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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 2, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------- ----------
Commission File No.: 1-4850
COMPUTER SCIENCES CORPORATION
(Exact name of Registrant as specified in its charter)
[LOGO APPEARS HERE]
Nevada 95-2043126
(State of incorporation or organization) (I.R.S. Employer Identification No.)
2100 East Grand Avenue
El Segundo, California 90245
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (310) 615-0311
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered
- --------------------------------------- ----------------------------------------
Common Stock, $1.00 par value per share New York Stock Exchange
Preferred Stock Purchase Rights Pacific Exchange
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. [_]
As of June 18, 1999, the aggregate market value of stock held by non-
affiliates of the Registrant was approximately $10,619,000,000. A total of
159,638,183 shares of common stock was outstanding as of such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission within 120 days after April 2, 1999, are incorporated by reference
into Part III hereof.
TABLE OF CONTENTS
Item Page
---- ----
Part I
1. Business........................................................... 1
2. Properties......................................................... 6
3. Legal Proceedings.................................................. 7
4. Submission of Matters to a Vote of Security Holders................ 7
Part II
5. Market for the Registrant's Common Equity and Related Stockholder
Matters............................................................ 9
6. Selected Financial Data............................................ 9
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 11
7A. Quantitative and Qualitative Disclosures about Market Risk......... 18
8. Financial Statements and Supplementary Data........................ 19
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 45
Part III
10. Directors and Executive Officers of the Registrant................. 45
11. Executive Compensation............................................. 45
12. Security Ownership of Certain Beneficial Owners and Management..... 45
13. Certain Relationships and Related Transactions..................... 45
Part IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 46
PART I
Item 1. Business
INTRODUCTION AND HISTORY
General
Computer Sciences Corporation ("CSC" or the "Company") is one of the world
leaders in the information technology ("I/T") services industry. Since it was
founded in 1959, the Company has helped clients use I/T more efficiently, thus
improving their operations and profitability. CSC does not have exclusive
agreements with hardware or software providers and believes that this "vendor
neutrality" enables it to better identify and manage solutions specifically
tailored to each client's needs. CSC offers a broad array of professional
services to industry and government and specializes in the application of
advanced and complex I/T to achieve its customers' strategic objectives.
The Company's services, both U.S. federal and global commercial, include
outsourcing, system integration and I/T and management consulting and other
professional services. Outsourcing includes operating all or a portion of a
customer's technology infrastructure, including systems analysis, applications
development, network operations, desktop computing and data center management.
CSC also provides business process outsourcing, which is the management of a
client's non-core business functions, such as claims processing, credit
checking, or customer call centers. Systems integration encompasses designing,
developing, implementing and integrating complete information systems. I/T and
management consulting and other professional services include advising clients
on the strategic acquisition and utilization of I/T, and on business strategy,
operations, change management and business process reengineering. The Company
also licenses sophisticated software systems for certain vertical markets.
Practice Areas
The Company's service offerings are focused primarily on the U.S. federal
government and on global commercial industries including aerospace;
automotive; chemical and energy; consumer goods; financial services;
healthcare; manufacturing; media; public sector; retail/distribution;
telecommunications; traffic and transportation; travel and hospitality; and
utilities. Because of the size of its offerings within the financial services,
healthcare, and chemical and energy industries, CSC has formed vertical
industry groups to better deliver integrated solutions to clients in these
industries.
CSC has also formed dedicated practice groups with respect to certain key
technical solutions that have broad application to both industry and
government. These solutions include:
Electronic commerce--CSC expanded its global e-business offerings with five
new solutions designed to accelerate the efforts of clients to meet the
demands of the emerging digital economy. The offerings include:
. Customer Relationship Management--provides applications and processes
for acquiring and retaining customers, and increasing profitability via
fundamental changes in marketing, sales and customer service;
. Electronic Bill Presentation--delivers personalized, electronic bills
over the Internet to reduce costs, improve customer service and exploit
cross-selling opportunities;
. Collaborative Planning--creates and facilitates processes, metrics and
technologies among electronic trading partners;
. Electronic Procurement--automates, streamlines and customizes a
company's purchasing process; and
. Secured Extranet Community--provides a secure online workspace for
information dissemination and collaboration among customers and/or trade
partners and employees.
1
CSC LynxSM--A framework for rapid systems development. Distributed
information technology solutions enable faster access to information and the
ability to process business transactions via the Internet. CSC has developed a
framework that includes components, an architecture, a process and tools for
creating these solutions quickly.
Data Warehousing--A repository for company data that allows for complex
analysis and decision making based on historical enterprise data. CSC's
customers are able to "test drive" solutions in the Company's data warehouse
applications lab.
Enterprise Resource Planning ("ERP")--Enterprise-wide applications that can
integrate disparate business functions, such as finance, manufacturing and
human resources, into one cohesive system making data easier to find, update
and analyze. CSC has global alliances with four software companies which
comprise approximately 70% of the ERP market, and has developed a customized
methodology for faster implementation of ERP systems.
Information Security (INFOSECSM)--CSC's INFOSEC capabilities originated from
its security contracts with the Department of Defense and other U.S. federal
agencies. The Company's INFOSEC practice develops and tests new world-class
solutions for both government and commercial clients.
Supply Chain Management--A process for capturing efficiencies throughout the
business and logistics functions that move goods and information between an
organization and its suppliers, manufacturers, distributors and customers.
This process can provide greater value to customers, quicker time-to-market
and reduced costs. CSC's supply chain practice uses the Company's best
practices center to demonstrate proven solutions to CSC's customers.
Major Markets
For four decades, CSC has provided I/T services to the U.S. federal
government. In fiscal 1986, when U.S. federal contracts represented 70% of the
Company's revenues, CSC decided to devote substantial resources to further
develop global commercial business in order to accelerate its growth and take
advantage of the competencies gained as a leader in the federal sector. As a
result of this strategy, CSC has increased its penetration of the global
commercial market and diversified its business.
During the last three fiscal years, the Company's revenue mix was as
follows:
1999 1998 1997
---- ---- ----
U.S. Commercial.......................................... 41% 42% 39%
Europe................................................... 29 27 26
Other International...................................... 7 6 6
--- --- ---
Global Commercial.......................................... 77 75 71
U.S. Federal Government.................................... 23 25 29
--- --- ---
Total Revenues............................................. 100% 100% 100%
=== === ===
Global Commercial Market
United States--CSC is a major provider of outsourcing services to U.S.
commercial clients, including systems analysis, applications development,
network operations, and desktop and data center management. During fiscal
1999, the Company was awarded extensions and additional business with General
Dynamics, and was awarded new outsourcing contracts with AT&T, Republic
Services Corporation, Budget Group and Premier, Inc.
- --------
INFOSECSM is a service mark of the National Security Agency.
2
General Dynamics extended its original 10-year outsourcing contract and
signed a new contract extending through 2004 at an estimated value of $500
million for three business units. In addition, CSC was designated as the
exclusive provider of I/T services to General Dynamics for all other business
units and future acquisitions. As a result, the Company signed a 10-year
outsourcing agreement with General Dynamics Information Systems and Computing
Devices Company Limited.
AT&T outsourced a portfolio of 50 systems applications supporting AT&T
Consumer Services. Included in this applications outsourcing effort are
software systems supporting telemarketing and customer support, provisioning
and provisioning support, and compensation and commissions for sales and
support.
Under the agreement with Republic Services Corporation, CSC acquired and
manages Republic National Bank's data center, help-desk, network and
communications operations.
For Budget Group, Inc., CSC is combining its outsourcing and business
transformation skills to help streamline and consolidate I/T operations
including data centers, networks, user support, applications and maintenance.
Premier, Inc. is an alliance of approximately 220 U.S. hospitals and
healthcare systems for which CSC will support internal I/T operations
including application development, hardware, networks and desktop management.
The application development support will include intranet, e-commerce and
contract management associated with Premier's global purchasing operations.
CSC also provides consulting and technical services to its U.S. commercial
clients, both in the development and integration of computer and
communications systems and in various industry-specific I/T services. The
Company's experience includes business process reengineering, the setting of
information technology strategy, the development of information systems for a
wide range of applications and the operation of computer facilities. As a
prime contractor to the U.S. Postal Service ("USPS"), CSC is providing
comprehensive business consulting and I/T services to improve the payroll and
benefit function of the USPS, one of the world's largest employers with a
payroll of over 850,000 people.
CSC also made two acquisitions during fiscal 1999 to broaden its offerings
in the U.S. commercial consulting area. The Company acquired Onward
Technologies Inc., a Web-focused consulting, development and systems
integration firm to extend its expertise in Internet marketing, electronic
commerce and customer extranets, accelerating the creation of a center of
excellence focused on helping CSC achieve its electronic commerce goals. CSC
also acquired T-Wack Software Group, Inc., a software design and development
firm based in Buffalo Grove, IL.
The Company markets business information systems, software and services to
the insurance and financial services industries and to the U.S. managed
healthcare industry, clinics and physicians. In addition, CSC provides
services for administering life and disability insurance for credit loans and
mortgages, collateral-protection insurance and warranty insurance.
Also in the U.S. financial services arena, the Company provides consumer
credit reports and account-management services to thousands of credit grantors
nationwide. Through an agreement with Equifax Inc., a major credit services
company, the Company offers retail chains and other large credit grantors the
benefits of a national file of consumer credit histories. The national file
enables customers to obtain credit information from a single source, instead
of dealing with multiple reporting services.
International--The Company's international operations provide a wide range
of information technology services to commercial and public sector clients.
CSC has major offices in the United Kingdom, France, Germany, Belgium, the
Netherlands, Denmark, Italy, Australia, and Singapore, and provides
substantially the same services to its international customers that it
provides to its U.S. customers. These services span the range of consulting
and professional services, systems integration and outsourcing. Current
activities include recent contracts with Nokia Telecommunications, ICO Global
Communications, Australian Mutual Provident Society,
3
Deutsche Leasing AG, New South Wales Department of Community Services, Kaman
Aerospace and Belgian Ministry of Finance.
During fiscal 1999, the Company increased its presence in the international
markets through the following acquisitions:
. Approximately 74% of CSA Holdings, Ltd., a leading Asian I/T services
provider headquartered in Singapore. CSA has regional offices in 10
Asian countries with operations and distributor arrangements extending
their presence to other countries;
. KPMG Peat Marwick SA, a Paris-based management consulting and
information technology services firm, significantly increasing CSC's
capabilities in France;
. SYS-AID, a Dutch management consulting and I/T services company
specializing in logistics, finance and I/T support, including
implementation of ERP systems;
. Pergamon Gesellschaft fur angewandte Informatik mbH, an I/T consulting
firm headquartered in Wurzburg, Germany specializing in the financial
services market;
. Informatica Group SpA, an Italian information technology consultancy and
systems integration company, providing a full range of I/T services to
the Italian banking and finance, industrial, telecommunications,
insurance and public sectors; and
. Progres 2, Progres Iniziativa, Progres Progetti, and Progres Veneto,
four I/T services and consulting companies now operating as CSC Progres
and headquartered in Milan, Italy.
U.S. Federal Government Market
The Company provides a broad array of services to the U.S. federal
government, ranging from traditional systems integration and outsourcing to
advanced technical undertakings and complex project management. CSC has
extensive experience in the development of software for mission-critical
systems for defense and civil agency applications, and also provides systems
engineering and technical assistance in network management, satellite
communications, intelligence, aerospace, logistics, and related high-
technology fields.
The Internal Revenue Service selected the CSC PRIME Alliance to enter into a
strategic partnership with the IRS to modernize the United States tax system.
CSC leads the CSC PRIME Alliance, which includes six other companies:
International Business Machines Corporation, KPMG Peat Marwick LLP, Lucent
Technologies Inc., Northrop Grumman Corporation, Science Applications
International Corporation, and UNISYS Corporation. The CSC PRIME Alliance
combines CSC's global capabilities with the specialized business, technical
and consulting capabilities of the other alliance members.
In August 1998, CSC was awarded the first U.S. federal government
outsourcing contract involving the voluntary transition of federal employees
to the private sector. Under the agreement with the National Security Agency
("NSA"), titled the NSA BREAKTHROUGH Program, CSC will maintain daily computer
systems operations and provide services involving development support for
software enhancements, configuration management, installations and upgrades of
hardware and systems software and associated customer support.
In January 1999, the U.S. General Service Administration selected CSC as one
of ten companies to provide I/T services and support for the Federal
Technology Service, Federal Information Systems Support program under an
indefinite delivery/indefinite quantity contract. Under this type of contract,
a group of service providers is selected to provide as yet unspecified
services to a U.S. federal agency or department, which then assigns each
required project within the specified scope of work to one of the service
providers within the selected group. The contract calls for the ten selected
companies to provide services and support for a two-year base period, with
eight one-year extension options.
4
Other typical activities in the U.S. federal market include supporting the
Federal Aviation Administration's National EnRoute Software system, developing
the next generation of NAVSTAR Global Positioning System satellites for the
Air Force, and operating the computer center and supporting management
information systems for the Air Force's flight simulation test facilities at
the Arnold Engineering Development Center. Federal activities also include
providing command, control, and communication technical engineering and
integration to the U.S. Army Communications Electronics Command, upgrading the
Navy's AEGIS Weapon Systems and providing technical information systems
security applications to the Department of Defense, among other federal
agencies and departments.
COMPETITION
The I/T 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, in some cases, may
have greater capabilities to perform services similar to those provided by
CSC.
The Company's ability to obtain business is dependent upon its ability to
offer better strategic concepts and technical solutions, better value, a
quicker response, or a combination of these factors. In the opinion of the
Company's management, CSC is positioned to compete effectively in the global
commercial and U.S. federal government markets based on its technology and
systems expertise and large project management skills. It is also management's
opinion that CSC's competitive position is enhanced by its recognized position
as a leader in management consulting and the full spectrum of services that it
provides.
