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 SEPTEMBER 30, 1994
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 [ ]
50,857,874 shares of Common Stock, $1.00 par value, were
outstanding on September 30, 1994.
<PAGE>
COMPUTER SCIENCES CORPORATION
Index to Form 10-Q
Page
Number
Part I. Financial Information
Consolidated Condensed Balance Sheets -
September 30, 1994 and April 1, 1994 3
Consolidated Condensed Statements of Income -
Second quarter and six months ended
September 30, 1994 and October 1, 1993 4
Consolidated Condensed Statements of Cash Flows -
Six months ended September 30, 1994 and
October 1, 1993 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibits:
Exhibit 11 - Calculation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
Exhibit 28 - Additional Information - Revenues
by Market Sector
-2-
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<TABLE>
PART I. FINANCIAL INFORMATION
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in thousands)
<CAPTION>
ASSETS
Sept. 30, April 1,
1994 1994
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $13,396 $126,820
Receivables 742,323 665,253
Prepaid expenses and other assets 84,309 65,046
__________ __________
Total current assets 840,028 857,119
__________ __________
PROPERTY AND EQUIPMENT, at cost 757,617 695,796
Less-Accumulated depreciation and amortization 342,106 302,760
__________ __________
Net property and equipment 415,511 393,036
__________ __________
EXCESS OF COST OF BUSINESSES ACQUIRED
OVER RELATED NET ASSETS, NET 348,931 324,145
OTHER ASSETS 240,243 232,080
__________ __________
$1,844,713 $ 1,806,380
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt $96,514 $17,772
Current maturities of long-term debt 6,629 32,685
Accounts payable 105,244 228,674
Accrued payroll and related costs 137,302 128,478
Other accrued expenses 175,359 175,005
Advance contract payments 30,083 24,454
Income taxes payable 45,673 54,176
__________ __________
Total current liabilities 596,804 661,244
__________ __________
LONG-TERM DEBT, NET 311,314 273,344
__________ __________
OTHER LONG-TERM LIABILITIES 71,667 66,112
__________ __________
STOCKHOLDERS' EQUITY (Note A):
Common stock issued, par value $1.00 per share 51,070 50,807
Other stockholders' equity 813,858 754,873
__________ __________
Total stockholders' equity 864,928 805,680
__________ __________
1,844,713 1,806,380
<FN>
See accompanying notes. - 3 -
</TABLE>
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<TABLE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)
($ in thousands except earnings per share)
<CAPTION>
Second Quarter Ended Six Months Ended
_____________________ _______________________
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1994 1993 1994 1993
_________ _________ __________ __________
<S> <C> <C> <C> <C>
Revenues $788,486 $622,310 $1,526,631 $1,230,406
_________ _________ __________ __________
Costs of services 631,878 507,750 1,215,539 1,000,561
Selling, general and
administrative 74,134 50,807 150,096 103,519
Depreciation and amortization 39,928 30,010 77,832 60,077
Interest, net (Note B) 5,573 2,353 10,995 4,962
_________ _________ __________ __________
Total costs and expenses 751,513 590,920 1,454,462 1,169,119
_________ _________ __________ __________
Income before taxes 36,973 31,390 72,169 61,287
Taxes on income 14,050 13,123 27,424 24,858
_________ _________ __________ __________
Net earnings before cumulative
effect of accounting change 22,923 18,267 44,745 36,429
Cumulative effect of accounting
change for income taxes
(Note C) 4,900
_________ _________ __________ __________
Net earnings $22,923 $18,267 $44,745 $41,329
========= ========= ========== ==========
Earnings per common share
before cumulative effect
of accounting change $0.44 $0.36 $0.86 $0.72
Cumulative effect of accounting
change for income taxes
(Note C) 0.09
_________ _________ __________ __________
Earnings per common share
(Notes A and D) $0.44 $0.36 $0.86 $0.81
========= ========= ========== ==========
<FN>
See accompanying notes.
