-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QsTXJqBSrq2zlyZqb+u/FEa2N8qbwndnontZihTCRYRa20KykLoWBo+/TmomZu8h y/XfGr6uf+nYASX6B96iuQ== 0000898430-96-002385.txt : 19960603 0000898430-96-002385.hdr.sgml : 19960603 ACCESSION NUMBER: 0000898430-96-002385 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960329 FILED AS OF DATE: 19960531 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER SCIENCES CORP CENTRAL INDEX KEY: 0000023082 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 952043126 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-04850 FILM NUMBER: 96575595 BUSINESS ADDRESS: STREET 1: 2100 E GRAND AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3106150311 MAIL ADDRESS: STREET 1: 2100 EAST GRAND AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 10-K405 1 FORM 10-K405 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 [FEE REQUIRED] For the fiscal year ended March 29, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to ---------- ----------- Commission File No.: 1-4850 [LOGO OF COMPUTER SCIENCES CORPORATION] COMPUTER SCIENCES CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEVADA 95-2043126 (STATE OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.) ORGANIZATION) 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(g) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS: ON WHICH REGISTERED -------------------- ----------------------------------- Common Stock, $1.00 par value per share New York Stock Exchange Preferred Stock Purchase Rights Pacific Stock 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. [X] As of May 15, 1996, the aggregate market value of stock held by non- affiliates of the Registrant was approximately $4,319,000,000. A total of 56,090,734 shares of common stock was outstanding as of such date. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after March 29, 1996, are incorporated by reference into Part III hereof. TABLE OF CONTENTS PART I
ITEM PAGE ---- ---- 1. Business.......................................................... 1 2. Properties........................................................ 3 3. Legal Proceedings................................................. 4 4. Submission of Matters to a Vote of Security Holders............... 4 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters........................................................ 6 6. Selected Financial Data........................................... 6 Management's Discussion and Analysis of Financial Condition and 7. Results of Operations............................................. 7 8. Financial Statements and Supplementary Data....................... 11 Changes in and Disagreements With Accountants on Accounting and 9. Financial Disclosure.............................................. 32 PART III 10. Directors and Executive Officers of the Registrant................ 32 11. Executive Compensation............................................ 32 12. Security Ownership of Certain Beneficial Owners and Management.... 32 13. Certain Relationships and Related Transactions.................... 32 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K... 33
PART I ITEM 1. BUSINESS INTRODUCTION AND HISTORY GENERAL Computer Sciences Corporation ("CSC" or the "Company") was founded in 1959 and is among the world leaders in the information technology ("IT") services industry. CSC offers a broad array of professional services to industry and government and specializes in the application of advanced and complex information technology to achieve its customers' strategic objectives. CSC's services include: Outsourcing--Operating all or a portion of a customer's technology infrastructure, including systems analysis, applications development, network operations and data center management. Systems Integration--Designing, developing, implementing and integrating complete information systems. IT and Management Consulting and Other Professional Services--Advising clients on a wide range of issues, including how to shape their strategies and operations to become market leaders, the strategic acquisition and utilization of IT, and "business process reengineering" --redesigning operations to achieve efficiencies and improve competitive position. CSC has further enhanced its breadth of service offerings through expansion in outsourcing and strategic acquisitions across a number of geographic and vertical industry markets. RECENT DEVELOPMENTS On April 28, 1996, the Company entered into an Agreement and Plan of Merger with The Continuum Company, Inc. ("Continuum") and Continental Acquisition, Inc., a subsidiary of the Company ("Sub"), pursuant to which Sub will be merged with and into Continuum and Continuum will become a wholly owned subsidiary of CSC. Each outstanding share of common stock of Continuum will be converted into 0.79 of a share of CSC common stock. Continuum is a consulting and computer services firm serving the needs of the global financial services industry for computer software and services. Consummation of the merger is expected to occur during the summer of 1996 and is subject to various conditions including, but not limited to, approval by the stockholders of CSC and Continuum. REVENUES BY MAJOR MARKET The Company's principal markets served are the U.S. commercial markets, international markets and the United States federal government, with revenues composed as follows for the last three fiscal years, shown as a percentage of total Company revenue:
1996 1995 1994 ---- ---- ---- U.S. Commercial......................................... 36% 35% 40% International........................................... 27 21 12 --- --- --- Global Commercial..................................... 63 56 52 U.S. Federal Government................................. 37 44 48 --- --- --- Total Revenue......................................... 100% 100% 100% === === ===
U.S. COMMERCIAL MARKETS CSC is a major provider of outsourcing services, including systems analysis, applications development, network operations and data center management. Current outsourcing activities include recent contracts with Hughes Aircraft Company, Scott Paper Company, Southern New England Telecommunications Corporation, James River Corporation and San Diego Gas & Electric. The Company also provides consulting and technical services in the development and integration of computer and communications systems to commercial organizations, as well as various industry-specific IT 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. The Company has expertise in information-systems development for the vertical-industry markets of consumer goods, distribution, financial services, publishing, utilities, manufacturing, pharmaceuticals, communications and insurance, and for state and local governments. Other capabilities, such as office automation and communications network engineering, operation and management, range across industry needs in general. The Company is one of the leading suppliers of large-scale claims processing and other insurance-related services to clients in the public sector. It has extensive expertise in the development and operation of automated systems that efficiently manage and process the large volumes of data associated with such programs. CSC serves as the fiscal agent for the Medicaid program of New York, and processes the health claims of coal miners for the black-lung program of the U.S. Department of Labor. It also acts as statistical agent for the Federal Emergency Management Agency's (FEMA) National Flood Insurance Program. For the insurance and financial services industries, the Company provides services for administering life and disability insurance for credit loans and mortgages, collateral-protection insurance and warranty insurance. In addition, CSC markets business information systems, software and services to the managed healthcare industry, clinics and physicians. Also in the financial services arena, the Company provides consumer credit reports and account-management services to thousands of credit grantors nationwide. Through an agreement with Equifax Inc., another 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 MARKETS The Company's international operations, with major offices in the United Kingdom, France, Germany, Belgium, the Netherlands, and Australia, provide a wide range of information technology services to commercial and public sector clients. CSC provides substantially the same services to its international customers that it provides to U.S. customers. These services span the range of consulting, systems integration and outsourcing. Current activities include major outsourcing contracts with British Aerospace, Anglian Water, Guinness PLC, the National Health Service in Scotland, ICI Paints and Lucas Industries PLC. Also, as part of the fiscal 1995 acquisition of Ploenzke A.G., CSC significantly expanded its European consulting operations. U.S. FEDERAL MARKET For more than three decades, CSC has provided the United States federal government with IT services, 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. Typical current activities 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 Combat Weapons Systems and providing technical information systems security applications to the Department of Defense, among other federal agencies and departments. 2 COMPETITION The information technology market in which CSC competes is not dominated by a single company or a small number of companies. A substantial number of companies offer services that overlap and are competitive with those offered by CSC. Some of these are large industrial firms, including computer manufacturers and major aerospace firms that have greater financial resources than CSC and 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, lower prices, a quicker response, or a combination of these factors. CSC believes that its technology and systems expertise and large project management skills gained through years of experience in providing IT services to the federal government position it to compete effectively in U.S. and international commercial markets. CSC also believes that its competitive position is enhanced by its leadership position in management consulting and the full spectrum of services that it provides. EMPLOYEES The Company employs approximately 33,600 persons, of which 24,300 are highly trained professionals. The services provided by CSC require proficiency in many fields, such as computer sciences, mathematics, physics, engineering, astronomy, geology, operations research, economics, statistics and business administration. ITEM 2. PROPERTIES
APPROXIMATE OWNED PROPERTIES SQUARE FOOTAGE GENERAL USAGE - ---------------- -------------- ------------- El Segundo, California.. 206,000 Office Facility San Diego, California... 178,000 Computer and General Office Facility Norwich, Connecticut.... 149,000 Computer and General Office Facility Falls Church, Virginia.. 146,000 General Office Meriden, Connecticut.... 119,000 Computer and General Office Facility Moorestown, New Jersey.. 99,000 General Office Herndon, Virginia....... 87,000 General Office St. Leonards, NSW Australia............... 60,000 Office Facility Sterling, Virginia...... 45,000 Office Facility Various other U.S. locations............... 51,000 Primarily General Office LEASED PROPERTIES - ----------------- Washington, D.C. area... 1,177,000 Computer and General Office Facilities Houston and Dallas/Ft. Worth, Texas............ 385,000 Computer and General Office Facilities Germany................. 348,000 General Office Boston, Massachusetts area.................... 292,000 General Office Mt. Laurel/Moorestown, New Jersey.............. 286,000 General Office Dayton/Cleveland, Ohio.. 274,000 General Office United Kingdom.......... 264,000 General Office Los Angeles/San Diego/San Francisco..... 206,000 General Office Chicago/Champaign, IL... 170,000 General Office Albany, New York........ 164,000 General Office New Jersey.............. 123,000 General Office Various other U.S. and foreign locations....... 858,000 Computer and General Office Facilities
Upon expiration of its leases, the Company does not anticipate any difficulty in obtaining renewals or alternative space. Lease expiration dates range from fiscal 1997 through 2018. 3 ITEM 3. LEGAL PROCEEDINGS The Company is currently party to a number of disputes which involve or may involve litigation. After consultation with counsel, it is the opinion of Company management that the ultimate liability, if any, with respect to these disputes will not be material to the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT
YEAR FIRST ELECTED AS TERM AS FAMILY NAME AGE AN OFFICER OFFICER POSITION HELD WITH THE REGISTRANT RELATIONSHIP - ---- --- ---------- ---------- --------------------------------- ------------ Van B. Honeycutt* 51 1987 Indefinite President and Chief Executive Officer None Leon J. Level* 55 1989 Indefinite Vice President and None Chief Financial Officer Harvey N. Bernstein 49 1988 Indefinite Vice President None Edward P. Boykin 57 1995 Indefinite Vice President None James A. Champy 54 1993 Indefinite Vice President None Milton E. Cooper 57 1992 Indefinite Vice President None Denis M. Crane 62 1981 Indefinite Vice President and Controller None Hayward D. Fisk 53 1989 Indefinite Vice President, General Counsel None and Secretary Ronald W. Mackintosh 47 1993 Indefinite Vice President None Thomas R. Madison, Jr. 50 1995 Indefinite Vice President None John M. Mickel 56 1995 Indefinite Vice President None Lawrence Parkus 59 1985 Indefinite Vice President None C. Bruce Plowman 59 1989 Indefinite Vice President None L. Scott Sharpe 57 1981 Indefinite Vice President None Thomas Williams 60 1993 Indefinite Vice President None
- -------- * Director of the Company. BUSINESS EXPERIENCE OF OFFICERS Van B. Honeycutt was appointed Chief Executive Officer of the Company effective April 1, 1995. He joined the Company in 1975 and was elected President and Chief Operating Officer during 1993. Prior to his election he was a Vice President of CSC and President of the Industry Services Group. He formerly was President of CSC Credit Services, Inc., where he directed the growth of this wholly owned subsidiary into one of the Company's major commercial units. He has held a variety of other positions with the Company, including Vice President and General Manager of its Business Services Division and regional marketing manager for Infonet. Leon J. Level joined the Company in 1989 as Vice President and Chief Financial Officer of CSC. Former positions include Vice President and Treasurer of Unisys Corporation and Chairman of Unisys Finance Corporation; Assistant Corporate Controller and Executive Director of The Bendix Corporation; and Principal with the public accounting firm of Deloitte & 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 and Jacobson in Washington, D.C. 4 Edward P. Boykin joined the Company in 1966. In the intervening years, he held numerous positions with several divisions of the Company and became President of the Technology Management Group in October, 1993. He was elected a Vice President in 1995. James A. Champy joined the Company during 1988 as a result of the acquisition of Index, where he served as President. Before joining Index, he was executive vice president of the Massachusetts Institute of Technology Alumni Association. He was elected a Vice President of the Company and appointed Chairman of its Consulting Group during 1993. Milton E. Cooper joined the Company in 1984 as group vice president of program development. He was named President of Systems Group in December 1991 and a Corporate Vice President in January 1992. A veteran of 33 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. Denis M. Crane joined the Company in 1973 with prior experience in public accounting. He was named Vice President, Finance for the Systems Group and held that position until his election as Vice President and Controller of the Company in 1981. He is a Certified Public Accountant and is responsible for corporate-wide policy matters of general accounting, operational analysis, systems and procedures. Hayward D. Fisk joined the Company in 1989 as Vice President, General Counsel and Corporate Secretary. Prior to joining the Company, he was associated for 21 years with Sprint Corporation (formerly United Telecommunications, Inc.), in various legal and executive officer positions, most recently as Vice President and Associate General Counsel. Ronald W. Mackintosh joined the Company as a result of the Index acquisition, where he was Managing Director of its London office. Previously he was a partner in the London office of Nolan, Norton & Company. In 1991, he was named Chief Executive Officer of the Company's UK Operations and, subsequently, President of the European Group. In 1993 he was elected a Vice President of the Company. Thomas R. Madison, Jr. joined the Company in 1994 as President of the Commercial Outsourcing Division of the Technology Management Group. He became President of Integrated Business Services and was elected a Vice President in 1995. He held numerous executive positions with IBM Corporation, was a partner at The United Research Company, was Managing Director of Gemini Consulting, and a member of the Executive Committee of the Sogeti Group in Paris. John M. Mickel joined the Company in 1993. He was appointed President of the Consulting Group in 1994 and was elected a Vice President in 1995. Prior to joining the Company, he held various positions with IBM Corporation, co- founded Decimus Corporation, became Executive Vice President, Bank of America and a member of the Managing Committee, was a partner at McKinsey & Co. and was President and Chief Executive Officer of Automation Partners International. Lawrence Parkus joined the Company in 1985 and was elected Vice President for Corporate Development, where he is responsible for planning and executing acquisitions and other projects related to the Company's growth and development strategies. Prior to joining the Company, he was division manager for international business development for AT&T Consumer Products and held prior assignments in business development and strategic planning. C. Bruce Plowman joined the Company in 1982 as Director of Corporate Communications. In 1989, he was elected a Vice President with responsibility for investor relations, marketing communications, public relations and employee communications. Prior to joining CSC, he spent 16 years at Continental Airlines, where he was Director of Public Information. L. Scott Sharpe joined the Company in 1968. He progressed through four divisions of the Company before moving to the Company's headquarters in 1978. He was elected a Vice President of the Company in 1981. He is responsible for all human resource programs, including benefits and compensation, recruitment, employee relations, management development, and organization and staffing. 5 Thomas Williams joined the Company in 1970 and has held a number of managerial and technical positions within the Company. Previously he served as President of the Technology Management Group, President of the Applied Technology Division and Vice President, Engineering and Range Operations, and associate project manager of CSTA. In 1993 he was elected a Vice President of the Company and named President of the Aerospace Systems Division and Deputy Chief Executive Officer of the European Group. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Common stock of Computer Sciences Corporation is listed and traded on the New York Stock Exchange and Pacific Stock Exchange. The ticker symbol is "CSC." As of May 28, 1996, the number of registered shareholders of Computer Sciences Corporation's common stock was 7,666. 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 to date in 1996. No cash dividends have been paid during this period. Per share prices have been adjusted for a 200% stock dividend distributed January 13, 1994.
