Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
QUARTER ENDED DECEMBER 31, 1993
Commission File No. 1-4850
COMPUTER SCIENCES CORPORATION
Incorporated in the State of Nevada
Employer Identification No. 95-2043126
2100 East Grand Avenue
El Segundo, California 90245
Telephone (310) 615-0311
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
16,818,491 shares of Common Stock, $1.00 par value, were
outstanding on December 31, 1993, before giving effect to the stock
split described in Note C of the accompanying financial statements.
<PAGE>
COMPUTER SCIENCES CORPORATION
Index to Form 10-Q
Page
Number
Part I. Financial Information
Consolidated Condensed Balance Sheets -
December 31, 1993 and April 2, 1993 3
Consolidated Condensed Statements of Income -
Third quarter and nine months ended
December 31, 1993 and January 1, 1993 4
Consolidated Condensed Statements of Cash Flows -
Nine months ended
December 31, 1993 and January 1, 1993 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K 11
Exhibit 11 - Calculation of Earnings Per Share 12
Exhibit 28 - Additional Information - Revenues
by Market Sector 13
Signatures 14
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<TABLE>
PART I. FINANCIAL INFORMATION
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in thousands)
<CAPTION>
ASSETS Dec. 31 April 2,
1993 1993
(unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 54,795 $ 111,477
Short-term investments 25,361 43,590
Receivables 628,145 538,122
Prepaid expenses and other assets 57,986 54,566
------------ ------------
Total current assets 766,287 747,755
------------ ------------
PROPERTY AND EQUIPMENT, at cost 612,040 525,742
Less accumulated depreciation and amortization 282,171 241,990
------------ ------------
Property and equipment, net 329,869 283,752
------------ ------------
EXCESS OF COST OF BUSINESSES ACQUIRED
OVER RELATED NET ASSETS, NET 334,317 281,390
OTHER ASSETS 150,400 140,749
------------ ------------
$ 1,580,873 $ 1,453,646
============ ============
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<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable (Note A) $ 110,919 $ 6,220
Current maturities of long-term debt 33,156 10,503
Accounts payable 92,979 105,941
Accrued payroll and related costs 115,372 115,915
Other accrued expenses 181,896 120,374
Advance contract payments 24,909 5,024
Income taxes payable 30,085 47,127
------------ ------------
Total current liabilities 589,316 411,104
LONG-TERM DEBT,NET (Note A) 168,013 295,316
OTHER LONG-TERM LIABILITIES (Notes B and G) 57,616 51,846
------------ ------------
STOCKHOLDERS' EQUITY (Note C):
Common stock issued, par value $1.00 per share 17,014 16,812
Other stockholders' equity 748,914 678,568
------------ ------------
Total stockholders' equity 765,928 695,380
------------ ------------
$ 1,580,873 $ 1,453,646
============ ============
<FN>
See accompanying notes. -3-
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<TABLE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)
($ in thousands except earnings per share)
<CAPTION>
Third Quarter Ended Nine Months Ended
______________________ __________________________
Dec. 31 Jan. 1 Dec. 31 Jan. 1
1993 1993 1993 1993
__________ __________ ____________ ____________
<S> <C> <C> <C> <C>
Revenues $ 621,361 $ 608,364 $ 1,851,767 $ 1,829,524
__________ __________ ____________ ____________
Costs of services 494,176 496,449 1,494,737 1,499,963
Selling, general and admin. 56,121 48,112 159,640 147,103
Depreciation and amortization 33,292 29,830 93,369 85,016
Interest, net (Note D) 2,811 3,493 7,773 12,594
Other items, net 460
__________ __________ ____________ ____________
Total costs and expenses 586,400 577,884 1,755,519 1,745,136
__________ __________ ____________ ____________
Income before taxes 34,961 30,480 96,248 84,388
Taxes on income 13,285 11,659 38,143 32,344
__________ __________ ____________ ____________
Net earnings before
cumulative effect of
accounting change 21,676 18,821 58,105 52,044
Cumulative effect of
accounting change
for income taxes (Note B) 4,900
__________ __________ ____________ ____________
Net earnings $ 21,676 $ 18,821 $ 63,005 $ 52,044
========== ========== ============ ============
Earnings per common share
before cumulative effect
of accounting change $0.42 $0.37 $1.14 $1.04
Cumulative effect of
accounting change
for income taxes (Note B) 0.09
__________ __________ ____________ ____________
Earnings per common share
(Notes C and E) $0.42 $0.37 $1.23 $1.04
========== ========== ============ ============
<FN>
See accompanying notes.