- 4 -
</TABLE>
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<TABLE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
($ in thousands)
<CAPTION>
Six Months Ended
__________ __________
Sept. 30, Oct. 1,
1994 1993
__________ __________
<S> <C> <C>
Cash flows from operating activities:
Net earnings $44,745 $41,329
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 77,831 60,077
Provision for losses on accounts receivable 7,067 2,952
Changes in assets and liabilities, net of effects
of acquisitions:
Increase in assets (110,269) (11,642)
Decrease in liabilities (4,740) (8,088)
__________ __________
Net cash provided by operating activities 14,634 84,628
__________ __________
Investing activities:
Short-term investments (18,281)
Purchase of property, plant and equipment (81,659) (55,855)
Purchased and internally developed software (8,445) (11,040)
Acquisitions, net of cash acquired (15,485) (3,737)
Other investing cash flows (8,572) 4,523
__________ __________
Net cash used in investing activities (114,161) (84,390)
__________ __________
Financing activities:
Paydown of commercial paper, net (51,928)
Borrowings under lines of credit, net 29,419 3,006
Proceeds from term debt issuance 150,000
Payment of outsourcing financing (114,403)
Principal payments on long-term debt (39,638) (9,521)
Proceeds from exercise of stock options 6,640 7,897
Other financing cash flows 6,013 (160)
__________ __________
Net cash (used in) provided by financing activities (13,897) 1,222
__________ __________
Net (decrease) increase in cash and cash equivalents (113,424) 1,460
Cash and cash equivalents at beginning of year 126,820 111,477
__________ __________
Cash and cash equivalents at end of period $13,396 $112,937
========== ==========
<FN>
See accompanying notes. - 5 -
</TABLE>
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
(A) 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. 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. There were 51,070,202 shares at September 30, 1994
and 50,807,452 shares at April 1, 1994 of $1.00 par value
common stock issued with 212,328 and 201,752 shares,
respectively, of treasury stock.
(B) Interest, net consists of the following:
2nd Quarter Ended Six Months Ended
--------------------- ---------------------
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1994 1993 1994 1993
-------- -------- --------- --------
Interest income $ (481) $ (1,684) $ (1,293) $ (3,389)
Interest expense 6,054 4,037 12,288 8,351
--------- -------- --------- ---------
Total $ 5,573 $ 2,353 $ 10,995 $ 4,962
========= ======== ========= =========
(C) The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes,"
effective April 3, 1993. The cumulative financial statement
effect of adopting SFAS No. 109 was to increase the Company's
net earnings by $4.9 million, or $0.09 per share for the
quarter ended July 2, 1993, adjusted for the stock split
described in Note A.
(D) 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 52,247,000 and
50,988,000 respectively, for the six months ended September
30, 1994, and October 1, 1993 (see Part II - Exhibit 11).
These share amounts reflect the stock split described in Note
A above.
(E) Cash payments for interest on indebtedness were $7,261 and
$9,339, respectively, for the six months ended September 30,
1994, and October 1, 1993. Cash payments for taxes on income
were $32,765 and $36,265, respectively, for the six months
ended September 30, 1994, and October 1, 1993.
-6-
<PAGE>
(F) 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.
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Second Quarter of Fiscal 1995 Versus Second Quarter of Fiscal 1994
Revenues
During the quarter ended September 30, 1994, the Company's total
revenues of $788.5 million increased 26.7%, or $166.2 million, over
the same period last year. Federal revenue totaled $371.7 million,
up 25.8% from last year's $295.5 million due to the acquisition
during December, 1993 of Atlantic Research Corporation's
Professional Services Group (PSG) and the commencement since the
prior year second quarter of a number of contracts, including the
provision of information systems support to NASA Marshall Space
Flight Center.
Commercial revenue from domestic operations was $262.3 million for
the second quarter versus $261.8 million for the prior year
quarter, with growth in consulting revenues offset by the
continuing phaseout of certain claims processing activities and a
slight decrease in outsourcing revenues from existing outsourcing
contracts as service efficiencies were achieved. International
revenue increased to $154.5 million from $65 million reflecting the
commencement of the Company's outsourcing contract with British
Aerospace (BAe) during April, 1994, the acquisition of Computer
Sciences Australia (CSA) during November, 1993 and other revenue
growth.
