the Company has uncommitted lines of credit of
$80,000,000 with domestic banks. As of March 31, 1995, the Company had no
borrowings outstanding under these lines of credit. The Company also has
committed lines of credit of $70,000,000 with certain foreign banks; as of
March 31, 1995, the Company had $28,896,000 of borrowings outstanding under
these lines of credit. Interest rates approximate the applicable prime rate.
These short-term lines of credit carry no commitment fees or significant
covenants. At March 31, 1995, the weighted average interest rate on these
short-term lines of credit and on the Company's short-term commercial paper
($97,421,000 at March 31, 1995) was 6.1%. At April 1, 1994, the rate was 8.5%.
LONG-TERM
MARCH 31, 1995 APRIL 1, 1994
-------------- -------------
IN THOUSANDS
Commercial paper............................ $150,000 $250,000
6.8% term notes............................. 150,000
8.95% Senior Notes.......................... 10,000 15,000
8.85% Belgian term loan..................... 25,959
Capitalized lease liabilities, at varying
interest rates, payable in monthly
installments through fiscal 2000........... 6,223 9,833
Notes payable, at varying interest rates
through fiscal 2000........................ 5,205 5,237
-------- --------
Total long-term debt........................ 321,428 306,029
Less current maturities..................... 11,111 32,685
-------- --------
$310,317 $273,344
======== ========
During September 1994, CSC Enterprises (see Note 10) entered into new credit
agreements to provide standby support for the commercial paper program. The
standby agreements expire during September 1995 and September 1998 in the
amounts of $100 million and $150 million, respectively. During April 1994, CSC
Enterprises borrowed $150 million through a 144A Private Placement offering of
6.8% fixed rate term notes due April 15, 1999.
The Senior Notes require annual repayments of $5,000,000 through 1997. Any
optional prepayment requires a prepayment premium.
Capitalized lease liabilities shown above represent amounts due under leases
for the use of computers and related equipment. Included in property and
equipment are $13,439,000 (1995) and $9,194,000 (1994), less accumulated
amortization of $7,370,000 and $5,259,000, respectively.
21
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--DEBT (CONTINUED)
Certain of the Company's borrowing arrangements contain covenants that
require the Company to maintain certain financial ratios and that limit the
amount of dividend payments. Under the most restrictive requirement,
approximately $254 million of retained earnings were available for cash
dividends at March 31, 1995.
The carrying value of the Company's long-term debt is $321 million at March
31, 1995, as shown above. The corresponding fair value, as defined by
Statement of Financial Accounting Standards No. 107, approximates the carrying
value using the current rates available to the Company for debt of the same
remaining maturities.
Maturities of long-term debt are $11,111,000 (1996), $8,120,000 (1997),
$1,111,000 (1998), $150,926,000 (1999) and $150,160,000 (2000).
NOTE 4--OTHER ITEMS
During January 1995, the Company sold its tax processing operation and
incurred an after-tax loss on sale of $.9 million. The pre-tax loss of $3.7
million was reduced by related income tax effects of $2.8 million.
Other items for fiscal 1993 are composed of (i) the Company's settlement of
certain claims on completed contracts, resulting in a gain of $4.7 million in
excess of estimated recoverable amounts, and (ii) provision for severance
payments and restructuring charges of $5.1 million relating to the Company's
European operations.
NOTE 5--RETIREMENT PLANS
PENSIONS
The Company and its subsidiaries have several pension plans.
A contributory, defined benefit pension plan is generally available to U.S.
employees. The benefits under this plan are based on years of participation
and the employee's compensation over the entire period of participation in the
plan. It is the Company's funding policy to make contributions to the plan as
required by applicable regulations. Certain non-U.S. employees are enrolled in
defined benefit pension plans in the country of domicile. The benefits for
these plans are based on years of participation and the employee's average
compensation during the final years of employment. In addition, the Company
has a Supplemental Executive Retirement Plan (SERP) and a Nonemployee Director
Retirement Plan which are nonqualified, noncontributory pension plans. The
SERP is a defined benefit retirement plan for designated officers and key
executives of the Company. It restores benefits limited by tax regulations and
provides for benefits based on years of service and the participant's average
compensation during a final period of employment.