EMPLOYEES
The Company has 700 offices worldwide, and currently employs approximately
50,000 persons, of which more than 42,000 are professionals. The services
provided by CSC require proficiency in many fields, such as computer sciences,
programming, mathematics, physics, engineering, astronomy, geology,
operations, research, economics, statistics and business administration.
5
Item 2. Properties
Owned properties as of Approximate
April 2, 1999 Square Footage General Usage
- ---------------------- -------------- -------------
Copenhagen, Denmark........ 423,000 Computer and General Office Facility
Falls Church, Virginia..... 290,000 General Office
El Segundo, California..... 206,000 General Office
Austin, Texas.............. 187,000 General Office
Newark, Delaware........... 183,000 Computer and General Office Facility
San Diego, California...... 178,000 Computer and General Office Facility
Wilmington, Delaware....... 175,000 Computer and General Office Facility
Norwich, Connecticut....... 149,000 Computer and General Office Facility
Meriden, Connecticut....... 119,000 Computer and General Office Facility
Moorestown, New Jersey..... 99,000 General Office
Herndon, Virginia.......... 87,000 General Office
Maidstone, United Kingdom.. 79,000 Computer and General Office Facility
Hong Kong.................. 73,000 General Office
Singapore.................. 61,000 General Office
St. Leonards, NSW,
Australia................. 60,000 General Office
Sterling, Virginia......... 45,000 General Office
Various other U.S. and
foreign locations......... 73,000 Primarily General Office
Leased properties as of
April 2, 1999
- -----------------------
Washington, D.C. area...... 948,000 Computer and General Office Facility
Texas...................... 616,000 Computer and General Office Facility
United Kingdom............. 538,000 General Office
Germany.................... 453,000 General Office
Australia and other Pacific
Rim locations............. 443,000 Computer and General Office Facility
New Jersey................. 413,000 General Office
Boston, Massachusetts area. 255,000 General Office
France..................... 165,000 General Office
Chicago, Illinois area..... 161,000 General Office
Ohio....................... 152,000 General Office
Albany, New York area...... 134,000 General Office
Detroit, Michigan area..... 120,000 General Office
Denmark.................... 115,000 General Office
California................. 114,000 General Office
Connecticut................ 109,000 General Office
Alabama.................... 109,000 General Office
Various other U.S. and
foreign locations......... 837,000 Computer and General Office Facility
Upon expiration of its leases, the Company does not anticipate any difficulty
in obtaining renewals or alternative space. Lease expiration dates range from
fiscal 2000 through 2018.
6
Item 3. Legal Proceedings
The Company is engaged in several legal proceedings resulting from the
unsolicited tender offer for the Company by Computer Associates International,
Inc. during fiscal 1998. These proceedings include various stockholder class
action lawsuits filed in Nevada, and litigation in California between the
Company, Computer Associates, Bear, Stearns & Co. Inc. and certain related
persons and entities. The Company is also party to a number of other disputes
which involve or may involve litigation. It is the opinion of the Company's
management that the ultimate liability, if any, with respect to these
proceedings and disputes will not be material to the Company's consolidated
financial statements.
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 with the Family
Name Age an Officer Officer Registrant Relationship
---- --- ---------- ---------- ---------------------- ------------
Van B. Honeycutt* 54 1987 Indefinite Chairman, President and None
Chief Executive Officer
Vice President and Chief
Leon J. Level* 58 1989 Indefinite Financial Officer None
Harvey N. Bernstein 52 1988 Indefinite Vice President None
Edward P. Boykin 60 1995 Indefinite Vice President None
Milton E. Cooper 60 1992 Indefinite Vice President None
Vice President and
Scott M. Delanty 44 1997 Indefinite Controller None
Hayward D. Fisk 56 1989 Indefinite Vice President, General None
Counsel and Secretary
Ronald W. Mackintosh 50 1993 Indefinite Vice President None
C. Bruce Plowman 61 1989 Indefinite Vice President None
Paul T. Tucker 51 1997 Indefinite Vice President None
- --------
* Director of the Company
Business Experience of Officers
Van B. Honeycutt was elected Chairman of the Board of Directors effective
March 29, 1997. He 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
was formerly 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.
Leon J. Level joined the Company in 1989 as Vice President and Chief
Financial Officer and as a member of CSC's Board of Directors. Former
positions include Vice President and Treasurer of Unisys Corporation and
Chairman of Unisys Finance Corporation; Assistant Corporate Controller and
Executive Director of The Bendix Corporation; and Principal with the public
accounting firm of Deloitte & Touche LLP. 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 & Jacobson in Washington, D.C.
Edward P. Boykin joined the Company in 1966 and has held numerous positions
with several divisions of the Company. He was elected a Vice President in
1995. Since May, 1999, he has been President of the Financial
7
Services Group. From 1998 to 1999, he was responsible for leveraging the
capabilities that exist within the J.P. Morgan and DuPont accounts in Delaware
and Asia Pacific. Previously, he was President of The Pinnacle Alliance, a
CSC-managed organization providing information technology outsourcing and
other services to J.P. Morgan, from 1996 to 1998, and President of the
Technology Management Group from 1993 to 1996.
Milton E. Cooper joined the Company in 1984 as Group Vice President of
program development. He was named President of the Federal Sector, formerly
known as the Systems Group, in December 1991 and became a Corporate Vice
President in January 1992. A veteran of 36 years in the information industry,
he has held senior sales and marketing positions with IBM Corporation and
Telex Corporation. He is a graduate of the United States Military Academy at
West Point.
Scott M. Delanty joined the Company in 1989 and served as Assistant
Controller until December, 1997, when he was elected Vice President and
Controller. Prior to joining the Company, he held various executive-level
finance positions in the healthcare industry and was an audit manager with the
public accounting firm of Ernst & Young LLP. He is a Certified Public
Accountant.
Hayward D. Fisk joined the Company in 1989 as Vice President, General
Counsel and Secretary. Prior to joining the Company, he was associated for 21
years with Sprint Corporation (formerly United Telecommunications, Inc.), in
various legal and executive officer positions, most recently as Vice President
and Associate General Counsel.
Ronald W. Mackintosh joined the Company in 1988 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 Officer of the Company's U.K. Operations and,
subsequently, President of the European Group. In 1993 he was elected a Vice
President of the Company.
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.
Paul T. Tucker joined the Company in 1996 as a Corporate Development
executive, and in August, 1997 was elected Vice President of Corporate
Development. Prior to joining the Company, he was President and Chief
Executive Officer of Knight-Ridder Financial, an electronic real-time
financial market information company, from 1990 to 1995. Previously, he
founded and served as President and Chief Technologist of HAL Communications
Corp., a communications hardware and software company and was an Associate
Professor and Senior Research Engineer at the University of Illinois.
8
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 Exchange under the ticker symbol "CSC."
As of June 18, 1999, the number of registered shareholders of Computer
Sciences Corporation's common stock was 8,818. The table shows the high and
low intra-day prices of the Company's common stock as reported on the
composite tape of the New York Stock Exchange for each quarter during the last
two calendar years and through June 18, 1999.
1999 1998 1997
---------------- ----------------- ----------------
Calendar Quarter High Low High Low High Low
---------------- ------ -------- -------- -------- ------- --------
1st................... 74 3/8 54 15/16 56 3/4 39 31/32 41 3/16 30 13/16
2nd................... 68 1/8* 52 3/8* 65 49 1/8 40 1/16 28 15/16
3rd................... 74 7/8 51 1/2 41 9/16 34 1/2
4th................... 70 15/16 46 1/4 43 7/8 33 5/8
- --------
* Through June 18, 1999
Item 6. Selected Financial Data
COMPUTER SCIENCES CORPORATION
Five-Year Review
------------------------------------------------------
April 2, April 3, March 28, March 29, March 31,
In thousands except per-share 1999 1998 1997 1996 1995
amounts ---------- ---------- ---------- ---------- ----------
Total assets................. $5,007,709 $4,046,795 $3,493,087 $2,936,019 $2,631,580
Debt:
Long-term.................. 397,860 736,054 630,842 426,634 335,696
Short-term................. 426,421 7,110 20,311 71,422 128,237
Current maturities......... 166,521 21,811 9,622 6,917 11,933
---------- ---------- ---------- ---------- ----------
Total.................... 990,802 764,975 660,775 504,973 475,866
Stockholders' equity......... 2,399,854 2,001,275 1,669,560 1,420,113 1,290,769
Working capital.............. 587,573 767,820 533,915 430,484 390,726
Property and equipment:
At cost.................... 2,313,444 1,944,799 1,668,905 1,249,729 994,520
Accumulated depreciation
and amortization.......... 1,226,569 987,606 780,836 569,670 430,249
---------- ---------- ---------- ---------- ----------
Property and equipment,
net....................... 1,086,875 957,193 888,069 680,059 564,271
Current assets to current
liabilities................. 1.3:1 1.6:1 1.5:1 1.5:1 1.4:1
Debt to total capitalization. 29.2% 27.7% 28.4% 26.2% 26.9%
Book value per share......... $15.08 $12.75 $10.88 $9.43 $8.70
Stock price range (high)..... 74.88 56.75 43.25 40.38 26.31
(low)................ 46.25 28.94 30.81 23.25 17.63
9
Five-Year Review (continued)
Fiscal Year
-------------------------------------------------------
In thousands except per- 1999 1998 1997 1996 1995
share amounts ---------- ---------- ---------- ---------- ----------
Revenues................ $7,659,965 $6,600,838 $5,616,048 $4,740,760 $3,788,026
---------- ---------- ---------- ---------- ----------
Costs of services....... 5,973,837 5,149,218 4,413,173 3,692,267 2,961,955
Selling, general and
administrative......... 695,828 602,708 485,113 471,309 383,973
Depreciation and
amortization........... 445,035 386,854 333,247 272,058 190,240
Interest, net........... 33,908 42,096 32,273 32,143 27,304
Special charges......... 229,093 48,929 76,053 3,740
---------- ---------- ---------- ---------- ----------
Total costs and
expenses............... 7,148,608 6,409,969 5,312,735 4,543,830 3,567,212
---------- ---------- ---------- ---------- ----------
Income before taxes..... 511,357 190,869 303,313 196,930 220,814
Taxes on income......... 170,200 (69,500) 110,900 87,499 77,577
---------- ---------- ---------- ---------- ----------
Net income.............. $ 341,157 $ 260,369 $ 192,413 $ 109,431 $ 143,237
========== ========== ========== ========== ==========
Basic earnings per
common share........... $2.16 $1.68 $1.27 $0.74 $1.02
========== ========== ========== ========== ==========
Diluted earnings per
common share........... $2.11 $1.64 $1.23 $0.71 $1.00
========== ========== ========== ========== ==========
Average common shares
outstanding............ 158,213 155,125 151,895 148,865 140,297
Average common shares
outstanding assuming
dilution............... 161,949 158,526 156,394 153,070 143,702
Notes:
A discussion of "Income Before Taxes" and "Net Income and Earnings per
Share" before and after special items is included in Management's Discussion
and Analysis of Financial Condition and Results of Operations ("MD&A"). A
discussion of "Special Items" for fiscal years ended 1997 and 1998 is also
included in MD&A. The fiscal 1996 special charge of $76,053 (40 cents per
share after tax) relates to two acquisitions by a company subsequently
acquired by CSC and accounted for as a pooling of interests. The fiscal 1995
special charge of $3,740 (1 cent per share after tax) relates to the sale of
the Company's tax processing operations.
The selected financial data has been restated for fiscal 1995 through 1996
to include the results of business combinations accounted for as poolings of
interests.
No dividends were paid by CSC during the five years presented. A fiscal 1996
acquisition, accounted for as a pooling of interests, paid dividends of $.17
per share during fiscal 1995.
10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Revenues
The Company derived its revenues for fiscal years 1999, 1998 and 1997 from
the following market sectors:
Fiscal 1999 Fiscal 1998 Fiscal 1997
---------------- ---------------- -----------
Percent Percent
Amount Change Amount Change Amount
Dollars in millions -------- ------- -------- ------- -----------
U. S. Commercial................ $3,128.3 13% $2,775.5 29% $2,159.7
Europe.......................... 2,250.1 27 1,771.0 20 1,474.9
Other International............. 516.1 22 423.6 22 345.8
-------- -------- --------
Global Commercial................. 5,894.5 19 4,970.1 25 3,980.4
U. S. Federal Government.......... 1,765.5 8 1,630.7 0 1,635.6
-------- -------- --------
Total............................. $7,660.0 16 $6,600.8 18 $5,616.0
======== ======== ========
The Company's 16% overall revenue growth for fiscal 1999 over 1998 resulted
principally from continued strong global demand for information technology
("I/T") services. Global commercial revenue grew 19%, or $924 million, during
fiscal 1999. Over 60% of the global commercial growth was provided from
international operations.
For fiscal 1999, U.S. commercial revenue grew 13%, or 17% excluding fiscal
1998 revenue from activities in the Company's collections and
telecommunications operations, which were subsequently sold or phased out.
More than two-thirds of the U.S. commercial growth was generated by
information technology outsourcing contracts. The remainder of the growth was
fueled by demand for consulting and systems integration activities and by
further expansion in the Company's financial services and healthcare vertical
markets. For fiscal 1998, U.S. commercial revenues grew 29%, or $616 million.
More than half of the growth was provided by increases in outsourcing
activities. Major new outsourcing contracts, including E.I. du Pont de Nemours
and Company ("DuPont") and increases in revenues from vertical markets such as
financial services and healthcare, contributed to U.S. commercial revenue
growth. Consulting and systems integration services contributed about a
quarter of the Company's other U.S. commercial revenue growth during fiscal
1998 as a result of strong demand for enterprise resource planning ("ERP")
services, electronic commerce and Year 2000 assessment and renovation
activities.