During the current fiscal year, the Company has been awarded
approximately $1.4 billion of federal business, including the
Marshall Space Flight Contract mentioned above. The Company has
also been awarded $425 million of commercial outsourcing contracts.
Costs and Expenses
As a percentage of revenue, costs of services were 80.1% for the
quarter ended September 30, 1994, versus 81.8% for the same quarter
last year. The improvement was widespread, with the largest
benefit achieved in the Company's European operations.
Selling, general and administrative expenses increased to $74.1
million for the quarter ended September 30, 1994, up from $50.8
million for the same period last year. The largest increases were
in the Company's European, Federal and U.S. consulting businesses
where revenue growth was also strongest.
The Company's depreciation and amortization expense increased to
$39.9 million for the current quarter, up from $30 million last
year. The increase is primarily the result of the BAe contract and
PSG and CSA acquisitions, as well as other internal business
growth.
-8-
<PAGE>
Net interest expense increased to $5.6 million for the current
quarter from $2.4 million for the same quarter last year. The
increase is due to both decreased interest income and increased
interest expense as cash on hand and increased borrowings were
used to supplement cash flows from operations. The increased
borrowings helped to fund the purchase of outsourcing assets from
BAe and to acquire CSA and PSG during the second half of fiscal
1994.
Income Before Taxes
Income before taxes was $37 million, up $5.6 million or 17.8% over
last year's second quarter, reflecting the revenue growth achieved,
offset somewhat by the higher selling, general and administrative
expenses and net interest expense described above.
Net Earnings
Net earnings were $22.9 million for the quarter ended September 30,
1994, up $4.7 million or 25.5% over the same quarter last year.
The effective tax rate was 38.0%, versus 41.8% for the prior
period. The higher rate for fiscal 1994 is principally related to
the passage of federal income tax legislation during August, 1993.
The cumulative effect of the tax legislation was recorded in the
second quarter of fiscal 1994, the quarter in which the tax law
changes occurred.
During the third quarter of fiscal 1994, 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. This year's second quarter earnings per share were 44
cents compared to 36 cents for last year's second quarter, on a
greater number of shares outstanding.
Cash Flows
Cash flows from operating activities were $14.6 million for the six
months ended September 30, 1994, compared to $84.6 million during
the same period last year. The lower operating cash flow is mainly
the result of higher accounts receivable and other current assets
related to the Company's Federal business.
The Company's cash outflows for investing activities were $114.2
million for the six months versus $84.4 million during the same
period last year. The higher outflow reflects greater purchases of
property, plant and equipment in keeping with company growth,
particularly in the asset-intensive area of information technology
outsourcing. The Company also had greater acquisition-related
expenditures for this period than in the prior year. These factors
were partially offset by an absence of short-term investment
purchases during the period compared to last year.
-9-
<PAGE>
Cash used in financing activities was $13.9 million for the six months
versus cash provided of $1.2 million during the same period last
year. Year-to-date activity includes the payment of $114 million
of BAe outsourcing financing. Additionally, a $150 million private
placement of fixed-rate, term debt was issued by CSC Enterprises,
an affiliate of the Company and was used partially to repay
commercial paper borrowings.
Financial Condition
During the first six months of fiscal 1995, the Company's capital
needs included $114 million for the payment related to the BAe
outsourcing contract and $115 million for additional working
capital. These needs were met by the use of existing cash and
additional debt. As a result of the additional borrowing, the
Company's debt-to-total-capitalization ratio increased to 32% at
September 30, 1994, versus 29% at the prior fiscal year-end.
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.
-10-
<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. 27 - Financial Data Schedule
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 second
quarter of fiscal 1995.