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<TABLE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
($ in thousands)
<CAPTION>
Nine Months Ended
__________________________
Dec. 31 Jan. 1
1993 1993
____________ ____________
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 63,005 $ 52,044
Adjustments to reconcile net earnings to net
cash provided by operating activities :
Depreciation and amortization 93,369 85,016
Provision for losses on accounts receivable 5,085 6,848
Changes in assets and liabilities, net of effects
of acquisitions:
Increase in assets (27,203) (31,063)
(Decrease)increase in liabilities (10,735) 17,309
____________ ____________
Net cash provided by operating activities 123,521 130,154
____________ ____________
Investing activities:
Short-term investments 18,229 (10,841)
Purchases of property, plant and equipment (89,799) (61,892)
Purchased and internally developed software (24,123) (2,502)
Acquisitions, net of cash acquired (96,750) (1,900)
Other investing cash flows 2,570 (5,801)
____________ ____________
Net cash used in investing activities (189,873) (82,936)
____________ ____________
Financing activities:
Borrowings under lines of credit 64,608 14,083
Repayment of borrowings under lines of credit (57,828) (19,218)
Principal payments on long-term debt (10,509) (68,197)
Proceeds from exercise of stock options 13,337 7,501
Other financing cash flows 62 1,913
____________ ____________
Net cash provided by (used in) financing activities 9,670 (63,918)
____________ ____________
Net decrease in cash and cash equivalents (56,682) (16,700)
Cash and cash equivalents at beginning of year 111,477 115,739
____________ ____________
Cash and cash equivalents at end of period $ 54,795 $ 99,039
============ ============
<FN>
See accompanying notes.
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COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
(A) During November, 1993 the Company issued $250 million of
commercial paper through its affiliate, CSC Enterprises, and
paid down CSC Enteprises' $250 million in bank borrowings.
CSC Enterprises entered into new credit agreements to provide
standby support for the commercial paper program. The standby
agreements expire during November 1994 and November 1996 in
the amounts of $100 million and $150 million, respectively.
(B) The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes,"
effective April 3, 1993. As reported in the Company's Form
10-Q for the quarter ended July 2, 1993, the cumulative
financial statement effect of adopting SFAS No. 109 was to
increase the Company's net earnings by $4.9 million, or 9
cents per share. For the quarter ended October 1, 1993, the
Company's tax provision includes approximately $1.3 million,
or 3 cents per share, for the net cumulative amount of
additional taxes pursuant to new U.S. tax regulations enacted
during the quarter. The Company's net deferred tax liability
is included on the Company's balance sheet, with the long-term
portion of $32,819 included as part of Other Long-Term
Liabilities.
(C) On December 6, 1993, the Company's Board of Directors declared
a three-for-one stock split in the form of a 200 percent stock
dividend on the Company's common stock, with no change in par
value. The dividend was distributed January 13, 1994 to
shareholders of record as of December 22, 1993. Because the
additional shares had not been distributed, the related $33.6
million increase in common stock and decrease in retained
earnings is not reflected on the Company's balance sheet at
December 31, 1993. However, all per share amounts contained
in the statements of income and the accompanying notes are
based on the new number of shares. No other dividends were
paid or declared during the periods presented. Before giving
effect to the stock split, there were 17,013,860 shares at
December 31, 1993 and 16,811,831 shares at April 2, 1993 of
$1.00 par value common stock issued with 195,369 and 190,747
shares, respectively, in treasury stock.