The Company's European operations accounted for revenue growth of 27%, or
$479 million, for fiscal 1999 compared to 1998. The growth was primarily due
to (a) outsourcing services provided to British Aerospace plc ("BAe"), DuPont,
Hartmann & Braun, (b) the acquisition of KPMG Peat Marwick SA, a Paris-based
management consulting and I/T services firm, and (c) continued strong demand
throughout Europe for consulting and systems integration activities and ERP
services. CSC's European operations accounted for revenue growth of 20%, or
$296 million, for fiscal 1998 versus 1997. The growth was principally due to
increases in outsourcing services provided to BAe, DuPont and J.P. Morgan &
Co. Incorporated and increased demand for consulting and systems integration
activities.
Other international operations provided revenue growth of 22%, or $93
million, during fiscal 1999. The growth was primarily attributable to the
acquisition of CSA Holdings, Ltd., a leading Asian information technology
services provider headquartered in Singapore, expansion of the financial
services sector and additional outsourcing activities in Australia. During
fiscal 1998, other international revenues increased 22%, or $78 million. The
growth was primarily attributable to increased outsourcing business in
Australia as well as increases in the financial services sector.
11
The Company's U.S. federal government revenues were derived from the
following sources:
Fiscal 1999 Fiscal 1998 Fiscal 1997
---------------- ---------------- -----------
Percent Percent
Amount Change Amount Change Amount
Dollars in millions -------- ------- -------- ------- -----------
Department of Defense............. $1,112.7 4% $1,071.9 (1)% $1,082.8
Civil agencies.................... 652.8 17 558.8 1 552.8
-------- -------- --------
Total U. S. Federal............... $1,765.5 8 $1,630.7 0 $1,635.6
======== ======== ========
Revenue from the U.S. federal government increased 8% during fiscal 1999
versus 1998. The increase includes additional task order contracts with the
General Services Administration, increased ordering of a management
information system for the U.S. Department of Defense ("DOD") and the
acquisition of the DOD Ballistic Missile Defense Organization support
contract. Revenue gains during fiscal 1999 were partially offset by reductions
in work performed for NASA and the winding down of several contracts. Federal
revenues for fiscal 1998 were essentially unchanged compared to 1997. Gains
were generated on certain task order contracts with the General Services
Administration and the Defense Integration Systems Agency and by the
acquisition of Information Technology Solutions, Inc. These gains were offset
primarily by the conclusion of two large contracts in late fiscal 1997.
During fiscal 1999, CSC announced federal contract awards with a total value
of $2.9 billion, compared with the $1.0 billion and $2.1 billion announced
during fiscal 1998 and 1997, respectively. In addition, during December 1998,
the Internal Revenue Service selected the CSC PRIME Alliance to enter into a
strategic partnership with the IRS to modernize the U.S. tax system. This
award, the value of which is not quantified, has the potential to become the
Company's largest contract.
Costs and Expenses
The Company's costs and expenses before special charges were as follows:
Dollar Amount Percentage of Revenue
-------------------------- -----------------------
1999 1998 1997 1999 1998 1997
Dollars in millions -------- -------- -------- ------- ------- -------
Costs of services........... $5,973.9 $5,149.2 $4,413.2 78.0% 78.0% 78.6%
Selling, general and
administrative............. 695.8 602.7 485.1 9.1 9.1 8.6
Depreciation and
amortization............... 445.0 386.9 333.2 5.8 5.9 5.9
Interest expense, net....... 33.9 42.1 32.3 .4 .6 .6
-------- -------- -------- ------- ------- -------
Total....................... $7,148.6 $6,180.9 $5,263.8 93.3% 93.6% 93.7%
======== ======== ======== ======= ======= =======
Costs of Services
For fiscal 1999, the Company's costs of services as a percentage of revenue
was unchanged. The decrease in costs of services as a percent of revenue for
fiscal 1998 was principally related to commercial growth in the healthcare and
financial services vertical markets, as well as outsourcing, consulting and
European operations, combined with performance improvements generated in
Europe.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses as a percentage of
revenue was unchanged for fiscal 1999 versus 1998.
During fiscal 1998, SG&A as a percent of revenue increased to 9.1% from
8.6%. The increase was primarily attributable to growth in the Company's
healthcare and financial services groups.
12
Special Items
There were no special items during fiscal 1999.
The fiscal 1998 special items represent costs, expenses and benefits
associated with developments at CSC Enterprises and the Company's response to
a failed take-over attempt. The Company recorded a first quarter net special
credit of $1.7 million, or 1 cent per share, at CSC Enterprises, a general
partnership which then operated certain of the Company's credit services
operations and carried out other business strategies through acquisition and
investment. The net credit resulted from a tax benefit of $135 million and an
after-tax charge of $133.3 million ($208.4 million before tax). During the
first quarter, several partners withdrew from CSC Enterprises. These
withdrawals caused CSC Enterprises to take actions which caused CSC to
recognize an increase in the tax basis of certain assets. As required by
Statement of Financial Accounting Standards ("SFAS") No. 109, this tax basis
increase from the previous tax basis resulted in a deferred tax asset of
$135 million and a corresponding reduction in the Company's provision for
taxes. The tax basis increase is temporary and will be realized over time
through an increase in depreciation and amortization expense for income tax
purposes. In connection with the partner withdrawals and related developments,
CSC Enterprises reviewed its operations, its market opportunities and the
carrying value of its assets. Based on this review, plans were initiated to
eliminate certain offerings and write down assets, primarily within its
telecommunications operations. As a result of these plans, a pre-tax special
charge of $208.4 million ($133.3 million after tax) was recognized. The charge
is comprised of goodwill write-offs of $56.3 million ($35 million after tax),
contract termination costs of $54.3 million ($33.8 million after tax),
deferred contract costs and other assets of $33.1 million ($20.5 million after
tax), telecommunications software and accruals of $35.8 million ($22.3 million
after tax), telecommunications property, equipment and intangible assets of
$18.9 million ($11.7 million after tax), and other non-deductible costs of $10
million.
During the fourth quarter of fiscal 1998, the Company recorded a before-tax
special charge of $20.7 million, or equivalent to 9 cents per share after tax,
for costs relating to the Company's response to a failed take-over attempt.
The charge is comprised of $14.4 million for investment banking expenses and
$6.3 million for other expenses such as legal costs, public relations and
shareholder communications.
The fiscal 1997 special charge represents costs and expenses related to the
August 1, 1996, acquisition of the Continuum Company, Inc. The amount of the
charge, net of income tax benefits on the tax-deductible portion, is $35.3
million or 23 cents per share. The charge is comprised of $11.0 million for
investment banking and other merger expenses; $11.8 million related to the
write-off of certain capitalized software, other assets and intangibles; and
$26.1 million related to the elimination of duplicate data-processing
facilities, employee severance costs and contract termination costs.
Income Before Taxes
The Company's income before taxes and margin for the most recent three
fiscal years is as follows:
Dollar Amount Margin
-------------------- ----------------
1999 1998 1997 1999 1998 1997
Dollars in millions ------ ------ ------ ---- ---- ----
Before special charges................... $511.4 $420.0 $352.2 6.7% 6.4% 6.3%
Income before taxes...................... 511.4 190.9 303.3 6.7 2.9 5.4
Income before special charges and taxes improved during fiscal 1999 as a
percentage of revenue. The .3% margin improvement to 6.7% principally relates
to lower depreciation and amortization as a percent of revenue in both the
U.S. Federal and Global Commercial operations of the Company. Lower net
interest expense as a percent of revenue also contributed to the margin
improvement.
During fiscal 1998, income before special charges and taxes increased
principally to the performance improvements in costs of services and
depreciation and amortization. Partially offsetting the improvements were
increases in SG&A expenses.
13
Taxes
The provision for (benefit from) income taxes as a percentage of pre-tax
earnings was 33.3%, (36.4)% and 36.6% for fiscal 1999, 1998 and 1997,
respectively. The fiscal 1998 rate includes the tax benefit associated with
the partnership withdrawals at CSC Enterprises. Before special items, the tax
rate was 35.1% and 35.4% for fiscal 1998 and 1997, respectively. The decrease
in the fiscal 1999 tax rate from 35.1% to 33.3% is principally the result of
utilization of foreign operating losses not previously recognized and research
tax credits.
Net Income and Earnings per Share
The Company's net income and diluted earnings per share for fiscal years
1999, 1998 and 1997 is as follows:
Dollar Amount Margin
-------------------- ----------------
1999 1998 1997 1999 1998 1997
Dollars in millions, except EPS ------ ------ ------ ---- ---- ----
Net income:
Before special items................... $341.2 $272.6 $227.7 4.5% 4.1% 4.1%
As reported............................ 341.2 260.4 192.4 4.5 3.9 3.4
Diluted earnings per share:
Before special items................... 2.11 1.72 1.46
As reported............................ 2.11 1.64 1.23
During fiscal 1999, the Company's net income margin improved to 4.5% from
3.9%. The improvement is primarily related to a reduction in depreciation and
amortization as a percent of revenue, lower net interest and a lower tax rate.
For 1998, the Company's net income margin improved to 3.9% from 3.4%. The net
special items incurred during fiscal 1998 reduced net income by $12.2 million,
principally related to the costs relating to the Company's response to a
failed take-over attempt described above.
Before special items, the net earnings margin was 4.1% for fiscal 1998 and
1997. Although the net earnings margin before special items for 1998 was the
same as 1997, the Company registered an improvement in cost of services as a
percent of revenue and a lower tax rate before special items.
Cash Flows
Fiscal
Fiscal 1999 Fiscal 1998 1997
--------------- --------------- ------
Percent Percent
Amount Change Amount Change Amount
Dollars in millions ------ ------- ------ ------- ------
Cash from operations................ $814.1 40% $583.3 17 % $500.4
Net cash used in investing.......... (705.1) 22 (577.1) (14) (676.5)
Net cash provided by financing...... 219.2 35 162.7 (7) 175.0
Effect of exchange rate changes on
cash and cash equivalents.......... (.3) (4.9) (2.1)
------ ------ ------
Net increase (decrease) in cash and
cash equivalents................... 327.9 164.0 (3.2)
Cash at beginning of year........... 274.7 110.7 113.9
------ ------ ------
Cash at end of year............... $602.6 $274.7 $110.7
====== ====== ======
Historically, the majority of the Company's cash has been provided from
operating activities. The increases in cash from operations during fiscal 1999
and 1998 are primarily due to higher earnings, non-cash charges (depreciation
and amortization) and lower net income tax payments, partially offset by
increased working capital requirements.
14
The Company's investments principally relate to purchases of computer
equipment and software that support the Company's expanding global commercial
operations. Investments include computer equipment purchased at the inception
of outsourcing contracts as well as subsequent upgrades, expansion or
replacement of these client-supporting assets. The Company's investments also
include several acquisitions during fiscal 1997 through 1999. The
acquisitions, individually or collectively, were not material to the Company's
consolidated financial statements.
As described above, a majority of the Company's capital investments have
been funded by cash from operations. During fiscal 1999 the Company issued
$200 million of 6.25% notes due in 2009. Proceeds were used for general
corporate purposes and, subsequent to year end, to repay the $150 million
6.80% notes due April 1999.
Liquidity and Capital Resources
The balance of cash and cash equivalents was $602.6 million at April 2,
1999, $274.7 million at April 3, 1998 and $110.7 million at March 28, 1997.
During this period, the Company's earnings have added substantially to equity.
At the end of fiscal 1999, CSC's ratio of debt to total capitalization was
29.2%. Giving effect to the aforementioned April 1999 paydown of the $150
million notes, the ratio of debt to total capitalization was 25.9%.
1999 1998 1997
Dollars in millions -------- -------- --------
Debt............................................. $ 990.8 $ 765.0 $ 660.8
Equity........................................... 2,399.9 2,001.3 1,669.6
-------- -------- --------
Total capitalization............................. $3,390.7 $2,766.3 $2,330.4
======== ======== ========
Debt to total capitalization..................... 29.2% 27.7% 28.4%
During fiscal 1997, the Company increased its affiliates' credit agreement
from $350 million to $490 million to provide stand-by support for commercial
paper. $115 million was available for borrowing under this program, at the end
of both fiscal 1999 and 1998.
In the opinion of management, CSC will be able to meet its liquidity and
cash needs for the foreseeable future through the combination of cash flows
from operating activities, cash balances, unused borrowing capacity and other
financing activities. If these resources need to be augmented, major
additional cash requirements would likely be financed by the issuance of debt
and/or equity securities and/or the exercise of the put option (as described
in Note 11 to the Company's consolidated financial statements).
Dividends and Redemption
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.
On February 27, 1998, the Board of Directors redeemed the stock purchase
rights, which had been issued under the 1988 stockholder rights plan, for one
sixth of one cent per right. The redemption was paid on April 13, 1998.
Year 2000 Readiness Disclosure
Since its inception, CSC has dealt with ongoing significant changes in the
information technology industry. As a result, resources are constantly being
employed to modify, upgrade and enhance systems and infrastructure on behalf
of clients and for internal needs. The Year 2000 issue represents another one
of these changes. It is the result of computer systems that represent years as
a two-digit rather than a four-digit field. Any of such systems that utilize
date sensitive data may not properly recognize a date field of 00 as the year
2000, but as some other date, typically the year 1900. This could result in
possible system failure, miscalculations, or data corruption, thereby
affecting normal business activity.
15
The Company has established a two-phase program to ensure that its
proprietary products, internal computer systems and facilities are Year 2000
ready. In order to launch this program, monitor progress and coordinate the
Company's Year 2000 activities, the Year 2000 Assurance Office was established
with this charter and reports directly to the Chairman, President, and Chief
Executive Officer. The initial phase, which included planning, inventory and
assessment, has been completed for all of the Company's existing business. The
final phase, which consists of correction, testing, deployment and acceptance,
is in process and is expected to be substantially completed during the
Company's quarter ending October 1, 1999. A very small percentage of the final
phase activities may not be completed by October 1, 1999, as certain clients
have not yet upgraded applications for which they are responsible, thereby
delaying their move from a non-year 2000 ready platform.
