<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
<TABLE>
<S> <C>
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 28, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
</TABLE>
Commission File No.: 1-4850
[LOGO]
COMPUTER SCIENCES CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 95-2043126
(State of incorporation or
organization) (I.R.S. Employer
Identification No.)
2100 EAST GRAND AVENUE
EL SEGUNDO, CALIFORNIA 90245
(Address of principal executive
offices) (zip code)
</TABLE>
Registrant's telephone number, including area code: (310) 615-0311
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ----------------------------------------- -----------------------------------------
Common Stock, $1.00 par value per share New York Stock Exchange
Preferred Stock Purchase Rights Pacific Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of May 23, 1997, the aggregate market value of stock held by
non-affiliates of the Registrant was approximately $5,496,000,000. A total of
76,777,363 shares of common stock was outstanding as of such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission within 120 days after March 28, 1997, are incorporated by reference
into Part III hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
ITEM PAGE
- --------- ---------
<C> <S> <C>
1. Business............................................................................................ 1
2. Properties.......................................................................................... 4
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........................... 7
6. Selected Financial Data............................................................................. 7
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 9
8. Financial Statements and Supplementary Data......................................................... 15
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 44
PART III
10. Directors and Executive Officers of the Registrant.................................................. 44
11. Executive Compensation.............................................................................. 44
12. Security Ownership of Certain Beneficial Owners and Management...................................... 44
13. Certain Relationships and Related Transactions...................................................... 44
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................... 45
</TABLE>
<PAGE>
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. To achieve its customers' strategic objectives, CSC offers a broad
array of professional services to industry and government and specializes in the
application of advanced and complex information technology. 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; the development, implementation, and licensing of sophisticated software
systems for certain vertical markets; 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.
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 revenues:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
U.S. Commercial........................................................ 39% 37% 36%
Europe................................................................. 26 24 18
Other International.................................................... 6 6 7
--- --- ---
Global Commercial.................................................. 71 67 61
U.S. Federal Government................................................ 29 33 39
--- --- ---
Total Revenues..................................................... 100% 100% 100%
--- --- ---
--- --- ---
</TABLE>
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 J.P. Morgan, Bath Iron
Works, ING Financial Services International, Hyatt Hotels Corp. and Baker &
Taylor.
The Company also provides consulting and technical services in the
development and integration of computer and communications systems, 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.
1
<PAGE>
The Company has expertise in information systems development for state and
local governments and for the vertical-industry markets of insurance, banking,
other financial services, healthcare, pharmaceuticals, consumer goods,
distribution, publishing, utilities, manufacturing and communications. Other
capabilities, such as office automation and communications network engineering,
operation and management, range across industry needs in general.
The Company is a leading supplier 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 large volumes of data, including programs with New York
Medicaid, the U.S. Department of Labor, and the Federal Emergency Management
Agency.
The Company markets business information systems, software and services to
the insurance and financial services industries and to the managed healthcare
industry, clinics and physicians. In addition, CSC provides services for
administering life and disability insurance for credit loans and mortgages,
collateral-protection insurance and warranty insurance.
Also in the 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.
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.
Recent awards include contracts to provide systems engineering and technical
assistance at the U.S. Army Space and Strategic Defense Command, and to provide
specialized technical assistance, including systems design and implementation,
to the Department of Commerce Patent and Trademark Office.
Other typical 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.
EUROPE AND OTHER INTERNATIONAL MARKETS
The Company's international operations, with major offices in the United
Kingdom, France, Germany, Belgium, the Netherlands, Denmark 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 and professional services, systems integration, and
outsourcing. Current activities include major outsourcing contracts with British
Aerospace, Anglian Water, Guinness PLC, the National Health Service in Scotland
and ICI Paints. Also, as part of the fiscal 1995 acquisition of Ploenzke A.G.
and fiscal 1997 acquisition of Datacentralen, CSC significantly expanded its
European consulting operations.
2
<PAGE>
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. In the opinion of Company
management, CSC is positioned to compete effectively in U.S. and international
commercial markets based on its technology and systems expertise and large
project management skills. These skills have been gained through years of
experience in providing IT services to the federal government and to large
commercial outsourcing clients. It is also management's opinion that CSC's
competitive position is enhanced by its recognized position as a leader in
management consulting and the full spectrum of services that it provides.
EMPLOYEES
The Company currently employs approximately 42,200 persons, of which 31,500
are highly-trained professionals. The services provided by CSC require
proficiency in many fields, such as computer sciences, mathematics, physics,
engineering, astronomy, geology, operations research, economics, statistics and
business administration.
3
<PAGE>
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
APPROXIMATE
OWNED PROPERTIES AS OF MARCH 28, 1997 SQUARE FOOTAGE GENERAL USAGE
- ---------------------------------------------------- -------------- --------------------------------------------
<S> <C> <C>
Copenhagen, Denmark................................. 456,000 Computer and General Office Facility
Falls Church, Virginia.............................. 290,000 General Office
El Segundo, California.............................. 206,000 Office Facility
Austin, Texas....................................... 187,000 Office Facility
San Diego, California............................... 178,000 Computer and General Office Facility
Norwich, Connecticut................................ 149,000 Computer and General Office Facility
Meriden, Connecticut................................ 119,000 Computer and General Office Facility
Moorestown, New Jersey.............................. 99,000 General Office
Herndon, Virginia................................... 87,000 General Office
Maidstone, United Kingdom........................... 79,000 Computer and General Office Facility
St. Leonards, NSW, Australia........................ 60,000 Office Facility
Sterling, Virginia.................................. 45,000 Office Facility
Various other U.S. and foreign locations............ 44,000 Primarily General Office
<CAPTION>
LEASED PROPERTIES AS OF MARCH 28, 1997
- ----------------------------------------------------
<S> <C> <C>
Washington, D.C. area............................... 1,075,000 Computer and General Office Facilities
Houston and Dallas/Ft. Worth, Texas................. 497,000 Computer and General Office Facilities
United Kingdom...................................... 435,000 General Office
Australia and other Pacific Rim locations........... 409,000 Computer and General Office Facility
Germany............................................. 366,000 General Office
Mt. Laurel/Moorestown, New Jersey................... 313,000 General Office
Chicago and Champaign, Illinois..................... 162,000 General Office
Boston, Massachusetts area.......................... 157,000 General Office
Dayton and Cleveland, Ohio.......................... 146,000 General Office
Los Angeles, San Diego and San Francisco............ 145,000 General Office
Other New Jersey.................................... 127,000 General Office
Albany, New York.................................... 111,000 General Office
Various other U.S. and foreign locations............ 1,565,000 Computer and General Office Facilities
</TABLE>
Upon expiration of its leases, the Company does not anticipate any
difficulty in obtaining renewals or alternative space. Lease expiration dates
range from fiscal 1998 through 2018.