-11-
<PAGE>
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: November 10, 1994 By:/s/Denis M. Crane
Denis M. Crane
Vice President and Controller
Chief Accounting Officer
-12-
<TABLE>
EXHIBIT 11
COMPUTER SCIENCES CORPORATION
CALCULATION OF EARNINGS PER SHARE
(In thousands except earnings per share)
<CAPTION>
Second Quarter Ended Six Months Ended
_____________________ _______________________
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1994 1993 1994 1993
_________ _________ __________ __________
<S> <C> <C> <C> <C>
Net earnings before cumulative
effect of accounting change $22,923 $18,267 $44,745 $36,429
Cumulative effect of accounting
change for income taxes 0 0 0 4,900
_________ _________ __________ __________
Net earnings $22,923 $18,267 $44,745 $41,329
========= ========= ========== ==========
Shares:
Weighted average shares
outstanding 50,821 50,123 50,760 50,015
Common stock equivalents 1,495 1,111 1,487 973
_________ _________ __________ __________
Total for primary and fully diluted
calculation 52,316 51,234 52,247 50,988
Earnings Per Share*:
Earnings per common share before
cumulative effect of
accounting change $0.44 $0.36 $0.86 $0.72
Cumulative effect of accounting
change for income taxes 0.09
_________ _________ __________ __________
Primary and fully diluted** $0.44 $0.36 $0.86 $0.81
========= ========= ========== ==========
<FN>
* All shares and per share amounts include the effect of the stock split
described in Note A of the accompanying financial statements.
** The fully diluted calculation is submitted in accordance with Regulation
S-K item 601 (b) (11) although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-02-1994
<PERIOD-END> SEP-30-1994
<CASH> 13,396
<SECURITIES> 0
<RECEIVABLES> 773,072
<ALLOWANCES> 30,749
<INVENTORY> 0
<CURRENT-ASSETS> 840,028
<PP&E> 757,617
<DEPRECIATION> 342,106
<TOTAL-ASSETS> 1,844,713
<CURRENT-LIABILITIES> 596,804
<BONDS> 311,314
<COMMON> 51,070
0
0
<OTHER-SE> 813,858
<TOTAL-LIABILITY-AND-EQUITY> 1,844,713
<SALES> 0
<TOTAL-REVENUES> 1,526,631
<CGS> 0
<TOTAL-COSTS> 1,215,539
<OTHER-EXPENSES> 77,832
<LOSS-PROVISION> 7,067
<INTEREST-EXPENSE> 10,995
<INCOME-PRETAX> 72,169
<INCOME-TAX> 27,424
<INCOME-CONTINUING> 44,745
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,745
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
</TABLE>
<TABLE>
EXHIBIT 28
COMPUTER SCIENCES CORPORATION
REVENUES BY MARKET SECTOR
($ in millions)
<CAPTION>
Fiscal Period Ended % of Total
_________ __________ __________ __________
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1994 1993 1994 1993
_________ _________ __________ __________
<S> <C> <C> <C> <C>
Second Quarter
U.S. Federal Government:
Department of Defense $210.7 $177.5 27 % 29 %
NASA 77.4 55.5 10 9
Civil agencies 83.6 62.5 10 10
_________ _________ ___________ ___________
Total 371.7 295.5 47 48
_________ _________ ___________ ___________
Commercial:
Domestic 262.3 261.8 33 42
International 154.5 65.0 20 10
_________ _________ ___________ ___________
Total 416.8 326.8 53 52
_________ _________ ___________ ___________
Total revenues $788.5 $622.3 100 % 100 %
========= ========= =========== ===========
Six Months
U.S. Federal Government:
Department of Defense $400.6 $351.6 26 % 29 %
NASA 138.1 108.6 9 9
Civil agencies 161.4 133.6 10 11
_________ _________ __________ __________
Total 700.1 593.8 45 49
_________ _________ __________ __________
Commercial:
Domestic 527.2 509.5 35 41
International 299.3 127.1 20 10
_________ _________ __________ __________
Total 826.5 636.6 55 51
_________ _________ __________ __________
Total revenues $1,526.6 $1,230.4 100 % 100 %
========= ========= ========== ==========
</TABLE>