The Company expects that its Year 2000 preparation efforts will not have a
material effect on its overall financial position or results of operations.
The Company currently estimates that the total fiscal 1999 and 2000 operating
costs associated with making its proprietary products, internal systems and
infrastructure Year 2000 ready, as well as estimates for contingency planning
and monitoring, including the cost of Company personnel diverted to Year 2000
assignments, will total approximately $51 million, of which approximately $25
million had been incurred as of the end of fiscal 1999. In addition, the
Company currently estimates that related capital expenditures for fiscal 1999
and 2000 will be approximately $13 million, of which approximately $8 million
had been incurred as of the end of fiscal 1999. The Company's total current
estimate for Year 2000 compliance has increased by approximately $7 million
since the third quarter of fiscal 1999 due to revised remediation estimates in
Australia, some clients scheduling system changes later than originally
planned, and increased estimates for contingency and crisis management
planning.
Some of these capital expenditures represent equipment replacements that
have been or will be accelerated due to Year 2000 issues. The operating costs
described above are generally not incremental, but reflect the reallocation of
existing resources. The Company has not deferred any significant information
technology projects as a result of the Year 2000 efforts.
As of the end of fiscal 1999, (a) the Company had completed approximately
78% of items it has identified as necessary to be Year 2000 ready, including
activities to correct Year 2000 issues, contingency planning and ancillary
efforts and (b) the Company had completed approximately 89% of items it has
identified as necessary to correct critical Year 2000 items.
The Company has completed an assessment of its obligations and
responsibilities to its customers in respect of Year 2000 issues arising from
contractual engagements for computer goods and services, including obligations
arising from the licensing of the Company's proprietary software products. As
a result of this assessment, it is management's opinion that these obligations
will not have a material effect on the Company.
The Company has initiated formal communications with all of its crucial
suppliers to determine whether they are or will be Year 2000 ready. By October
1, 1999, the Company expects to have identified and replaced any such
suppliers that will not be Year 2000 ready. The Company is also contacting
property owners to determine the readiness of its leased facilities with
respect to facility infrastructure systems. As of the end of fiscal 1999, over
80% of the company's crucial suppliers, property owners, and landlords have
been determined to have adequate programs in place to be Year 2000 ready
before the end of 1999. Evaluation of the remaining 20% should be completed by
October 1, 1999.
In the opinion of the Company's management, the most reasonably likely worst
case scenario includes the possibility that the Company and/or its crucial
suppliers are unable to complete their Year 2000 readiness efforts prior to
the onset of failures, the effects of which could have a material adverse
impact on the Company's operations. The Company could also be impacted
materially by any significant economic, financial market or infrastructure
disruption attributable to the Year 2000 issue.
The Company has developed initial drafts of Year 2000 transition,
contingency and crisis management plans. Final drafts will be completed during
the quarter ending October 1, 1999. These plans include the use of
16
exercises and drills with various relevant scenarios. As a result of lessons
learned from the exercises, the contingency plans may be modified. The Company
has also established the infrastructure for a Year 2000 corporate command
center that will be fully operational during November 1999. This command
center will be linked to each business unit's Year 2000 crisis management
center, which will be connected to internal and client-support help desks.
Euro Conversion
On January 1, 1999 the euro currency was introduced in 11 of the 15 member
countries in the European Union. Although euro notes and coins will not be
available until the latter part of the transition period in 2002, the euro is
traded on the currency exchanges and is available for non-cash transactions.
The Company established a European steering group during 1997 to determine
the Company's approach to the euro and to develop plans to ensure that
customer expectations and statutory requirements are met. The Company was
ready by January 1, 1999 to deal with any customer or supplier who wished to
transact in euros and all European intercompany transactions since January 1
have been invoiced and settled in euros. The Company's European Group plans to
implement infrastructure during calendar 1999 which will provide all the
internal systems functionality required to deal with the euro during the
transition period and thereafter. The transition period lasts until July 2002
when the national currencies will no longer be legal tender. The incremental
system cost to CSC of introducing the euro will not be material.
The Company does not believe that the introduction of the euro will
negatively impact the enforceability of client contracts or require it to
incur any material cost thereunder for which it will not be paid. CSC will
continue to review the impact of the euro conversion during the transition
period, but does not expect it to have a material impact on its overall
financial position or results of operations.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires all derivatives to be recorded on the balance sheet at fair
value and establishes accounting standards for hedging activities. In May
1999, the FASB proposed amending SFAS No. 133 to defer its effective date one
year to fiscal years beginning after June 15, 2000. The Company is currently
assessing the impact this statement will have and, based on preliminary
estimates, does not expect the adoption to have a material impact on its
consolidated financial position or results of operations.
During 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement requires the
capitalization of internal use computer software costs provided that certain
criteria are met. These capitalized software costs will be amortized on a
straight-line basis over the useful life of the software. The Company will
adopt this statement effective April 3, 1999. The adoption of this statement
is not expected to have a material impact on the company's consolidated
financial position, results of operations or cash flows.
Forward-Looking Statements
All statements contained in this annual report, or in any document filed by
the Company with the Securities and Exchange Commission, or in any press
release or other written or oral communication by or on behalf of the Company,
that do not directly and exclusively relate to historical facts constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements represent the Company's
expectations and beliefs, and no assurance can be given that the results
described in such statements will be achieved.
17
These statements are subject to risks, uncertainties and other factors, many
of which are outside of the Company's control, that could cause actual results
to differ materially from the results described in such statements. These
factors include, without limitation, the following: (i) general economic
conditions in countries in which the Company does business; (ii) competitive
pressures; (iii) changes in the financial condition of the Company's major
commercial customers; (iv) changes in the demand for information technology
outsourcing and business process outsourcing; (v) changes in U.S. federal
government spending levels for information technology services; (vi) the
future profitability of the Company's customer contracts; (vii) the Company's
ability to consummate strategic acquisitions and alliances; (viii) the
Company's ability to attract and retain key personnel; (ix) the Company's
ability to continue to develop and expand its service offerings to address
emerging business demands and technological trends; and (x) the ability of the
Company, and the ability of its customers and suppliers to become Year 2000
ready.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rates
The Company has fixed-rate long-term debt obligations, short-term commercial
paper and other borrowings subject to market risk from changes in interest
rates. Sensitivity analysis is one technique used to measure the impact of
changes in interest rates on the value of market-risk sensitive financial
instruments. A hypothetical 10% movement in interest rates would not have a
material impact on the Company's future earnings, fair value, or cash flows.
Foreign Currency
During the ordinary course of business, the Company enters into certain
contracts denominated in foreign currency. Potential foreign currency
exposures arising from these contracts are analyzed during the contract
bidding process. The Company generally manages these transactions by ensuring
costs to service contracts are incurred in the same currency in which revenue
is received. Short-term contract financing requirements are met by borrowing
in the same currency. By matching revenues, costs and borrowings to the same
currency, the Company has been able to substantially mitigate foreign currency
risk to earnings. If necessary, the Company may also use foreign currency
forward contracts or options to hedge exposures arising from these
transactions. The Company does not foresee changing its foreign currency
exposure management strategy.
During fiscal 1999, 36% of the Company's revenue was generated outside of
the United States. Using sensitivity analysis, a hypothetical ten-percent
increase in the value of the U.S. dollar against all currencies would decrease
revenue by 3.6% or $277 million, while a hypothetical ten-percent decrease in
the value of the U.S. dollar against all currencies would increase revenue by
3.6% or $277 million. In the opinion of management, a substantial portion of
this fluctuation would be offset by expenses incurred in local currency. As a
result, a hypothetical 10% movement of the value of the U.S. Dollar against
all currencies in either direction would not have a material impact on the
Company's net income.
The Company's primary unhedged assets and liabilities consist of local
currency cash balances and borrowings, respectively. At April 2, 1999, the
Company had approximately $135 million of non-U.S. dollar denominated cash and
short-term investments, and approximately $114 million of non-U.S. dollar
borrowings.
18
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Financial Statement Schedules
Financial Statements
Page
----
Independent Auditors' Report.............................................. 20
Consolidated Statements of Income for the fiscal years ended April 2,
1999, April 3, 1998, and March 28, 1997.................................. 21
Consolidated Balance Sheets as of April 2, 1999 and April 3, 1998......... 22
Consolidated Statements of Cash Flows for the fiscal years ended April 2,
1999, April 3, 1998, and March 28, 1997.................................. 24
Consolidated Statements of Stockholders' Equity for the fiscal years ended
April 2, 1999, April 3, 1998 and March 28, 1997.......................... 25
Notes to Consolidated Financial Statements................................ 26
Quarterly Financial Information (Unaudited)............................... 44
Schedule
Schedule VIII, Valuation and Qualifying Accounts.......................... 50
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.
19
INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
The 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 (the Company) as of April 2, 1999 and
April 3, 1998, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended April 2, 1999. Our audits also included the financial statement schedule
listed in the Index at Item 8. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 as of April 2, 1999 and April 3, 1998, and the results of
their operations and their cash flows for each of the three years in the
period ended April 2, 1999 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Los Angeles, California
May 26, 1999
20
COMPUTER SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended
----------------------------------
April 2, April 3, March 28,
1999 1998 1997
In thousands except per-share amounts ---------- ---------- ----------
Revenues.................................... $7,659,965 $6,600,838 $5,616,048
---------- ---------- ----------
Costs of services........................... 5,973,837 5,149,218 4,413,173
Selling, general and administrative......... 695,828 602,708 485,113
Depreciation and amortization............... 445,035 386,854 333,247
Interest expense............................ 48,496 50,951 40,268
Interest income............................. (14,588) (8,855) (7,995)
Special charges (note 2).................... 229,093 48,929
---------- ---------- ----------
Total costs and expenses.................... 7,148,608 6,409,969 5,312,735
---------- ---------- ----------
Income before taxes......................... 511,357 190,869 303,313
Taxes on income (notes 2 and 3)............. 170,200 (69,500) 110,900
---------- ---------- ----------
Net income.................................. $ 341,157 $ 260,369 $ 192,413
========== ========== ==========
Earnings per common share:
Basic..................................... $ 2.16 $ 1.68 $ 1.27
========== ========== ==========
Diluted................................... $ 2.11 $ 1.64 $ 1.23
========== ========== ==========
(See notes to consolidated financial statements)
21
COMPUTER SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
April 2, April 3,
1999 1998
In thousands ---------- ----------
Current assets:
Cash and cash equivalents.............................. $ 602,593 $ 274,688
Receivables, net of allowance for doubtful accounts of
$80,607 (1999) and $75,373 (1998) (notes 4 and 10).... 1,777,262 1,456,330
Prepaid expenses and other current assets.............. 289,130 251,618
---------- ----------
Total current assets................................. 2,668,985 1,982,636
---------- ----------
Investments and other assets:
Software, net of accumulated amortization of $158,906
(1999) and $120,675 (1998)............................ 168,237 125,430
Excess of cost of businesses acquired over related net
assets, net of accumulated amortization of $112,292
(1999) and $90,007 (1998)............................. 653,034 538,408
Other assets........................................... 430,578 443,128
---------- ----------
Total investments and other assets................... 1,251,849 1,106,966
---------- ----------
Property and equipment--at cost (note 5):
Land, buildings and leasehold improvements............. 364,168 301,437
Computers and related equipment........................ 1,757,822 1,490,765
Furniture and other equipment.......................... 191,454 152,597
---------- ----------
2,313,444 1,944,799
Less accumulated depreciation and amortization......... 1,226,569 987,606
---------- ----------
Property and equipment, net.......................... 1,086,875 957,193
---------- ----------
$5,007,709 $4,046,795
========== ==========
(See notes to consolidated financial statements)
22
COMPUTER SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
April 2, April 3,
1999 1998
In thousands except shares ---------- ----------
Current liabilities:
Short-term debt and current maturities of long-term
debt (note 5)......................................... $ 592,942 $ 28,921
Accounts payable....................................... 374,978 317,787
Accrued payroll and related costs (note 6)............. 386,788 299,062
Other accrued expenses................................. 459,821 403,860
Deferred revenue....................................... 137,378 127,337
Federal, state and foreign income taxes (note 3)....... 129,505 37,849
---------- ----------
Total current liabilities............................ 2,081,412 1,214,816
---------- ----------
Long-term debt, net of current maturities (note 5)....... 397,860 736,054
---------- ----------
Other long-term liabilities (note 6)..................... 128,583 94,650
---------- ----------
Commitments and contingencies (notes 6 and 7)
Stockholders' equity (notes 5, 8 and 9)
Preferred stock, par value $1 per share; authorized
1,000,000 shares;
none issued...........................................