(D) Interest, net consists of the following:
3rd Quarter Ended Nine Months Ended
------------------ ------------------
Dec 31, Jan 1, Dec 31, Jan 1,
1993 1993 1993 1993
-------- -------- -------- --------
Interest income $(1,746) $(1,035) $(5,145) $(3,482)
Interest expense 4,567 4,528 12,918 16,076
-------- -------- -------- --------
Total $ 2,821 $ 3,493 $ 7,773 $12,594
======== ======== ======== ========
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(E) Primary earnings per common share are based on the weighted
average number of common stock and common stock equivalent
shares (dilutive stock options) outstanding of 51,186,000 and
50,145,000, respectively, for the nine months ended December
31, 1993 and January 1, 1993 (see Part II - Exhibit 11).
These share amounts reflect the stock split described in Note
C above.
(F) Cash payments for interest on indebtedness were $13,799 and
$17,257, respectively, for the nine months ended December 31,
1993, and January 1, 1993. Cash payments for taxes on income
were $44,502 and $45,214, respectively, for the nine months
ended December 31, 1993, and January 1, 1993.
(G) Effective April 3, 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." As reported
in the Company's Form 10-Q for the quarter ended July 2, 1993,
this statement has had no significant cash flow or earnings
impact on the Company due to delayed recognition and the
effect of recovery under government contracts.
(H) The financial information reported, which is not necessarily
indicative of the results for a full year, is unaudited but
includes all adjustments which the Company considers necessary
for a fair presentation. All such adjustments are normal
recurring adjustments.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Third Quarter of Fiscal 1994 Versus Third Quarter of Fiscal 1993
Revenues
During the quarter ended December 31, 1993, the Company's total
revenues of $621.4 million increased $13.0 million over the same
period last year. Federal revenue totaled $283.8 million, down
9.7% from last year's $314.3 million due principally to the
phaseout of two large contracts. Commercial revenue of $255.4
million from domestic operations rose 6.9% from $239.0 million last
year, reflecting growth in the Company's consulting, systems
integration and outsourcing services. International revenue
increased 49% to $82.2 million reflecting strong outsourcing growth
in Europe and a substantial contribution from the CSA acquisition,
completed November 1, 1993.
In the federal arena, the Company has been awarded approximately
$1.8 billion of federal business during the first nine months of
the current fiscal year, compared with $1.1 billion won for all of
fiscal 1993.
Costs and Expenses
As a percentage of revenue, costs of services were 79.5% for the
quarter ended December 31, 1993, a favorable result compared to the
81.6% for the same quarter last year. The improvement is mainly
the result of a change in the Company's business "mix," with a
larger portion of the Company's business coming from its U.S.
commercial outsourcing activities, where costs of services by this
measure are lower than the Company's overall average.
Selling, general and administrative expenses increased 16.6% to
$56.1 million, up from $48.1 million for last year's third quarter.
The increased expenses relate primarily to the Company's federal
business and U.S. commercial outsourcing activities. The Company's
depreciation and amortization expense increased to $33.3 million
for the current quarter, up from $29.8 million last year. The
increase reflects higher amounts of depreciable and amortizable
assets connected primarily with CSC's U.S. consulting activities.
Net interest expense decreased to $2.8 million for the current
quarter, down from $3.5 million for the same quarter last year. The
decrease is substantially due to increased interest income on
higher average cash balances invested.
Income Before Taxes
Income before taxes was $35 million, up $4.5 million or 14.7% over
last year's third quarter, reflecting both revenue growth and
margin improvement. As a percent of revenues, income before taxes
for the two periods was 5.6% and 5%, respectively. The margin
improvement is primarily due to the reduction in costs of services
as a percentage of revenues, as described above. The improvement
in net interest expense also contributed to the margin improvement
by helping to offset the Company's higher selling, general and
administrative costs and depreciation and amortization expense.
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<PAGE>
Net Earnings
Net earnings were $21.7 million for the quarter ended December 31,
1993, up $2.9 million or 15.2% over the same quarter last year.