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 results of operations or
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
4
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED AS TERM AS POSITION HELD FAMILY
NAME AGE AN OFFICER OFFICER WITH THE REGISTRANT RELATIONSHIP
- --------------------------- --- ----------- ----------- --------------------------------------- -------------
<S> <C> <C> <C> <C> <C>
Van B. Honeycutt* 52 1987 Indefinite Chairman, President and Chief Executive None
Officer
Leon J. Level* 56 1989 Indefinite Vice President and Chief Financial None
Officer
Harvey N. Bernstein 50 1988 Indefinite Vice President None
Edward P. Boykin 58 1995 Indefinite Vice President None
Milton E. Cooper 58 1992 Indefinite Vice President None
Denis M. Crane 63 1981 Indefinite Vice President and Controller None
Hayward D. Fisk 54 1989 Indefinite Vice President, General Counsel and None
Secretary
Ronald W. Mackintosh 48 1993 Indefinite Vice President None
Thomas R. Madison, Jr. 51 1995 Indefinite Vice President None
Lawrence Parkus 60 1985 Indefinite Vice President None
C. Bruce Plowman 60 1989 Indefinite Vice President None
Thomas Williams 61 1993 Indefinite Vice President None
</TABLE>
- ------------------------
* Director of the Company
BUSINESS EXPERIENCE OF OFFICERS
Van B. Honeycutt was elected Chairman of the Board of Directors effective
March 29, 1997. He was appointed Chief Executive Officer of the Company
effective April 1, 1995. He joined the Company in 1975 and was elected President
and Chief Operating Officer during 1993. Prior to his election he was a Vice
President of CSC and President of the Industry Services Group. He was formerly
President of CSC Credit Services, Inc., where he directed the growth of this
wholly-owned subsidiary into one of the Company's major commercial units. He has
held a variety of other positions with the Company.
Leon J. Level joined the Company in 1989 as Vice President and Chief
Financial Officer and as a member of CSC's Board of Directors. Former positions
include Vice President and Treasurer of Unisys Corporation and Chairman of
Unisys Finance Corporation; Assistant Corporate Controller and Executive
Director of The Bendix Corporation; and Principal with the public accounting
firm of Deloitte & Touche LLP. He is a Certified Public Accountant.
Harvey N. Bernstein joined the Company as Assistant General Counsel in 1983.
He became Deputy General Counsel and was elected a Vice President in 1988. Prior
to joining the Company, he specialized in government procurement law at the firm
of Fried, Frank, Harris, Shriver & Jacobson in Washington, D.C.
Edward P. Boykin joined the Company in 1966. He is currently President of
The Pinnacle Alliance, a CSC-managed organization providing information
technology outsourcing and other services to J.P. Morgan. 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.
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.
5
<PAGE>
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 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. During 1997, he was named President of the Company's Financial Services
Group. Previously, 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.
Lawrence Parkus joined the Company in 1985 and was elected Vice President of
Corporate Development. 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.
Thomas Williams joined the Company in 1970 and has held a number of
managerial and technical positions within the Company. He currently is President
of the CSC Horizon Initiatives, providing information technology outsourcing and
other services to the chemical industry. Previously he served as President of
the U.K. Division, President of the Technology Management Group, President of
the Applied Technology Division and Vice President, Engineering and Range
Operations, and associate project manager of Computer Sciences Technicolor
Associates. 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.
6
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common stock of Computer Sciences Corporation is listed and traded on the
New York Stock Exchange and Pacific Stock Exchange. The ticker symbol is "CSC."
As of June 2, 1997, the number of registered shareholders of Computer
Sciences Corporation's common stock was 10,947. 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 1997.
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
CALENDAR QUARTER HIGH LOW HIGH LOW HIGH LOW
- ----------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1st............................................ 82 3/8 61 5/8 80 3/4 65 1/8 52 1/4 47 1/4
2nd............................................ 80 1/8* 57 7/8* 79 1/2 68 1/8 56 7/8 46 1/2
3rd............................................ 77 1/4 64 1/8 65 3/8 52
4th............................................ 86 1/2 70 75 1/4 62 1/2
</TABLE>
- ------------------------
* Through June 2, 1997
ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED)
COMPUTER SCIENCES CORPORATION
<TABLE>
<CAPTION>
FIVE-YEAR REVIEW
--------------------------------------------------------------------
MARCH 28, MARCH 29, MARCH 31, APRIL 1, APRIL 2,
(IN THOUSANDS EXCEPT PER-SHARE AMOUNTS) 1997 1996 1995 1994 1993
- ---------------------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total assets........................................ $ 3,580,858 $ 2,936,019 $ 2,631,580 $ 2,064,192 $ 1,703,476
Debt:
Long-term......................................... 630,842 426,634 335,696 292,493 319,829
Short-term........................................ 20,311 71,422 128,237 17,772 6,220
Current maturities................................ 9,622 6,917 11,933 35,761 32,905
------------ ------------ ------------ ------------ ------------
Total........................................... 660,775 504,973 475,866 346,026 358,954
Stockholders' equity................................ 1,669,560 1,420,113 1,290,769 912,497 782,008
Working capital..................................... 525,314 430,484 390,726 249,020 395,160
Property and equipment:
At cost........................................... 1,668,905 1,249,729 994,520 778,376 602,916
Accumulated depreciation and amortization......... 780,836 569,670 430,249 352,852 287,028
------------ ------------ ------------ ------------ ------------
Property and equipment, net....................... 888,069 680,059 564,271 425,524 315,888
Current assets to current liabilities............... 1.5:1 1.5:1 1.4:1 1.3:1 1.8:1
Debt to total capitalization........................ 28.4% 26.2% 26.9% 27.5% 31.5%
Book value per share................................ $21.80 $18.91 $17.43 $13.16 $12.02
Stock price range (high)............................ 86.50 80.75 52.63 41.75 26.83
(low)............................... 61.63 46.50 35.25 23.33 19.00
</TABLE>
7
<PAGE>
FIVE-YEAR REVIEW (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER-SHARE AMOUNTS) 1997 1996 1995 1994 1993
- ---------------------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................................ $ 5,616,048 $ 4,740,760 $ 3,788,026 $ 2,896,390 $ 2,780,828