Net periodic pension cost for U.S. and non-U.S. pension plans included the
following components:
FISCAL YEAR
----------------------------
1995 1994 1993
-------- -------- --------
IN THOUSANDS
Service cost--benefits earned during the
year........................................ $ 28,016 $ 17,238 $ 12,863
Interest cost on projected benefit obliga-
tion........................................ 24,645 14,097 11,278
Actual return on assets...................... (10,425) (20,036) (14,069)
Net amortization and deferral:
Amortization of initial net asset gains.... (520) (529) (290)
Amortization of prior service costs........ 1,393 678 411
Amortization of net loss (gain)............ 613 6 (97)
Asset (loss) gain deferred................. (15,704) 4,520 2,213
SFAS 88 curtailment........................ (2,090)
-------- -------- --------
Net periodic pension cost.................... $ 25,928 $ 15,974 $ 12,309
======== ======== ========
22
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--RETIREMENT PLANS (CONTINUED)
The following table sets forth the funded status and amounts recognized in
the Company's consolidated balance sheets:
FISCAL YEAR
-------------------------------------------------------
1995 1994
--------------------------- ---------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFIT ACCUMULATED BENEFIT
BENEFIT OBLIGATIONS BENEFIT OBLIGATIONS
OBLIGATIONS EXCEED ASSETS OBLIGATIONS EXCEED ASSETS
------------- ------------- ------------- -------------
IN THOUSANDS
Actuarial present value
of benefit obligations:
Vested benefit obliga-
tion.................. $(240,733) $(21,564) $(182,271) $ (6,695)
========= ======== ========= ========
Accumulated benefit ob-
ligation.............. $(262,550) $(30,281) $(196,281) $(16,531)
========= ======== ========= ========
Projected benefit obliga-
tion.................... $(318,253) $(33,217) $(227,684) $(18,849)
Plan assets at fair mar-
ket value............... 322,970 8,981 233,348
--------- -------- --------- --------
Projected benefit obliga-
tion less than (in ex-
cess of) plan assets.... 4,717 (24,236) 5,664 (18,849)
Unrecognized net loss..... 13,972 2,654 6,063 1,688
Prior service cost not
yet recognized in net
periodic pension cost... 2,971 5,778 3,449 5,796
Unrecognized (net asset)
obligation being amor-
tized over future serv-
ice periods of plan par-
ticipants............... (105) 1,114 (783) 1,188
Adjustment to reflect
minimum liability....... (8,634) (7,808)
Contribution in fourth
fiscal quarter.......... 323 198
--------- -------- --------- --------
Pension asset (liabili-
ty)..................... $ 21,878 $(23,324) $ 14,591 $(17,985)
========= ======== ========= ========
Assumptions used in the accounting for the Company's plans were:
FISCAL YEAR
--------------------------------
1995 1994 1993
--------- --------- ----------
PARENT COMPANY PLAN
Discount or settlement
rate................... 8.00% 7.50% 8.00%
Rate of increase in com-
pensation levels....... 6.25 6.00 6.00
Expected long-term rate
of return on assets.... 8.50 8.50 9.00
NON-U.S. PLANS
Discount or settlement
rates.................. 7.00-9.00 6.00-8.00 7.00- 9.00
Rates of increase in
compensation levels.... 3.50-6.50 3.50-6.00 4.50- 7.00
Expected long-term rates
of return on assets.... 7.00-9.00 6.00-9.00 7.00-10.00
Plan assets include actively managed funds, indexed funds and short-term
investment funds.
The Company sponsors several defined contribution plans for substantially
all U.S. employees and certain foreign employees. The plans allow employees to
contribute a portion of their earnings in accordance with specified
guidelines. The Company matches a percentage of the employee's contribution
within limits as defined by each plan. During fiscal 1995, 1994 and 1993, the
Company contributed $14,171,000, $11,641,000, and $11,435,000, respectively.
23
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--RETIREMENT PLANS (CONTINUED)
OTHER POSTRETIREMENT BENEFITS
The Company provides health care and life insurance benefits for certain
retired U.S. employees, generally for those employed prior to August 1992.
Most non-U.S. employees are covered by government sponsored programs at no
direct cost to the Company.
As discussed in Note 1, the Company adopted SFAS 106 during fiscal 1994.
Prior years' financial statements have not been restated. Under SFAS 106 the
net periodic postretirement benefit costs, relating principally to retiree
health care, amounted to $5,368,000 and $4,988,000 in 1995 and 1994,
respectively. The amount included in expense for fiscal 1993 under the
previous cash basis of accounting was $720,000.
Net periodic postretirement benefit cost included the following components:
FISCAL YEAR
--------------
1995 1994
------ ------
IN THOUSANDS
Service cost, benefits earned during the period.. $ 969 $ 818
Interest cost on accumulated benefit obligation.. 2,885 2,586
Actual return on plan assets..................... (7) (81)
Amortization of initial obligation............... 1,633 1,633
Amortization of net loss ........................ 78
Asset (loss) gain deferred....................... (190) 32
------ ------
Net provision for postretirement benefits........ $5,368 $4,988
====== ======
The status of the plan and amounts recognized in the Company's consolidated
balance sheet are as follows:
MARCH 31, 1995 APRIL 1, 1994
-------------- -------------
IN THOUSANDS
Actuarial present value of benefit
obligation applicable to:
Retirees.................................... $(19,132) $(17,655)
Fully eligible plan participants............ (5,291) (6,242)
Other active plan participants.............. (14,362) (15,336)
-------- --------
Accumulated postretirement benefit obliga-
tion....................................... (38,785) (39,233)
Plan assets at fair market value............ 4,016 2,385
-------- --------
Accumulated postretirement benefit
obligation in excess of plan assets........ (34,769) (36,848)
Unrecognized net (gain) loss................ (843) 2,807
Unrecognized transition obligation.......... 28,625 30,258
-------- --------
Accrued postretirement benefit liability.... $ (6,987) $ (3,783)
======== ========
The assumed rate of return on plan assets was 7.0% and the discount rate
used to estimate the accumulated postretirement benefit obligation was 8% and
7.5% for fiscal 1995 and 1994, respectively. The assumed health care cost
trend rate used in measuring the expected benefit obligation was 10.0% for
fiscal 1995, declining to 5.0% for 2004 and thereafter. A one-percentage point
change in the assumed health care cost trend rate would increase or decrease
the accumulated postretirement benefit obligation as of March 31, 1995, and
the net periodic postretirement benefit cost for fiscal year 1995 by
$3,927,000 and $361,000, respectively.