1996 1995 1994 -------------- ------------- ------------- CALENDAR QUARTER HIGH LOW HIGH LOW HIGH LOW ---------------- ------ ------ ------ ------ ------ ------ 1st............................ 80 3/4 65 1/8 52 1/4 47 1/4 41 3/4 31 5/8 2nd............................ 79 1/2* 68 1/8* 56 7/8 46 1/2 44 35 1/4 3rd............................ 65 3/8 52 45 1/4 39 3/4 4th............................ 75 1/4 62 1/2 52 5/8 41
- -------- * Through May 20, 1996. ITEM 6. SELECTED FINANCIAL DATA, FIVE-YEAR REVIEW
MARCH 29, MARCH 31, APRIL 1, APRIL 2, APRIL 3, 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS) Total assets............ $2,595,790 $2,333,660 $1,806,380 $1,460,922 $1,375,386 Debt: Long-term............. 405,471 310,317 273,344 295,316 349,410 Short-term............ 64,421 126,317 17,772 6,220 17,963 Current maturities.... 5,887 11,111 32,685 10,503 22,337 ---------- ---------- ---------- ---------- ---------- Total............... 475,779 447,745 323,801 312,039 389,710 Stockholders' equity.... 1,305,694 1,148,559 805,680 695,380 606,810 Working capital......... 383,811 303,593 195,875 332,273 265,563 Property and equipment: At cost............... 1,147,448 905,469 695,796 525,742 435,332 Accumulated depreciation and amortization....... 506,646 375,330 302,760 241,990 165,165 ---------- ---------- ---------- ---------- ---------- Property and equipment, net.......... 640,802 530,139 393,036 283,752 270,167 Current assets to current liabilities..... 1.5:1 1.4:1 1.3:1 1.8:1 1.7:1 Debt to total capitalization.......... 26.7% 28.0% 28.7% 31.0% 39.1% Return on equity, before accounting change...... 11.5 12.2 12.1 12.0 12.0 Book value per share.... $23.30 $20.82 $15.92 $13.94 $12.33 Stock price range (high).................. 80.75 52.63 41.75 26.83 28.00 (low)....... 46.50 35.25 23.33 19.00 17.42 Year-end price/earnings ratio................... 28 24 20 16 16
6 FIVE-YEAR REVIEW (CONTINUED)
1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS) Revenues................ $4,242,422 $3,372,502 $2,582,670 $2,479,847 $2,113,351 ---------- ---------- ---------- ---------- ---------- Costs of services....... 3,349,706 2,685,603 2,065,023 2,006,449 1,723,973 Selling, general and administrative.......... 378,873 311,177 227,003 210,217 179,578 Depreciation and amortization............ 252,084 172,625 130,704 118,668 81,701 Interest, net........... 30,367 25,645 10,857 15,804 15,626 Other items, net........ 3,740 460 3,250 ---------- ---------- ---------- ---------- ---------- Total costs and expenses................ 4,011,030 3,198,790 2,433,587 2,351,598 2,004,128 ---------- ---------- ---------- ---------- ---------- Income before taxes..... 231,392 173,712 149,083 128,249 109,223 Taxes on income......... 89,700 62,973 58,153 50,100 41,046 ---------- ---------- ---------- ---------- ---------- Earnings before cumulative effect of accounting change...... 141,692 110,739 90,930 78,149 68,177 Cumulative effect of accounting change for income taxes........... 4,900 ---------- ---------- ---------- ---------- ---------- Net income.............. $ 141,692 $ 110,739 $ 95,830 $ 78,149 $ 68,177 ========== ========== ========== ========== ========== Earnings per common share before cumulative effect of accounting change................. $2.48 $2.09 $1.77 $1.55 $1.37 Cumulative effect of accounting change for income taxes........... 0.09 ---------- ---------- ---------- ---------- ---------- Earnings per common share................... $2.48 $2.09 $1.86 $1.55 $1.37 ========== ========== ========== ========== ========== Shares used to compute earnings per share..... 57,214,384 52,974,949 51,385,204 50,275,506 49,646,760
Note:Per-share amounts are restated for a three-for-one stock split, distributed in the form of a 200% stock dividend on January 13, 1994. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS REVENUE The Company derived its revenues for fiscal years 1996, 1995 and 1994 from the following market sectors (dollars in millions):
PERCENT PERCENT 1996 CHANGE 1995 CHANGE 1994 -------- ------- -------- ------- -------- U.S. Commercial..................... $1,531.9 31% $1,169.8 13% $1,038.8 International....................... 1,139.0 60 713.3 122 320.7 -------- -------- -------- Global Commercial................. 2,670.9 42 1,883.1 39 1,359.5 U.S. Federal Government............. 1,571.5 6 1,489.4 22 1,223.2 -------- -------- -------- Total............................. $4,242.4 26% $3,372.5 31% $2,582.7 ======== ======== ========
The Company's 26% overall revenue growth for fiscal 1996 over 1995 was fueled principally by its global commercial operations. International commercial operations provided over one-half of the global commercial growth. The expansion of outsourcing business in the United Kingdom and acquisition of Ploenzke A.G. in 7 Germany accounted for the bulk of the Company's international growth. During the year, the Company announced international outsourcing contracts with Lucas Industries PLC, Anglian Water, Guinness PLC and the National Health Service in Scotland. The majority of fiscal 1995 international revenue growth also came from significant increases in outsourcing and consulting. Important international outsourcing clients adding to fiscal 1995 revenue included British Aerospace, Ford of Europe, ICI Paints and Toyota of Belgium. U.S. commercial revenue increased 31% for fiscal 1996 versus 1995. More than 70% of this growth was the result of an increase in commercial outsourcing, notably the award of contracts with the Hughes Aircraft Company, Southern New England Telecommunications Corporation, Scott Paper Company and James River Corporation. The Company's U.S. consulting operations also contributed to the growth, with fiscal 1996 revenue 25% over fiscal 1995 revenue. CSC's U.S. commercial revenue growth for fiscal 1995 was led by large increases in commercial outsourcing, including contracts with American Medical Response, the Mutual Life Insurance Company of New York and Polaroid. The Company's federal revenues were derived from the following agencies (dollars in millions):
PERCENT PERCENT 1996 CHANGE 1995 CHANGE 1994 -------- ------- -------- ------- -------- DOD.................................. $ 961.6 17% $ 823.8 19% $ 693.2 NASA................................. 292.9 (6) 312.4 41 222.0 Civil................................ 317.0 (10) 353.2 15 308.0 -------- -------- -------- Total U.S. Federal................... $1,571.5 6% $1,489.4 22% $1,223.2 ======== ======== ========
Revenue from the U.S. Federal government increased 6% during fiscal 1996 versus fiscal 1995 due principally to additional tasking on delivery order contracts, such as with the Defense Enterprise Integration Systems Agency (DEIS), and the win of the Air Force contract at the Arnold Engineering Development Center. Revenue gains during 1996 were partially offset by the loss of two civil contracts and federal government spending reductions. During fiscal 1995, the Company's 22% revenue increase was led by the award of a NASA contract valued at $1.1 billion over eight years if all options are exercised. The higher federal revenue also included the effect of an acquisition at the end of the third quarter of fiscal 1994. During fiscal 1996, CSC announced winning federal contracts with a value of $2.4 billion, compared with the $1.3 billion announced during 1995. COSTS AND EXPENSES The Company's costs and expenses in dollars and as a percentage of revenue are as follows (dollars in millions):
DOLLAR AMOUNT PERCENTAGE OF REVENUE -------------------------- ------------------------- 1996 1995 1994 1996 1995 1994 -------- -------- -------- ------- ------- ------- Costs of services....... $3,349.7 $2,685.6 $2,065.0 79.0% 79.6% 80.0% Selling, general & administrative.......... 378.9 311.2 227.0 8.9 9.2 8.8 Depreciation and amortization............ 252.1 172.6 130.7 5.9 5.1 5.1 Interest expense, net... 30.3 25.7 10.9 .7 .8 .4 Other items, net........ 3.7 .1 -------- -------- -------- ------- ------- ------- Total................... $4,011.0 $3,198.8 $2,433.6 94.5% 94.8% 94.2% ======== ======== ======== ======= ======= =======
COSTS OF SERVICES The Company's costs of services as a percent of revenue improved to 79.0% during fiscal 1996 from 79.6% during fiscal 1995. The decrease in costs of services during fiscal 1996 and 1995 is primarily related to the shift in the mix of business toward outsourcing, which is generally more capital intensive than the Company's federal 8 consulting and systems integration operations. The decrease in costs of services is generally offset by increases in depreciation and amortization expense. SELLING, GENERAL AND ADMINISTRATIVE As noted in the table above, selling, general and administrative (SG&A) expenses improved as a percent of revenue during fiscal 1996 to 8.9% from 9.2% for fiscal 1995. Improvements in SG&A during 1996 were achieved across all market sectors served by CSC. During fiscal 1995, the expansion of the Company's commercial activities was the most significant contributor to the increase in SG&A as a percent of revenue. DEPRECIATION AND AMORTIZATION Depreciation and amortization expense during fiscal 1996 was 5.9% of the Company's total revenue. This is an increase from fiscal 1995 when depreciation and amortization expenses were 5.1% of revenue. The increases during both fiscal years reflect the Company's investments in computer equipment and software, especially from CSC's outsourcing activities, as described above. INTEREST AND OTHER ITEMS Interest expense, net of interest income, was $30.3 million for fiscal 1996, up from $25.7 million for fiscal 1995 and $10.9 million for fiscal 1994. The higher interest expense for fiscal 1996 and 1995 is due principally to higher borrowing to fund the Company's investment in computer equipment and software mentioned above. Other items for fiscal 1995 include a loss on the sale of the Company's tax processing operation during January 1995. The sale resulted in a pre-tax loss of $3.7 million. This loss was reduced by related income tax effects of $2.8 million, yielding a net loss of $0.9 million. The Company also completed the phase-out of certain unprofitable operations in Belgium during fiscal 1995. INCOME BEFORE TAXES The company's income before taxes for the most recent three fiscal years is as follows:
DOLLAR AMOUNT MARGIN -------------------- ---------------- 1996 1995 1994 1996 1995 1994 ------ ------ ------ ---- ---- ---- Income before taxes........................ $231.4 $173.7 $149.1 5.5% 5.2% 5.8%
Income before taxes improved during fiscal 1996 as a percentage of revenue. The 0.3% improvement in margin to 5.5% during fiscal 1996 relates principally to improvements in costs of services and SG&A expenses as a percent of revenue, partially offset by the increase in depreciation and amortization. During 1995, income before taxes decreased because of proportionately higher SG&A costs, higher net interest expense, and the adverse effect on earnings of ending certain consulting activities in the Far East. The adverse effect was largely offset by the favorable resolution of sales tax issues in the Company's U.S. operations. TAXES The provision for income taxes as a percentage of pre-tax earnings was 38.8%, 36.3% and 39.0% for fiscal 1996, 1995 and 1994, respectively. The fiscal 1995 tax rate was reduced most significantly by the favorable tax treatment of the loss on sale of TACS, the Company's tax processing subsidiary and by lower amounts of non-deductible foreign operating losses. NET INCOME The Company's net income for fiscal years 1996,1995, and 1994 is as follows:
DOLLAR AMOUNT MARGIN -------------------- ---------------- 1996 1995 1994 1996 1995 1994 ------ ------ ------ ---- ---- ---- Net income................................. $141.7 $110.7 *$90.9 3.3% 3.3% 3.5%
- -------- * Before the effect of the adoption of SFAS 109. 9 During fiscal 1996, the Company's net income margin remained constant at 3.3%. The increase in the Company's 1996 tax rate offset the improvement in income before taxes as a percent of revenue. The decline in the Company's net income margin during fiscal 1995 is due primarily to higher SG&A costs, depreciation, and net interest expense. CASH FLOWS
PERCENT PERCENT 1996 CHANGE 1995 CHANGE 1994 ------- ------- ------- ------- ------- (DOLLARS IN MILLIONS) Cash from operations............... $ 365.2 60 % $ 227.3 19% $ 191.8 Net cash used in investing......... (465.4) 16 (402.8) 30 (309.7) Net cash provided by financing..... 49.8 (76) 204.0 53 133.3 ------- ------- ------- Net (decrease) increase in cash and cash equivalents................... (50.4) 28.5 15.4 Cash at beginning of year.......... 155.3 126.8 111.4 ------- ------- ------- Cash at end of year.............. $ 104.9 (32)% $ 155.3 22% $ 126.8 ======= ======= =======
Historically, the majority of the Company's cash has been provided from operating activities. The increases in cash from operations during fiscal 1996 and 1995 are primarily due to higher earnings and non-cash charges (depreciation and amortization), offset in part by higher working capital requirements. The Company's investments principally relate to purchases of computer equipment and software that support the Company's expanding commercial operations. Investments in computer equipment occur at the inception of an outsourcing contract and during performance on the contract as equipment upgrades or replacements. The Company has also made a significant number of acquisitions from fiscal 1994 to 1996. The Company received $196.3 million in cash from a four million common share offering during fiscal 1995. During fiscal 1994, a $250 million bank borrowing was replaced with a commercial paper program of the same amount, with no net change in principal outstanding. LIQUIDITY AND CAPITAL RESOURCES The balance of cash, cash equivalents and short-term investments was $104.9 million at March 29,1996, $155.3 million at March 31, 1995 and $126.8 million at April 1, 1994. During this period, the Company's earnings have added substantially to equity. During fiscal 1995, equity was augmented by the $196.3 million net proceeds from the Company's public offering noted above. For fiscal 1994 through 1996, equity growth--mainly through retained earnings, in excess of additional borrowings--enabled the Company to strengthen its financial position. At the end of fiscal 1996, CSC's ratio of debt to total capitalization was 27%.