------------ ------------ ------------ ------------ ------------
Costs of services................................... 4,413,173 3,692,267 2,961,955 2,268,655 2,204,933
Selling, general and administrative................. 485,113 471,309 383,973 294,641 287,645
Depreciation and amortization....................... 333,247 272,058 190,240 146,602 135,813
Interest, net....................................... 32,273 32,143 27,304 12,979 15,222
Special charges and other items, net................ 48,929 76,053 3,740 48,592 460
------------ ------------ ------------ ------------ ------------
Total costs and expenses............................ 5,312,735 4,543,830 3,567,212 2,771,469 2,644,073
------------ ------------ ------------ ------------ ------------
Income before taxes................................. 303,313 196,930 220,814 124,921 136,755
Taxes on income..................................... 110,900 87,499 77,577 57,499 58,487
------------ ------------ ------------ ------------ ------------
Income before cumulative effect of accounting
change, extraordinary credit and discontinued
operations........................................ 192,413 109,431 143,237 67,422 78,268
Cumulative effect of accounting change for income
taxes............................................. 4,900
Extraordinary credit--utilization of tax loss
carry-forwards.................................... 800
------------ ------------ ------------ ------------ ------------
Net income.......................................... $ 192,413 $ 109,431 $ 143,237 $ 72,322 $ 79,068
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Earnings per common share before cumulative effect
of accounting change and discontinued
operations........................................ $ 2.46 $ 1.43 $ 1.99 $ 0.99 $ 1.19
Cumulative effect of accounting change for income
taxes............................................. 0.07
Extraordinary credit................................ .01
------------ ------------ ------------ ------------ ------------
Earnings per common share........................... $ 2.46 $ 1.43 $ 1.99 $ 1.06 $ 1.20
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Shares used to compute earnings per share........... 78,196,862 76,534,794 71,850,949 68,366,304 65,670,506
</TABLE>
- ------------------------
Notes: A discussion of "Income Before Taxes" and "Net Income and Earnings per
Share" before and after special charges is included on page 12 of this
annual report.
The selected financial data has been restated for fiscal 1993 through
1996 to include the results of business combinations accounted for as
poolings of interests. 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.
No dividends were paid by CSC or any of its affiliates during fiscal 1996
and 1997. Hogan Systems, Inc., a fiscal 1996 acquisition accounted for as
a pooling of interests, paid dividends to its shareholders of record of
$.15 per share during fiscal 1993 and $.17 per share during fiscal 1994
and 1995.
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
The Company derived its revenues for fiscal years 1997, 1996 and 1995 from
the following market sectors:
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
------------------------ ------------------------ FISCAL
PERCENT PERCENT 1995
(DOLLARS IN MILLIONS) AMOUNT CHANGE AMOUNT CHANGE AMOUNT
- ---------------------------------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
U. S. Commercial........................ $ 2,159.7 22% $ 1,770.8 28% $ 1,381.8
Europe.................................. 1,474.9 33 1,109.6 67 663.4
Other International..................... 345.8 20 288.9 14 253.4
--------- --------- ---------
Global Commercial................... 3,980.4 26 3,169.3 38 2,298.6
U. S. Federal Government................ 1,635.6 4 1,571.5 6 1,489.4
--------- --------- ---------
Total............................... $ 5,616.0 18 $ 4,740.8 25 $ 3,788.0
--------- --------- ---------
--------- --------- ---------
</TABLE>
For fiscal 1997 compared to 1996, 26% growth in the Company's global
commercial operations combined with 4% growth in revenues from the U.S. Federal
Government to generate overall growth of 18%.
Within the Company's global commercial operations, U.S. commercial revenues
grew 22% or $388.9 million during fiscal 1997. Nearly half of the growth was
provided by increases in outsourcing, which covers the full range of a client's
information technology activities. Fiscal 1997 outsourcing revenue growth was
derived from additional services provided to the Hughes Electronics Corporation
("Hughes") and new contracts, including the Pinnacle Alliance with J.P. Morgan,
Bath Iron Works, ING Financial Services International, Hyatt Hotels Corp. and
Baker & Taylor. The remainder of the U.S. commercial revenue growth is derived
principally from increased demand for consulting and systems integration
services, the acquisition of American Practice Management ("APM") and growth
within the financial services sector.
Effective August 1, 1996, the Company acquired The Continuum Company, Inc.
("Continuum"), which was accounted for as a pooling of interests. Accordingly,
CSC's consolidated financial statements for periods prior to August 1, 1996 have
been restated to include the financial position and results of operations of
Continuum, which now operates as CSC's Financial Services Group. For its fiscal
year ended March 31, 1996, Continuum reported $498.3 million of revenue.
CSC's U.S. commercial revenue growth for fiscal 1996 was also led by large
increases in commercial outsourcing, including contracts with Hughes, Southern
New England Telecommunications Corporation and Scott Paper Company. The
Company's U.S. consulting operations contributed further to the growth.
CSC's European operations generated revenue growth of 33% or $365.3 million
for fiscal 1997 versus 1996. Three factors generated the bulk of the Company's
international growth: (1) the acquisition of two major Scandinavian providers of
information technology services, (2) the continued expansion of outsourcing
business in the United Kingdom, including a full year of activity on the
Company's contract to manage all of the information technology operations of
Anglian Water, and (3) increased demand for consulting services in Germany,
especially in the area of SAP payroll-related applications. The majority of
fiscal 1996 European revenue growth came from significant increases in
outsourcing and the acquisition of Ploenzke A.G. in Germany.
As noted in the above table, other international revenues increased 20% to
$345.8 million during fiscal 1997. The growth is principally due to increased
outsourcing activity in Australia and the acquisition of McDonnell Information
Systems PTY, Ltd., a leading provider of healthcare information systems to the
Australasian healthcare industry. For fiscal 1996 versus 1995, revenue growth of
14% is also attributable principally to new business in Australia.