24
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--INCOME TAXES
As discussed in Note 1, the Company adopted SFAS 109 during fiscal 1994.
Prior years' financial statements have not been restated.
The sources of income (loss) before taxes, classified as between domestic
entities and those entities domiciled outside of the United States, are as
follows:
FISCAL YEAR
----------------------------
1995 1994 1993
-------- -------- --------
IN THOUSANDS
Domestic entities.............................. $177,702 $159,323 $150,406
Entities outside the United States............. (3,990) (10,240) (22,157)
-------- -------- --------
$173,712 $149,083 $128,249
======== ======== ========
The provisions for taxes on income, classified as between current and
deferred and as between taxing jurisdictions, consist of the following:
FISCAL YEAR
------------------------
1995(A) 1994 1993
------- ------- -------
IN THOUSANDS
Current portion:
Federal.......................................... $46,045 $38,109 $43,221
State............................................ 5,983 5,592 6,122
Foreign.......................................... (142) 164
------- ------- -------
51,886 43,865 49,343
------- ------- -------
Deferred portion:
Federal.......................................... 9,864 13,647 839
State............................................ 1,223 641 (82)
------- ------- -------
11,087 14,288 757
------- ------- -------
Total provision for taxes.......................... $62,973 $58,153 $50,100
======= ======= =======
- --------
(a) Classification between and within current and deferred portions is subject
to revision based upon data contained in tax returns as filed.
The major elements contributing to the difference between the federal
statutory tax rate and the effective tax rate are as follows:
FISCAL YEAR
----------------
1995 1994 1993
---- ---- ----
Statutory rate............................................. 35.0% 35.0% 34.0%
State income tax, less effect of federal deduction......... 2.7 2.7 3.1
Goodwill amortization...................................... 1.4 1.4 2.1
Utilization of tax credits................................. (1.1) (.4) (3.1)
Tax benefit of loss on sale................................ (.8)
Foreign losses without tax benefits........................ .1 2.0 5.9
Tax-exempt investments..................................... (.1) (1.0) (.9)
Effect of U.S. tax law change.............................. .9
Other...................................................... (.9) (1.6) (2.0)
---- ---- ----
Effective tax rate......................................... 36.3% 39.0% 39.1%
==== ==== ====
25
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--INCOME TAXES (CONTINUED)
The tax effects of significant temporary differences that comprise deferred
tax balances are as follows:
MARCH 31, 1995 APRIL 1, 1994
-------------- -------------
(IN THOUSANDS)
Deferred tax assets (liabilities)
Deferred income............................... $ 2,552 $ 4,536
Employee benefits............................. 671 3,880
Provisions for contract settlement............ 7,517 6,717
Currency exchange............................. (7,429) 4,231
Other assets.................................. 6,663 10,983
Contract accounting........................... (53,129) (44,786)
Depreciation and amortization................. (29,964) (31,192)
Prepayments................................... (8,064) (9,318)
Employee benefits............................. (11,933) (5,834)
Other liabilities............................. (10,851) (14,571)
--------- --------
Total deferred taxes............................ $(103,967) $(75,354)
========= ========
Of the above deferred amounts, $51,366,000 and $39,776,000 are included in
current income taxes payable at March 31, 1995 and April 1, 1994,
respectively.
Prior to the change in accounting method, the sources of deferred tax items
and the corresponding tax effects during fiscal 1993 were as follows:
FISCAL YEAR
1993
--------------
(IN THOUSANDS)
Effect of timing of contract income recognition for tax
purposes................................................. $ 918
Timing difference on recognition of claim settlement and
provision for reserves between financial and tax report-
ing...................................................... (1,365)
Effect of depreciation and amortization recorded for tax
purposes in excess of amounts recorded for financial re-
porting.................................................. 639
Employee benefit expenses taken for tax purposes in excess
of the amount recorded for financial reporting........... 882
Change in deferred state income taxes..................... 1,518
Other..................................................... (1,835)
-------
Net increase for the year............................. $ 757
=======
During fiscal 1995, the Company and the Internal Revenue Service reached a
settlement with respect to the Service's examination of the federal
consolidated tax returns for fiscal 1985 and 1986. The settlement resulted in
no significant adjustment to the financial statements. Currently, the Service
is conducting an examination of the Company's consolidated tax returns for
fiscal 1987 through 1991. Management believes that the current examination
will not have a significant effect on the financial statements.
26
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company has operating leases for the use of certain property and
equipment. Substantially all operating leases are noncancelable or cancelable
only by the payment of penalties. All lease payments are based on the lapse of
time but include, in some cases, payments for insurance, maintenance and
property taxes. There are no purchase options on operating leases at favorable
terms, but most leases have one or more renewal options. Certain leases on
real property are subject to annual escalations for increases in utilities and
property taxes. Lease rental expense amounted to $111,812,000 (1995),
$83,113,000 (1994), and $66,592,000 (1993).