1996 1995 1994 -------- -------- -------- Debt.............................................. $ 475.8 $ 447.7 $ 323.8 Equity............................................ 1,305.7 1,148.6 805.7 -------- -------- -------- Total capital..................................... $1,781.5 $1,596.3 $1,129.5 ======== ======== ======== Debt to total capital............................. 27% 28% 29%
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, 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 CSC public debt and, or, equity. 10 DIVIDENDS It has been the Company's policy to invest earnings in the growth of the Company rather than distribute earnings as dividends. This policy, under which dividends have not been paid since fiscal 1969, is expected to continue, but is subject to regular review by the Board of Directors. RECENT DEVELOPMENTS On April 28, 1996, the Company entered into an Agreement and Plan of Merger with The Continuum Company, Inc. ("Continuum") and Continental Acquisition, Inc., a subsidiary of the Company ("Sub") pursuant to which Sub will be merged with and into Continuum and Continuum will become a wholly owned subsidiary of CSC. Each outstanding share of common stock of Continuum will be converted into 0.79 of a share of CSC common stock. Continuum is a consulting and computer services firm serving the needs of the global financial services industry for computer software and services. Consummation of the merger is expected to occur during the summer of 1996 and is subject to various conditions including, but not limited to, approval by the stockholders of CSC and Continuum. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements and Financial Statement Schedules FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report............................................. 12 Consolidated Statements of Income for the fiscal years ended March 29, 1996, March 31, 1995 and April 1, 1994................................. 13 Consolidated Balance Sheets as of March 29, 1996 and March 31, 1995...... 14 Consolidated Statements of Cash Flows for the fiscal years ended March 29, 1996, March 31, 1995 and April 1, 1994.............................. 16 Consolidated Statements of Stockholders' Equity for the fiscal years ended March 29, 1996, March 31, 1995, and April 1, 1994................. 17 Notes to Consolidated Financial Statements............................... 18 Quarterly Financial Information (Unaudited).............................. 31
SCHEDULES Additional Note to Consolidated Financial Statements..................... 36 Schedule VIII--Valuation and Qualifying Accounts......................... 38
Schedules other than that listed above have been omitted since they are either not required, are not applicable, or the required information is shown in the financial statements or related notes. Separate financial statements of the Registrant have been omitted since it is primarily an operating company, and the minority interests in subsidiaries and long-term debt of the subsidiaries held by other than the Registrant are less than five percent of consolidated total assets. Financial statements (or summarized financial information) for unconsolidated subsidiaries and 50%-owned companies accounted for by the equity method have been omitted because they are inapplicable, or do not, considered individually or in the aggregate, constitute a significant subsidiary. 11 INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS, ADDITIONAL NOTE AND FINANCIAL STATEMENT SCHEDULE Board of Directors and Stockholders Computer Sciences Corporation El Segundo, California We have audited the accompanying consolidated balance sheets of Computer Sciences Corporation and Subsidiaries as of March 29, 1996 and March 31, 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended March 29, 1996. Our audits also included the additional note and financial statement schedule listed in the Index at Item 8. These financial statements, additional note and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements, additional note and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Computer Sciences Corporation and Subsidiaries at March 29, 1996 and March 31, 1995, and the results of their operations and their cash flows for each of the three years in the period ended March 29, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, such additional note and financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 1 to the consolidated financial statements, in fiscal 1994 the Company changed its method of accounting for income taxes and for postretirement benefits other than pensions to conform with pronouncements of the Financial Accounting Standards Board. Deloitte & Touche LLP Los Angeles, California May 24, 1996 12 COMPUTER SCIENCES CORPORATION CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEAR ENDED ---------------------------------- MARCH 29, MARCH 31, APRIL 1, 1996 1995 1994 ---------- ---------- ---------- (IN THOUSANDS EXCEPT PER- SHARE AMOUNTS) Revenues................ $4,242,422 $3,372,502 $2,582,670 ---------- ---------- ---------- Costs of services....... 3,349,706 2,685,603 2,065,023 Selling, general and administrative.......... 378,873 311,177 227,003 Depreciation and amortization............ 252,084 172,625 130,704 Interest expense........ 35,021 28,841 17,219 Interest income......... (4,654) (3,196) (6,362) Other items, net (note 4)...................... 3,740 ---------- ---------- ---------- Total costs and expenses................ 4,011,030 3,198,790 2,433,587 ---------- ---------- ---------- Income before taxes..... 231,392 173,712 149,083 Taxes on income (note 6)...................... 89,700 62,973 58,153 ---------- ---------- ---------- Income before cumulative effect of accounting change...... 141,692 110,739 90,930 Cumulative effect of accounting change for income taxes (note 1).. 4,900 ---------- ---------- ---------- Net income.............. $ 141,692 $ 110,739 $ 95,830 ========== ========== ========== Earnings per common share before cumulative effect of accounting change...... $ 2.48 $ 2.09 $ 1.77 Cumulative effect of accounting change for income taxes........... 0.09 ---------- ---------- ---------- Earnings per common share (note 1).......... $ 2.48 $ 2.09 $ 1.86 ========== ========== ==========
(See notes to consolidated financial statements) 13 COMPUTER SCIENCES CORPORATION CONSOLIDATED BALANCE SHEETS
MARCH 29, MARCH 31, ASSETS 1996 1995 ------- ---------- ---------- (IN THOUSANDS) Current assets: Cash and cash equivalents (note 1)..................... $ 104,867 $ 155,310 Receivables, net of allowance for doubtful accounts of $36,086 (1996) and $30,432 (1995) (note 2).......... 943,355 824,963 Prepaid expenses and other current assets.............. 96,032 101,232 ---------- ---------- Total current assets................................. 1,144,254 1,081,505 ---------- ---------- Investments and other assets (note 1): Purchased and internally developed software, net of accumulated amortization of $73,298 (1996) and $48,904 (1995)...................................... 71,704 45,473 Purchased credit information files, net of accumulated amortization of $29,431 (1996) and $26,785 (1995)... 24,131 26,768 Excess of cost of businesses acquired over related net assets, net of accumulated amortization of $59,779 (1996) and $44,349 (1995)........................... 420,775 431,074 Other assets........................................... 294,124 218,701 ---------- ---------- Total investments and other assets................... 810,734 722,016 ---------- ---------- Property and equipment--at cost (note 3): Land, buildings and leasehold improvements............. 168,302 152,675 Computers and related equipment........................ 887,292 673,366 Furniture and other equipment.......................... 91,854 79,428 ---------- ---------- 1,147,448 905,469 Less accumulated depreciation and amortization......... 506,646 375,330 ---------- ---------- Property and equipment, net.......................... 640,802 530,139 ---------- ---------- $2,595,790 $2,333,660 ========== ==========
(See notes to consolidated financial statements) 14
MARCH 29, MARCH 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 ------------------------------------ -------------- -------------- (IN THOUSANDS EXCEPT SHARES) Current liabilities: Short-term debt and current maturities of long-term debt (note 3).. $ 70,308 $ 137,428 Accounts payable................................................... 151,361 181,983 Accrued payroll and related costs (note 5)......................... 196,221 152,438 Other accrued expenses............................................. 290,372 258,181 Federal, state and foreign income taxes (note 6)................... 52,181 47,882 -------------- -------------- Total current liabilities........................................ 760,443 777,912 -------------- -------------- Long-term debt, net of current maturities (note 3)................... 405,471 310,317 -------------- -------------- Deferred income taxes (note 6)....................................... 72,011 52,601 -------------- -------------- Other long-term liabilities.......................................... 52,171 44,271 -------------- -------------- Commitments and contingencies (note 7)............................... Stockholders' equity (notes 1 and 8)................................. Preferred stock, par value $1 per share; authorized 1,000,000 shares; none issued..................................................... Common stock, par value $1 per share; authorized 75,000,000 shares; issued 56,341,855 (1996) and 55,385,555 shares (1995)........... 56,342 55,386 Additional paid-in capital......................................... 348,507 316,241 Earnings retained for use in business.............................. 911,872 770,180 Foreign currency translation and unfunded pension adjustments...... (539) 11,931 -------------- -------------- 1,316,182 1,153,738 Less common stock in treasury, at cost, 311,928 shares (1996) and 215,047 shares (1995)........................................... 10,488 5,179 -------------- -------------- Stockholders' equity, net........................................ 1,305,694 1,148,559 -------------- -------------- $ 2,595,790 $ 2,333,660 ============== ==============
(See notes to consolidated financial statements) 15 COMPUTER SCIENCES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED ---------------------------------------------- MARCH 29, MARCH 31, APRIL 1, 1996 1995 1994 -------------- -------------- -------------- (IN THOUSANDS, INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS) Cash flows from operating activities: Net income ................. $ 141,692 $ 110,739 $ 95,830 Adjustments to reconcile net income to net cash provided: Depreciation and amortization.................. 252,084 172,625 130,704 Provision for losses on accounts receivable........... 13,237 7,658 10,123 Cumulative effect of accounting change for income taxes......................... (4,900) Changes in assets and liabilities, net of effects of acquisitions: Increase in receivables................... (117,964) (129,017) (69,397) Decrease (increase) in prepaid expenses.............. 8,127 (25,461) (6,497) Decrease (increase) in other assets.................. 3,074 (4,602) 3,829 Increase in accounts payable and accruals.......... 21,806 78,304 17,969 Increase in income taxes payable....................... 39,201 10,032 12,946 Other changes, net...... 3,898 7,079 1,182 -------------- -------------- -------------- Net cash provided by operating activities.......... 365,155 227,357 191,789 -------------- -------------- -------------- Cash flows from investing activities: Short-term investments...... 43,590 Purchases of property and equipment..................... (259,834) (193,325) (118,635) Outsourcing contracts....... (114,144) (103,280) (114,403) Acquisitions, net of cash acquired...................... (33,057) (76,924) (92,961) Dispositions................ 7,380 Purchased and internally developed software............ (51,149) (23,906) (18,793) Other investing cash flows.. (14,555) (5,397) (8,526) -------------- -------------- -------------- Net cash used in investing activities.................... (465,359) (402,832) (309,728) -------------- -------------- -------------- Cash flows from financing activities: Net repayment of commercial paper......................... (587) Borrowings under lines of credit........................ 78,457 209,778 105,273 Repayment of borrowings under lines of credit......... (38,376) (215,667) (93,549) Proceeds from term debt issuance...................... 150,000 Principal payments on long- term debt..................... (12,536) (40,525) (11,276) Outsourcing contract financing..................... (114,403) 114,403 Proceeds from equity offering...................... 196,290 Proceeds from stock option transactions.................. 12,788 17,449 17,200 Other financing cash flows.. 10,015 1,043 1,231 -------------- -------------- -------------- Net cash provided by financing activities.......... 49,761 203,965 133,282 -------------- -------------- -------------- Net (decrease) increase in cash and cash equivalents..... (50,443) 28,490 15,343 Cash and cash equivalents at beginning of year............. 155,310 126,820 111,477 -------------- -------------- -------------- Cash and cash equivalents at end of year................... $ 104,867 $ 155,310 $ 126,820 ============== ============== ==============
(See notes to consolidated financial statements) 16 COMPUTER SCIENCES CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOREIGN CURRENCY EARNINGS AND COMMON STOCK ADDITIONAL RETAINED UNFUNDED COMMON ------------------ PAID-IN FOR USE IN PENSION STOCK IN SHARES AMOUNT CAPITAL BUSINESS ADJUSTMENTS TREASURY ---------- ------- ---------- ---------- ----------- -------- (IN THOUSANDS EXCEPT SHARES) Balance at April 2, 16,811,831 $16,812 $ 89,029 $597,248 $ (3,740) $ (3,969) 1993.................... Stock option 358,639 358 17,468 (626) transactions............ Net income ............. 95,830 Currency translation (2,840) adjustment.............. Unfunded pension 110 obligation.............. Effect of 3-for-1 stock 33,636,982 33,637 (33,637) split................... ---------- ------- -------- -------- -------- -------- Balance at April 1, 50,807,452 50,807 106,497 659,441 (6,470) (4,595) 1994.................... Issuance of common 4,000,000 4,000 192,290 stock................... Stock option 578,103 579 17,454 (584) transactions............ Net income.............. 110,739 Currency translation 19,037 adjustment.............. Unfunded pension (636) obligation.............. ---------- ------- -------- -------- -------- -------- Balance at March 31, 55,385,555 55,386 316,241 770,180 11,931 (5,179) 1995.................... Stock option 956,300 956 32,266 (5,309) transactions............ Net income.............. 141,692 Currency translation (10,822) adjustment.............. Unfunded pension (1,648) obligation.............. ---------- ------- -------- -------- -------- -------- Balance at March 29, 56,341,855 $56,342 $348,507 $911,872 $ (539) $(10,488) 1996.................... ========== ======= ======== ======== ======== ========
(See notes to consolidated financial statements) 17 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include those of Computer Sciences Corporation, its subsidiaries, and those joint ventures and partnerships over which it exercises control, hereafter referred to as "CSC" or "the Company." All material intercompany transactions and balances have been eliminated. INCOME RECOGNITION The Company provides services under fixed price, cost-based, time and materials, and level of effort contracts. For fixed price contracts, income is recorded on the basis of the estimated percentage of completion of services rendered. Losses, if any, on fixed price contracts are recognized during the period in which the loss is determined. For cost-based contracts, income is recorded by applying an estimated factor to costs as incurred, such factor being determined by the contract provisions and prior experience. For time and materials and level of effort types of contracts, income is recorded as the costs are incurred, income being the difference between such costs and the agreed-upon billing amounts. Revenues from certain information processing services are recorded at the time the service is utilized by the customer. Revenues from sales of proprietary software are recognized when delivered. DEPRECIATION AND AMORTIZATION The Company's depreciation and amortization policies are as follows: Property and Equipment: Buildings......................... 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: Purchased and internally developed 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 purchased and internally developed software are unamortized capitalized software development costs of $30,031,000 and $19,326,000 for fiscal years 1996 and 1995, respectively. The related amortization expense was $14,126,000, $6,659,000, and $7,485,000, for fiscal years 1996, 1995, and 1994, respectively. Included in other assets are deferred contract costs related to the initial purchase of assets under outsourcing contracts. The balance of such costs, net of amortization, was $99,551,000 and $91,324,000 for fiscal 1996 and 1995, respectively. The related amortization expense was $12,764,000, $11,601,000, and $6,169,000 for fiscal 1996, 1995 and 1994, respectively. 18 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company evaluates at least annually the recoverability of its excess cost of businesses acquired over related net assets. In assessing recoverability, the current and future profitability of the related operations are considered, along with management's plans with respect to the operations and the projected undiscounted cash flows. ACQUISITIONS During the three years ended March 29, 1996, the Company made a number of acquisitions which, either individually or collectively, are not material. In conjunction with these purchases, the Company acquired assets with an estimated fair value of $27,255,000, $63,102,000, and $125,912,000; and assumed liabilities of $14,663,000, $85,465,000, and $76,815,000, for fiscal 1996, 1995, and 1994, respectively. The excess of cost of businesses acquired over related net assets was $14,902,000, $103,626,000, and $54,531,000 for fiscal 1996, 1995, and 1994, respectively. CASH FLOWS Cash payments for interest on indebtedness and taxes on income are as follows:
FISCAL YEAR ----------------------- 1996 1995 1994 ------- ------- ------- (IN THOUSANDS) Interest........................................... $33,418 $23,733 $17,513 Taxes on income.................................... 45,217 54,800 56,404
For purposes of reporting cash and cash equivalents, the Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. The Company's investments consist of high quality securities issued by a number of institutions having high credit ratings, thereby limiting the Company's exposure to concentrations of credit risk. With respect to financial instruments, the Company's carrying amounts of its other current assets and liabilities were deemed to approximate their market values due to their short maturity. 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. EARNINGS PER SHARE Primary earnings per common share are computed on the basis of the weighted average number of shares of common stock plus common stock equivalents (stock options) outstanding during the year. Fully diluted earnings per common share are not presented since dilution is less than three percent. During February 1995, the Company issued an additional 4,000,000 shares of common stock through a public offering, resulting in net proceeds of $196,290,000. The proceeds were used to reduce short-term indebtedness and for general corporate purposes, including the financing of working capital needs and capital expenditures. If the reduction of indebtedness and the offering of related shares had occurred at the beginning of fiscal 1995, the corresponding effect on earnings per share for the year would not have been significant. During December 1993, the Board of Directors declared a three-for-one stock split in the form of a 200 percent stock dividend distributed January 13, 1994 on the Company's common stock, with no change in par value. 19 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Shares used to compute earnings per share, restated for the stock split, are as follows:
FISCAL YEAR -------------------------------- 1996 1995 1994 ---------- ---------- ---------- Average shares outstanding................ 55,568,121 51,425,723 50,234,161 Common stock equivalents.................. 1,646,263 1,549,226 1,151,043 ---------- ---------- ---------- 57,214,384 52,974,949 51,385,204 ========== ========== ==========
ACCOUNTING CHANGES Effective April 3, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and SFAS 109, "Accounting for Income Taxes." Under SFAS 106, the Company changed from the cash basis of accounting for postretirement benefits other than pensions to the accrual of the estimated costs of such benefits during the period that covered employees render services (see Note 5). The adoption of SFAS 109 changed the Company's method of accounting for income taxes from the "deferred method" to the "asset and liability method." Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases (see Note 6). RECENT ACCOUNTING PRONOUNCEMENTS During fiscal 1996, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). This statement requires that such assets be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable and that such assets be reported at the lower of carrying amount or fair value. The Company will adopt SFAS No. 121 during fiscal 1997 and, based on current circumstances, does not expect a material impact on its results of operations or financial position. Also during fiscal 1996, Statement of Financial Accounting Standards No 123, "Accounting for Stock-Based Compensation," was issued, which is effective for fiscal years beginning after December 15, 1995. This statement requires footnote disclosure of the pro forma impact on net income and earnings per share of the compensation cost that would have been recognized if the fair value of all stock-based awards was recorded in the income statement. The disclosure provisions of this statement will be adopted during fiscal 1997. RECLASSIFICATIONS Certain reclassifications have been made to the prior years' financial statements in order for them to conform to the current presentation. 20 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 2--RECEIVABLES Receivables consist of the following:
MARCH 29, MARCH 31, 1996 1995 --------- --------- (IN THOUSANDS) Billed trade accounts.................................. $687,508 $637,580 Recoverable amounts under contracts in progress........ 228,099 157,838 Other receivables...................................... 27,748 29,545 -------- -------- $943,355 $824,963 ======== ========
Amounts due under long-term contracts include the following items:
MARCH 29, MARCH 31, 1996 1995 --------- --------- (IN THOUSANDS) Included in billed trade accounts receivable-- Amounts retained in accordance with contract terms, due upon completion or other specified event..... $ 8,764 $ 6,496 ======== ======== Included in recoverable amounts under contracts in progress: Amounts on fixed price contracts not billable in accordance with contract terms until some future date...................................... $107,824 $ 69,807 Excess of costs over provisional billings, awaiting clearance for final billing or future negotiation...................................... 18,093 10,786 Accrued award fees.................................. 11,756 9,546 Amounts retained in accordance with contract terms, due upon completion or other specified event..... 17,412 7,358 Amounts on completed work, negotiated and awaiting contractual document............................. 3,082 2,754 Unrecovered costs related to claims................. 11,202 9,569 -------- -------- $169,369 $109,820 ======== ========
The recoverable amounts under contracts in progress which have not yet been billed comprise amounts of contract revenue not billable at the balance sheet date. Such amounts generally become billable upon completion of a specified phase of the contract, negotiation of contract modifications, completion of government audit activities, or upon acceptance by the customer. All items relating to long-term contracts shown above are expected to be collected during fiscal 1997 except for $11,202,000 of unrecovered costs related to claims and $107,386,000 of other items to be collected during 1998 and thereafter. The unrecovered costs related to claims are recorded at net realizable value and consist primarily of amounts due under long-term contracts which are pending determination by negotiation or legal proceedings. 21 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--DEBT SHORT-TERM At March 29, 1996, the Company has uncommitted lines of credit of $80,000,000 with domestic banks. As of March 29, 1996, the Company had no borrowings outstanding under these lines of credit. The Company also has committed lines of credit of $140,000,000 with certain foreign banks; as of March 29, 1996, the Company had $64,421,000 of borrowings outstanding under these lines of credit. Interest rates approximate the applicable prime rate. These short-term lines of credit carry no commitment fees or significant covenants. At March 29, 1996, the weighted average interest rate on these short-term lines of credit was 5.2%. At March 31, 1995, the rate was 6.1%. LONG-TERM
MARCH 29, MARCH 31, 1996 1995 --------- --------- (IN THOUSANDS) Commercial paper...................................... $246,834 $150,000 6.8% term notes....................................... 150,000 150,000 8.95% Senior Notes.................................... 5,000 10,000 Capitalized lease liabilities, at varying interest rates, payable in monthly installments through fiscal 2001................................................. 9,313 6,223 Notes payable, at varying interest rates through fiscal 1999........................................... 211 5,205 -------- -------- Total long-term debt.................................. 411,358 321,428 Less current maturities............................... 5,887 11,111 -------- -------- $405,471 $310,317 ======== ========
During September 1995, CSC Enterprises (see Note 10) entered into a new credit agreement to provide standby support for the commercial paper program. The standby $350 million agreement expires during September 1999. At March 29, 1996, the weighted average interest rate on the Company's commercial paper was 5.2%. During April 1994, CSC Enterprises borrowed $150 million through a 144A Private Placement offering of 6.8% fixed rate term notes due April 15, 1999. The Senior Notes require repayment September 30, 1996. Any optional prepayment requires a prepayment premium. Capitalized lease liabilities shown above represent amounts due under leases for the use of computers and related equipment. Included in property and equipment are related assets of $10,362,000 (1996) and $13,439,000 (1995), less accumulated amortization of $4,396,000 and $7,370,000, 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 $334 million of retained earnings were available for cash dividends at March 29, 1996. The carrying value of the Company's long-term debt is $411 million at March 29, 1996, as shown above. The corresponding fair value, as defined by Statement of Financial Accounting Standards No. 107, approximates $418 million using the current rates available to the Company for debt of the same remaining maturities. Maturities of long-term debt are $5,887,000 (1997), $4,961,000 (1998), $2,853,000 (1999), $397,489,000 (2000) and $168,000 (2001). 22 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--OTHER ITEMS During January 1995, the Company sold its tax processing operation and incurred an after-tax loss on sale of $.9 million. The pre-tax loss of $3.7 million was reduced by related income tax effects of $2.8 million. NOTE 5--RETIREMENT PLANS PENSIONS The Company and its subsidiaries have several pension plans. A contributory, defined benefit pension plan is generally available to U.S. employees. The benefits under this plan are based on years of participation and the employee's compensation over the entire period of participation. It is the Company's funding policy to make contributions to the plan as required by applicable regulations. Certain non-U.S. employees are enrolled in defined benefit pension plans in the country of domicile. The benefits for these plans generally are based on years of participation and the employee's average compensation during the final years of employment. In addition, the Company has a Supplemental Executive Retirement Plan (SERP) and a Nonemployee Director Retirement Plan, which are nonqualified, noncontributory pension plans. The SERP is a defined benefit retirement plan for designated officers and key executives of the Company. It restores benefits limited by tax regulations and provides for additional benefits based on years of service and the participant's average compensation during a final period of employment. Net periodic pension cost for U.S. and non-U.S. pension plans included the following components:
FISCAL YEAR ---------------------------- 1996 1995 1994 -------- -------- -------- (IN THOUSANDS) Service cost-benefits earned during the year....................................... $ 32,351 $ 28,016 $ 17,238 Interest cost on projected benefit obligation................................. 28,590 24,645 14,097 Actual return on assets.................... (68,449) (10,425) (20,036) Net amortization and deferral: Amortization of initial net asset gains.. (538) (520) (529) Amortization of prior service costs...... 1,432 1,393 678 Amortization of net loss................. 518 613 6 Asset gain (loss) deferred............... 37,893 (15,704) 4,520 SFAS 88 curtailment...................... (2,090) -------- -------- -------- Net periodic pension cost.................. $ 31,797 $ 25,928 $ 15,974 ======== ======== ========
23 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 5--RETIREMENT PLANS (CONTINUED) The following table sets forth the funded status and amounts recognized in the Company's consolidated balance sheets:
FISCAL YEAR ------------------------------------------------------- 1996 1995 --------------------------- --------------------------- ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFIT ACCUMULATED BENEFIT BENEFIT OBLIGATIONS BENEFIT OBLIGATIONS OBLIGATIONS EXCEED ASSETS OBLIGATIONS EXCEED ASSETS ------------- ------------- ------------- ------------- (IN THOUSANDS) Actuarial present value of benefit obligations: Vested benefit obligation.............. $(302,917) $(54,306) $(240,733) $(21,564) ========= ======== ========= ======== Accumulated benefit obligation......... $(322,233) $(70,626) $(262,550) $(30,281) ========= ======== ========= ======== Projected benefit obligation.............. $(382,798) $(87,278) $(318,253) $(33,217) Plan assets at fair market value............ 419,915 55,292 322,970 8,981 --------- -------- --------- -------- Projected benefit obligation less than (in excess of) plan assets................. 37,117 (31,986) 4,717 (24,236) Unrecognized net (gain) loss.................... (20,005) 2,423 13,972 2,654 Prior service cost not yet recognized in net periodic pension cost.. 2,514 7,398 2,971 5,778 Unrecognized (net asset) obligation being amortized over future service periods of plan participants........... 1,095 940 (105) 1,114 Adjustment to reflect minimum liability...... (9,934) (8,634) Contribution in fourth fiscal quarter......... 323 --------- -------- --------- -------- Pension asset (liability)............. $ 20,721 $(31,159) $ 21,878 $(23,324) ========= ======== ========= ========
Assumptions used in the accounting for the Company's plans were:
FISCAL YEAR ------------------------------- 1996 1995 1994 --------- --------- --------- Parent company plan Discount or settlement rate.................... 7.50% 8.00% 7.50% Rate of increase in compensation levels..... 5.85 6.25 6.00 Expected long-term rate of return on assets..... 8.50 8.50 8.50 Non-U.S. plans Discount or settlement rates................... 7.00-9.00 7.00-9.00 6.00-8.00 Rates of increase in compensation levels..... 3.50-6.50 3.50-6.50 3.50-6.00 Expected long-term rates of return on assets..... 7.00-9.25 7.00-9.00 6.00-9.00
Plan assets include actively managed funds, indexed funds and short-term investment funds. The Company sponsors several defined contribution plans for substantially all U.S. employees and certain foreign employees. The plans allow employees to contribute a portion of their earnings in accordance with specified guidelines. For some plans, the Company matches a percentage of the employee's contribution within limits as defined by each plan. At March 29, 1996, plan assets included 2,595,452 shares of the Company's common stock. During fiscal 1996, 1995 and 1994, the Company contributed $16,191,000 $14,171,000, and $11,641,000, respectively. 24 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 5--RETIREMENT PLANS (CONTINUED) OTHER POSTRETIREMENT BENEFITS The Company provides health care and life insurance benefits for certain retired U.S. employees, generally for those employed prior to August 1992. Most non-U.S. employees are covered by government sponsored programs at no direct cost to the Company other than related payroll taxes. As discussed in Note 1, the Company adopted SFAS 106 during fiscal 1994. Under SFAS 106 the net periodic postretirement benefit costs, relating principally to retiree health care, amounted to $5,100,000, $5,368,000 and $4,988,000 in 1996, 1995 and 1994, respectively. Net periodic postretirement benefit cost included the following components:
FISCAL YEAR ---------------------- 1996 1995 1994 ------ ------ ------ (IN THOUSANDS) Service cost, benefits earned during the period.................. $ 831 $ 969 $ 818 Interest cost on accumulated benefit obligation.............. 3,018 2,885 2,586 Actual return on plan assets.................. (1,463) (7) (81) Amortization of initial obligation.............. 1,633 1,633 1,633 Amortization of net (gain) loss............. (42) 78 Asset gain (loss) deferred................ 1,123 (190) 32 ------ ------ ------ Net provision for postretirement benefits................ $5,100 $5,368 $4,988 ====== ====== ======
The status of the plan and amounts recognized in the Company's consolidated balance sheets are as follows:
MARCH 29, MARCH 31, 1996 1995 --------- --------- (IN THOUSANDS) Actuarial present value of benefit obligation applicable to: Retirees.......................................... $(21,047) $(19,132) Fully eligible plan participants.................. (4,309) (5,291) Other active plan participants.................... (16,056) (14,362) -------- -------- Accumulated postretirement benefit obligation....... (41,412) (38,785) Plan assets at fair market value.................... 8,582 4,016 -------- -------- Accumulated postretirement benefit obligation in excess of plan assets.............................. (32,830) (34,769) Unrecognized net gain............................... (2,105) (843) Unrecognized transition obligation.................. 26,992 28,625 Prior service cost not yet recognized in net periodic postretirement benefit cost............... 501 -------- -------- Accrued postretirement benefit liability............ $ (7,442) $ (6,987) ======== ========
The assumed rate of return on plan assets was 7.0% and the discount rate used to estimate the accumulated postretirement benefit obligation was 7.5% and 8.0% for fiscal 1996 and 1995, respectively. Plan assets include actively managed funds, indexed funds and short-term investment funds. The assumed health care cost trend rate used in measuring the expected benefit obligation was 9.5% for fiscal 1996, declining to 5.0% for 2004 and thereafter. A one- percentage point change in the assumed health care cost trend rate would increase or decrease the accumulated postretirement benefit obligation as of March 31, 1996, and the net periodic postretirement benefit cost for fiscal year 1996 by $4,150,000 and $474,000, respectively. 25 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6--INCOME TAXES The sources of income (loss) before taxes, classified as between domestic entities and those entities domiciled outside of the United States, are as follows:
FISCAL YEAR --------------------------- 1996 1995 1994 -------- -------- -------- (IN THOUSANDS) Domestic entities............................. $216,952 $177,702 $159,323 Entities outside the United States............ 14,440 (3,990) (10,240) -------- -------- -------- $231,392 $173,712 $149,083 ======== ======== ========
The provisions for taxes on income, classified as between current and deferred and as between taxing jurisdictions, consist of the following:
FISCAL YEAR ------------------------ 1996 1995 1994 ------- ------- ------- (IN THOUSANDS) Current portion: Federal........................................ $36,746 $46,045 $38,109 State.......................................... 3,400 5,983 5,592 Foreign........................................ 5,564 (142) 164 ------- ------- ------- 45,710 51,886 43,865 ------- ------- ------- Deferred portion: Federal........................................ 37,568 9,864 13,647 State.......................................... 6,422 1,223 641 ------- ------- ------- 43,990 11,087 14,288 ------- ------- ------- Total provision for taxes........................ $89,700 $62,973 $58,153 ======= ======= =======
The major elements contributing to the difference between the federal statutory tax rate and the effective tax rate are as follows:
FISCAL YEAR ---------------- 1996 1995 1994 ---- ---- ---- Statutory rate........................................... 35.0% 35.0% 35.0% State income tax, less effect of federal deduction....... 2.8 2.7 2.7 Goodwill amortization.................................... 1.3 1.4 1.4 Utilization of tax credits............................... (.2) (1.1) (.4) Tax benefit of loss on sale.............................. (.8) Foreign losses without tax benefits...................... .1 2.0 Tax-exempt investments................................... (.2) (.1) (1.0) Effect of U.S. tax law change............................ .9 Other.................................................... .1 (.9) (1.6) ---- ---- ---- Effective tax rate....................................... 38.8% 36.3% 39.0% ==== ==== ====
26 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6--INCOME TAXES (CONTINUED) The tax effects of significant temporary differences that comprise deferred tax balances are as follows:
MARCH 29, MARCH 31, 1996 1995 --------- --------- (IN THOUSANDS) Deferred tax assets (liabilities) Deferred income................................... $ 2,572 $ 2,552 Employee benefits................................. 9,691 671 Provisions for contract settlement................ 15,866 7,517 Currency exchange................................. 1,427 (7,429) Other assets...................................... 479 6,663 Contract accounting............................... (75,925) (53,129) Depreciation and amortization..................... (68,542) (29,964) Prepayments....................................... (16,537) (8,064) Employee benefits................................. (10,452) (11,933) Other liabilities................................. (6,536) (10,851) --------- --------- Total deferred taxes................................ $(147,957) $(103,967) ========= =========
Of the above deferred amounts, $75,946,000 and $51,366,000 are included in current income taxes payable at March 29, 1996 and March 31, 1995, respectively. During fiscal 1996, the Company received the revenue agent's report regarding the Internal Revenue Service's audit of fiscal 1987 through 1991. The Company has filed a protest regarding the substantive issues in that report with the Appeals Division of the IRS. Management believes that the results of the appeal will not have a significant effect on the financial statements. NOTE 7--COMMITMENTS AND CONTINGENCIES COMMITMENTS The Company has operating leases for the use of certain property and equipment. Substantially all operating leases are noncancelable or cancelable only by the payment of penalties. All lease payments are based on the lapse of time but include, in some cases, payments for insurance, maintenance and property taxes. There are no purchase options on operating leases at favorable terms, but most leases have one or more renewal options. Certain leases on real property are subject to annual escalations for increases in utilities and property taxes. Lease rental expense amounted to $111,157,000 (1996), $111,812,000 (1995), and $83,113,000 (1994). Minimum fixed rentals required for the next five years and thereafter under operating leases in effect at March 29, 1996 are as follows (in thousands):
FISCAL YEAR REAL ESTATE EQUIPMENT ----------- ----------- --------- 1997................................................. $ 55,411 $47,366 1998................................................. 46,284 21,759 1999................................................. 33,819 9,859 2000................................................. 28,042 4,899 2001................................................. 20,427 1,645 Thereafter to 2018................................... 50,702 855 -------- ------- $234,685 $86,383 ======== =======
27 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 7--COMMITMENTS AND CONTINGENCIES (CONTINUED) CONTINGENCIES The Company is currently party to a number of disputes which involve or may involve litigation. After consultation with counsel, it is the opinion of Company management that ultimate liability, if any, with respect to these disputes will not be material to the Company's financial position. NOTE 8--STOCK OPTIONS AND STOCK RIGHTS The Company currently has seven plans under which options to purchase shares of the Company's common stock have been or may be granted to officers and key managerial and technical employees of the Company and its subsidiaries. The plans authorize the issuance of up to 1,800,000 (for each of the 1978, 1980 and 1984 plans), 2,250,000 (1987 plan), 3,000,000 (for each of the 1990 and 1992 plans), and 2,500,000 shares (1995 plan). Only non-qualified options may be issued under the 1978 plan. Either incentive stock options or non-qualified options may be issued under the 1980, 1984, 1987, 1990, 1992 and 1995 plans. Option exercise prices under all plans other than the 1987, 1990, 1992 and 1995 plans are fixed at 100% of the fair market value of the underlying shares on the date of grant, except for 600,000 shares under the 1978 plan and 300,000 shares under the 1984 plan, which may be granted at a price of $1.00 per share. The 1987, 1990, 1992 and the 1995 plans authorize the grant of stock options or stock appreciation rights or the sale of restricted stock, or any combination thereof, provided that the exercise or purchase price is not less than the par value ($1.00 per share) of the shares to be purchased. At March 29, 1996, options to purchase 4,346,915 shares of the Company's common stock were outstanding, of which 1,741,010 were exercisable, and 3,353,370 shares of common stock remained available for the granting of future options. The status of all optioned shares is as follows:
FISCAL YEAR ------------------------------- 1996 1995 1994 --------- --------- --------- Outstanding--beginning of year................ 5,147,185 4,880,938 4,226,475 Granted during year, at prices ranging from $12.25 to $76.13 (1996), $32.13 to $51.88 (1995), $l.00 to $39.88 (1994)............... 447,605 1,137,900 1,590,500 Exercised during year, at prices ranging from $1.00 to $50.50 (1996), $1.00 to $39.50 (1995), $l.00 to $24.67 (1994)............... (959,675) (580,353) (795,697) Canceled during year, at prices ranging from $12.58 to $65.00 (1996), $1.00 to $46.75 (1995), $12.58 to $24.96 (1994).............. (288,200) (291,300) (140,340) --------- --------- --------- Outstanding-end of year, at prices ranging from $1.00 to $76.13, all years.................................... 4,346,915 5,147,185 4,880,938 ========= ========= ========= Average price of outstanding options.......... $29.97 $25.70 $20.70 ========= ========= =========
As of March 29, 1996, 169,500 shares of the Company's restricted stock were outstanding under the 1987, 1990 and 1992 stock incentive plans, net of shares repurchased by the Company from terminated employees and shares for which the restrictions have lapsed. Restrictions expire seven years from the date of issuance. Market prices on the dates of award ranged from $12.75 to $34.38. STOCK RIGHTS Pursuant to the Company's stockholder rights plan, the Company has issued one right for each outstanding share of its common stock. These rights, which are attached to and trade together with the common stock, are not currently exercisable. On the tenth business day after any person or entity acquires 20% or more of CSC's 28 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 8--STOCK OPTIONS AND STOCK RIGHTS (CONTINUED) common stock, each right (other than rights held by the 20% stockholder, which will become void) will become exercisable to purchase one share of CSC common stock at 10% of the then-current market value. The plan has been amended to give effect to the 3-for-1 stock split in the form of a 200 percent stock dividend distributed January 13, 1994. The rights expire December 21, 1998, and may be redeemed by the Board of Directors at $.01 per right at any time before they become exercisable. NOTE 9--SEGMENT REPORTING The Company's business involves operations in principally one industry segment, providing information technology consulting, systems integration and outsourcing. The following data has been segmented between operations within the United States and operations outside the United States. The non-United States operations are located primarily in Western Europe and also in Australia.