9
<PAGE>
The Company's federal revenues were derived from the following agencies:
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
---------------------- ---------------------- FISCAL
PERCENT PERCENT 1995
(DOLLARS IN MILLIONS) AMOUNT CHANGE AMOUNT CHANGE AMOUNT
- ---------------------------------------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Department of Defense................... $ 1,082.8 13% $ 961.6 17% $ 823.8
NASA.................................... 299.4 (3) 310.1 (1) 312.4
Civil................................... 253.4 (15) 299.8 (15) 353.2
--------- --------- ---------
Total U. S. Federal..................... $ 1,635.6 4 $ 1,571.5 6 $ 1,489.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
During fiscal 1997 and 1996, the Company's Federal revenue gains were
attributable in part to additional revenue on task order contracts, such as the
Defense Enterprise Integration Services contract with the Defense Integration
Systems Agency and additional ordering of the JCALS system, a management
information system based on a distributed database infrastructure with
electronic publishing applications for the U.S. Department of Defense. Fiscal
1997 and 1996 revenue gains also were attributable in part to the mid-fiscal
1996 award of the Air Force contract at the Arnold Engineering Development
Center. Revenue gains during 1997 and 1996 were partially offset by the loss of
three civil contracts and restrained federal spending.
During fiscal 1997, CSC announced winning federal contracts with a value of
$2.1 billion, compared with the $2.4 billion and $1.3 billion announced during
fiscal 1996 and 1995, respectively.
COSTS AND EXPENSES
The Company's costs and expenses before special charges are as follows:
<TABLE>
<CAPTION>
DOLLAR AMOUNT PERCENTAGE OF REVENUE
------------------------------- -------------------------------
(DOLLARS IN MILLIONS) 1997 1996 1995 1997 1996 1995
- ------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Costs of services............. $ 4,413.2 $ 3,692.3 $ 2,962.0 78.6% 77.9% 78.2%
Selling, general &
administrative.............. 485.1 471.3 384.0 8.6 9.9 10.2
Depreciation and
amortization................ 333.2 272.1 190.2 5.9 5.7 5.0
Interest expense, net......... 32.3 32.1 27.3 .6 .7 .7
--------- --------- --------- --------- --------- ---------
Total......................... $ 5,263.8 $ 4,467.8 $ 3,563.5 93.7% 94.2% 94.1%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
COSTS OF SERVICES
The Company's costs of services as a percent of revenue increased to 78.6%
during fiscal 1997 from 77.9% during fiscal 1996. The increase is due primarily
to excess costs in the Company's U.S. telecommunications operations and a
decline in telecommunications software sales. Costs of services as a percent of
revenue also increased in the Company's European operations, but were offset by
improvements within U.S. operations.
The U.S. improvement includes lower costs of services as a percentage of
revenue at the Financial Services Group and the newly acquired APM, as well as
an ongoing shift in the mix of business toward outsourcing. Outsourcing
generally carries a lower costs-of-services percentage and higher depreciation
percentage compared to the Company's federal, consulting and systems integration
operations. The decrease in costs of services during fiscal 1996 was primarily
related to the shift in the mix of business toward outsourcing.
10
<PAGE>
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 1997 to 8.6%, down from
9.9% for fiscal 1996. The Company's European operations were the primary
contributor to the 1997 improvement. In addition, the SG&A improvement in Europe
more than offset the increase in European costs of services as a percent of
revenue described above. Improvements in SG&A were also attained in the
Company's U.S. federal operations. Partially offsetting these improvements was
the effect of the Company's acquisition of APM and growth within the Company's
Financial Services Group, where SG&A costs as a percent of revenue are above the
corporate average.
For fiscal 1996, SG&A as a percent of revenue improved to 9.9% from 10.2%
for fiscal 1995. This improvement was achieved across all market sectors served
by CSC.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense during fiscal 1997 was 5.9% of the
Company's total revenue, versus 5.7% and 5.0% during fiscal 1996 and 1995,
respectively. The increases during fiscal 1997 and 1996 principally reflect the
Company's investments in computer equipment and software, especially within
CSC's outsourcing activities, as described above.
INTEREST
Interest expense, net of interest income, was $32.3 million for fiscal 1997,
up from $32.1 million for fiscal 1996 and $27.3 million for fiscal 1995. The
fiscal 1996 increase is due principally to higher borrowing to fund the
Company's acquisitions and investments in computer equipment and software.
SPECIAL CHARGES
The fiscal 1997 special charge represents costs and expenses related to the
August 1 acquisition of Continuum. The amount of the charge, net of income tax
benefits on the tax deductible portion, is $35.3 million or 45 cents per share.
The charge is comprised of $11.0 million for investment banking and other merger
expenses; $11.8 million related to the write-off of certain capitalized
software, other assets and intangibles; and $26.1 million related to the
elimination of duplicate data-processing facilities, employee severance costs
and contract termination costs.
The fiscal 1996 special charges were largely related to Continuum's
acquisitions of Hogan Systems, Inc. and SOCS, a Paris-based software and
services company. The special charges of $76.1 million included a $26.0 million
non-cash charge resulting from the write-off of certain software development
activities at SOCS, restructuring and transaction costs of $19.4 million, and
adjustments to the carrying value of certain operating assets of $30.7 million.
The $19.4 million charge includes $9.6 million of transaction and $9.8 million
of restructuring costs (which includes the consolidation of facilities and data
processing and employee terminations). The $30.7 million charge includes $20.2
million to capitalized software, $8.7 million to allowances for certain
receivables and $1.8 million to other intangibles.
Special charges for fiscal 1995 include a loss on the sale of the Company's
tax processing operation during January 1995. The resulting pre-tax loss of $3.7
million was reduced by related income tax effects of $2.8 million, yielding a
net loss of $0.9 million.
11
<PAGE>
INCOME BEFORE TAXES
The Company's income before taxes for the most recent three fiscal years is
as follows:
<TABLE>
<CAPTION>
DOLLAR AMOUNT MARGIN
------------------------------- -------------------------------------
(DOLLARS IN MILLIONS) 1997 1996 1995 1997 1996 1995
- -------------------------------------------- --------- --------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Before special charges...................... $ 352.2 $ 273.0 $ 224.6 6.3% 5.8% 5.9%
Income before taxes......................... 303.3 196.9 220.8 5.4 4.2 5.8
</TABLE>
Income before taxes improved during fiscal 1997 as a percentage of revenue.