Minimum fixed rentals required for the next five years and thereafter under
operating leases in effect at March 31, 1995 are as follows (in thousands):
FISCAL YEAR REAL ESTATE EQUIPMENT
----------- ----------- ---------
1996................................................ $ 65,395 $26,184
1997................................................ 51,818 17,921
1998................................................ 40,983 9,336
1999................................................ 27,914 3,243
2000................................................ 22,373 1,540
Thereafter to 2021.................................. 59,715
-------- -------
$268,198 $58,224
======== =======
CONTINGENCIES
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 ultimate liability, if any, with respect to these
disputes will not be material to the Company's financial position.
NOTE 8--STOCK OPTIONS AND STOCK RIGHTS
The Company currently has six plans under which options to purchase shares
of the Company's common stock have been or may be granted to officers and key
managerial and technical employees of the Company and its subsidiaries. The
plans authorize the issuance of up to 1,800,000 (for each of the 1978, 1980
and 1984 plans), 2,250,000 (1987 plan) and 3,000,000 shares (for each of the
1990 and 1992 plans). Only non-qualified options may be issued under the 1978
plan; however, either incentive stock options or non-qualified options may be
issued under the 1980, 1984, 1987, 1990 and 1992 plans. Option prices under
all plans other than the 1987, 1990 and 1992 plans are to be at 100% of the
fair market value of such shares on the date of grant except for 600,000
shares under the 1978 plan and 300,000 shares under the 1984 plan, which may
be granted at a price of $1.00 per share. The 1987, 1990 and the 1992 plans
provide for the granting of stock options or stock appreciation rights or the
sale of restricted stock, or any combination thereof, at fair market value or
less than fair market value.
27
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--STOCK OPTIONS AND STOCK RIGHTS (CONTINUED)
At March 31, 1995 options for the purchase of 5,147,185 shares of the
Company's common stock were outstanding, of which 1,713,485 were exercisable;
1,013,392 shares of common stock were available for the granting of future
options. The status of all optioned shares is as follows:
FISCAL YEAR
-------------------------------
1995 1994 1993
--------- --------- ---------
Outstanding--beginning of year................ 4,880,938 4,226,475 3,906,045
Granted during year, at prices ranging from
$32.13 to $51.88 (1995), $l.00 to $39.88
(1994), $1.00 to $26.04 (1993)............... 1,137,900 1,590,500 1,207,500
Exercised during year, at prices ranging from
$1.00 to $39.50 (1995), $l.00 to $24.67
(1994), $1.00 to $21.75 (1993)............... (580,353) (795,697) (732,870)
Canceled during year, at prices ranging from
$1.00 to $46.75 (1995), $12.58 to $24.96
(1994), $5.04 to $19.25 (1993)............... (291,300) (140,340) (154,200)
--------- --------- ---------
Outstanding--end of year, at prices ranging
from $1.00 to $51.88, all years.............. 5,147,185 4,880,938 4,226,475
========= ========= =========
Average price of outstanding options.......... $ 25.70 $ 20.70 $ 17.44
========= ========= =========
As of March 31, 1995, 216,750 shares of the Company's restricted stock were
outstanding under the 1987, 1990 and 1992 stock incentive plans, which are net
of shares repurchased by the Company from terminated employees and shares for
which the restrictions have lapsed. Restrictions expire between four and seven
years from the date of issuance. Market prices on the dates of award ranged
from $12.75 to $34.38.
STOCK RIGHTS
Pursuant to the Company's stockholder rights plan, one right for each
outstanding share of common stock was issued to stockholders of record on
January 3, 1989. Under the plan, the rights are not currently exercisable. On
the tenth business day after any person or entity acquires 20% or more of
CSC's common stock, each right (other than rights held by the 20% stockholder)
will become exercisable to purchase one share of CSC common stock at 10% of
the then-current market value. The plan has been amended to give effect to the
3-for-1 stock split effective December 1993.
The rights expire December 21, 1998, and can be redeemed by decision of the
Board of Directors at one cent per right at any time before the first date on
which they become exercisable.
NOTE 9--SEGMENT REPORTING
The Company's business involves operations in principally one industry
segment, providing information technology consulting, systems integration and
outsourcing. The following data has been segmented between operations within
the United States and operations outside the United States. The non-United
States operations are located primarily in Western Europe and also in
Australia and the Middle East. The segmentation uses allocation methods that
are considered to be in compliance with the segment reporting requirements of
Statement of Financial Accounting Standards No. 14.
28
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FISCAL YEAR
-----------------------------------------------------------
1995 1994 1993
------------------- ------------------- -------------------
NON- NON- NON-
UNITED UNITED UNITED UNITED UNITED UNITED
STATES STATES STATES STATES STATES STATES
---------- -------- ---------- -------- ---------- --------
IN THOUSANDS
Revenues................ $2,659,187 $713,315 $2,261,973 $320,697 $2,244,701 $235,146
Operating profit (loss). 228,889 10,514 186,321 5,333 188,273 (15,929)
Depreciation and amorti-
zation................. 121,246 51,379 112,710 17,994 106,781 11,887
Identifiable assets at
year-end............... 1,489,016 844,644 1,179,388 626,992 1,151,828 301,818
Additions to property
and equipment.......... 131,679 61,646 98,902 19,733 89,666 5,757
Operating profit is generally calculated as total revenue less operating
expenses, without adding or deducting corporate general and administrative
costs, interest income and expense, income taxes, or other items.