FISCAL YEAR ------------------------------------------------------------- 1996 1995 1994 --------------------- ------------------- ------------------- NON- NON- NON- UNITED UNITED UNITED UNITED UNITED UNITED STATES STATES STATES STATES STATES STATES ---------- ---------- ---------- -------- ---------- -------- (IN THOUSANDS) Revenues................ $3,103,426 $1,138,996 $2,659,187 $713,315 $2,261,973 $320,697 Operating income........ 265,991 33,588 228,889 10,514 186,321 5,333 Depreciation and amortization............ 175,603 76,481 121,246 51,379 112,710 17,994 Identifiable assets at year-end................ 1,655,332 936,458 1,489,016 844,644 1,179,388 626,992 Additions to property and equipment.......... 197,943 61,891 131,679 61,646 98,902 19,733
Operating income is generally calculated as total revenue less operating expenses, without adding or deducting corporate general and administrative costs, interest income and expense, income taxes, or other items. The Company derives a major portion of its revenues from departments and agencies of the United States government. At March 29, 1996, approximately 37% of the Company's accounts receivable were due from the federal government. Federal government revenues by agency/department are as follows:
FISCAL YEAR ------------------------------------------------------------ 1996 1995 1994 ------------------- -------------------- ------------------- PERCENT PERCENT PERCENT AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL ---------- -------- ---------- --------- ---------- -------- (IN THOUSANDS) Department of Defense... $ 961,587 23% $ 823,812 24% $ 693,172 27% National Aeronautics and Space Administration... 292,900 7 312,377 9 221,977 9 Other civil agencies.... 317,012 7 353,206 11 308,041 12 ---------- --- ---------- --- ---------- --- Total................. $1,571,499 37% $1,489,395 44% $1,223,190 48% ========== === ========== === ========== ===
29 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 10--AGREEMENTS WITH EQUIFAX During fiscal 1989, the Company signed an agreement with Equifax Inc. and its subsidiary, Equifax Credit Information Services, Inc. ("ECIS"), pursuant to which certain of the Company's wholly owned subsidiaries (collectively, the "Bureaus") became affiliated credit bureaus of ECIS and use its credit reporting system. The Bureaus retain ownership of their credit files and continue to receive the revenues generated from the sale of the credit information they contain. The Bureaus pay ECIS a fee for maintaining the files and for each report supplied. The agreement also provides the Company with an option to sell its credit reporting and collection businesses to ECIS. This option requires six months' advance notice and expires August 1, 2013. The option price is determined by certain financial formulas if notification is given on or before July 31, 1998, and if notification is given thereafter, is equal to appraised value. In the opinion of management, the option price, as determined using consistent methods of calculation under the financial formulas, approached $500 million at March 29, 1996. In its quarterly report for the quarter ended March 31, 1996, ECIS stated that the option price is "currently estimated at approximately $400 million." The agreement is for a 10-year term, renewable indefinitely at the option of the Company for successive 10-year periods. In the event the Company does not renew or does not exercise its option to sell, or if there is a change in control of the Company, ECIS has the option to purchase the Company's credit reporting and collection businesses, at the option prices described above. Effective December 1990, the Company, through affiliates, formed a general partnership with affiliates of Equifax Inc. and a third party, Merel Corporation. The partnership was formed to operate the Company's credit services operations and to carry out other business strategies through acquisition and investment. The Company, through affiliates, has a 97.1% interest in the partnership, named CSC Enterprises, and is the managing general partner. The Company's rights under the 1988 agreement remain exercisable through the partnership in accordance with the original terms. NOTE 11--SUBSEQUENT EVENT On April 28, 1996, the Company entered into an Agreement and Plan of Merger with The Continuum Company, Inc. ("Continuum") and Continental Acquisition, Inc., a subsidiary of the Company ("Sub"), pursuant to which Sub will be merged with and into Continuum and Continuum will become a wholly owned subsidiary of the Company. Each outstanding share of common stock of Continuum will be converted into 0.79 of a share of the Company's common stock. Continuum is a consulting and computer services firm serving the needs of the global financial services industry for computer software and services. Consummation of the merger is expected to occur during the summer of 1996, and is subject to various conditions, including, but not limited to, approval by the stockholders of the Company and Continuum. The merger will be accounted for as a pooling of interests. The following unaudited pro forma data summarizes the combined operating results of the Company and Continuum as if the merger had occurred at the beginning of the periods presented. 30 COMPUTER SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED PRO FORMA* -------------------------- 1996 1995 1994** -------- -------- -------- Revenue............................................. $4,740.8 $3,788.0 $2,896.4 Net Income.......................................... 109.4 143.2 67.4 Earnings per common share***........................ $1.43 $1.99 $.99
- -------- * During fiscal years 1996 and 1994, Continuum recorded nonrecurring charges of $76.1 million ($61.7 million net of tax benefits) and $48.6 million ($38.9 million net of tax benefits), respectively, related to its acquisitions, which charges are included in the amounts shown above. ** Net income and earnings per common share are before the effect of CSC's adoption of SFAS 109 during fiscal 1994. *** The pro forma earnings per common share are based on the sum of the historical average common shares outstanding, as reported by CSC, and the historical average common shares outstanding for Continuum (adjusted to reflect common stock equivalents) converted to CSC shares at the exchange ratio of 0.79. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) COMPUTER SCIENCES CORPORATION
FISCAL 1996 ----------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- (IN THOUSANDS EXCEPT PER-SHARE AMOUNTS) Revenues....................... $966,783 $1,004,714 $1,110,416 $1,160,509 Income before taxes............ 44,817 49,553 58,612 78,410 Net income..................... 27,717 30,353 36,012 47,610 Net earnings per share......... 0.49 0.53 0.63 0.83
FISCAL 1995 ----------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- (IN THOUSANDS EXCEPT PER-SHARE AMOUNTS) Revenues....................... $738,145 $788,486 $827,901 $1,017,970 Income before taxes............ 35,196 36,973 43,328 58,215 Net income..................... 21,822 22,923 26,748 39,246 Net earnings per share......... 0.42 0.44 0.51 0.72
FISCAL 1994 ----------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- (IN THOUSANDS EXCEPT PER-SHARE AMOUNTS) Revenues...................... $608,096 $622,310 $621,361 $730,903 Income before taxes........... 29,897 31,390 34,961 52,835 Net income: Before cumulative effect of accounting change for income taxes............. 18,162 18,267 21,676 32,825 Total....................... 23,062 18,267 21,676 32,825 Net earnings per share: Before cumulative effect of accounting change for income taxes............. 0.36 0.36 0.42 0.63 Total....................... 0.45 0.36 0.42 0.63
31 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 subsection entitled "Security Ownership of Certain Beneficial Owners and Management--Certain Stockholders of CSC" and the section entitled "Additional Matters For Consideration at the CSC Annual Meeting" in the Registrant's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after March 29, 1996, which subsection and section are incorporated herein by reference in their entirety, except for the material included in such section under the captions "Report of Compensation Committee on Annual Compensation of Executive Officers," "Comparison of Cumulative Total Return" and "Stockholder Proposals." 32 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 11. (3) EXHIBITS The following exhibits are filed with this report:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2.1 Agreement and Plan of Merger dated as of April 28, 1996 by and among the Registrant, The Continuum Company, Inc. and Continental Acquisition, Inc. (p) 3.1 Restated Articles of Incorporation (d) 3.2 Amendment to Restated Articles of Incorporation (l) 3.3 By-Laws, dated and effective January 31, 1993 (h) 10.1 Annual Management Incentive Plan* (a) 10.2 1978 Stock Option Plan* (h) 10.3 Amendment Nos. 1 and 2 to the 1978 Stock Option Plan* (h) 10.4 Amendment No. 3 to the 1978 Stock Option Plan* (c) 10.5 1980 Stock Option Plan* (h) 10.6 Amendment Nos. 1, 2, 3 and 4 to the 1980 Stock Option Plan* (b) 10.7 Amendment No. 5 to the 1980 Stock Option Plan* (c) 10.8 1984 Stock Option Plan* (i) 10.9 Amendment No. 1 to the 1984 Stock Option Plan* (b) 10.10 Amendment No. 2 to the 1984 Stock Option Plan* (c) 10.11 1987 Stock Incentive Plan* (c) 10.12 Schedule to the 1987 Stock Incentive Plan for United Kingdom personnel* (c) 10.13 1990 Stock Incentive Plan* (j) 10.14 1992 Stock Incentive Plan* (l) 10.15 Amendment No. 1 to the 1992 Stock Incentive Plan* (h) 10.16 1995 Stock Incentive Plan* (n) 10.17 Deferred Compensation Plan, amended and restated effective February 9, 1996* 10.18 Restated Supplemental Executive Retirement Plan, effective August 14, 1995* (n) 10.19 Form of Indemnification Agreement for Directors (e) 10.20 Form of Indemnification Agreement for Officers (h) 10.21 Information Technology Services Agreements with General Dynamics Corporation, dated as of November 4, 1991 (k) 10.22 $100 million Credit Agreement dated as of September 15, 1994 (h) 10.23 $150 million Credit Agreement dated as of September 15, 1994 (h) 10.24 $350 million Credit Agreement dated as of September 6, 1995 (n) 10.25 $100 million Credit Agreement dated as of January 3, 1995 (h) 10.26 Amended and Restated Rights Agreement, effective October 30, 1995 (n) 11 Calculation of Primary and Fully Diluted Earnings Per Share 21 Significant Active Subsidiaries and Affiliates of the Registrant 23 Independent Auditors' Consent 24 Powers of Attorney (included on pages 34 and 35) 27 Article 5 Financial Data Schedule 99.1 Annual Report on Form 11-K for the Matched Asset Plan of Computer Sciences Corporation (to be filed at a later date) 99.2 Annual Report on Form 11-K for the Hourly Savings Plan of CSC Outsourcing Inc. (to be filed at a later date) 99.3 Annual Report on Form 11-K for the Employee Savings Plan of CSC Credit Services, Inc. (to be filed at a later date) 99.4 Annual Report on Form 11-K for the CUTW Hourly Savings Plan of CSC Outsourcing, Inc. (o)
- -------- * Management contract or compensatory plan or agreement 33 (a)-(h) These exhibits are incorporated herein by reference to the Company's Form 10-K for the fiscal years ended on the respective dates indicated below: (a) March 30, 1984 (e) April 3, 1992 (b) April 3, 1987 (f) April 2, 1993 (c) April 1, 1988 (g) April 1, 1994 (d) March 31, 1989 (h) March 31, 1995
(i) Incorporated herein by reference to the Company's Form S-8 filed on August 17, 1984. (j) Incorporated herein by reference to the Company's Form S-8 filed on August 15, 1990. (k) Incorporated herein by reference to the Company's Form 8-K filed on November 4, 1991. (l) Incorporated herein by reference to the Company's Proxy Statement for its August 10, 1992 Annual Meeting of Stockholders. (m) Incorporated herein by reference to the Company's Form S-8 filed on August 12, 1992 (n) Incorporated herein by reference to the Company's Form 10-Q filed on November 13, 1995. (o) Incorporated herein by reference to the Form 11-K filed on February 6, 1996. (p) Incorporated herein by reference to the Company's Form 8-K filed on May 2, 1996 (b) REPORTS ON FORM 8-K There were no reports on Form 8-K filed during the fourth quarter of fiscal 1996. 34 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 /s/ Van B. Honeycutt Dated: May 31, 1996 By: _________________________________ VAN B. HONEYCUTT PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature to this report appears below hereby constitutes and appoints Van B. Honeycutt, Leon J. Level and Hayward D. Fisk, and each of them, as such person's true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for such person and in such person's name, place and stead, in any and all capacities, to sign and to file with the Securities and Exchange Commission, any and all amendments to this report, with exhibits thereto and other documents in connection therewith, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that each said attorney-in-fact and agent, or any substitute therefor, may lawfully do or cause to be done by virtue thereof. 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 President, Chief May 31, 1996 - ------------------------------------- Executive Officer VAN B. HONEYCUTT and Director (Principal Executive Officer) /s/ Leon J. Level Vice President, May 31, 1996 - ------------------------------------- Chief Financial LEON J. LEVEL Officer and Director (Principal Financial Officer) /s/ Denis M. Crane Vice President and May 31, 1996 - ------------------------------------- Controller DENIS M. CRANE (Principal Accounting Officer) /s/ William R. Hoover Chairman of the May 31, 1996 - ------------------------------------- Board WILLIAM R. HOOVER 35 SIGNATURE TITLE DATE /s/ Howard P. Allen Director May 31, 1996 - ------------------------------------- HOWARD P. ALLEN /s/ Irving W. Bailey, II Director May 31, 1996 - ------------------------------------- IRVING W. BAILEY, II /s/ Richard C. Lawton Director May 31, 1996 - ------------------------------------- RICHARD C. LAWTON /s/ F. Warren McFarlan Director May 31, 1996 - ------------------------------------- F. WARREN MCFARLAN /s/ James R. Mellor Director May 31, 1996 - ------------------------------------- JAMES R. MELLOR /s/ Alvin E. Nashman Director May 31, 1996 - ------------------------------------- ALVIN E. NASHMAN 36 COMPUTER SCIENCES CORPORATION AND SUBSIDIARIES ADDITIONAL NOTE TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED MARCH 29, 1996 NOTE--STOCK OPTIONS AND OTHER STOCK INCENTIVE AWARDS (ADDITIONAL INFORMATION) Additional information with respect to common stock options as described in Note 8 to the Consolidated Financial Statements is as follows: At March 29, 1996, March 31, 1995, and April 1, 1994, 3,353,370, 1,013,392, and 1,857,742 shares, respectively, were available for the granting of future options. The number of shares underlying options and the option exercise prices are established by a stock option committee appointed by the Board of Directors in accordance with the terms of the stock option plans (the "Committee"). The stock option plans also provide whether and under what circumstances such exercise prices may be modified. Generally, options have a ten-year term and become exercisable in annual installments of not more than 20 percent per year, commencing one year after the date of grant. However, pursuant to the terms of some plans, different option vesting schedules may be determined by the Committee. No currently outstanding options have a term which is longer than 10 years plus 30 days. Transfer restrictions imposed upon shares of common stock granted or sold pursuant to restricted stock awards lapse in accordance with a schedule determined by the Committee at the time of the award. At the end of each of the last three fiscal years, the aggregate number of shares underlying stock options which were exercisable, but had not been exercised, was as follows:
NO. OF SHARES PURCHASE PRICE --------- -------------- March 29, 1996......................................... 1,741,010 $1.00-$51.88 March 31, 1995......................................... 1,713,485 1.00- 39.88 April 1, 1994.......................................... 1,224,038 1.00- 26.88
During the last three fiscal years, options were exercised as follows:
MARKET PRICE ON PURCHASE PRICE DATE EXERCISED -------------------- --------------------- NO. OF YEAR ENDED SHARES PER SHARE AVERAGE PER SHARE AVERAGE - ---------- ------- ------------ ------- ------------- ------- March 29, 1996............... 959,675 $1.00-$50.50 $19.11 $47.63-$79.88 $61.06 March 31, 1995............... 580,353 1.00- 39.50 17.71 37.00- 52.13 45.45 April 1, 1994................ 795,697 1.00- 24.67 15.83 24.17- 41.50 30.91
All options currently outstanding were granted at or below the fair market value of the underlying shares on the date of grant. The expiration dates for these options range from June 23, 1996 through April 8, 2006.