The .5% improvement during fiscal 1997 to a margin of 6.3% before the impact of
special charges relates principally to the improvement in SG&A expenses.
Partially offsetting the improvement were increases in costs of services and
depreciation and amortization as a percent of revenue.
During fiscal 1996, income before special charges and taxes decreased
slightly as a percentage of revenue because of proportionately higher
depreciation and amortization expenses partially offset by improvements in costs
of services and SG&A.
TAXES
The provision for income taxes as a percentage of pre-tax earnings was
36.6%, 44.4% and 35.1% for fiscal 1997, 1996 and 1995, respectively. The fiscal
1996 rate is significantly higher because of the impact of the non-deductible
portions of acquisition-related special charges.
NET INCOME AND EARNINGS PER SHARE
The Company's net income and earnings per share for fiscal years 1997, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
DOLLAR AMOUNT MARGIN
------------------------------- -------------------------------------
(DOLLARS IN MILLIONS, EXCEPT EPS) 1997 1996 1995 1997 1996 1995
- -------------------------------------------- --------- --------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net income:
Before special charges.................... $ 227.7 $ 171.2 $ 144.2 4.1% 3.6% 3.8%
As reported............................... 192.4 109.4 143.2 3.4 2.3 3.8
Earnings per share:
Before special charges.................... 2.91 2.24 2.01
As reported............................... 2.46 1.43 1.99
</TABLE>
During fiscal 1997, the Company's net income margin improved to 3.4% from
2.3%. The special charges incurred by Continuum during fiscal 1996 reduced net
income by 1.3% of revenue or $61.7 million. The special charge incurred during
fiscal 1997 reduced net income by .7% of revenue or $35.3 million.
Before the special charges, the net earnings margin for fiscal 1997, 1996
and 1995 was 4.1%, 3.6% and 3.8%, respectively. The 1997 improvement is
primarily attributable to the reduction of SG&A as a percent of revenue and a
lower income tax rate, partially offset by the increase in costs of services as
a percent of revenue. The decline in net income margin from fiscal 1995 to 1996
is due to higher depreciation and amortization expenses and a higher effective
tax rate, partially offset by reduced costs of services and SG&A expenses as a
percent of revenue.
12
<PAGE>
CASH FLOWS
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
---------------------- ---------------------- FISCAL
PERCENT PERCENT 1995
(DOLLARS IN MILLIONS) AMOUNT CHANGE AMOUNT CHANGE AMOUNT
- ------------------------------------------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Cash from operations....................... $ 500.4 30% $ 384.0 37% $ 279.5
Net cash used in investing................. (678.6) 28 (530.8) 23 (430.2)
Net cash provided by financing............. 175.0 230 53.1 (75) 210.4
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents.............................. (3.2) (93.7) 59.7
Cash at beginning of year.................. 113.9 207.6 147.9
--------- --------- ---------
Cash at end of year...................... $ 110.7 (3) $ 113.9 (45) $ 207.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
Historically, the majority of the Company's cash has been provided from
operating activities. The increases in cash from operations during fiscal 1997
and 1996 are primarily due to higher earnings and non-cash charges (depreciation
and amortization), partially offset by increased 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 include computer equipment purchased at the inception of
outsourcing contracts as well as subsequent upgrades, expansion or replacement
of these client-supporting assets. The Company's investments also include a
significant number of business acquisitions during fiscal 1995 through 1997.
As described above, a majority of the Company's capital investments have
been funded by cash from operations. During each of fiscal 1997 and 1995, the
Company, through affiliates, issued $150 million of term debt. The Company also
received $196.3 million in cash from a four million common share offering during
fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The balance of cash, cash equivalents and short-term investments was $110.7
million at March 28, 1997, $113.9 million at March 29, 1996 and $207.6 million
at March 31, 1995. 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 common share offering noted above. At
the end of fiscal 1997, CSC's ratio of debt to total capitalization was 28%.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1997 1996 1995
- ----------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Debt....................................................... $ 660.8 $ 505.0 $ 475.9
Equity..................................................... 1,669.6 1,420.1 1,290.8
--------- --------- ---------
Total capital.............................................. $ 2,330.4 $ 1,925.1 $ 1,766.7
--------- --------- ---------
--------- --------- ---------
Debt to total capitalization............................... 28% 26% 27%
</TABLE>
During fiscal 1997, the Company increased its affiliates' credit agreement
to provide stand-by support for commercial paper from $350 million to $490
million. At March 28, 1997, $193.1 million was available for borrowing under
this program, up from $103.2 million at March 29, 1996.
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 debt and/or equity securities.
13
<PAGE>
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.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Financial Statement Schedules
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Reports.............................................................................. 16
Consolidated Statements of Income for the fiscal years ended March 28, 1997, March 29, 1996 and March 31,
1995..................................................................................................... 19
Consolidated Balance Sheets as of March 28, 1997 and March 29, 1996........................................ 20
Consolidated Statements of Cash Flows for the fiscal years ended March 28, 1997, March 29, 1996 and March
31, 1995................................................................................................. 22
Consolidated Statements of Stockholders' Equity for the fiscal years ended March 28, 1997, March 29, 1996
and March 31, 1995....................................................................................... 23
Notes to Consolidated Financial Statements................................................................. 24
Quarterly Financial Information (Unaudited)................................................................ 43
SCHEDULE
Schedule VIII--Valuation and Qualifying Accounts........................................................... 49
</TABLE>
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.
15
<PAGE>
INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
Computer Sciences Corporation
El Segundo, California
We have audited the accompanying consolidated balance sheets of Computer
Sciences Corporation and Subsidiaries (the Company) as of March 28, 1997 and
March 29, 1996, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended March 28, 1997. Our audits also included the financial statement schedule
listed in the Index at Item 5(a). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. These consolidated financial
statements and financial statement schedule give retroactive effect to the
merger of Computer Sciences Corporation and The Continuum Company, Inc. on
August 1, 1996, which has been accounted for as a pooling of interests as
described in Note 1 to the consolidated financial statements. We did not audit
the financial statements of The Continuum Company, Inc. as of March 31, 1996 and
for each of the two years in the period ended March 31, 1996. Such statements
reflect aggregate total assets constituting 12% for 1996, and aggregate total
revenues constituting 11% and 11% in 1996 and 1995 respectively, of the related
consolidated totals. Those statements were audited by other auditors, whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for The Continuum Company, Inc. is based solely on the report
of the other auditor.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
such consolidated financial statements present fairly, in all material respects,
the financial position of Computer Sciences Corporation and Subsidiaries as of
March 28, 1997 and March 29, 1996, and the results of their operations and their
cash flows for each of the three years in the period ended March 28, 1997, in
conformity with generally accepted accounting principles. Also, in our opinion,
based on our audits and the report of the other auditors, such 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.