Common stock, par value $1 per share; authorized
275,000,000 shares;
issued 159,510,065 (1999) and 157,324,565 (1998)...... 159,510 157,325
Additional paid-in capital............................. 730,238 660,971
Earnings retained for use in business.................. 1,578,125 1,236,968
Accumulated other comprehensive income (loss).......... (53,235) (39,691)
---------- ----------
2,414,638 2,015,573
Less common stock in treasury, at cost, 369,607 shares
(1999) and 346,170 shares (1998)...................... (14,413) (13,029)
Unearned restricted stock and other (note 8)........... (371) (1,269)
---------- ----------
Stockholders' equity, net............................ 2,399,854 2,001,275
---------- ----------
$5,007,709 $4,046,795
========== ==========
(See notes to consolidated financial statements)
23
COMPUTER SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
-------------------------------
April 2, April 3, March 28,
In thousands, increase (decrease) in cash and 1999 1998 1997
cash equivalents --------- --------- ---------
Cash flows from operating activities:
Net income...................................... $ 341,157 $ 260,369 $ 192,413
Adjustments to reconcile net income to net cash
provided:
Depreciation and amortization.................. 445,035 386,854 333,247
Deferred taxes................................. 91,243 (94,473) 5,121
Special items, net of tax...................... 97,870 11,884
Provision for losses on accounts receivable.... 8,818 20,058 33,501
Changes in assets and liabilities, net of
effects of acquisitions:
Increase in receivables...................... (249,028) (221,974) (164,184)
Increase in prepaid expenses................. (8,674) (86,815) (39,692)
Increase in accounts payable and accruals.... 71,043 109,575 97,294
Increase in income taxes payable............. 96,340 98,156 23,907
Increase (decrease) in deferred revenue...... 10,042 13,817 (3,304)
Other changes, net........................... 8,086 (133) 10,235
--------- --------- ---------
Net cash provided by operating activities...... 814,062 583,304 500,422
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment............ (425,716) (349,316) (322,434)
Outsourcing contracts.......................... (85,286) (145,974) (102,508)
Acquisitions, net of cash acquired............. (156,965) (103,269) (176,693)
Dispositions................................... 37,947 75,827 6,229
Software....................................... (86,835) (64,052) (77,227)
Other investing cash flows, net................ 11,785 9,663 (3,900)
--------- --------- ---------
Net cash used in investing activities.......... (705,070) (577,121) (676,533)
--------- --------- ---------
Cash flows from financing activities:
Net (repayment) borrowing of commercial paper.. (42) 77,953 50,188
Borrowings under lines of credit............... 40,440 61,281 48,180
Repayment of borrowings under lines of credit.. (34,679) (73,022) (99,283)
Proceeds from term debt issuance............... 200,000 32,568 150,000
Principal payments on long-term debt........... (34,804) (10,959) (29,843)
Proceeds from stock option transactions........ 45,109 61,488 42,869
Other financing cash flows..................... 3,190 13,356 12,964
--------- --------- ---------
Net cash provided by financing activities...... 219,214 162,665 175,075
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents..................................... (301) (4,886) (2,111)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... 327,905 163,962 (3,147)
Cash and cash equivalents at beginning of year... 274,688 110,726 113,873
--------- --------- ---------
Cash and cash equivalents at end of year......... $ 602,593 $ 274,688 $ 110,726
========= ========= =========
(See notes to consolidated financial statements)
24
COMPUTER SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Earnings Accumulated Unearned
Common Stock Additional Retained Other Common Restricted
--------------------- Paid-In for Use in Comprehensive Stock in Stock and
In thousands except Shares Amount Capital Business Income (Loss) Treasury Other Total
shares ----------- -------- ---------- ---------- ------------- -------- ---------- ----------
Balance at March 29,
1996................... 75,428,622 $ 75,429 $506,569 $ 862,770 $ (7,214) $(10,488) $(6,953) $1,420,113
Comprehensive income:
Net income.............. 192,413 192,413
Currency translation
adjustment............. (7,182) (7,182)
Unfunded pension
obligation............. (229) (229)
----------
Comprehensive income... 185,002
----------
Stock option
transactions........... 1,501,214 1,501 63,240 (1,494) (1,125) 62,122
Amortization and
forfeitures of
restricted stock....... (5,000) (5) (90) 813 718
Repayment of notes...... 1,605 1,605
----------- -------- -------- ---------- -------- -------- ------- ----------
Balance at March 28,
1997................... 76,924,836 76,925 569,719 1,055,183 (14,625) (11,982) (5,660) 1,669,560
Comprehensive income:
Net income.............. 260,369 260,369
Currency translation
adjustment............. (23,287) (23,287)
Unfunded pension
obligation............. (1,779) (1,779)
----------
Comprehensive income... 235,303
----------
Stock option
transactions........... 2,077,103 2,077 91,252 (1,047) 92,282
Amortization and
forfeitures of
restricted stock....... 109 109
Repayment of notes...... 4,282 4,282
Effect of two-for-one
stock split............ 78,322,626 78,323 (78,323)
Stock purchase rights
redemption............. (261) (261)
----------- -------- -------- ---------- -------- -------- ------- ----------
Balance at April 3,
1998................... 157,324,565 157,325 660,971 1,236,968 (39,691) (13,029) (1,269) 2,001,275
Comprehensive income:
Net income.............. 341,157 341,157
Currency translation
adjustment............. (12,860) (12,860)
Unfunded pension
obligation............. (684) (684)
----------
Comprehensive income... 327,613
----------
Stock option
transactions........... 2,185,500 2,185 69,267 (1,384) 70,068
Amortization and
forfeitures of
restricted stock....... 893 893
Repayment of notes...... 5 5
----------- -------- -------- ---------- -------- -------- ------- ----------
Balance at April 2,
1999................... 159,510,065 $159,510 $730,238 $1,578,125 $(53,235) $(14,413) $ (371) $2,399,854
=========== ======== ======== ========== ======== ======== ======= ==========
(See notes to consolidated financial statements)
25
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per-share amounts)
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 over which it exercises control, hereafter collectively referred
to as "CSC" or "the Company." All material intercompany transactions and
balances have been eliminated.
Business Combination
CSC acquired The Continuum Company, Inc. ("Continuum") on August 1, 1996.
Upon consummation of the merger, Continuum became a wholly owned subsidiary of
the Company. Each outstanding share of Continuum common stock was converted
into 1.58 shares of common stock of the Company and each outstanding option to
purchase shares of Continuum common stock was converted into an option to
purchase 1.58 shares of CSC common stock. The acquisition has been accounted
for as a pooling of interests, and previously reported consolidated financial
statements of the Company for periods ended prior to August 1, 1996 have been
restated to include the financial position and results of operations of
Continuum.
Other Acquisitions
During the three years ended April 2, 1999, the Company made a number of
acquisitions in addition to the one described above which, either individually
or collectively, are not material. In conjunction with business combinations
accounted for as purchases, the Company acquired assets with an estimated fair
value of $231,367, $61,460 and $199,302; and assumed liabilities of $191,911,
$47,632 and $125,511 for fiscal 1999, 1998 and 1997 respectively. The excess
of cost of businesses acquired over related net assets was $152,294, $89,028
and $139,504 for the three fiscal years ended 1999.
Income Recognition
The Company provides services under time and materials, level of effort,
cost-based and fixed-price contracts. 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. 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 fixed-price contracts, income is recorded
on the basis of the estimated percentage of completion of services rendered.
Losses, if any, on long-term contracts are recognized during the period in
which the loss is determined.
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 upon receipt of a signed contract
documenting customer commitment, delivery of the software and determination of
the fee amount and its probable collection. However, if significant
customization is part of the transaction, such revenues are recognized over
the period of delivery.
26
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 1--Summary of Significant Accounting Policies (continued)
Depreciation and Amortization
The Company's depreciation and amortization policies are as follows:
Property and Equipment:
Buildings.......................... 10 to 40 years
Computers and related equipment.... 3 to 10 years
Furniture and other equipment...... 2 to 10 years
Leasehold improvements............. Shorter of lease term or useful life
Investments and Other Assets:
Software........................... 2 to 10 years
Credit information files........... 10 to 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 above.
Included in software are unamortized capitalized software development costs
of $122,208 and $76,969 as of April 2, 1999 and April 3, 1998, respectively.
The related amortization expense was $22,378, $17,358 and $20,073 for the
three fiscal years ended April 2, 1999.
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 $92,717 and $102,723 for fiscal 1999 and 1998,
respectively. The related amortization expense was $18,408, $15,371 and
$12,112 for the three fiscal years ended April 2, 1999.
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.
Cash Flows
Cash payments for interest on indebtedness and cash (refunds)/payments for
taxes on income are as follows:
Fiscal Year
-------------------------
1999 1998 1997
-------- ------- -------
Interest......................................... $ 45,327 $50,909 $37,910
Taxes on income.................................. (31,041) 30,613 63,899
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
27
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 1--Summary of Significant Accounting Policies (continued)
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. The Company has no material hedge contracts with respect to its
foreign exchange or interest rate positions.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, in particular estimates of anticipated contract costs utilized in
the revenue recognition process, that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Stock Split
All historical weighted average and per share amounts in the Consolidated
Statements of Income have been restated to reflect a two-for-one stock split
in the form of a 100% stock dividend paid on March 23, 1998. The Consolidated
Balance Sheets and the Consolidated Statements of Stockholders' Equity reflect
the actual number and par value of the issued and outstanding shares for each
of the fiscal periods presented. The Consolidated Statements of Stockholders'
Equity reflects the actual stock dividend in the period paid.
Earnings per Share
Basic earnings per common share are computed using the weighted average
number of common shares outstanding during the period. Diluted earnings per
share reflect the incremental shares issuable upon the assumed exercise of
stock options.
Basic and diluted earnings per share are calculated as follows:
Fiscal Year
--------------------------
1999 1998 1997
-------- -------- --------
Net income for basic and diluted EPS............. $341,157 $260,369 $192,413
======== ======== ========
Common share information (in thousands)
Average common shares outstanding for basic
EPS........................................... 158,213 155,125 151,895
Dilutive effect of stock options............... 3,736 3,401 4,499
-------- -------- --------
Shares for diluted EPS......................... 161,949 158,526 156,394
======== ======== ========
Basic EPS........................................ $ 2.16 $ 1.68 $ 1.27
Diluted EPS...................................... 2.11 1.64 1.23
The computation of diluted EPS did not include stock options which were
antidilutive, as their exercise price was greater than the average market
price of the Company's common stock during the year. The number of such
options was 88,451, 95,310 and 249,813 for the year ended April 2, 1999, April
3, 1998 and March 28, 1997, respectively.
Recent Accounting Pronouncements
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
28
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 1--Summary of Significant Accounting Policies (continued)
Information" and SFAS No. 132, "Employers' Disclosures about Pensions and
other Postretirement Benefits." The adoption of these standards expanded or
modified disclosures but had no impact on consolidated financial position,
results of operations or cash flows. The Company also adopted the American
Institute of Certified Public Accountants Statement of Position ("SOP") 97-2,
"Software Revenue Recognition." SOP 97-2 provides further guidance on
recognizing revenue from sales of proprietary software. The adoption of SOP
97-2 had no material impact on consolidated financial position, results of
operations or cash flows.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires all derivatives to be recorded on the balance sheet at fair
value and establishes accounting standards for hedging activities. In May
1999, the FASB proposed amending SFAS No. 133 to defer its effective date one
year to fiscal years beginning after June 15, 2000. The Company is currently
assessing the impact this statement will have and, based on preliminary
estimates, does not expect the adoption to have a material impact on its
consolidated financial position or results of operations.
During 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." This statement requires the capitalization of internal use
computer software costs provided that certain criteria are met. These
capitalized software costs will be amortized on a straight-line basis over the
useful life of the software. The Company will adopt this statement effective
April 3, 1999. The adoption of this statement is not expected to have a
material impact on the company's consolidated financial position, results of
operations or cash flows.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements in order to conform to the current presentation.
Note 2--Special Items
There were no special items during fiscal 1999.
Special items in fiscal 1998 represent costs, expenses and benefits
associated with developments at CSC Enterprises and the Company's response to
a failed take-over attempt.
During the first quarter of fiscal 1998, CSC recorded a net special credit
of $1,707, or 1 cent per share, at CSC Enterprises, a general partnership of
which CSC, through one of its affiliates, is the managing general partner.
This net credit resulted from a tax benefit of $135,000 and an after-tax
special charge of $133,293 ($208,393 before tax). During the fiscal quarter
ended June 27, 1997, several partners withdrew from CSC Enterprises. These
withdrawals caused CSC Enterprises to take actions that caused CSC to
recognize an increase in the tax basis of certain assets. As required by SFAS
No. 109, this tax basis increase from the previous tax basis resulted in a
deferred tax asset of $135,000 and a corresponding reduction of CSC's
provision for income taxes during the quarter ended June 27, 1997. The tax
basis increase is temporary and will be realized over time through an increase
in depreciation and amortization expense for income tax purposes. In
connection with the partner withdrawals and related developments, CSC
Enterprises reviewed its operations, its market opportunities and the carrying
value of its assets. Based on this review, certain offerings and assets were
eliminated, primarily within its telecommunications operations. As a result of
these plans, CSC recognized a pre-tax special charge of $208,393 ($133,293
after tax). This special charge included goodwill write-offs of $56,300
($35,000 after tax),
29
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 2--Special Items (continued)
contract termination costs of $54,300 ($34,000 after tax), deferred contract
costs and other assets of $33,093 ($20,493 after tax), telecommunications
software and accruals of $35,800 ($22,300 after tax), telecommunications
property, equipment and intangible assets of $18,900 ($11,700 after tax) and
other non-deductible costs of $10,000.
During the fourth quarter of fiscal 1998, the Company recorded a before-tax
special charge of $20,700, or 9 cents per share after tax, for costs relating
to the Company's response to a failed take-over attempt. The charge is
comprised of $14,400 for investment banking expenses and $6,300 for other
expenses such as legal costs, public relations and shareholder communications.
The fiscal 1997 special charge represents costs and expenses related to the
August 1, 1996, acquisition of Continuum. The amount of the charge, net of
income tax benefits on the tax deductible portion, is $35,280, or 23 cents per
share. The charge is composed of $11,040 for investment banking and other
merger expenses; $11,785 related to the write-off of certain capitalized
software, other assets and intangibles; and $26,104 related to the elimination
of duplicate data processing facilities, employee severance costs and contract
termination costs.