MARKET PRICE AT PURCHASE PRICE GRANT DATE -------------------- --------------------- NO. OF OPTIONS OUTSTANDING AS OF SHARES PER SHARE AVERAGE PER SHARE AVERAGE - ------------------------- --------- ------------ ------- ------------- ------- March 29, 1996............ 4,346,915 $1.00-$76.13 $29.97 $10.00-$76.13 $30.20 March 31, 1995............ 5,147,185 1.00- 51.88 25.70 5.25- 51.88 25.92 April 1, 1994............. 4,880,938 1.00- 39.88 20.70 4.21- 39.88 21.02
37 As of March 29, 1996, 169,500 shares of restricted stock of the Company were outstanding under the 1987, 1990 and 1992 stock incentive plans, net of shares repurchased by the Company from terminated employees and shares for which the restrictions have lapsed. Restrictions on such restricted stock expire seven years from the date of issuance. The market prices on the dates of awards ranged from $12.75 to $34.38 per share. An option with an exercise price equal to the market value of the underlying shares on the date of option grant is not recorded as compensation expense prior to the exercise of such option. For options with an exercise price below market value on the option grant date and restricted stock sold for less than market value on the date of sale, the difference between the exercise or sale price and market value of such shares is charged to a prepaid compensation account and credited to a deferred compensation liability account on the date such options are granted or restricted shares are sold. The prepaid amount for such options is amortized to expense over 60 months, the period during which the options become fully exercisable. For such restricted stock, the prepaid amount is amortized to expense in accordance with the period of restriction as determined by the Committee at the time of the sale. Upon the exercise of the option or the lapsing of the restrictions, the related deferred compensation liability amount is reduced and the offsetting amounts are credited to stockholders' equity. When options are exercised to purchase the Company's common stock, the shares purchased are newly-issued shares. Each new share issued is recorded as an increase to the capital stock account at par value, and the amount by which the option exercise price exceeds the par value is an increase to additional paid-in capital. Previously-owned shares submitted in payment of the purchase price, and exercisable but unexercised options surrendered in payment of taxes, are valued at the market price on the date of exercise and recorded as an increase to the treasury stock. Upon the exercise of non-qualified options, the difference between the option exercise price and market price as of the date of exercise is available as a deduction for federal income tax purposes. Upon the lapse of the restrictions imposed upon restricted stock, the difference between the restricted stock sale price and the market price as of the date the restrictions lapse is available as a deduction for federal income tax purposes. Tax savings resulting therefrom are recorded as additional paid-in capital. 38 COMPUTER SCIENCES CORPORATION AND SUBSIDIARIES SCHEDULE VIII, VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED MARCH 29, 1996
ADDITIONS ------------------------- BALANCE, CHARGED TO COST BALANCE, BEGINNING OF PERIOD AND EXPENSES OTHER (1) DEDUCTIONS END OF PERIOD ------------------- --------------- --------- ---------- ------------- (IN THOUSANDS) Year ended March 29, 1996 Allowance for doubtful receivables............. $30,432 $13,237 $ 656 $ 8,239 $36,086 Year ended March 31, 1995 Allowance for doubtful receivables............. 32,244 7,658 809 10,279 30,432 Year ended April 1, 1994 Allowance for doubtful receivables............. 20,308 10,123 7,677 5,864 32,244
- -------- (1) All years include balances from acquisitions, changes in balances due to foreign currency exchange rates and recovery of prior-year charges. 39 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2.1 Agreement and Plan of Merger dated as of April 28, 1996 by and among the Registrant, The Continuum Company, Inc. and Continental Acquisition, Inc. (p) 3.1 Restated Articles of Incorporation (d) 3.2 Amendment to Restated Articles of Incorporation (l) 3.3 By-Laws, dated and effective January 31, 1993 (h) 10.1 Annual Management Incentive Plan* (a) 10.2 1978 Stock Option Plan* (h) 10.3 Amendment Nos. 1 and 2 to the 1978 Stock Option Plan* (h) 10.4 Amendment No. 3 to the 1978 Stock Option Plan* (c) 10.5 1980 Stock Option Plan* (h) 10.6 Amendment Nos. 1, 2, 3 and 4 to the 1980 Stock Option Plan* (b) 10.7 Amendment No. 5 to the 1980 Stock Option Plan* (c) 10.8 1984 Stock Option Plan* (i) 10.9 Amendment No. 1 to the 1984 Stock Option Plan* (b) 10.10 Amendment No. 2 to the 1984 Stock Option Plan* (c) 10.11 1987 Stock Incentive Plan* (c) 10.12 Schedule to the 1987 Stock Incentive Plan for United Kingdom personnel* (c) 10.13 1990 Stock Incentive Plan* (j) 10.14 1992 Stock Incentive Plan* (l) 10.15 Amendment No. 1 to the 1992 Stock Incentive Plan* (h) 10.16 1995 Stock Incentive Plan* (n) 10.17 Deferred Compensation Plan, amended and restated effective February 9, 1996* 10.18 Restated Supplemental Executive Retirement Plan, effective August 14, 1995* (n) 10.19 Form of Indemnification Agreement for Directors (e) 10.20 Form of Indemnification Agreement for Officers (h) 10.21 Information Technology Services Agreements with General Dynamics Corporation, dated as of November 4, 1991 (k) 10.22 $100 million Credit Agreement dated as of September 15, 1994 (h) 10.23 $150 million Credit Agreement dated as of September 15, 1994 (h) 10.24 $350 million Credit Agreement dated as of September 6, 1995 (n) 10.25 $100 million Credit Agreement dated as of January 3, 1995 (h) 10.26 Amended and Restated Rights Agreement, effective October 30, 1995 (n) 11 Calculation of Primary and Fully Diluted Earnings Per Share 21 Significant Active Subsidiaries and Affiliates of the Registrant 23 Independent Auditors' Consent 24 Powers of Attorney (included on pages 34 and 35) 27 Article 5 Financial Data Schedule 99.1 Annual Report on Form 11-K for the Matched Asset Plan of Computer Sciences Corporation (to be filed at a later date) 99.2 Annual Report on Form 11-K for the Hourly Savings Plan of CSC Outsourcing Inc. (to be filed at a later date) 99.3 Annual Report on Form 11-K for the Employee Savings Plan of CSC Credit Services, Inc. (to be filed at a later date) 99.4 Annual Report on Form 11-K for the CUTW Hourly Savings Plan of CSC Outsourcing, Inc. (o)
Notes to Exhibit Index: *Management contract or compensatory plan or agreement (a)-(h) These exhibits are incorporated herein by reference to the Company's Form 10-K for the fiscal years ended on the respective dates indicated below: (a) March 30, 1984 (e) April 3, 1992 (b) April 3, 1987 (f) April 2, 1993 (c) April 1, 1988 (g) April 1, 1994 (d) March 31, 1989 (h) March 31, 1995
(i) Incorporated herein by reference to the Company's Form S-8 filed on August 17, 1984. (j) Incorporated herein by reference to the Company's Form S-8 filed on August 15, 1990. (k) Incorporated herein by reference to the Company's Form 8-K filed on November 4, 1991. (l) Incorporated herein by reference to the Company's Proxy Statement for its August 10, 1992 Annual Meeting of Stockholders. (m) Incorporated herein by reference to the Company's Form S-8 filed on August 12, 1992 (n) Incorporated herein by reference to the Company's Form 10-Q filed on November 13, 1995. (o) Incorporated herein by reference to the Form 11-K filed on February 6, 1996. (p) Incorporated herein by reference to the Company's Form 8-K filed on May 2, 1996 EX-10.17 2 CSC DEFERRED COMPENSATION PLAN Exhibit 10.17 COMPUTER SCIENCES CORPORATION DEFERRED COMPENSATION PLAN COMPUTER SCIENCES CORPORATION DEFERRED COMPENSATION PLAN TABLE OF CONTENTS
Page ARTICLE I - DEFINITIONS............................................... 1 Section 1.1 - General............................................ 1 Section 1.2 - Account............................................ 1 Section 1.3 - Administrator...................................... 1 Section 1.4 - Board.............................................. 2 Section 1.5 - Change in Control.................................. 2 Section 1.6 - Chief Executive Officer............................ 2 Section 1.7 - Code............................................... 2 Section 1.8 - Committee.......................................... 2 Section 1.9 - Company............................................ 2 Section 1.10- Deferred Compensation.............................. 2 Section 1.11- Election Form...................................... 3 Section 1.12- Eligible Key Executive............................. 3 Section 1.13- Employee........................................... 3 Section 1.14- ERISA.............................................. 3 Section 1.15- Exchange Act....................................... 3 Section 1.16- Hardship........................................... 3 Section 1.17- Key Executive...................................... 4 Section 1.18- Key Executive Plan................................. 4 Section 1.19- Nonemployee Director............................... 4 Section 1.20- Nonemployee Director Plan.......................... 4 Section 1.21- Partial First Plan Year............................ 4 Section 1.22- Participant........................................ 5 Section 1.23- Plan............................................... 5 Section 1.24- Plan Year.......................................... 5 Section 1.25- Predecessor Plan................................... 5 Section 1.26- Retirement......................................... 5 Section 1.27- Separation from Service............................ 5 Section 1.28- Qualified Compensation............................. 5 ARTICLE II - ELIGIBILITY.............................................. 6 Section 2.1 - Requirements for Participation..................... 6 Section 2.2 - Deferral Election Procedure........................ 6 Section 2.3 - Content of Election Form........................... 6
i ARTICLE III - PARTICIPANTS' DEFERRALS...................................... 7 Section 3.1 - Deferral of Qualified Compensation...................... 7 Section 3.2 - Deferral for Partial First Plan Year.................... 7 ARTICLE IV - DEFERRED COMPENSATION ACCOUNTS................................ 7 Section 4.1 - Deferred Compensation Accounts.......................... 7 Section 4.2 - Crediting of Deferred Compensation...................... 7 Section 4.3 - Crediting of Earnings................................... 8 Section 4.4 - Applicability of Account Values......................... 8 Section 4.5 - Vesting of Deferred Compensation Accounts............... 8 Section 4.6 - Assignments, Etc. Prohibited............................ 8 ARTICLE V - DISTRIBUTIONS OF DEFERRED COMPENSATION ACCOUNTS................ 8 Section 5.1 - Distributions upon a Key Executive's Retirement and a Nonemployee Director's Separation from Service........ 8 Section 5.2 - Distributions upon a Key Executive's Pre-Retirement Separation from Service............................... 9 Section 5.3 - Distributions upon a Participant's Death................ 9 Section 5.4 - Optional Distributions.................................. 10 Section 5.5 - Applicable Taxes........................................ 10 ARTICLE VI - WITHDRAWALS FROM DEFERRED COMPENSATION ACCOUNTS.............................................................. 11 Section 6.1 - Hardship Withdrawals from Accounts...................... 11 Section 6.2 - Withdrawals after a Change in Control................... 11 Section 6.3 - Voluntary Withdrawals................................... 11 Section 6.4 - Applicable Taxes........................................ 12 ARTICLE VII - ADMINISTRATIVE PROVISIONS.................................... 12 Section 7.1 - Administrator's Duties and Powers....................... 12 Section 7.2 - Limitations Upon Powers................................. 12 Section 7.3 - Final Effect of Administrator Action.................... 13 Section 7.4 - Committee............................................... 13 Section 7.5 - Indemnification by the Company; Liability Insurance..... 13 Section 7.6 - Recordkeeping........................................... 13 Section 7.7 - Statement to Participants............................... 14 Section 7.8 - Inspection of Records................................... 14 Section 7.9 - Identification of Fiduciaries........................... 14 Section 7.10- Procedure for Allocation of Fiduciary Responsibilities.. 14 Section 7.11- Claims Procedure........................................ 14 Section 7.12- Conflicting Claims...................................... 16
ii Section 7.13- Service of Process...................................... 16 ARTICLE VIII - MISCELLANEOUS PROVISIONS.................................... 16 Section 8.1 - Termination of the Plan................................. 16 Section 8.2 - Limitation on Rights of Participants.................... 17 Section 8.3 - Consolidation or Merger; Adoption of Plan by Other Companies....................................... 17 Section 8.4 - Errors and Misstatements................................ 17 Section 8.5 - Payment on Behalf of Minor, Etc......................... 18 Section 8.6 - Amendment of Plan....................................... 18 Section 8.7 - No Funding.............................................. 18 Section 8.8 - Governing Law........................................... 18 Section 8.9 - Pronouns and Plurality.................................. 18 Section 8.10- Titles.................................................. 18 Section 8.11- References.............................................. 19
iii COMPUTER SCIENCES CORPORATION DEFERRED COMPENSATION PLAN as Amended and Restated Effective February 9, 1996 Computer Sciences Corporation, a Nevada corporation, by resolution of its Board of Directors dated August 14, 1995, has adopted the Computer Sciences Corporation Deferred Compensation Plan (the "Plan"), which constitutes a complete amendment and restatement of the Computer Sciences Corporation Nonqualified Deferred Compensation Plan (the "Predecessor Plan"), effective as of September 30, 1995, for the benefit of its Nonemployee Directors, as defined below, and certain of its Key Executives, as defined below. The Plan shall constitute two separate plans, one for the benefit of Nonemployee Directors and one for the benefit of Key Executives. The plan for Key Executives is a nonqualified deferred compensation plan which is unfunded and is maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, as defined below. The plan for Nonemployee Directors is not subject to ERISA. ARTICLE I DEFINITIONS Section 1.1 General - -------------------- Whenever the following terms are used in the Plan with the first letter capitalized, they shall have the meaning specified below unless the context clearly indicates to the contrary. Section 1.2 Account - -------------------- "Account" of a Participant shall mean the Participant's individual deferred compensation account established for his or her benefit under Article IV hereof. Section 1.3 Administrator - -------------------------- "Administrator" shall mean Computer Sciences Corporation, acting through its Chief Executive Officer or his or her delegate, except that if Computer Sciences Corporation appoints a Committee under Section 7.4, the term "Administrator" shall mean the Committee as to those duties, powers and responsibilities specifically conferred upon the Committee. Section 1.4 Board - ------------------ "Board" shall mean the Board of Directors of Computer Sciences Corporation. The Board may delegate any power or duty otherwise allocated to the Administrator to any other person or persons, including a Committee appointed under Section 7.4. Section 1.5 Change in Control - ------------------------------ "Change in Control" means, after September 30, 1995, (a) the acquisition by any person, entity or group (as defined in Section 13(d)3 of the Exchange Act), as beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the then outstanding securities of Computer Sciences Corporation, or (b) a change during any period of two (2) consecutive years of a majority of the Board as constituted as of the beginning of such period, unless the election of each director who was not a director at the beginning of such period was approved by vote of a least two-thirds of the directors then in office who were directors at the beginning of such period, or (c) any other event constituting a change in control for purposes of Schedule 14A of Regulation 14A under the Exchange Act. Section 1.6 Chief Executive Officer - ------------------------------------ "Chief Executive Officer" shall mean the Chief Executive Officer of Computer Sciences Corporation. Section 1.7 Code - ----------------- "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. Section 1.8 Committee - ---------------------- "Committee" shall mean the Committee, if any, appointed in accordance with Section 7.4. Section 1.9 Company - -------------------- "Company" shall mean Computer Sciences Corporation and all of its affiliates, and any entity which is a successor in interest to Computer Sciences Corporation and which continues the Plan under Section 8.3(a). Section 1.10 Deferred Compensation - ----------------------------------- "Deferred Compensation" of a Participant shall mean the amounts deferred by such Participant under Article III of the Plan. 2 Section 1.11 Election Form - --------------------------- "Election Form" shall mean the form of election provided by the Administrator to each Eligible Executive and Nonemployee Director pursuant to Section 3.1. Section 1.12 Eligible Key Executive - ------------------------------------ "Eligible Key Executive" shall mean any Key Executive who has been designated as eligible to participate in the Plan with respect to any Plan Year by the Chief Executive Officer. Section 1.13 Employee - ---------------------- "Employee" shall mean any person who renders services to the Company in the status of an employee as that term is defined in Code Section 3121(d), including officers but not including directors who serve solely in that capacity. Section 1.14 ERISA - ------------------- "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. Section 1.15 Exchange Act - -------------------------- "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. Section 1.16 Hardship - ---------------------- (a) "Hardship" of a Participant, shall mean any one or more of the following: (i) medical expenses described in Code Section 213(d) incurred by the Participant, the Participant's spouse, or the Participant's dependents (as described in Code Section 152) if such expenses can not be paid from any other source; (ii) purchase (excluding mortgage payments) of a principal residence for the Participant; (iii) payment of tuition for the next 12 months of post-secondary education for the Participant, the Participant's spouse, or the Participant's dependents who are claimed as such on the Participant's federal income tax return; 3 (iv) the need to prevent the Participant's eviction from the Participant's primary residence, or foreclosure on the mortgage of the Participant's primary residence; or (v) any other financial need which the Internal Revenue Service has approved as a financial hardship which permits distributions to be made to participants under the financial hardship provisions of the Company's Matched Asset Plan. (b) Notwithstanding subsection(a) above, a financial need shall not constitute a Hardship unless it is for at least $1,000.00 (or the entire principal amount of the Participant's Accounts, if less). (c) Whether a Participant has incurred a Hardship shall be determined by the Administrator in its discretion on the basis of all relevant facts and circumstances and in accordance with nondiscriminatory and objective standards, uniformly interpreted and consistently applied. Section 1.17 Key Executive - --------------------------- "Key Executive" shall mean any Employee of the Company who is an officer or other key executive of the Company and who qualifies as a "highly compensated employee or management employee" within the meaning of Title I of ERISA. Section 1.18 Key Executive Plan - -------------------------------- "Key Executive Plan" shall mean the portion of this Plan which is maintained or the benefit of the Company's Key Executives. Section 1.19 Nonemployee Director - ---------------------------------- "Nonemployee Director" shall mean a member of the Board who is not an Employee. Section 1.20 Nonemployee Director Plan - --------------------------------------- "Nonemployee Director Plan" shall mean the portion of this Plan which is maintained for the benefit of the Company's Nonemployee Directors. Section 1.21 Partial First Plan Year - ------------------------------------- "Partial First Plan Year" shall mean that portion of the first Plan Year of the Plan subject to its amendment and restatement effective as of September 30, 1995, which shall begin on September 30, 1995 and end on March 29, 1996. 