DELOITTE & TOUCHE LLP
Los Angeles, California
May 23, 1997
16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
STOCKHOLDERS AND BOARD OF DIRECTORS
The Continuum Company, Inc.
We have audited the consolidated balance sheets of The Continuum Company,
Inc. as of March 31, 1996 and 1995 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended March 31, 1996 (not presented separately herein). The
consolidated financial statements give retroactive effect to the acquisition of
Hogan Systems, Inc. in March 1996, which has been accounted for using the
pooling of interests method as described in the notes to the consolidated
financial statements. These financial statements are the responsibility of the
management of The Continuum Company, Inc. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
1995 and 1994 financial statements of Hogan Systems, Inc., which statements
reflect total assets constituting 33% as of March 31, 1995 and net income
constituting approximately 19% and 27% for the years ended March 31, 1995 and
1994, respectively, of the related consolidated financial statement totals.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to data included for Hogan
Systems, Inc. for 1995 and 1994, is based solely on the report of other
auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits, and for 1995 and 1994 the report of
other auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Continuum Company, Inc. at March 31, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended March 31, 1996, after giving effect to the merger of Hogan Systems,
Inc., as described in the notes to the consolidated financial statements, in
conformity with generally accepted accounting principles.
As described in Note 2 to the consolidated financial statements, during the
year ended March 31, 1994, The Continuum Company, Inc. changed its method of
accounting for income taxes.
ERNST & YOUNG LLP
Austin, Texas
May 1, 1996
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Hogan Systems, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of income, of cash flows and of changes in shareholders' equity as of
and for each of the two years in the period ended March 31, 1995 (not presented
separately herein) present fairly, in all material respects, the financial
position, results of operations and cash flows of Hogan Systems, Inc. and its
subsidiaries (Hogan) as of and for each of the two years in the period ended
March 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Hogan's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of Hogan for
any period subsequent to March 31, 1995.
PRICE WATERHOUSE LLP
Dallas, Texas
April 21, 1995
18
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
MARCH 28, MARCH 29, MARCH 31,
(IN THOUSANDS EXCEPT PER-SHARE AMOUNTS) 1997 1996 1995
- ------------------------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Revenues (note 10)...................................................... $ 5,616,048 $ 4,740,760 $ 3,788,026
------------ ------------ ------------
Costs of services....................................................... 4,413,173 3,692,267 2,961,955
Selling, general and administrative..................................... 485,113 471,309 383,973
Depreciation and amortization........................................... 333,247 272,058 190,240
Interest expense........................................................ 40,268 37,925 31,419
Interest income......................................................... (7,995) (5,782) (4,115)
Special charges (note 2)................................................ 48,929 76,053 3,740
------------ ------------ ------------
Total costs and expenses................................................ 5,312,735 4,543,830 3,567,212
------------ ------------ ------------
Income before taxes..................................................... 303,313 196,930 220,814
Taxes on income (note 3)................................................ 110,900 87,499 77,577
------------ ------------ ------------
Net income.............................................................. $ 192,413 $ 109,431 $ 143,237
------------ ------------ ------------
------------ ------------ ------------
Earnings per common share............................................... $ 2.46 $ 1.43 $ 1.99
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
(See notes to consolidated financial statements)
19
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 28, MARCH 29,
(IN THOUSANDS) 1997 1996
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 110,726 $ 113,873
Receivables, net of allowance for doubtful accounts of $52,507 (1997) and $45,425
(1996) (notes 4 and 10)........................................................... 1,294,003 1,106,857
Prepaid expenses and other current assets........................................... 207,698 134,429
------------ ------------
Total current assets............................................................ 1,612,427 1,355,159
------------ ------------
Investments and other assets:
Purchased and internally developed software, net of accumulated amortization of
$152,725 (1997) and $123,310 (1996)............................................... 132,627 97,011
Excess of cost of businesses acquired over related net assets, net of accumulated
amortization of $72,472 (1997) and $62,748 (1996)................................. 561,670 457,912
Other assets........................................................................ 386,065 345,878
------------ ------------
Total investments and other assets.............................................. 1,080,362 900,801
------------ ------------
Property and equipment--at cost (note 5):
Land, buildings and leasehold improvements.......................................... 291,878 201,494
Computers and related equipment..................................................... 1,255,455 939,298
Furniture and other equipment....................................................... 121,572 108,937
------------ ------------
1,668,905 1,249,729
Less accumulated depreciation and amortization...................................... 780,836 569,670
------------ ------------
Property and equipment, net..................................................... 888,069 680,059
------------ ------------
$ 3,580,858 $ 2,936,019
------------ ------------
------------ ------------
</TABLE>
(See notes to consolidated financial statements)
20
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 28, MARCH 29,
(IN THOUSANDS EXCEPT SHARES) 1997 1996
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Current liabilities:
Short-term debt and current maturities of long-term debt (note 5)................... $ 29,933 $ 78,339
Accounts payable.................................................................... 295,112 186,460
Accrued payroll and related costs (note 6).......................................... 252,902 218,163
Other accrued expenses.............................................................. 311,283 262,961
Deferred revenue.................................................................... 112,888 111,075
Federal, state and foreign income taxes (note 3).................................... 84,995 67,677
------------ ------------
Total current liabilities....................................................... 1,087,113 924,675
------------ ------------
Long-term debt, net of current maturities (note 5).................................... 630,842 426,634
------------ ------------
Deferred income taxes (note 3)........................................................ 116,005 84,977
------------ ------------
Other long-term liabilities (note 6).................................................. 77,338 79,620
------------ ------------
Commitments and contingencies (notes 6 and 7).........................................
Stockholders' equity (notes 1, 8 and 9)...............................................
Preferred stock, par value $1 per share; authorized 1,000,000 shares; none issued...