Note 3--Income Taxes
The sources of income before taxes, classified as between domestic entities
and those entities domiciled outside of the United States, are as follows:
Fiscal Year
--------------------------
1999 1998 1997
-------- -------- --------
Domestic entities................................ $357,090 $ 96,438 $270,353
Entities outside the United States............... 154,267 94,431 32,960
-------- -------- --------
$511,357 $190,869 $303,313
======== ======== ========
The provisions (credits) for taxes on income, classified as between current
and deferred and as between taxing jurisdictions, consist of the following:
Fiscal Year
---------------------------
1999 1998 1997
-------- -------- --------
Current portion:
Federal....................................... $ 29,306 $(12,275) $ 83,185
State......................................... 5,289 (2,051) 12,065
Foreign....................................... 44,362 39,299 10,529
-------- -------- --------
78,957 24,973 105,779
-------- -------- --------
Deferred portion:
Federal....................................... 78,930 (82,170) 3,566
State......................................... 10,820 (8,812) 664
Foreign....................................... 1,493 (3,491) 891
-------- -------- --------
91,243 (94,473) 5,121
-------- -------- --------
Total provision (credit) for taxes.............. $170,200 $(69,500) $110,900
======== ======== ========
30
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 3--Income Taxes (continued)
Included in the fiscal 1998 current portion is $27,000 (composed of $26,200
federal and $800 state) of the $135,000 deferred tax asset described in Note 2
and $81,900 related to the other fiscal 1998 special items, also described in
Note 2. The fiscal 1998 deferred portion includes the remaining $108,000
(composed of $104,800 federal and $3,200 state) of the $135,000 deferred tax
asset.
The major elements contributing to the difference between the federal
statutory tax rate and the effective tax rate are as follows:
Fiscal Year
------------------
1999 1998 1997
---- ----- ----
Statutory rate........................................... 35.0% 35.0% 35.0%
State income tax, less effect of federal deduction....... 2.1 2.2 2.8
Goodwill amortization.................................... .3 .4 .6
Utilization of tax credits/losses........................ (3.3) (2.2) (1.9)
Special items............................................ (71.5) 1.2
Other.................................................... (.8) (.3) (1.1)
---- ----- ----
Effective tax rate....................................... 33.3% (36.4)% 36.6%
==== ===== ====
The fiscal 1998 special items percentage relates principally to the $135,000
tax benefit described in Note 2. The fiscal 1997 special items percentage is
the result of non-deductible acquisition-related costs.
The tax effects of significant temporary differences that comprise deferred
tax balances are as follows:
April 2, April 3,
1999 1998
--------- --------
Deferred tax assets (liabilities)
Deferred income...................................... $ 7,816 $ 1,457
Employee benefits.................................... 18,846 (1,421)
Provisions for contract settlement................... 1,086 4,121
Currency exchange.................................... 23,765 18,909
Other assets......................................... 17,037 22,438
Contract accounting.................................. (111,537) (109,343)
Depreciation and amortization........................ (50,922) 54,420
Prepayments.......................................... (79,676) (41,083)
Tax loss/credit carryforwards........................ 37,351 20,231
Other assets (liabilities)........................... 13,722 (998)
--------- --------
Total deferred taxes................................... $(122,512) $(31,269)
========= ========
Of the above deferred amounts, $127,576 and $111,277 are included in current
income taxes at April 2, 1999 and April 3, 1998, respectively.
The Internal Revenue Service ("IRS") has completed its examination of the
Company's consolidated federal income tax returns for fiscal years 1987
through 1991. The results did not have a material effect on the Company's
financial position or results of operations. The IRS has substantially
completed its examination of the Company's federal income tax returns for
fiscal years 1992 through 1994. The results are not expected to have a
material effect on the Company's financial position or results of operations.
31
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 4--Receivables
Receivables consist of the following:
April 2, April 3,
1999 1998
---------- ----------
Billed trade accounts................................ $1,329,487 $1,043,703
Recoverable amounts under contracts in progress...... 414,321 366,778
Other receivables.................................... 33,454 45,849
---------- ----------
$1,777,262 $1,456,330
========== ==========
Recoverable amounts under contracts in progress 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. The balance at April 2, 1999 is expected to be collected
during fiscal 2000 except for $80,835 to be collected during fiscal 2001 and
thereafter.
Note 5--Debt
Short-term
At April 2, 1999, the Company had an uncommitted line of credit of $45,000
with a domestic bank. As of April 2, 1999, the Company had no borrowings
outstanding under this line of credit.
At April 2, 1999, the Company had uncommitted lines of credit of $171,202
with certain foreign banks. As of April 2, 1999, the Company had $46,452 of
borrowings outstanding under these lines of credit. These short-term lines of
credit carry no commitment fees or significant covenants. The weighted average
interest rate on borrowings under these short-term lines of credit was 3.9%
and 4.7% at April 2, 1999, and April 3, 1998, respectively.
The Company also had outstanding borrowings of $4,988 with a foreign bank as
of April 2, 1999. The interest rate on these borrowings was 3.95%.
At April 2, 1999, the Company had $374,981 of commercial paper outstanding.
The weighted average interest rate on the Company's commercial paper was 4.9%
and 5.5% at April 2, 1999 and April 3, 1998, respectively.
The Company's commercial paper is backed by a $490,000 multi-year committed
credit facility which expires on September 15, 1999. The classification of the
Company's outstanding commercial paper is determined by the expiration date of
this credit facility. In previous years, commercial paper outstanding at year-
end was classified as long-term debt because the facility had more than one
year before its expiration. At April 2, 1999, commercial paper was classified
as short-term debt. The Company intends to replace the credit facility prior
to expiration.
32
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 5--Debt (continued)
Long-term
April 2, April 3,
1999 1998
-------- --------
Commercial paper........................................ $375,023
6.80% notes, due April 1999............................. $150,000 150,000
6.50% notes, due November 2001.......................... 150,000 150,000
6.25% notes, due March 2009............................. 200,000
Capitalized lease liabilities, at varying interest
rates, payable in monthly installments through fiscal
2002................................................... 11,425 21,603
Notes payable, at varying interest rates (from 3.5% to
6.0%) through fiscal 2005.............................. 52,956 61,239
-------- --------
Total long-term debt.................................... 564,381 757,865
Less current maturities................................. 166,521 21,811
-------- --------
$397,860 $736,054
======== ========
During fiscal 1999 the Company issued $200,000 of 6.25% notes due in March
2009. Proceeds were used for general corporate purposes and, subsequent to
year end, to repay the $150,000 6.80% notes due April 1999.
Capitalized lease liabilities shown above represent amounts due under leases
for the use of computers and related equipment. Included in property and
equipment are related assets of $20,030 (1999) and $18,895 (1998), less
accumulated amortization of $9,892 and $5,378, respectively.
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 $1,189,000 of retained earnings was available for cash dividends
at April 2, 1999.
The carrying value of the Company's long-term debt is $564,381 at April 2,
1999, as shown above. The corresponding fair value approximates the carrying
value using the current interest rates available to the Company for debt of
the same remaining maturities.
Maturities of long-term debt by fiscal year are $166,521 (2000), $24,539
(2001), $155,842 (2002), $3,672 (2003), $499 (2004) and $213,308 thereafter.
Note 6--Pension and Other Postretirement Benefit Plans
The Company and its subsidiaries have several pension and postretirement
healthcare and life insurance benefit plans, as described below.
A contributory, defined benefit pension plan is generally available to U.S.
employees. Certain non-U.S. employees are enrolled in defined benefit pension
plans in the country of domicile. In addition, the Company has a Supplemental
Executive Retirement Plan ("SERP"), which is a nonqualified, noncontributory
pension plan. The Company provides healthcare and life insurance retirement
benefits for certain 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 other than related payroll taxes.
33
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 6--Pension and Other Postretirement Benefit Plans (continued)
Net periodic cost for U.S. and non-U.S. pension and other benefit plans
included the following components:
Fiscal Year
----------------------------
1999 1998 1997
-------- -------- --------
Pensions
Service cost................................. $ 68,199 $ 54,629 $ 42,831
Interest cost................................ 63,050 50,469 36,553
Expected return on plan assets............... (71,438) (54,314) (39,630)
Amortization of transition obligation........ 482 280 (320)
Amortization of prior service costs.......... 2,829 2,830 1,703
Recognized actuarial loss.................... 1,326 965 999
-------- -------- --------
Net periodic pension cost.................... $ 64,448 $ 54,859 $ 42,136
======== ======== ========
Other Postretirement Benefits
Service cost................................. $ 819 $ 662 $ 865
Interest cost................................ 3,384 3,044 3,031
Expected return on plan assets............... (1,698) (944) (590)
Amortization of transition obligation........ 1,633 1,633 1,633
Amortization of prior service cost........... 490 490 36
Recognized actuarial gain.................... (292) (389) (44)
-------- -------- --------
Net provision for postretirement benefits.... $ 4,336 $ 4,496 $ 4,931
======== ======== ========
34
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 6--Pension and Other Postretirement Benefit Plans (continued)
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the fiscal years ended April
2, 1999 and April 3, 1998, and a statement of the funded status at April 2,
1999 and April 3, 1998:
Other
Postretirement
Pensions Benefits
-------------------- ------------------
1999 1998 1999 1998
---------- -------- -------- --------
Change in benefit obligation:
Benefit obligation at beginning of
year............................... $ 912,984 $655,536 $ 47,826 $ 36,929
Service cost........................ 68,199 54,629 819 662
Interest cost....................... 63,050 50,469 3,384 3,044
Plan participants' contributions.... 30,119 34,301 943 962
Amendments.......................... 13,476 71,133 4,742
Actuarial loss (gain)............... 65,012 73,652 (5,815) 4,254
Benefits paid....................... (36,212) (27,807) (2,632) (2,767)
Foreign currency exchange rate
changes............................ (8,034) 1,071
---------- -------- -------- --------
Benefit obligation at end of year... $1,108,594 $912,984 $ 44,525 $ 47,826
========== ======== ======== ========
Change in plan assets:
Fair value of plan assets at
beginning of year.................. $ 902,162 $731,495 $ 19,934 $ 12,586
Actual return on plan assets........ 122,743 66,650 3,830 3,543
Employer contributions.............. 65,539 35,455 5,654 5,987
Plan participants' contributions.... 30,119 34,301 943 962
Asset transfers..................... 14,086 66,694
Benefits paid....................... (36,212) (27,807) (2,632) (2,767)
Foreign currency exchange rate
changes............................ 7 (4,626)
---------- -------- -------- --------
Fair value of plan assets at end of
year............................... $1,098,444 $902,162 $ 27,729 $ 20,311
========== ======== ======== ========
Reconciliation of funded status to
net amount recorded:
Funded status....................... $ (10,150) $(10,822) $(16,796) $(27,515)
Unrecognized actuarial loss (gain).. (49,644) (54,547) (15,672) (7,481)
Unrecognized transition obligation.. 5,314 5,245 22,093 23,726
Unrecognized prior service cost..... 20,637 22,826 4,712 4,900
Contribution in fourth fiscal
quarter............................ 2,500 2,560
---------- -------- -------- --------
Net amount recorded................. $ (31,343) $(34,738) $ (5,663) $ (6,370)
========== ======== ======== ========
Plan assets include equity and fixed income securities and short-term
investments. Pension plan assets also include real estate investments and
insurance contracts.
35
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 6--Pension and Other Postretirement Benefit Plans (continued)
The following table provides the amounts recorded in the Company's
consolidated balance sheets:
Other
Postretirement
Pensions Benefits
------------------ ----------------
April 2, April 3, April April
1999 1998 2, 1999 3, 1998
-------- -------- ------- -------
Prepaid benefit cost................ $ 14,074 $ 10,289
Accrued benefit liability........... (54,279) (53,802) $(5,663) $(6,370)
Intangible asset.................... 2,301 3,266
Accumulated other comprehensive
income............................. 6,561 5,509
-------- -------- ------- -------
Net amount recorded................. $(31,343) $(34,738) $(5,663) $(6,370)
======== ======== ======= =======
The following table lists selected information for the pension plans with
accumulated benefit obligations in excess of plan assets as of April 2, 1999
and April 3, 1998. The fair value of plan assets shown for fiscal 1998
represents two plans which became fully funded in fiscal 1999. The reported
amounts for fiscal 1999 consist only of plans with no assets.
April April
2, 1999 3, 1998
------- -------
Projected benefit obligation.............................. $39,139 $92,594
Accumulated benefit obligation............................ 35,054 84,741
Fair value of plan assets................................. 0 53,826
Weighted average assumptions used in the accounting for the Company's plans
were:
Fiscal Year
----------------
1999 1998 1997
---- ---- ----
Discount or settlement rates............................. 6.7% 7.1% 7.6%
Rates of increase in compensation levels................. 5.0 5.2 5.7
Expected long-term rates of return on assets............. 8.1 8.3 8.6
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. At April 2, 1999, plan assets included 5,878,348 shares of the
Company's common stock. During fiscal 1999, 1998 and 1997, the Company
contributed $41,367, $35,216 and $29,772, respectively.
The assumed healthcare cost trend rate used in measuring the expected
benefit obligation was 7.5% for fiscal 1999, declining to 5.0% for 2004 and
subsequent years. A one-percentage point change in the assumed healthcare cost
trend rate would have the following effects:
One Percentage
Point
-----------------
Increase Decrease
-------- --------
Effect on accumulated postretirement benefit obligation
as of April 2, 1999..................................... $5,835 $(3,522)
Effect on net periodic postretirement benefit cost for
fiscal 1999............................................. $ 643 $ (356)
36
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
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 $180,783 (1999), $162,795
(1998) and $162,777 (1997).
Minimum fixed rentals required for the next five years and thereafter under
operating leases in effect at April 2, 1999 are as follows:
Fiscal Year Real Estate Equipment
----------- ----------- ---------
2000................................................. $102,718 $ 57,174
2001................................................. 90,325 22,818
2002................................................. 76,672 10,408
2003................................................. 58,477 5,761
2004................................................. 46,332 2,486
Thereafter........................................... 101,128 3,094
-------- --------
$475,652 $101,741
======== ========
DST Systems, Inc., a shareholder of the Company, provides data processing
and consulting services and licenses certain software products to the Company.
During the three fiscal years ended April 2, 1999, the Company incurred
aggregate expenses of $27,065, $27,271 and $22,788, respectively, related
thereto, which are included in costs of services.