The effective tax rate was 38.0%, versus 38.25% for the same
quarter last year. The lower tax rate reflects the reduction of
European tax losses which the Company was unable to offset against
taxable income elsewhere during the prior period, offset in part by
a higher effective rate on US income due to the August 1993 tax
legislation. During the quarter just ended, CSC's Board of
Directors declared a three-for-one stock split in the form of a 200
percent stock dividend, and the additional shares were distributed
January 13, 1994. Earnings per share for this year's third quarter
compared with the same quarter last year and adjusted for the split
were 42 cents versus 37 cents on a greater number of shares
outstanding.
Cash Flows
Cash flows from operating activities were $123.5 million for the
nine months ended December 31, 1993, compared to $130.2 million
during the same period last year. The higher operating cash flow
of the prior period includes approximately $22 million of higher
trade payables associated with the Company's expanded outsourcing
activities, while the current period is lower due to reduction of
trade payables in the UK.
The Company's cash outflows for investing activities increased to
$189.9 million, up from $82.9 million during the nine months last
year. The higher outflow reflects expenditures for acquisitions as
described below. The higher outflow also includes higher
expenditures for equipment and software, partially offset by
utilization of short-term investments.
Cash provided by financing activities was $9.7 million for the nine
months, versus $63.9 million used in financing activities during
the same period last year. The prior period outflow includes the
first quarter extinguishment of the Company's $50 million Senior
Note issue and paydowns of other debt.
Financial Condition
The Company's leverage has improved during the first nine months of
fiscal 1994, as reflected by a debt-to-total-capitalization ratio
of 29% at December 31, 1993, versus 31% at fiscal year-end. This
improvement was achieved as stockholders' equity increased while
debt levels generally remained unchanged. During November, 1993
the Company issued $250 million of commercial paper through its
affiliate, CSC Enterprises, and paid down CSC Enterprises' $250
million in bank borrowings. CSC Enterprises entered into new
credit agreements to provide standby support for the commercial
paper program. The commercial paper program is expected to benefit
the Company through lower interest costs.
Although operating cash flows were $124 million for the first nine
months of fiscal 1994, the overall level of cash and short-term
investments decreased from $155 million to $80 million. This
decrease is primarily the result of business investments in the
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form of fixed asset purchases, acquisitions, and software
development. These investments totaled $211 million. See further
discussion below.
In all other respects, the Company's financial condition has not
changed significantly since the fiscal year-end. It is
management's opinion that the Company will be able to fund its cash
needs from operating activities and from short-term borrowings. It
is also management's opinion that any major additional requirements
can be financed by the use of unused borrowing capacity or by the
issuance of new CSC securities.
Other Matters
As discussed in the Company's second quarter Form 10Q, on November
1, 1993 the Company announced the signing of a $300 million, 10-
year outsourcing agreement with Australian Mutual Provident Society
(AMP), Australia's leading insurance company, and the acquisition
of Computer Sciences Australia (CSA), an AMP technology subsidiary.
CSA is a leading systems integration, outsourcing and software
development firm with about 1,100 employees. Under the outsourcing
agreement, effective November 1, 1993, CSA is overseeing AMP's
information technology operations and has acquired the assets of
its major data center located in Bondi, a suburb of Sydney. CSA is
also operating AMP's data network, which links offices spanning
Hong Kong, New Zealand, Australia and the U.K. In addition, approx-
imately 100 AMP information technology personnel have joined CSA.
The annual revenue of CSA will approximate $110 million, including
the outsourcing services.
On December 30, 1993, the Company completed the acquisition of ARC
Professional Services Group (PSG), a systems engineering concern
with approximately $170 million in annual revenues and 2,000
employees. PSG will complement CSC's existing Federal government
business, and also contribute to the Company's commercial and
international customer base.
Also during the third quarter, CSC was selected by British
Aerospace for a potential outsourcing agreement, expected to extend
for an initial period of ten years with total projected revenue of
approximately $1.3 billion. British Aerospace, a leading UK
defense and commercial aerospace manufacturer, selected CSC as its
preferred supplier for the outsourcing of a substantial portion of
the information technology functions of its aerospace and defense
businesses. Under the impending agreement, CSC would pay British
Aerospace in excess of $100 million for existing information
technology resources, including facilities, equipment and software.