Common stock, par value $1 per share; authorized 275,000,000 shares; issued
76,924,836 (1997) and 75,428,622 (1996)........................................... 76,925 75,429
Additional paid-in capital.......................................................... 569,719 506,569
Earnings retained for use in business............................................... 1,055,183 862,770
Foreign currency translation and unfunded pension adjustments....................... (14,625) (7,214)
------------ ------------
1,687,202 1,437,554
Less common stock in treasury, at cost, 332,220 shares (1997) and 311,928 shares
(1996)............................................................................ (11,982) (10,488)
Unearned restricted stock (note 8).................................................. (1,251) (2,088)
Notes receivable for shares sold (note 8)........................................... (4,409) (4,865)
------------ ------------
Stockholders' equity, net....................................................... 1,669,560 1,420,113
------------ ------------
$ 3,580,858 $ 2,936,019
------------ ------------
------------ ------------
</TABLE>
(See notes to consolidated financial statements)
21
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
MARCH 28, MARCH 29, MARCH 31,
(IN THOUSANDS, INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS) 1997 1996 1995
- --------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 192,413 $ 109,431 $ 143,237
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization.......................................... 333,247 272,058 190,240
Special charges, net of tax............................................ 11,884 73,186
Provision for losses on accounts receivable............................ 33,501 20,623 8,881
Changes in assets and liabilities, net of effects of acquisitions:
Increase in receivables.............................................. (164,184) (163,517) (141,590)
(Increase) decrease in prepaid expenses.............................. (39,692) 7,234 (26,921)
Decrease (increase) in other assets.................................. 5,024 (10,250) 369
Increase in accounts payable and accruals............................ 97,294 28,768 98,265
Increase in income taxes payable..................................... 29,028 25,959 14,580
(Decrease) increase in deferred revenue.............................. (3,304) 12,518 (13,182)
Other changes, net................................................... 5,211 7,976 5,668
----------- ----------- -----------
Net cash provided by operating activities.............................. 500,422 383,986 279,547
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment...................................... (322,434) (275,841) (207,474)
Outsourcing contracts.................................................... (102,508) (114,144) (103,280)
Acquisitions, net of cash acquired....................................... (176,693) (76,878) (76,924)
Dispositions............................................................. 6,229 7,380
Purchased and internally developed software.............................. (77,227) (56,767) (37,076)
Other investing cash flows............................................... (6,011) (14,555) (5,397)
----------- ----------- -----------
Net cash used in investing activities.................................... (678,644) (530,805) (430,151)
----------- ----------- -----------
Cash flows from financing activities:
Net borrowing (repayment) of commercial paper............................ 50,188 (587)
Borrowings under lines of credit......................................... 48,180 78,457 209,778
Repayment of borrowings under lines of credit............................ (99,283) (38,376) (215,667)
Proceeds from term debt issuance......................................... 150,000 43,541 158,920
Principal payments on long-term debt..................................... (29,843) (58,476) (43,550)
Outsourcing contract financing........................................... (114,403)
Proceeds from equity offering............................................ 196,290
Proceeds from stock option transactions.................................. 42,869 18,511 21,954
Dividends paid........................................................... (2,443)
Other financing cash flows............................................... 12,964 10,023 (534)
----------- ----------- -----------
Net cash provided by financing activities................................ 175,075 53,093 210,345
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents....................... (3,147) (93,726) 59,741
Cash and cash equivalents at beginning of year............................. 113,873 207,599 147,858
----------- ----------- -----------
Cash and cash equivalents at end of year................................... $ 110,726 $ 113,873 $ 207,599
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(See notes to consolidated financial statements)
22
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
EARNINGS AND
COMMON STOCK ADDITIONAL RETAINED UNFUNDED COMMON UNEARNED
------------------- PAID-IN FOR USE IN PENSION STOCK IN RESTRICTED
(IN THOUSANDS EXCEPT SHARES) SHARES AMOUNT CAPITAL BUSINESS ADJUSTMENTS TREASURY STOCK
- --------------------------------------------- ---------- ------- ---------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1994..................... 69,536,695 $69,536 $254,838 $612,545 $(12,675) $(4,595) $ (4,441)
Issuance of common stock..................... 4,000,000 4,000 192,290
Stock option transactions.................... 714,897 715 18,691 (584)
Amortization and forfeitures of restricted
stock...................................... 1,460
Cancellation of stock subscriptions.......... (3,235) (3) (77)
Net income................................... 143,237
Currency translation adjustment.............. 19,963
Unfunded pension obligation.................. (636)
Hogan dividend............................... (2,443)
Repayment of notes...........................
---------- ------- ---------- ---------- ----------- -------- ----------
Balance at March 31, 1995.................... 74,248,357 74,248 465,742 753,339 6,652 (5,179) (2,981)
Stock option transactions.................... 1,347,368 1,348 40,460 (5,309)
Granting of restricted stock of $200,000 net
of amortization and forfeitures of
$1,093,000................................. 4,130 4 196 893
Net income................................... 109,431
Currency translation adjustment.............. (12,218)
Unfunded pension obligation.................. (1,648)
Retirement of Hogan treasury stock........... (171,233) (171) 171
Repayment of notes...........................
---------- ------- ---------- ---------- ----------- -------- ----------
Balance at March 29, 1996.................... 75,428,622 75,429 506,569 862,770 (7,214) (10,488) (2,088)
Stock option transactions.................... 1,496,214 1,496 63,150 (1,494)
Amortization and forfeitures of restricted
stock...................................... 837
Net income................................... 192,413
Currency translation adjustment.............. (7,182)
Unfunded pension obligation.................. (229)
Repayment of notes...........................
---------- ------- ---------- ---------- ----------- -------- ----------
Balance at March 28, 1997.................... 76,924,836 $76,925 $569,719 $1,055,183 $(14,625) $(11,982) $(1,251)
---------- ------- ---------- ---------- ----------- -------- ----------
---------- ------- ---------- ---------- ----------- -------- ----------
<CAPTION>
NOTES
RECEIVABLE
FOR SHARES
(IN THOUSANDS EXCEPT SHARES) SOLD
- --------------------------------------------- ----------
<S> <C>
Balance at April 1, 1994..................... $ (2,711 )
Issuance of common stock.....................
Stock option transactions....................
Amortization and forfeitures of restricted
stock......................................
Cancellation of stock subscriptions..........
Net income...................................
Currency translation adjustment..............
Unfunded pension obligation..................
Hogan dividend...............................