Contingencies
The primary financial instruments which potentially subject the Company to
concentrations of credit risk are accounts receivable. The Company's customer
base includes Fortune 500 companies, the U.S. Federal government and other
significant, well-known companies operating in North America, Europe and the
Pacific Rim. Credit risk with respect to accounts receivable is minimized
because of the nature and diversification of the Company's customer base.
Furthermore, the Company continuously reviews its accounts receivables and
records provisions for doubtful accounts as needed.
The Company is currently party to a number of disputes which involve or may
involve litigation. 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 consolidated financial statements.
Note 8--Stock Incentive Plans
Stock Options. The Company has eight stock incentive plans which authorize
the issuance of stock options, restricted stock and other stock-based
incentives to employees upon terms approved by the Compensation Committee. At
April 2, 1999, April 3, 1998 and March 28, 1997, 9,897,768, 1,938,838 and
4,588,930 shares, respectively, of CSC common stock were available for the
grant to employees of future stock options, restricted stock or other stock-
based incentives.
37
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 8--Stock Incentive Plans (continued)
Information concerning stock options granted under stock incentive plans is
as follows:
Fiscal Year
--------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
---------- -------- ---------- -------- ---------- --------
Outstanding, beginning
of year................ 11,846,858 $25.48 13,157,762 $20.23 13,972,880 $15.45
Granted................. 2,095,750 54.80 3,285,950 35.36 3,148,736 34.74
Exercised............... (2,185,600) 21.51 (3,820,152) 15.20 (2,918,180) 12.77
Canceled................ (1,075,592) 32.26 (776,702) 28.83 (1,045,674) 20.90
---------- ---------- ----------
Outstanding, end of
year................... 10,681,416 31.35 11,846,858 25.48 13,157,762 20.23
========== ========== ==========
Exercisable, end of
year................... 4,360,449 $19.47 4,261,089 $16.21 5,412,886 $13.79
========== ========== ==========
April 2, 1999
-----------------------------------------------------
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Option Exercise Number Exercise Contractual Number Exercise
Price Outstanding Price Life Exercisable Price
- ------------------------ ----------- -------- ----------- ----------- --------
$ .17-$19.00............ 2,752,600 $11.79 3.6 2,530,645 $11.42
19.63-33.94............ 3,623,810 29.71 7.2 1,135,272 26.95
34.00-53.13............ 3,850,006 43.40 8.2 694,532 36.60
53.25-72.94............ 455,000 60.81 9.5 None N/A
The Company uses the intrinsic value based method of accounting for stock
options, under which compensation cost is equal to the excess, if any, of the
quoted market price of the stock at the option grant date over the exercise
price, and is amortized over the vesting period. Compensation cost recognized
with respect to stock options was $300, $377 and $442 for fiscal 1999, 1998
and 1997, respectively.
Restricted Stock. Restricted stock awards consist of shares of common stock
of the Company sold at par value ($1 per share). Upon sale to an employee,
shares of restricted stock become outstanding, receive dividends and have
voting rights. The shares are subject to forfeiture and to restrictions which
limit the sale or transfer during the restriction period.
The restrictions on shares of Continuum restricted stock lapse ratably on
the first five anniversaries of the date of sale. The restrictions on shares
of CSC restricted stock (other than Continuum restricted stock) generally
lapse on the fifth, sixth and seventh anniversaries of the date of sale.
At April 2, 1999, April 3, 1998 and March 28, 1997, 66,304, 165,302 and
296,482 shares, respectively, of CSC restricted stock were outstanding, net of
shares forfeited by or repurchased from terminated employees, and shares for
which the restrictions have lapsed.
The Company uses the intrinsic value based method of accounting for
restricted stock, under which compensation cost is equal to the excess, if
any, of the quoted market price of the stock at the date of sale to the
employee over the sales price, and is amortized over the restriction period.
Compensation cost recognized with respect to restricted stock was $411, $645
and $742 during fiscal 1999, 1998 and 1997, respectively.
38
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 8--Stock Incentive Plans (continued)
Restricted Stock Units. During fiscal 1998, the Company adopted a stock
incentive plan which authorizes the issuance of stock options, restricted
stock and other stock-based incentives to nonemployee directors upon terms
approved by the Company's Board of Directors. As of April 2, 1999 and April 3,
1998, 22,488 restricted stock units ("RSUs") had been awarded to nonemployee
directors under this plan and were outstanding on that date.
When a holder of RSUs ceases to be a director of the Company, the RSUs are
automatically redeemed for shares of CSC common stock and dividend equivalents
with respect to such shares. At the holder's election, which must be made
within 30 days after the date of the award, the RSUs may be redeemed (i) as an
entirety, upon the day the holder ceases to be a director, or (ii) in
substantially equal amounts upon the first five, ten or fifteen anniversaries
of such day.
There are two types of RSUs: (i) those awarded in lieu of vested retirement
benefits under other plans ("Accrued Benefit RSUs"); and (ii) those awarded as
a form of future retirement benefits ("Future Benefit RSUs"). When a holder of
Accrued Benefit RSUs ceases to be a director of the Company, the number of
shares of CSC common stock to be delivered by the Company upon redemption of
the RSUs is equal to the number of such RSUs awarded. When a holder of Future
Benefit RSUs ceases to be a director, the number of shares to be delivered
upon redemption is equal to 20% of the number of such RSUs awarded, multiplied
by the number of full years (but not in excess of 5) that the holder served as
a director after the date of award.
At April 2, 1999 and April 3, 1998, 8,778 Accrued Benefit RSUs and 13,710
Future Benefit RSUs were outstanding, and 77,512 shares of CSC common stock
remained available for the grant to nonemployee directors of future RSUs or
other stock-based incentives.
The Company uses the intrinsic value based method of accounting for RSUs,
under which compensation cost is equal to 100% of the total number of the RSUs
awarded, multiplied by the quoted market price of the stock at the date of
award, and is amortized, in the case of Future Benefit RSUs, over the vesting
period. Compensation cost recognized with respect to RSUs was $109 for fiscal
1999.
Pro Forma Information. In accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation," the following pro forma net income and earnings per
share information is presented as if the Company accounted for stock-based
compensation awarded under the stock incentive plans using the fair value
based method. Under the fair value method, the estimated fair value of stock
incentive awards is charged against income on a straight-line basis over the
vesting period.
Fiscal Year
-----------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- ---------
Net income.............. $341,157 $325,027 $260,369 $246,161 $192,413 $182,649
Basic earnings per
share.................. 2.16 2.05 1.68 1.59 1.27 1.20
Diluted earnings per
share.................. 2.11 2.01 1.64 1.55 1.23 1.17
The weighted average fair values of stock awards granted during fiscal 1999,
1998 and 1997 were $19.12, $12.08 and $11.53, respectively. The fair value of
each stock award was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 1999, 1998 and 1997, respectively: risk-free interest rates of
5.48%, 6.43% and 6.55%; expected volatility of 32%, 28% and 26%; and expected
lives of 5.96, 6.06 and 5.75 years.
39
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 9--Stockholder Purchase Rights Plan
On December 21, 1988, the Company adopted a stockholder rights plan pursuant
to which it issued one right for each outstanding share of its common stock.
On February 27, 1998, the Company's Board of Directors redeemed these rights
for one sixth of one cent per right. The redemption price was paid on April
13, 1998, to the holders of record of rights as of the close of business on
March 30, 1998.
On February 18, 1998, the Company adopted a new stockholder rights plan
pursuant to which it issued one right for each outstanding share of its common
stock. These rights, which are attached to and trade only together with the
common stock, are not currently exercisable. On the tenth business day after
any person or entity becomes the beneficial owner of 10% or more of CSC's
common stock, each right (other than rights held by the 10% stockholder, which
will become void) will become exercisable to purchase, for $250, CSC common
stock having a market value of $500. The rights expire February 18, 2008, and
may be redeemed by the Board of Directors at $.0005 per right at any time
before they become exercisable.
40
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 10--Segment and Geographic Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during fiscal 1999. SFAS No. 131
establishes standards for reporting information about operating segments and
related disclosures about products and services, geographic areas and major
customers.
All of the Company's business involves operations which provide management
and information technology consulting, systems integration and outsourcing.
Although the Company presents estimates of revenue by business service and
geography, the Company's expenses and assets are not identified or accumulated
in this manner due to, among other reasons, cross-utilization of personnel and
assets across the Company. Based on SFAS No. 131 criteria, the Company's
reportable operating segments consist of the U.S. Federal Sector and the
Global Commercial Sector. The U.S. Federal Sector operates principally within
a regulatory environment subject to governmental contracting and accounting
requirements, including Federal Acquisition Regulations, Cost Accounting
Standards and audits by various U.S. Federal agencies. The U.S. Federal Sector
revenue reported below will not agree to U.S. Federal government revenue
presented elsewhere in the Annual Report due to overlapping activities between
segments. The Company utilizes uniform accounting policies across all of its
operating units (see Note 1). The table below presents financial information
for the three fiscal years ended April 2, 1999, for the two reportable
segments, and for financial items that cannot be allocated to either operating
segment:
Global U.S.
Commercial Federal
Sector Sector Corporate Total
---------- ---------- --------- ----------
1999
Revenues....................... $5,824,427 $1,835,017 $ 521 $7,659,965
Earnings (loss) before interest
and taxes..................... 452,751 109,157 (16,643) 545,265
Depreciation and amortization.. 411,697 25,132 8,206 445,035
Assets......................... 3,877,832 665,894 463,983 5,007,709
Capital expenditures for long-
lived assets.................. 559,080 17,343 21,414 597,837
1998
Revenues....................... $4,934,269 $1,666,448 $ 121 $6,600,838
Earnings (loss) before interest
and taxes..................... 392,120 93,734 (23,796) 462,058
Depreciation and amortization.. 355,639 25,629 5,586 386,854
Assets......................... 3,096,610 586,801 363,384 4,046,795
Capital expenditures for long-
lived assets.................. 488,444 19,644 51,254 559,342
1997
Revenues....................... $3,929,959 $1,685,903 $ 186 $5,616,048
Earnings (loss) before interest
and taxes..................... 281,483 104,965 (1,933) 384,515
Depreciation and amortization.. 305,643 24,417 3,187 333,247
Assets......................... 2,802,993 513,531 176,563 3,493,087
Capital expenditures for long-
lived assets.................. 459,651 17,547 24,971 502,169
A reconciliation of earnings before interest and taxes to income before
taxes is as follows:
Fiscal Year
----------------------------
1999 1998 1997
-------- -------- --------
Earnings before interest and taxes........... $545,265 $462,058 $384,515
Interest expense............................. (48,496) (50,951) (40,268)
Interest income.............................. 14,588 8,855 7,995
Special charges.............................. (229,093) (48,929)
-------- -------- --------
Total...................................... $511,357 $190,869 $303,313
======== ======== ========
41
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 10--Segment and Geographic Information (continued)
Enterprise-wide information is provided in accordance with SFAS No. 131.
Revenue by country is based on the location of the selling business unit.
Property and equipment information is based on the physical location of the
asset. Geographic revenue and property and equipment, net for the three years
ended April 2, 1999 is as follows:
Fiscal Year
-----------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
Property Property Property
and and and
Equipment, Equipment, Equipment,
Revenues Net Revenues Net Revenues Net
---------- ---------- ---------- ---------- ---------- ----------
United States........... $4,893,730 $ 722,859 $4,406,236 $691,472 $3,795,361 $648,730
Europe:
United Kingdom........ 1,134,923 130,577 929,717 136,062 749,203 140,982
Other Europe.......... 1,115,174 110,139 841,238 87,046 725,730 62,812
Other International..... 516,138 123,300 423,647 42,613 345,754 35,545
---------- ---------- ---------- -------- ---------- --------
Total................. $7,659,965 $1,086,875 $6,600,838 $957,193 $5,616,048 $888,069
========== ========== ========== ======== ========== ========
The Company derives a significant portion of its revenues from departments
and agencies of the United States government. U.S. Federal government revenue
accounted for 23%, 25% and 29% of the Company's revenue for fiscal 1999, 1998
and 1997, respectively. At April 2, 1999, approximately 28% of the Company's
accounts receivable were due from the federal government. No single commercial
customer exceeded 10% of the Company's revenue during fiscal 1999, 1998 and
1997, respectively.
Note 11--Agreement with Equifax
During fiscal 1989, the Company entered into an agreement (the "Operating
Agreement") with Equifax Inc. and its subsidiary, Equifax Credit Information
Services, Inc. ("ECIS"), pursuant to which certain of the Company's
subsidiaries (collectively, the "Bureaus") became affiliated credit bureaus of
ECIS and purchased credit reporting services from the ECIS system for resale
to their customers. The Bureaus retain ownership of their credit files stored
in the ECIS system and receive revenues generated from the sale of the credit
information they contain. The Bureaus pay ECIS a fee for storing and
maintaining the files and for each report supplied by the ECIS system.
Pursuant to the Operating Agreement, the Company acquired an option to
require ECIS to purchase the collections business (the "Collections Put
Option"), and a separate option to require ECIS to purchase the credit
reporting business and, if not previously sold, the collections business (the
"Credit Reporting Put Option"). Both options require six months' advance
notice and expire on August 1, 2013.
On November 25, 1997, the Collections Put Option was exercised and the
collections business was sold for approximately $38,000. The transaction was
completed during May 1998.
Since July 31, 1998, the exercise price of the Credit Reporting Put Option
has been equal to the appraised value of the credit reporting business.
The Operating Agreement has a 10-year term, which will automatically be
renewed indefinitely for successive 10-year periods unless the Company gives
notice of termination at least six months prior to the expiration of any such
term. In the event that on or prior to August 1, 2013 (i) the Company gives
such notice of
42
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 11--Agreement with Equifax (continued)
termination and does not exercise the Credit Reporting Put Option prior to the
termination of the then-current term or (ii) there is a change in control of
the Company, then ECIS has an option for 60 days thereafter to require the
Company to sell to it the credit reporting business at the Credit Reporting
Put Option exercise price.