The Company derives a major portion of its revenues from departments and
agencies of the United States government. At March 31, 1995, approximately 40%
of the Company's accounts receivable were due from the federal government.
Federal government revenues by agency/department are as follows:
FISCAL YEAR
-----------------------------------------------------------
1995 1994 1993
------------------- ------------------- -------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- -------- ---------- --------
IN THOUSANDS
Department of Defense... $ 823,812 24% $ 693,172 27% $ 675,721 27%
National Aeronautics and
Space Administration... 312,377 9 221,977 9 260,674 11
Other civil agencies.... 353,206 11 308,041 12 318,034 13
---------- --- ---------- --- ---------- ---
Total................. $1,489,395 44% $1,223,190 48% $1,254,429 51%
========== === ========== === ========== ===
NOTE 10--AGREEMENTS WITH EQUIFAX
During fiscal 1989, the Company signed an agreement with Equifax Inc. and
its subsidiary, Equifax Credit Information Services, Inc. ("ECIS") under which
certain of the Company's wholly owned subsidiaries (collectively, the
"Bureaus"), would become affiliated credit bureaus of ECIS and use ECIS'
credit reporting system. The Bureaus retain ownership of their credit files
and continue to receive the revenues generated from the sale of credit
information they contain. The Bureaus pay ECIS a fee for maintaining the files
and for each report supplied.
The agreement provides the Company with an option to sell its credit
reporting and collection businesses to ECIS. This option requires six months'
advance notice and expires August 1, 2013. The option price is determined in
accordance with the following schedule: on or before July 31, 1995, at the
higher of $365 million increased for acquisitions, or a price determined by
certain financial formulas; after July 31, 1995, through July 31, 1998, at the
price determined by such financial formulas; thereafter, at appraised value.
At March 31,1995, the price as determined by financial formulas approximated
$461 million. The $365 million minimum, when adjusted for acquisitions,
approximated $384 million.
The agreement is for a 10-year term, renewable indefinitely at the option of
the Company for successive 10-year periods. In the event the Company does not
renew or does not exercise its option to sell, or if there is a change in
control of the Company, ECIS has the option to purchase the Company's credit
reporting and collection businesses, as described above.
29
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 10--AGREEMENTS WITH EQUIFAX (CONTINUED)
Effective December 1990 the Company, through affiliates, formed a general
partnership with affiliates of Equifax Inc. and a third party, Merel
Corporation. The partnership was formed to operate the Company's credit
services operations and to carry out other business strategies through
acquisition and investment. The Company, through affiliates, has a 97.1%
interest in the partnership, named CSC Enterprises, and is the managing
general partner. The Company's rights under the 1988 agreement remain
exercisable through the partnership in accordance with the original terms.
30
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
COMPUTER SCIENCES CORPORATION
FISCAL 1995
-----------------------------------------------
LST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
IN THOUSANDS EXCEPT PER-SHARE AMOUNTS
Revenues....................... $738,145 $788,486 $827,901 $1,017,970
Income before taxes............ 35,196 36,973 43,328 58,215
Net earnings................... 21,822 22,923 26,748 39,246
Net earnings per share......... 0.42 0.44 0.51 0.72
FISCAL 1994
-----------------------------------------------
LST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Revenues....................... $608,096 $622,310 $621,361 $ 730,903
Income before taxes............ 29,897 31,390 34,961 52,835
Net earnings:
Before cumulative effect of
accounting change for income
taxes....................... 18,162 18,267 21,676 32,825
Total........................ 23,062 18,267 21,676 32,825
Net earnings per share:
Before cumulative effect of
accounting change for income
taxes....................... 0.36 0.36 0.42 0.63
Total........................ 0.45 0.36 0.42 0.63
FISCAL 1993
-----------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Revenues....................... $605,122 $616,038 $608,364 $ 650,323
Income before taxes............ 26,160 27,748 30,480 43,861
Net earnings................... 16,088 17,135 18,821 26,105
Net earnings per share......... 0.32 0.34 0.37 0.52
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding executive officers of the Company is included in Part
I. For the other information called for by Items 10, 11, 12 and 13, reference
is made to the Registrant's definitive proxy statement for its Annual Meeting
of Stockholders, to be held on August 14, 1995, which will be filed with the
Securities and Exchange Commission within 120 days after March 31, 1995, and
which is incorporated herein by reference, except for the material included
under the captions "Report of Compensation Committee" and "Performance Graph."
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Item 14(a) The following documents are filed as part of this report:
1 and 2. Financial Statements and Financial Statement Schedules:
These documents are listed in the Index to Consolidated
Financial Statements and Financial Statement Schedules (Item
8).