In addition, over 1,200 of British Aerospace's information
technology staff would transfer to CSC. The contract is expected
to be signed within several months.
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<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit No. 11 - Calculation of Earnings Per Share
Exhibit No. 28 - Additional Exhibits
(i) Revenues by Market Sector
b. Reports on Form 8-K:
There were no Form 8-K reports filed for the third quarter of
fiscal 1994.
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EXHIBIT 11
COMPUTER SCIENCES CORPORATION
CALCULATION OF EARNINGS PER SHARE
(In thousands except earnings per share)
<CAPTION>
Third Quarter Ended Nine Months Ended
_____________________ _________________________
Dec. 31 Jan. 1 Dec. 31 Jan. 1
1993 1993 1993 1993
_________ _________ ___________ ___________
<S> <C> <C> <C> <C>
Net earnings before cumulative
effect of accounting change $21,676 $18,821 $58,105 $52,044
Cumulative effect of accounting
change for income taxes 0 0 4,900 0
_________ _________ ___________ ___________
Net earnings $21,676 $18,821 $63,005 $52,044
========= ========= =========== ===========
Shares *:
Weighted average shares
outstanding 50,360 49,435 50,129 49,325
Common stock equivalents 1,192 950 1,057 820
_________ _________ ___________ ___________
Total for primary and fully
diluted calculation 51,552 50,385 51,186 50,145
========= ========= =========== ===========
Earnings Per Share *:
Earnings per common share
before cumulative effect
of accounting change $0.42 $0.37 $1.14 $1.04
Cumulative effect of accounting
change for income taxes 0 0 0.09 0
_________ _________ ___________ ___________
Primary and fully diluted** $0.42 $0.37 $1.23 $1.04
========= ========= =========== ===========
<FN>
* All share and per share amounts include the effect of the stock split
described in Note C of the accompanying financial statements.
** The fully diluted calculation is submitted in accordance with Regulation
S-K item 601 (b) (11) although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
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EXHIBIT 28
COMPUTER SCIENCES CORPORATION
REVENUES BY MARKET SECTOR
($ in millions)
<CAPTION>
Fiscal Period Ended % of Total
_________ ___________ ___________ _____________
Dec. 31 Jan. 1 Dec. 31 Jan. 1
1993 1993 1993 1993
_________ _________ ___________ ___________
<S> <C> <C> <C> <C>
Third Quarter
U.S. Federal Government
Department of Defense $167.6 $173.7 27 % 29 %
NASA 54.6 61.8 9 10
Civil agencies 61.6 78.8 10 13
_________ _________ ____________ ____________
Total 283.8 314.3 46 52
_________ _________ ____________ ____________
Commercial:
Domestic 255.4 239.0 41 39
International 82.2 55.1 13 9
_________ _________ ____________ ____________
Total 337.6 294.1 54 48
_________ _________ ____________ ____________
Total revenues $621.4 $608.4 100 % 100 %
========= ========= ============ ============
Nine Months
U.S. Federal Government
Department of Defense $519.2 $495.8 28 % 27 %
NASA 163.2 204.4 9 11
Civil agencies 195.2 234.2 11 13
_________ _________ ____________ ____________
Total 877.6 934.4 48 51
_________ _________ ____________ ____________
Commercial:
Domestic 764.9 725.2 41 40
International 209.3 169.9 11 9
_________ _________ ____________ ____________
Total 974.2 895.1 52 49
_________ _________ ____________ ____________
Total revenues $1,851.8 $1,829.5 100 % 100 %
========= ========= ============ ============
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
COMPUTER SCIENCES CORPORATION
-----------------------------
Registrant
Date: February 11, 1994 By: /s/ Denis M. Crane
-----------------------------
Denis M. Crane
Vice President and Controller
Chief Accounting Officer
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