The Company's rights under the Operating Agreement, including its right to
exercise the Credit Reporting Put Option, remain exercisable by the Company
through its affiliates.
43
COMPUTER SCIENCES CORPORATION
Quarterly Financial Information (Unaudited)
Fiscal 1999
-------------------------------------------
lst 2nd 3rd 4th
In thousands except per-share Quarter Quarter Quarter Quarter
amounts ---------- ---------- ---------- ----------
Revenues.......................... $1,753,928 $1,847,771 $1,927,888 $2,130,378
Income before taxes............... 96,435 109,547 130,418 174,957
Net income........................ 64,335 73,047 87,018 116,757
Net earnings per share:
Basic........................... 0.41 0.46 0.55 0.73
Diluted......................... 0.40 0.45 0.54 0.72
Fiscal 1998
--------------------------------------------
lst 2nd 3rd 4th
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
Revenues........................... $1,488,750 $1,578,824 $1,664,092 $1,869,172
Income (loss) before taxes......... (127,612) 92,353 106,632 119,496
Net income......................... 52,588 58,553 69,132 80,096
Net earnings per share:
Basic............................ 0.34 0.38 0.44 0.51
Diluted.......................... 0.33 0.37 0.44 0.50
A discussion of "special items" for fiscal 1998 is included in Note 2 to the
consolidated financial statements.
44
PART II--(Continued)
Item 9. Changes in and Disagreements with Accountants 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 sections entitled "Voting Securities and Principal Holders
Thereof," "Item 1--Election of Directors" and "Executive Compensation" in the
Registrant's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after April 2, 1999. Such sections are incorporated herein by
reference in their entirety, except for the material included in the
"Executive Compensation" section under the captions "Report of Compensation
Committee on Annual Compensation of Executive Officers" and "Comparison of
Cumulative Total Return."
45
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules
These documents are included in the response to Item 8 of this report. See
the index on page 51.
(3) Exhibits
The following exhibits are filed with this report:
Exhibit
Number Description of Exhibit
------- ----------------------
3.1 Restated Articles of Incorporation, effective October 31, 1988 (c)
3.2 Amendment to Restated Articles of Incorporation, effective
August 10, 1992 (j)
3.3 Amendment to Restated Articles of Incorporation, effective July
31, 1996 (m)
3.4 Certificate of Amendment of Certificate of Designations of
Series A Junior Participating Preferred Stock, effective August
1, 1996 (o)
3.5 Bylaws, amended and restated effective May 4, 1998 (g)
10.1 1978 Stock Option Plan, amended and restated effective March 31,
1988* (n)
10.2 1980 Stock Option Plan, amended and restated effective March 31,
1988* (n)
10.3 1984 Stock Option Plan, amended and restated effective March 31,
1988* (n)
10.4 1987 Stock Incentive Plan* (b)
10.5 Schedule to the 1987 Stock Incentive Plan for United Kingdom
personnel* (b)
10.6 1990 Stock Incentive Plan* (h)
10.7 1992 Stock Incentive Plan, amended and restated effective August
9, 1993* (n)
10.8 Schedule to the 1992 Stock Incentive Plan for United Kingdom
personnel* (q)
10.9 1995 Stock Incentive Plan* (k)
10.10 1998 Stock Incentive Plan* (v)
10.11 Form of Stock Option Agreement* (u)
10.12 Form of Restricted Stock Agreement* (u)
10.13 Annual Management Incentive Plan, effective April 2, 1983* (a)
10.14 Supplemental Executive Retirement Plan, amended and restated
effective February 27, 1998* (u)
10.15 Deferred Compensation Plan, amended and restated effective
February 2, 1998* (s)
10.16 Severance Plan for Senior Management and Key Employees, amended
and restated effective February 18, 1998. (t)
10.17 Severance Agreement with Van B. Honeycutt, effective February 2,
1998. (s)
10.18 Employee Agreement with Van B. Honeycutt, effective May 1, 1999.
10.19 Form of Indemnification Agreement for Officers (e)
10.20 Form of Indemnification Agreement for Directors (d)
10.21 1997 Nonemployee Director Stock Incentive Plan (r)
10.22 Form of Restricted Stock Unit Agreement (g)
10.23 1990 Nonemployee Director Retirement Plan, amended and restated
effective February 2, 1998 (s)
10.24 Information Technology Services Agreements with General Dynamics
Corporation, dated as of November 4, 1991 (i)
10.25 Rights Agreement dated February 18, 1998 (t)
10.26 $350 million Credit Agreement dated as of September 6, 1995 (k)
10.27 First Amendment to $350 million Credit Agreement dated September
23, 1996 (p)
21 Significant Active Subsidiaries and Affiliates of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule
99.1 Annual Report on Form 11-K for the Matched Asset Plan of the
Registrant for the fiscal year ended December 31, 1998 (to be
filed by amendment)
99.2 Annual Report on Form 11-K for the Hourly Savings Plan of CSC
Outsourcing, Inc. for the fiscal year ended December 31, 1998
(to be filed by amendment)
99.3 Annual Report on Form 11-K for the CUTW Hourly Savings Plan of
CSC Outsourcing, Inc. for the fiscal year ended December 31,
1998 (to be filed by amendment)
- --------
* Management contract or compensatory plan or agreement
46
Notes to Exhibit Index:
(a)-(g) These exhibits are incorporated herein by reference to the Company's
Annual Report on Form 10-K for the fiscal years ended on the
respective dates indicated below:
(a) March 30, 1984 (e) March 31, 1995
(b) April 1, 1988 (f) March 28, 1997
(c) March 31, 1989 (g) April 3, 1998
(d) April 3, 1992
(h) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8 filed on August 15, 1990.
(i) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated November 4, 1991.
(j) Incorporated herein by reference to the Registrant's Proxy Statement
for its August 10, 1992 Annual Meeting of Stockholders.
(k) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on November 13, 1995.
(l) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated April 28, 1996.
(m) Incorporated herein by reference to the Registrant's Proxy Statement
for its July 31, 1996 Annual Meeting of Stockholders.
(n) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on August 12, 1996.
(o) Incorporated herein by reference to the Registrant's Current Report of
Form 8-K dated August 1, 1996.
(p) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on November 12, 1996.
(q) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on February 10, 1997.
(r) Incorporated herein by reference to the Registrant's Proxy Statement
for its August 11, 1997 Annual Meeting of Stockholders.
(s) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on February 9, 1998.
(t) Incorporated herein by reference to the Registrant's
Solicitation/Recommendation Statement on Schedule 14D-9 filed on
February 26, 1998.
(u) Incorporated herein by reference to Amendment No. 2 to the Registrant's
Solicitation/Recommendation Statement on Schedule 14D-9 filed on March
2, 1998.
(v) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on August 14, 1998
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of fiscal
1999.
47
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
Dated: June 22, 1998 /s/ Van B. Honeycutt
By: ___________________________
Van B. Honeycutt,
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Van B. Honeycutt Chairman, President and June 22, 1999
____________________________________ Chief Executive Officer
Van B. Honeycutt (Principal Executive
Officer)
/s/ Leon J. Level Vice President, Chief June 22, 1999
____________________________________ Financial Officer and
Leon J. Level Director (Principal
Financial Officer)
/s/ Scott M. Delanty Vice President and June 22, 1999
____________________________________ Controller (Principal
Scott M. Delanty Accounting Officer)
/s/ Irving W. Bailey, II Director June 22, 1999
____________________________________
Irving W. Bailey, II
/s/ Stephen L. Baum Director June 22, 1999
____________________________________
Stephen L. Baum
/s/ William R. Hoover Director June 22, 1999
____________________________________
William R. Hoover
/s/ Thomas A. McDonnell Director June 22, 1999
____________________________________
Thomas A. McDonnell
48
Signature Title Date
--------- ----- ----
/s/ F. Warren McFarlan Director June 22, 1999
____________________________________
F. Warren McFarlan
/s/ James R. Mellor Director June 22, 1999
____________________________________
James R. Mellor
/s/ William P. Rutledge Director June 22, 1999
____________________________________
William P. Rutledge
49
COMPUTER SCIENCES CORPORATION AND SUBSIDIARIES
SCHEDULE VIII, Valuation and Qualifying Accounts
Three Years Ended April 2, 1999
Additions
-------------------------
Balance, Charged to cost Balance,
beginning of period and expenses Other (1) Deductions end of period
In thousands ------------------- --------------- --------- ---------- -------------
Year ended April 2, 1999
Allowance for doubtful
receivables............ $75,373 $ 8,818 $4,032 $ 7,616 $80,607
Year ended April 3, 1998
Allowance for doubtful
receivables............ 52,507 31,828 3,724 12,686 75,373
Year ended March 28,
1997
Allowance for doubtful
receivables............ 45,425 22,288 (618) 14,588 52,507
- --------
(1) Includes balances from acquisitions, changes in balances due to foreign
currency exchange rates and recovery of prior-year charges.
50
INDEX TO EXHIBIT
Exhibit
Number Description of Exhibit
------- ----------------------
3.1 Restated Articles of Incorporation, effective October 31, 1988 (c)
3.2 Amendment to Restated Articles of Incorporation, effective
August 10, 1992 (j)
3.3 Amendment to Restated Articles of Incorporation, effective July
31, 1996 (m)
3.4 Certificate of Amendment of Certificate of Designations of
Series A Junior Participating Preferred Stock, effective August
1, 1996 (o)
3.5 Bylaws, amended and restated effective May 4, 1998 (g)
10.1 1978 Stock Option Plan, amended and restated effective March 31,
1988* (n)
10.2 1980 Stock Option Plan, amended and restated effective March 31,
1988* (n)
10.3 1984 Stock Option Plan, amended and restated effective March 31,
1988* (n)
10.4 1987 Stock Incentive Plan* (b)
10.5 Schedule to the 1987 Stock Incentive Plan for United Kingdom
personnel* (b)
10.6 1990 Stock Incentive Plan* (h)
10.7 1992 Stock Incentive Plan, amended and restated effective August
9, 1993* (n)
10.8 Schedule to the 1992 Stock Incentive Plan for United Kingdom
personnel* (q)
10.9 1995 Stock Incentive Plan* (k)
10.10 1998 Stock Incentive Plan* (v)
10.11 Form of Stock Option Agreement* (u)
10.12 Form of Restricted Stock Agreement* (u)
10.13 Annual Management Incentive Plan, effective April 2, 1983* (a)
10.14 Supplemental Executive Retirement Plan, amended and restated
effective February 27, 1998* (u)
10.15 Deferred Compensation Plan, amended and restated effective
February 2, 1998* (s)
10.16 Severance Plan for Senior Management and Key Employees, amended
and restated effective February 18, 1998. (t)
10.17 Severance Agreement with Van B. Honeycutt, effective February 2,
1998. (s)
10.18 Employee Agreement with Van B. Honeycutt, effective May 1, 1999.
10.19 Form of Indemnification Agreement for Officers (e)
10.20 Form of Indemnification Agreement for Directors (d)
10.21 1997 Nonemployee Director Stock Incentive Plan (r)
10.22 Form of Restricted Stock Unit Agreement (g)
10.23 1990 Nonemployee Director Retirement Plan, amended and restated
effective February 2, 1998 (s)
10.24 Information Technology Services Agreements with General Dynamics
Corporation, dated as of November 4, 1991 (i)
10.25 Rights Agreement dated February 18, 1998 (t)
10.26 $350 million Credit Agreement dated as of September 6, 1995 (k)
10.27 First Amendment to $350 million Credit Agreement dated September
23, 1996 (p)
21 Significant Active Subsidiaries and Affiliates of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule
99.1 Annual Report on Form 11-K for the Matched Asset Plan of the
Registrant for the fiscal year ended December 31, 1998 (to be
filed by amendment)
99.2 Annual Report on Form 11-K for the Hourly Savings Plan of CSC
Outsourcing, Inc. for the fiscal year ended December 31, 1998
(to be filed by amendment)
99.3 Annual Report on Form 11-K for the CUTW Hourly Savings Plan of
CSC Outsourcing, Inc. for the fiscal year ended December 31,
1998 (to be filed by amendment)
- --------
* Management contract or compensatory plan or agreement
51
Notes to Exhibit Index:
(a)-(g) These exhibits are incorporated herein by reference to the Company's
Annual Report on Form 10-K for the fiscal years ended on the
respective dates indicated below:
(a) March 30, 1984 (e) March 31, 1995
(b) April 1, 1988 (f) March 28, 1997
(c) March 31, 1989 (g) April 3, 1998
(d) April 3, 1992
(h) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8 filed on August 15, 1990.
(i) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated November 4, 1991.
(j) Incorporated herein by reference to the Registrant's Proxy Statement
for its August 10, 1992 Annual Meeting of Stockholders.
(k) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on November 13, 1995.
(l) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated April 28, 1996.
(m) Incorporated herein by reference to the Registrant's Proxy Statement
for its July 31, 1996 Annual Meeting of Stockholders.
(n) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on August 12, 1996.
(o) Incorporated herein by reference to the Registrant's Current Report of
Form 8-K dated August 1, 1996.
(p) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on November 12, 1996.
(q) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on February 10, 1997.
(r) Incorporated herein by reference to the Registrant's Proxy Statement
for its August 11, 1997 Annual Meeting of Stockholders.
(s) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on February 9, 1998.
(t) Incorporated herein by reference to the Registrant's
Solicitation/Recommendation Statement on Schedule 14D-9 filed on
February 26, 1998.
(u) Incorporated herein by reference to Amendment No. 2 to the Registrant's
Solicitation/Recommendation Statement on Schedule 14D-9 filed on March
2, 1998.
(v) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on August 14, 1998
52