PAGE
----
3. Exhibits:
3.1 Restated Articles of Incorporation (d)
3.2 Amendment to Restated Articles of Incorporation (k)
3.3 By-Laws, dated and effective January 31, 1993
10.1 Annual Management Incentive Plan (a)
10.2 1978 Stock Option Plan
10.3 Amendment Nos. 1 and 2 to the 1978 Stock Option Plan
10.4 Amendment No. 3 to the 1978 Stock Option Plan (c)
10.5 1980 Stock Option Plan
10.6 Amendment Nos. 1, 2, 3 and 4 to the 1980 Stock Option Plan (b)
10.7 Amendment No. 5 to the 1980 Stock Option Plan (c)
10.8 1984 Stock Option Plan (h)
10.9 Amendment No. 1 to the 1984 Stock Option Plan (b)
10.10 Amendment No. 2 to the 1984 Stock Option Plan (c)
10.11 1987 Stock Incentive Plan (c)
10.12 Schedule to the 1987 Stock Incentive Plan for United Kingdom
personnel (c)
10.13 1990 Stock Incentive Plan (i)
10.14 1992 Stock Incentive Plan (l)
10.15 Amendment No. 1 to the 1992 Stock Incentive Plan
10.16 Form of Indemnification Agreement for Directors (e)
10.17 Form of Indemnification Agreement for Officers
10.18 $250,000,000 Credit Agreement dated as of October 31, 1991 (e)
10.19 Guaranty Agreement dated as of October 31, 1991 (e)
10.20 Information Technology Services Agreements and Stock Purchase
Agreement with General
Dynamics Corporation, dated as of November 4, 1991 (j)
10.21 Restated Supplemental Executive Retirement Plan, dated June 1,
1993 (f)
10.22 Restated Rights Agreement dated as of December 21, 1988, as
amended December 6, 1993 (g)
10.23 $100 million Credit Agreement dated as of November 2, 1993 (g)
10.24 Guaranty Agreement (Short Term Facility) (g)
10.25 $150 million Credit Agreement dated as of November 2, 1993 (g)
10.26 Guaranty Agreement (Long Term Facility) (g)
10.27 $100 million Credit Agreement dated as of September 15, 1994,
filed herewith
10.28 $150 million Credit Agreement dated as of September 15, 1994,
filed herewith
10.29 $100 million Credit Agreement dated as of January 3, 1995,
filed herewith
11 Calculation of Primary and Fully Diluted Earnings Per Share
21 Significant Active Subsidiaries and Affiliates of the Regis-
trant
23 Independent Auditors' Consent
27 Article 5 Financial Data Schedule
99.1 Annual Report on Form 11-K for the Matched Asset Plan of Com-
puter Sciences Corporation
99.2 Annual Report on Form 11-K for Computer Sciences Corporation
CSC Outsourcing Inc. Hourly Savings Plan
99.3 Annual Report on Form 11-K for CSC Credit Services, Inc. Em-
ployee Savings Plan (to be filed at a later date)
32
Notes to Exhibit Index:
(a)-(g) These exhibits are incorporated herein by reference from the
Company's Form 10-K, Commission File No. 1-4850, for the respective
fiscal year noted below:
(a) March 30, 1984 (e)April 3, 1992
(b) April 3, 1987 (f)April 2, 1993
(c) April 1, 1988 (g)April 1, 1994
(d) March 31, 1989
(h) These exhibits are incorporated herein by reference from the Company's
Form S-8 filed with the Commission as of August 17, 1984.
(i) This exhibit is incorporated herein by reference from the Company's
Form S-8 filed on August 15, 1990.
(j) This exhibit is incorporated herein by reference from the Company's
Form 8-K filed on November 4, 1991.
(k) This exhibit is incorporated herein by reference from the Company's
Proxy Statement for its August 10, 1992 Annual Meeting of Stockholders.
(l) This exhibit is incorporated herein by reference from the Company's
Form S-8 filed on August 12, 1992
ITEM 14(B) REPORTS ON FORM 8-K:
There were two filings on Form 8-K during the fourth quarter of fiscal 1995.
A filing dated January 19, 1995 announced the retirement of William R. Hoover,
the Company's chief executive officer, to be succeeded by Van B. Honeycutt, the
Company's president and chief operating officer. A second filing, dated January
20, 1995, included the Company's routine press release for its fiscal third
quarter earnings, filed in connection with a previously filed registration
statement.