4 Section 1.22 Participant - ------------------------- "Participant" shall mean any person who elects to participate in the Plan as provided in Article II and who defers Qualified Compensation under the Plan. Section 1.23 Plan - ------------------ "Plan" shall mean the Computer Sciences Corporation Deferred Compensation Plan. Section 1.24 Plan Year - ----------------------- "Plan Year" shall mean the fiscal year of the Company. Section 1.25 Predecessor Plan - ------------------------------ "Predecessor Plan" shall mean the Computer Sciences Corporation Nonqualified Deferred Compensation Plan as in effect and maintained by the Company for the benefit of its Nonemployee Directors prior to the amendment and restatement of the Plan effective as of September 30, 1995. Section 1.26 Retirement - ------------------------ "Retirement" shall mean, with respect to a Key Executive, a Separation from Service of such Key Executive (a) on or after attainment of age sixty-two (62) or (b) prior to attainment of age sixty-two (62) if the Chief Executive Officer shall designate such Separation from Service as Retirement for purposes of the Plan. Section 1.27 Separation from Service - ------------------------------------- (a) "Separation from Service" of a Key Executive shall mean the termination of his or her employment with the Company by reason resignation, discharge, death or Retirement. A leave of absence or sick leave authorized by the Company in accordance with established policies, a vacation period or a military leave shall not constitute a Separation from Service; provided, however, that failure to return to work upon expiration of any leave of absence, sick leave, military leave or vacation shall be considered a resignation effective as of the date of expiration of such leave of absence, sick leave, military leave or vacation. (b) "Separation from Service" of a Nonemployee Director shall mean the Nonemployee Director's ceasing to serve as a member of the Board for any reason. Section 1.28 Qualified Compensation - ------------------------------------ (a) "Qualified Compensation" of a Key Executive shall mean the Key Executive's annual bonus which may be payable to the Key Executive under the Computer Sciences Corporation Annual Incentive Plan or such other bonus or 5 incentive compensation plan of the Company which may be designated from time to time by the Administrator. (b) "Qualified Compensation" of a Nonemployee Director shall mean the retainer, consulting fees, committee fees and meeting fees which are payable to the Nonemployee Director by the Company. ARTICLE II ELIGIBILITY Section 2.1 Requirements for Participation - ------------------------------------------- Any Eligible Key Executive and any Nonemployee Director shall be eligible to be a Participant in the Plan. Section 2.2 Deferral Election Procedure - ---------------------------------------- For each Plan Year, the Administrator shall provide each Eligible Key Executive and each Nonemployee Director with an Election Form on which such person may elect to defer his or her Qualified Compensation under Article III. Each such person who elects to defer Qualified Compensation under Article III shall complete and sign the Election Form and return it to the Administrator. Section 2.3 Content of Election Form - ------------------------------------- Each Participant who elects to defer Qualified Compensation under the Plan shall set forth on the Election Form specified by the Administrator: (a) the amount of Qualified Compensation to be deferred under Article III and the Participant's authorization to the Company to reduce his or her Qualified Compensation by the amount of the deferred compensation, (b) the length of time with respect to which the Participant elects to defer the Deferred Compensation, (c) the method under which the Participant's Deferred Compensation shall be payable, and (d) such other information, acknowledgments or agreements as may be required by the Administrator. 6 ARTICLE III PARTICIPANTS' DEFERRALS Section 3.1 Deferral of Qualified Compensation - ----------------------------------------------- (a) Each Eligible Key Executive and Nonemployee Director may elect to defer into his or her Account all or any portion of the Qualified Compensation which would otherwise be payable to him or her for any Plan Year in which he or she has not incurred a Separation from Service as of the first day of the Plan Year in question. Such election shall be made by the Eligible Key Executive or Nonemployee Director completing and delivering to the Administrator his or her Election Form for such Plan Year no later than the last day of the next preceding Plan Year, except (i) with respect to the Partial First Plan Year, in which case such election shall be made not later than September 29, 1995, and (ii) with respect to a person who first becomes a Nonemployee Director during a Plan Year, which person may make such election within 30 days after first becoming a Nonemployee Director. (b) Except as set forth in Sections 6.2 and 6.3 hereof, any such election made by a Participant to defer Qualified Compensation shall be irrevocable and shall not be amendable by the Participant. Section 3.2 Deferral for Partial First Plan Year - ------------------------------------------------- For the Partial First Plan Year, Participants may defer any or all of the Qualified Compensation which is earned by them after September 29, 1995 and before March 30, 1996. Deferral elections previously made by Nonemployee Directors for the 1996 Plan Year shall only remain effective with respect to Qualified Compensation earned prior to September 30, 1995. ARTICLE IV DEFERRED COMPENSATION ACCOUNTS Section 4.1 Deferred Compensation Accounts - ------------------------------------------- The Administrator shall establish and maintain for each Participant an Account to which shall be credited the amounts allocated thereto under this Article IV and from which shall be debited the Participant's distributions and withdrawals under Articles V and VI. Section 4.2 Crediting of Deferred Compensation - ----------------------------------------------- Each Participant's Account shall be credited with an amount which is equal to the amount of the Participant's Qualified Compensation which such Participant 7 has elected to defer under Article III at the time such Qualified Compensation would otherwise have been paid to the Participant. Section 4.3 Crediting of Earnings - ---------------------------------- Beginning on September 30, 1995 and subject to amendment by the Board, for each Plan Year earnings shall be credited to each Participant's Account (including the Accounts of Nonemployee Directors under the Predecessor Plan), at a rate equal to 120% of the 120-month rolling average interest payable on 10- year United States Treasury Notes as of December 31 of the preceding Plan Year, compounded annually. Earnings shall be credited on such valuation dates as the Administrator shall determine. Section 4.4 Applicability of Account Values - -------------------------------------------- The value of each Participant's Account as determined as of a given date under this Article, plus any amounts subsequently allocated thereto under this Article and less any amounts distributed or withdrawn under Articles V or VI shall remain the value thereof for all purposes of the Plan until the Account is revalued hereunder. Section 4.5 Vesting of Deferred Compensation Accounts - ------------------------------------------------------ Subject to the possible reductions provided for in Section 6.2 and 6.3 with respect to certain Participant withdrawals, each Participant's interest in his or her Account shall be 100% vested and non-forfeitable at all times. Section 4.6 Assignments, Etc. Prohibited - ----------------------------------------- No part of any Participant's Account shall be liable for the debts, contracts or engagements of the Participant, or the Participant's beneficiaries or successors in interest, or be taken in execution by levy, attachment or garnishment or by any other legal or equitable proceeding, nor shall any such person have any rights to alienate, anticipate, commute, pledge, incumber or assign any benefits or payments hereunder in any manner whatsoever except to designate a beneficiary as provided in Section 5.3. ARTICLE V DISTRIBUTIONS OF DEFERRED COMPENSATION ACCOUNTS Section 5.1 Distributions upon a Key Executive's Retirement and a Nonemployee - ------------------------------------------------------------------------------- Director's Separation from Service ---------------------------------- (a) The Account of a Key Executive who incurs a Separation from Service upon his or her Retirement, and the Account of a Nonemployee Director who incurs a Separation from Service, in each case other than on account of death, shall be 8 paid to the Participant as specified in any election made by the Participant pursuant to Section 5.4 hereof. Any remaining balance of the Participant's Account shall be paid to the Participant, as specified by the Participant in an election made pursuant to this Section 5.1, in a lump-sum distribution or in approximately equal annual installments over 5, 10 or 15 years. Payment(s) shall commence within thirty (30) days following the date of such Separation from Service. (b) At the time a Participant first elects to defer Qualified Compensation under the Plan, he or she shall make an election pursuant to this Section 5.1. Such election shall remain in effect and shall apply to the Participant's total Account, as the same may increase or decrease from time to time. An election pursuant to this Section 5.1 may be superseded by a subsequent election, which subsequent election shall then apply to the Participant's total Account, as the same may increase or decrease from time to time. Notwithstanding the foregoing, no subsequent election pursuant to this Section 5.1 shall be effective unless it is made at least 13 months prior to the Participant's Separation from Service. Section 5.2 Distributions upon a Key Executive's Pre-Retirement Separation - ---------------------------------------------------------------------------- from Service ------------ The Account of a Key Executive who incurs a Separation from Service prior to his or her Retirement and other than on account of his or her death shall be paid to the Participant in a lump-sum distribution within thirty (30) days following the date of such Separation from Service, notwithstanding any election to the contrary made by the Participant pursuant to Section 5.4 hereof. Section 5.3 Distributions upon a Participant's Death - ----------------------------------------------------- (a) Notwithstanding anything to the contrary in the Plan, the remaining balance of the Account of a Participant who dies (i) shall be paid to the persons and entities designated by the Participant as his or her beneficiaries for such purpose and (ii) shall be paid in the manner set forth in this Section 5.3. With respect to a Participant who does not incur a Separation from Service prior to his or her death, such balance shall be paid, as specified by the Participant in an election made pursuant to this Section 5.3, in a lump-sum distribution or in approximately equal annual installments over 5, 10 or 15 years. With respect to a Participant who does incur a Separation from Service prior to his or her death, such balance shall be paid, as specified by the Participant in an election made pursuant to this Section 5.3, in a lump-sum distribution or in approximately equal annual installments over the remaining term of the 5, 10 or 15-year payment period elected pursuant to Section 5.1 hereof. Payment(s) shall commence within thirty (30) days following the date of death. (b) At the time a Participant first elects to defer Qualified Compensation under the Plan, he or she shall make an election pursuant to this Section 5.3. Such election shall remain in effect and shall apply to the Participant's total Account, as the same may increase or decrease from time to time. An election pursuant to this 9 Section 5.3 may be superseded by a subsequent election, which subsequent election shall then apply to the Participant's total Account, as the same may increase or decrease from time to time. Notwithstanding the foregoing, no subsequent election pursuant to this Section 5.3 shall be effective unless it is made at least 13 months prior to the Participant's Separation from Service. Section 5.4 Optional Distributions - ----------------------------------- (a) At the time a Participant elects to defer Qualified Compensation for any Plan Year, he or she may also elect, pursuant to this Section 5.4, to receive a special, lump-sum distribution of any or all of the amount deferred for such Plan Year on a date specified by the Participant in such election, which date must be at least 24 months after the date of such election. Any such special distribution shall be made within five (5) business days after the date therefor specified by the Participant, unless the Participant shall have died on or prior to such date, in which case no such special distribution shall be made. (b) An election pursuant to this Section 5.4 may be superseded by one subsequent election; provided, however, that such subsequent election shall not be effective unless: (i) it is irrevocable; (ii) it is made at least 13 months prior to the Participant's Separation from Service and at least 24 months prior to the date upon which the special distribution will be made; and (iii) the date of the special distribution specified in the subsequent election is earlier than the date specified in the initial election. (c) Notwithstanding the foregoing, an election pursuant to this Section 5.4 with respect to the Partial First Plan Year may be superseded by two subsequent elections; provided, however, that: (i) the first such subsequent election shall not be effective unless it is made prior to March 30, 1996 and at least 13 months prior to the Participant's Separation from Service and at least 24 months prior to the date upon which the special distribution will be made; and (ii) the second such subsequent election satisfies all the requirements set forth in paragraph (b)(i), (ii) and (iii) of this Section 5.4. Section 5.5 Applicable Taxes - ----------------------------- All distributions under the Plan shall be subject to withholding for all amounts which the Company is required to withhold under federal, state or local tax law. 10 ARTICLE VI WITHDRAWALS FROM DEFERRED COMPENSATION ACCOUNTS Section 6.1 Hardship Withdrawals from Accounts - ----------------------------------------------- A Participant may make a withdrawal from the Participant's Account on account of the Participant's Hardship, subject to all of the following requirements: (a) The Participant's withdrawal shall not exceed the amount which is necessary to satisfy the Hardship; (b) The denial of the Participant's Hardship withdrawal request would result in severe financial hardship to the Participant; and (c) The Participant has not received a Hardship withdrawal within the 12 month period preceding the withdrawal. Section 6.2 Withdrawals after a Change in Control - -------------------------------------------------- At any time within three years after the occurrence of a Change in Control, a Key Executive may elect to withdraw all or any part of the Key Executive's Account by delivering a written election to such effect to the Administrator, provided, however, that if a Key Executive makes such an election, (i) the Key Executive shall forfeit, and the Key Executive's Account shall be debited with, an amount equal to 5% of the amount of the withdrawal distribution, (ii) the Key Executive's deferral election for the Plan Year in which the withdrawal distribution occurs shall be terminated with respect to any Qualified Compensation which has not yet been deferred and (iii) the Key Executive shall not be permitted to defer Qualified Compensation under the Plan for the two Plan Years immediately following the Plan Year of the withdrawal distribution. Section 6.3 Voluntary Withdrawals - ---------------------------------- At any time, a Participant may elect to withdraw all or any part of the Participant's Account by delivering a written election to such effect to the Administrator, provided, however, that if a Participant makes such an election, (i) the Participant shall forfeit, and the Participant's Account shall be debited with, an amount equal to 10% of the amount of the withdrawal distribution, (ii) the Participant's deferral election for the Plan Year in which the withdrawal distribution occurs shall be terminated with respect to any Qualified Compensation which has not yet been deferred and (iii) the Participant shall not be permitted to defer Qualified Compensation under the Plan for the two Plan Years immediately following the year of the withdrawal distribution. 