33
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
COMPUTER SCIENCES CORPORATION
Registrant
Dated June 12, 1995 /s/ Hayward D. Fisk
By: _________________________________
Hayward D. Fisk,
Vice President,
General Counsel and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Dated June 12, 1995 /s/ William R. Hoover
-------------------------------------
William R. Hoover,
Chairman of the Board and Director
Dated June 12, 1995 /s/ Van B. Honeycutt
-------------------------------------
Van B. Honeycutt,
President, Chief Executive Officer
and Director
Dated June 12, 1995 /s/ Leon J. Level
-------------------------------------
Leon J. Level,
Vice President, Chief Financial
Officer and Director
Dated June 12, 1995
/s/ Denis M. Crane
-------------------------------------
Denis M. Crane,
Vice President and Controller
Dated June 12, 1995 /s/ Howard P. Allen
-------------------------------------
Howard P. Allen,
Director
Dated June 12, 1995 /s/ Irving W. Bailey, II
-------------------------------------
Irving W. Bailey, II,
Director
Dated June 12, 1995 /s/ Richard C. Lawton
-------------------------------------
Richard C. Lawton,
Director
Dated June 12, 1995 /s/ F. Warren McFarlan
-------------------------------------
F. Warren McFarlan,
Director
34
Dated June 12, 1995 /s/ James R. Mellor
-------------------------------------
James R. Mellor,
Director
-------------------------------------
Alvin E. Nashman,
Director
35
COMPUTER SCIENCES CORPORATION AND SUBSIDIARIES
ADDITIONAL NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED MARCH 31, 1995
NOTE--STOCK OPTIONS AND OTHER STOCK INCENTIVE AWARDS (ADDITIONAL INFORMATION)
Additional information with respect to common stock options as described in
Note 8 of the Consolidated Financial Statements is as follows, as restated to
reflect a 200% stock dividend:
At March 31, 1995, April 1, 1994, and April 2, 1993, 1,013,392, 1,857,742
and 3,280,902 shares, respectively, were available for the granting of future
options.
The options to be granted and the option prices are established by the Stock
Option Committee (the "Committee"), appointed by the Board of Directors in
accordance with the terms of the stock option plans. The stock option plans
also provide whether and under what circumstances such prices may be modified.
Generally, options become exercisable in annual installments of not more
than 20 percent per year commencing one year after the date of grant. However,
pursuant to the terms of some plans, various exercisable installments and
vesting periods for options may be determined by the Committee. All options
remain exercisable no longer than 10 years and 30 days after the date of
grant.
All restrictions against transfer of shares of common stock granted or sold
pursuant to restricted stock awards will lapse in accordance with a schedule
or other conditions as determined by the Stock Option Committee at the time of
the award.
For the three years ended March 31, 1995, the maximum number of cumulative
options which were exercisable but had not been exercised is as follows:
NO. OF
YEAR ENDED SHARES PURCHASE PRICE
---------- --------- --------------
March 31, 1995................................... 1,713,485 $1.00--$39.88
April 1, 1994.................................... 1,224,038 1.00-- 26.88
April 2, 1993.................................... 1,061,415 1.00-- 26.88
For the three years ended March 31, 1995, options for the purchase of shares
were exercised as follows:
MARKET PRICE ON
PURCHASE PRICE DATE EXERCISED
NO. OF --------------------- ----------------------
YEAR ENDED SHARES PER SHARE AVERAGE PER SHARE AVERAGE
---------- ------- ------------- ------- -------------- -------
March 31, 1995...... 580,353 $1.00--$39.50 $17.71 $37.00--$52.13 $45.45
April 1, 1994....... 795,697 1.00-- 24.67 15.83 24.17-- 41.50 30.91
April 2, 1993....... 732,870 1.00-- 21.75 11.95 19.88-- 26.71 25.18
Options currently outstanding were granted at both the fair market value on
the date of grant and below market value. The expiration dates for these
options range from June 10, 1995 through March 23, 2005.
MARKET PRICE AT
PURCHASE PRICE GRANT DATE
OPTIONS OUT- NO. OF --------------------- ---------------------
STANDING AS OF SHARES PER SHARE AVERAGE PER SHARE AVERAGE
-------------- --------- ------------- ------- ------------- -------
March 31, 1995..... 5,147,185 $1.00--$51.88 $25.70 $5.25--$51.88 $25.92
April 1, 1994...... 4,865,938 1.00-- 39.88 20.68 4.21-- 39.88 21.02
April 2, 1993...... 4,226,475 1.00-- 26.88 17.44 4.21-- 26.88 17.97
As of March 31, 1995, 216,750 shares of Company restricted stock were
outstanding under the 1987, 1990 and 1992 stock incentive plans, which are net
of shares repurchased by the Company from terminated employees
36
and shares for which the restrictions have lapsed. Restrictions expire seven
years from the date of issuance. The market prices on the dates of awards
ranged from $12.75 to $34.38.
An option granted at the fair market value of the common stock of the
Company on the date such option is granted is not recorded on the books prior
to the exercise of such option. For stock options granted at a price below
market value and restricted stock sold for less than fair market value, the
difference between the exercise or sale price and fair market value of such
shares is charged to a prepaid compensation account and credited to a deferred
compensation liability account on the date such options are granted or
restricted shares are sold. The prepaid amount for the stock options is
amortized to expense over 60 months, the period during which the option
becomes fully exercisable. For the restricted stock, the prepaid amount is
amortized to expense in accordance with the period of restriction as
determined by the Committee at the time of the award. Upon the exercise of the
option or the lapsing of the restriction, the related deferred compensation
liability amount is reduced and the offsetting amounts are credited to
stockholders' equity. When options are exercised in the various plans to
purchase Company stock, the shares issued are new issues. Each new share
issued is recorded as an increase to the capital stock account at par value
and the amount by which the option price exceeds the par value is an increase
to additional paid-in capital. Shares submitted in payment of the purchase
price and shares surrendered from those being exercised in payment of taxes
are valued at market on the date of exercise and recorded as an increase to
the treasury stock.
Upon the exercise of non-qualified stock options, the difference between the
option price and market price as of the date of exercise is available as a
deduction for federal income tax purposes. Upon the lapse of the periods of
restriction of restricted stock, the difference between the restricted stock
sale price and the market price as of the date the restrictions lapse is
available as a deduction for federal income tax purposes. Tax savings
resulting therefrom are recorded as additional paid-in capital.
37
COMPUTER SCIENCES CORPORATION AND SUBSIDIARIES
SCHEDULE VIII, VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED MARCH 31, 1995
ADDITIONS
-------------------------
BALANCE, CHARGED TO COST BALANCE,
BEGINNING OF PERIOD AND EXPENSES OTHER (1) DEDUCTIONS END OF PERIOD
------------------- --------------- --------- ---------- -------------
IN THOUSANDS
Year ended March 31,
1995
Allowance for doubtful
receivables............ $32,244 $ 7,658 $ 809 $10,279 $30,432
Year ended April 1, 1994
Allowance for doubtful
receivables............ $20,308 $10,123 $7,677 $ 5,864 $32,244
Year ended April 2, 1993
Allowance for doubtful
receivables............ $16,298 $ 6,328 $ 231 $ 2,549 $20,308
- --------
(1) All years include balances from acquisitions, changes in balances due to
foreign currency exchange rates and recovery of prior-year charges.
38
EXHIBIT INDEX
3.1 Restated Articles of Incorporation (d)
3.2 Amendment to Restated Articles of Incorporation (k)
3.3 By-Laws, dated and effective January 31, 1993
10.1 Annual Management Incentive Plan (a)
10.2 1978 Stock Option Plan
10.3 Amendment Nos. 1 and 2 to the 1978 Stock Option Plan
10.4 Amendment No. 3 to the 1978 Stock Option Plan (c)
10.5 1980 Stock Option Plan
10.6 Amendment Nos. 1, 2, 3 and 4 to the 1980 Stock Option Plan (b)
10.7 Amendment No. 5 to the 1980 Stock Option Plan (c)
10.8 1984 Stock Option Plan (h)
10.9 Amendment No. 1 to the 1984 Stock Option Plan (b)
10.10 Amendment No. 2 to the 1984 Stock Option Plan (c)
10.11 1987 Stock Incentive Plan (c)
10.12 Schedule to the 1987 Stock Incentive Plan for United Kingdom (c)
personnel
10.13 1990 Stock Incentive Plan (i)
10.14 1992 Stock Incentive Plan (l)
10.15 Amendment No. 1 to the 1992 Stock Incentive Plan
10.16 Form of Indemnification Agreement for Directors (e)
10.17 Form of Indemnification Agreement for Officers
10.18 $250,000,000 Credit Agreement dated as of October 31, 1991 (e)
10.19 Guaranty Agreement dated as of October 31, 1991 (e)
10.20 Information Technology Services Agreements and Stock Purchase
Agreement with General
Dynamics Corporation, dated as of November 4, 1991 (j)
10.21 Restated Supplemental Executive Retirement Plan, dated June 1, (f)
1993
10.22 Restated Rights Agreement dated as of December 21, 1988, as
amended December 6, 1993 (g)
10.23 $100 million Credit Agreement dated as of November 2, 1993 (g)
10.24 Guaranty Agreement (Short Term Facility) (g)
10.25 $150 million Credit Agreement dated as of November 2, 1993 (g)
10.26 Guaranty Agreement (Long Term Facility) (g)
10.27 $100 million Credit Agreement dated as of September 15, 1994,
filed herewith
10.28 $150 million Credit Agreement dated as of September 15, 1994,
filed herewith
10.29 $100 million Credit Agreement dated as of January 3, 1995, filed
herewith
11 Calculation of Primary and Fully Diluted Earnings Per Share
21 Significant Active Subsidiaries and Affiliates of the Registrant
23 Independent Auditors' Consent
27 Article 5 Financial Data Schedule
99.1 Annual Report on Form 11-K for the Matched Asset Plan of Com-
puter Sciences Corporation
99.2 Annual Report on Form 11-K for Computer Sciences Corporation CSC
Outsourcing Inc. Hourly Savings Plan
99.3 Annual Report on Form 11-K for CSC Credit Services, Inc. Em-
ployee Savings Plan (to be filed at a later date)
Notes to Exhibit Index:
(a)-(g) These exhibits are incorporated herein by reference from the
Company's Form 10-K, Commission File No. 1-4850, for the respective
fiscal year noted below:
(a)March 30, 1984 (e)April 3, 1992
(b)April 3, 1987 (f)April 2, 1993
(c)April 1, 1988 (g)April 1, 1994
(d)March 31, 1989
(h) These exhibits are incorporated herein by reference from the Company's
Form S-8 filed with the Commission as of August 17, 1984.
(i) This exhibit is incorporated herein by reference from the Company's
Form S-8 filed on August 15, 1990.
(j) This exhibit is incorporated herein by reference from the Company's
Form 8-K filed on November 4, 1991.
(k) This exhibit is incorporated herein by reference from the Company's
Proxy Statement for its August 10, 1992 Annual Meeting of Stockholders.
(l) This exhibit is incorporated herein by reference from the Company's
Form S-8 filed on August 12, 1992