11 Section 6.4 Applicable Taxes - ----------------------------- All withdrawals under the Plan shall be subject to withholding for all amounts which the Company is required to withhold under federal, state or local tax law. ARTICLE VII ADMINISTRATIVE PROVISIONS Section 7.1 Administrator's Duties and Powers - ---------------------------------------------- The Administrator shall conduct the general administration of the Plan in accordance with the Plan and shall have all the necessary power, authority and discretion to carry out that function. Among its necessary powers and duties are the following: (a) To delegate all or part of its function as Administrator to others and to revoke any such delegation. (b) To determine questions of eligibility of Participants and their entitlement to benefits, subject to the provisions of Section 7.11. (c) To select and engage attorneys, accountants, actuaries, trustees, appraisers, brokers, consultants, administrators, physicians, or other persons to render service or advice with regard to any responsibility the Administrator or the Board has under the Plan, or otherwise, to designate such persons to carry out fiduciary responsibilities under the Plan, and (together with the Committee, the Company, the Board and the officers and Employees of the Company) to rely upon the advice, opinions or valuations of any such persons, to the extent permitted by law, being fully protected in acting or relying thereon in good faith. (d) To interpret the Plan and any relevant facts for purpose of the administration and application of the Plan, in a manner not inconsistent with the Plan or applicable law and to amend or revoke any such interpretation. (e) To conduct claims procedures as provided in Section 7.11. Section 7.2 Limitations Upon Powers - ------------------------------------ The Plan shall be uniformly and consistently administered, interpreted and applied with regard to all Participants in similar circumstances. The Plan shall be administered, interpreted and applied fairly and equitably and in accordance with the specified purposes of the Plan. 12 Section 7.3 Final Effect of Administrator Action - ------------------------------------------------- Except as provided in Section 7.11, all actions taken and all determinations made by the Administrator in good faith shall be final and binding upon all Participants, the Company and any person interested in the Plan. Section 7.4 Committee - ---------------------- (a) The Administrator may, but need not, appoint a Committee consisting of two or more members to hold office during the pleasure of the Administrator. The Committee shall have such powers and duties as are delegated to it by the Administrator. Committee members shall not receive payment for their services as such. (b) Appointment of Committee members shall be effective upon filing of written acceptance of appointment with the Administrator. (c) A Committee member may resign at any time by delivering written notice to the Administrator. (d) Vacancies in the Committee shall be filled by the Administrator. (e) The Committee shall act by a majority of its members in office; provided, however, that the Committee may appoint one of its members or a delegate to act on behalf of the Committee on matters arising in the ordinary course of administration of the Plan or on specific matters. Section 7.5 Indemnification by the Company; Liability Insurance - ---------------------------------------------------------------- The Company shall pay or reimburse any of the Company's officers, directors, Committee members or Employees who are fiduciaries with respect to the Plan for all expenses incurred by such persons in, and shall indemnify and hold them harmless from, all claims, liability and costs (including reasonable attorneys' fees) arising out of the good faith performance of their duties under the Plan. The Company may obtain and provide for any such person, at the Company's expense, liability insurance against liabilities imposed on such person by law. Section 7.6 Recordkeeping - -------------------------- (a) The Administrator shall maintain suitable records of each Participant's Account which, among other things, shall show separately deferrals and the earnings credited thereon, as well as distributions and withdrawals therefrom and records of its deliberations and decisions. (b) The Administrator shall appoint a secretary, and at its discretion, an assistant secretary, to keep the record of proceedings, to transmit its decisions, instructions, consents or directions to any interested party, to execute and file, on 13 behalf of the Administrator, such documents, reports or other matters as may be necessary or appropriate under ERISA and to perform ministerial acts. (c) The Administrator shall not be required to maintain any records or accounts which duplicate any records or accounts maintained by the Company. Section 7.7 Statement to Participants - -------------------------------------- By March 15 of each year, the Administrator shall furnish to each Participant a statement setting forth the value of the Participant's Account as of the preceding December 31 and such other information as the Administrator shall deem advisable to furnish. Section 7.8 Inspection of Records - ---------------------------------- Copies of the Plan and records of a Participant's Account shall be open to inspection by the Participant or the Participant's duly authorized representatives at the office of the Administrator at any reasonable business hour. Section 7.9 Identification of Fiduciaries - ------------------------------------------ The Administrator shall be the named fiduciary of the Plan and, as permitted or required by law, shall have exclusive authority and discretion to operate and administer the Plan. Section 7.10 Procedure for Allocation of Fiduciary Responsibilities - -------------------------------------------------------------------- (a) Fiduciary responsibilities under the Plan are allocated as follows: (i) The sole duties, responsibilities and powers allocated to the Board, any Committee and any fiduciary shall be those expressly provided in the relevant Sections of the Plan. (ii) All fiduciary duties, responsibilities, and powers not allocated to the Board, any Committee or any fiduciary, are hereby allocated to the Administrator, subject to delegation. (b) Fiduciary duties, responsibilities and powers under the Plan may be reallocated among fiduciaries by amending the Plan in the manner prescribed in Section 8.6, followed by the fiduciaries' acceptance of, or operation under, such amended Plan. Section 7.11 Claims Procedure - ------------------------------ (a) No distributions under this Plan to a Participant, former Participant or Participant's beneficiary shall be made except upon a claim filed in writing with the 14 Committee, if in existence, or otherwise to a claims official designated by the Administrator. (b) If the Committee or claims official wholly or partially denies the claim, it or he shall, within a reasonable period of time after receipt of the claim, provide the claimant with written notice of such denial, setting forth, in a manner calculated to be understood by the claimant: (i) the specific reason or reasons for such denial; (ii) specific reference to pertinent Plan provisions on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) an explanation of the Plan's claims review procedure. (c) The Administrator shall provide each claimant with a reasonable opportunity to appeal a denial of a claim to the Chief Executive Officer or his or her authorized delegate for a full and fair review. The claimant or his or her duly authorized representative: (i) may request a review upon written application to the Chief Executive Officer or his authorized delegate (which shall be filed with the Committee or claims official); (ii) may review pertinent documents; and (iii) may submit issues and comments in writing. (d) The Chief Executive Officer or his authorized delegate may establish such time limits within which a claimant may request review of a denied claim as are reasonable in relation to the nature of the benefit which is the subject of the claim and to other attendant circumstances but which shall be not less than sixty days after receipt by the claimant of written notice of denial of his or her claim. (e) The decision by the Chief Executive Officer or his delegate upon review of a claim shall be made not later than sixty days after receipt by the chief Executive Officer or his authorized delegate of the request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty days after receipt of such request for review. (f) The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the 15 claimant with specific references to the pertinent Plan provisions on which the decision is based. (g) To the extent permitted by law, the decision of the Committee or claims official, if no appeal is filed, or the decision of the Chief Executive Officer or his delegate on review, when warranted on the record and reasonably based on the law and the provisions of the Plan, shall be final and binding on all parties. Section 7.12 Conflicting Claims - -------------------------------- If the Administrator is confronted with conflicting claims concerning a Participant's Account, the Administrator may interplead the claimants in an action at law, or in an arbitration conducted in accordance with the rules of the American Arbitration Association, as the Administrator shall elect in its sole discretion, and in either case, the attorneys' fees, expenses and costs reasonably incurred by the Administrator in such proceeding shall be paid from the Participant's Account. Section 7.13 Service of Process - -------------------------------- The Secretary of Computer Sciences Corporation is hereby designated as agent of the Plan for the service of legal process. ARTICLE VIII MISCELLANEOUS PROVISIONS Section 8.1 Termination of the Plan - ------------------------------------ (a) While the Plan is intended as a permanent program, the Board shall have the right at any time to declare the Plan terminated completely as to the Company or as to any group, division or other operational unit thereof or as to any affiliate thereof. (b) Discharge or layoff of any Employees without such a declaration shall not result in a termination of the Plan. (c) In the event of any termination, the Board, in its sole and absolute discretion may elect to: (i) maintain Participants' Accounts, payment of which shall be made in accordance with Articles V and VI; or (ii) liquidate the portion of the Plan attributable to each Participant as to whom the Plan is terminated and distribute each such Participant's Account in a lump sum or pursuant to any method which is at least as rapid as the distribution method elected by the Participant under Section 5.4. 16 Section 8.2 Limitation on Rights of Participants - ------------------------------------------------- The Plan is strictly a voluntary undertaking on the part of the Company and shall not constitute a contract between the Company and any Employee or any Nonemployee Director, or consideration for, or an inducement or condition of, the employment of an Employee or service of a Nonemployee Director. Nothing contained in the Plan shall give any Employee or Nonemployee Director the right to be retained in the service of a Company or to interfere with or restrict the right of the Company, which is hereby expressly reserved, to discharge or retire any Employee or Nonemployee Director, except as otherwise provided by a written employment agreement between the Company and the Employee or Nonemployee Director, at any time without notice and with or without cause. Inclusion under the Plan will not give any Employee or Nonemployee Director any right or claim to any benefit hereunder except to the extent such right has specifically become fixed under the terms of the Plan. The doctrine of substantial performance shall have no application to Employees, Nonemployee Directors, Participants or any other persons entitled to payments under the Plan. Section 8.3 Consolidation or Merger; Adoption of Plan by Other Companies - ------------------------------------------------------------------------- (a) In the event of the consolidation or merger of the Company with or into any other entity, or the sale by the Company of substantially all of its assets, the resulting successor may continue the Plan by adopting it in a resolution of its Board of Directors. If within 90 days from the effective date of such consolidation, merger or sale of assets, such successor corporation does not adopt the Plan, the Plan shall be terminated in accordance with Section 8.1. (b) There shall be no merger or consolidation with, or transfer of the liabilities of the Plan to, any other plan unless each Participant in the Plan would have, if the combined or successor plans were terminated immediately after the merger, consolidation, or transfer, an account which is equal to or greater than his or her corresponding Account under the Plan had the Plan been terminated immediately before the merger, consolidation or transfer. Section 8.4 Errors and Misstatements - ------------------------------------- In the event of any misstatement or omission of fact by a Participant to the Administrator or any clerical error resulting in payment of benefits in an incorrect amount, the Administrator shall promptly cause the amount of future payments to be corrected upon discovery of the facts and shall cause the Company to pay the Participant or any other person entitled to payment under the Plan any underpayment in cash in a lump sum, or to recoup any overpayment from future payments to the Participant or any other person entitled to payment under the Plan in such amounts as the Administrator shall direct, or to proceed against the Participant or any other person entitled to payment under the Plan for recovery of any such overpayment. 17 Section 8.5 Payment on Behalf of Minor, Etc. - --------------------------------------------- In the event any amount becomes payable under the Plan to a minor or a person who, in the sole judgment of the Administrator, is considered by reason of physical or mental condition to be unable to give a valid receipt therefor, the Administrator may direct that such payment be made to any person found by the Administrator in its sole judgment, to have assumed the care of such minor or other person. Any payment made pursuant to such determination shall constitute a full release and discharge of the Company, the Board, the Administrator, the Committee and their officers, directors and employees. Section 8.6 Amendment of Plan - ------------------------------ The Plan may be wholly or partially amended by the Board from time to time, in its sole and absolute discretion, including prospective amendments which apply to amounts held in a Participant's Account as of the effective date of such amendment and including retroactive amendments necessary to conform to the provisions and requirements of ERISA or the Code or regulations pursuant thereto; provided, however, that no amendment shall decrease the amount of any Participant's Account as of the effective date of such amendment. Section 8.7 No Funding - ----------------------- All benefits payable under the Plan will be paid from the general assets of the Company and no Participant or beneficiary shall have any claim against any specific assets of the Company. Section 8.8 Governing Law - -------------------------- The Plan shall be construed, administered and governed in all respects under and by the laws of the State of California, except to the extent such laws may be preempted by ERISA. Section 8.9 Pronouns and Plurality - ----------------------------------- The masculine pronoun shall include the feminine pronoun, and the singular the plural where the context so indicates. Section 8.10 Titles - -------------------- Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. 18 Section 8.11 References - ------------------------ Unless the context clearly indicates to the contrary, a reference to a statute, regulation or document shall be construed as referring to any subsequently enacted, adopted or executed statute, regulation or document. 19 EX-11 3 CSC EARNINGS PER SHARE CALCULATIONS EXHIBIT 11 COMPUTER SCIENCES CORPORATION AND SUBSIDIARIES Exhibit XI, Calculation of Primary and Fully Diluted Earnings Per Share (Dollars in thousands, except per share amounts)
Year ended ------------------------------------------------------------------------------------------- March 29, March 31, April 1, April 2, April 3, 1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- NET INCOME - ---------- Before cumulative effect of accounting change $ 141,692 $ 110,739 $ 90,930 $ 78,149 $ 68,277 Cumulative effect of accounting change 4,900 ----------- ----------- ----------- ----------- ----------- After cumulative effect of accounting change $ 141,692 $ 110,739 $ 95,830 $ 78,149 $ 68,177 =========== =========== =========== =========== =========== SHARES - ------ Average shares outstanding 55,568,121 51,425,723 50,234,161 49,436,079 48,739,197 Common stock equivalents 1,646,263 1,549,226 1,151,043 839,427 907,563 ----------- ----------- ----------- ----------- ----------- Total for primary calculation 57,214,384 52,974,949 51,385,204 50,275,506 49,646,760 Additional for fully diluted calculation 124,730 147,190 290,104 146,202 ----------- ----------- ----------- ----------- ----------- Total for fully diluted calculation 57,339,114 53,123,139 51,675,308 50,421,708 49,646,760 =========== =========== =========== =========== ===========
EX-21 4 CSC SUBSIDIARIES AND AFFILIATES EXHIBIT 21 COMPUTER SCIENCES CORPORATION EXHIBIT XXI, Significant Active Subsidiaries and Affiliates As of March 29, 1996
State or Country of Percent of Entity Formation Ownership - ------------------------------------------------------- -------------- --------------- Computer Sciences Corporation Nevada Registrant - - Aerospace Center Support (Partnership) Tennessee 55.0 - - Artemis Holdings Inc. Nevada 100.0 - CSC Artemis Inc. California 100.0 - Artemis International Limited United Kingdom 55.0 - Autec Range Services (Partnership) Florida 50.0 - Calva Realty Corporation Nevada 100.0 - Century Corporation Nevada 100.0 - CSC Credit Services, Inc. Texas 100.0 - CSC Enterprises, Inc. Nevada 100.0 - CSC Enterprises (Partnership) Delaware 97.1 - CSC Accounts Management, Inc. Texas 100.0 - Credit Bureau of Tulsa, Inc. Oklahoma 100.0 - CSC Credit Services, Inc. California 100.0 - CSC Domestic Enterprises, Inc. Nevada 100.0 - CSC Intelicom, Inc. Delaware 100.0 - CSC Outsourcing Inc. Nevada 100.0 - CSC Professional Services Group, Inc. Maryland 100.0 - CSC Foreign Enterprises, Inc. Nevada 100.0 - CSC Computer Sciences S.A. France 100.0 - CSC Ouroumoff Consultants S.A. France 100.0 - Computer Sciences Raytheon (Partnership) Florida 60.0 - CSC Healthcare Systems, Inc. California 100.0 - CSC Geographic Technologies, Inc. Nevada 100.0 - CSC International Systems Management, Inc. Nevada 100.0 - CSC Logic, Inc. Texas 100.0 - CSC Consulting, Inc. Massachusetts 100.0 - CSC Weston Group, Inc. Nevada 100.0 - CSC Planmetrics, Inc. Nevada 100.0 - CSC Ventures, Inc. Nevada 100.0 - Fairfax Ventures, Inc. Nevada 100.0 - Computer Sciences Canada Inc. Canada 100.0 - CSC Australia Pty. Limited Australia 100.0 - CSC Computer Sciences GmbH Germany 100.0 - CSC Computer Sciences Services Management GmbH Germany 100.0 - CSC Ploenzke AG Germany 75.0 - CSC Computer Sciences N.V./S.A. Belgium 100.0 - Experteam S.A./N.V. Belgium 60.0 - Medical Business Channel Belgium 100.0 - CSC Computer Sciences B.V. Netherlands 100.0 - CSC Services Management B.V. Netherlands 100.0 - CSC Computer Sciences VOF/SNC (Partnership) Belgium 100.0 - CSC Consulting Ltd United Kingdom 100.0 - CSC Index Limited United Kingdom 100.0 - CSC Computer Sciences Limited United Kingdom 100.0
EX-23 5 CONSENT OF DELOITTE & TOUCHE EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT ----------------------------- We consent to the incorporation by reference in Registration Statement Nos. 33-26977, 33-36379, 33-50746, 333-00733, 333-00749, 333-00755, 333-00757 and 333-00761 of Computer Sciences Corporation on Forms S-8 of our report dated May 24, 1996, appearing in this Annual Report on Form 10-K of Computer Sciences Corporation for the year ended March 29, 1996. DELOITTE & TOUCHE LLP Los Angeles, California May 31, 1996 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS MAR-29-1996 APR-01-1995 MAR-29-1996 104,867 0 979,441 36,086 0 1,144,254 1,147,448 506,646 2,595,790 760,443 405,471 56,342 0 0 1,249,352 2,595,790 0 4,242,422 0 3,336,469 252,084 13,237 35,021 231,392 89,700 141,692 0 0 0 141,692 2.48 2.48
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