Repayment of notes........................... 1,659
----------
Balance at March 31, 1995.................... (1,052)
Stock option transactions.................... (3,888)
Granting of restricted stock of $200,000 net
of amortization and forfeitures of
$1,093,000.................................
Net income...................................
Currency translation adjustment.............. (28)
Unfunded pension obligation..................
Retirement of Hogan treasury stock...........
Repayment of notes........................... 103
----------
Balance at March 29, 1996.................... (4,865)
Stock option transactions.................... (1,125)
Amortization and forfeitures of restricted
stock......................................
Net income...................................
Currency translation adjustment.............. (24)
Unfunded pension obligation..................
Repayment of notes........................... 1,605
----------
Balance at March 28, 1997.................... $(4,409)
----------
----------
</TABLE>
(See notes to consolidated financial statements)
23
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include those of Computer
Sciences Corporation, its subsidiaries and those joint ventures and partnerships
over which it exercises control, hereafter collectively referred to as "CSC" or
"the Company." All material intercompany transactions and balances have been
eliminated.
BUSINESS COMBINATION
On August 1, 1996, CSC acquired The Continuum Company, Inc. ("Continuum").
Upon consummation of the merger, Continuum became a wholly owned subsidiary of
the Company. Each outstanding share of Continuum common stock was converted into
.79 of a share of common stock of the Company and each outstanding option to
purchase shares of Continuum common stock was converted into an option to
purchase .79 shares of CSC common stock. The acquisition has been accounted for
as a pooling of interests, and previously reported consolidated financial
statements of the Company for periods ended prior to August 1, 1996 have been
restated to include the financial position and results of operations of
Continuum.
OTHER ACQUISITIONS
On March 15, 1996, Continuum, prior to its merger with CSC, acquired Hogan
Systems, Inc. ("Hogan") through the issuance of 4,814,000 shares of its common
stock (equivalent to 3,803,000 shares of CSC's common stock). The acquisition
was accounted for as a pooling of interests and, accordingly, the Company's
consolidated financial statements have been restated to include the results of
Hogan for all periods presented.
During the three years ended March 28, 1997, the Company made a number of
acquisitions in addition to those described above which, either individually or
collectively, are not material. In conjunction with business combinations
accounted for as purchases, the Company acquired assets with an estimated fair
value of $199,302,000, $34,497,000 and $63,102,000; and assumed liabilities of
$125,511,000, $18,628,000 and $85,465,000 for fiscal 1997, 1996 and 1995
respectively. The excess of cost of businesses acquired over related net assets
was $139,504,000, $22,448,000 and $103,626,000 for fiscal 1997, 1996 and 1995,
respectively.
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 generally recognized upon receipt of a signed contract or other
form of evidence documenting a customer commitment, however, if significant
customization is part of the transaction, such revenues are recognized over the
period of delivery.
24
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION
The Company's depreciation and amortization policies are as follows:
<TABLE>
<S> <C>
Property and Equipment:
Buildings................................ 10 to 40 years
Computers and related equipment.......... 3 to 10 years
Furniture and other equipment............ 2 to 10 years
Shorter of lease term or useful
Leasehold improvements................... 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
</TABLE>
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 $71,709,000 and $51,205,000 as of
March 28, 1997 and March 29, 1996, respectively. The related amortization
expense was $20,073,000, $19,947,000 and $8,814,000 for fiscal years 1997, 1996
and 1995, respectively. During March 1996, $20,200,000 of capitalized software
was written off to reflect a decline in net realizable value associated
primarily with changes in market conditions and changes in business strategy
relating to certain banking products.
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 $89,378,000 and $99,551,000 for fiscal 1997 and 1996,
respectively. The related amortization expense was $12,112,000, $12,764,000 and
$11,601,000 for fiscal 1997, 1996 and 1995, respectively.
The Company evaluates at least annually the recoverability of its excess
cost of businesses acquired over related net assets. In assessing
recoverability, the current and future profitability of the related operations
are considered, along with management's plans with respect to the operations and
the projected undiscounted cash flows.
CASH FLOWS
Cash payments for interest on indebtedness and taxes on income are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
(IN THOUSANDS) 1997 1996 1995
- ------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Interest..................................................... $ 37,910 $ 36,322 $ 26,311
Taxes on income.............................................. 63,899 50,703 59,391
</TABLE>
25
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. The Company has no material hedge contracts with
respect to its foreign exchange or interest rate positions
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, in particular estimates of anticipated contract costs utilized in
the revenue recognition process, that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
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 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.
Shares used to compute earnings per share are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Average shares outstanding.......................... 75,947,284 74,432,531 70,148,723
Common stock equivalents............................ 2,249,578 2,102,263 1,702,226
------------ ------------ ------------
78,196,862 76,534,794 71,850,949
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
ACCOUNTING CHANGES
Effective for fiscal 1997, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." 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
adoption of SFAS No. 121 during fiscal 1997 did not have a material impact on
results of operations or financial position.
26
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Also effective for fiscal 1997, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," and, as permitted by this standard,
will continue to apply the recognition and measurement principles of Accounting
Principles Board Opinion No. 25 to its stock options. 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.
RECENT ACCOUNTING PRONOUNCEMENTS
During fiscal 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." This statement replaces the presentation of primary
earnings per share with basic earnings per share, and will require dual
presentation of basic and diluted earnings per share on the face of the income
statement. For CSC, diluted earnings per share reflects the potential dilution
that could occur if outstanding options to purchase shares of the Company's
common stock were exercised. As specified in the statement, the Company will
apply the statement beginning with its third quarter of fiscal 1998, and
earnings per share presentations will include restatement of prior period data
presented. For fiscal 1997, basic earnings per share were $2.53 and diluted
earnings per share were $2.46 under the provisions of SFAS No. 128.
RECLASSIFICATIONS
Certain reclassifications have been made in connection with the Company's
acquisitions which were accounted for as poolings of interests.
NOTE 2--SPECIAL CHARGES
The fiscal 1997 special charge represents costs and expenses related to the
August 1 acquisition of Continuum. The amount of the charge, net of income tax
benefits on the tax deductible portion, is $35,280,000 or 45 cents per share.
The charge is comprised of $11,040,000 for investment banking and other merger
expenses; $11,785,000 related to the write-off of certain capitalized software,
other assets and intangibles; and $26,104,000 related to the elimination of
duplicate data processing facilities, employee severance costs and contract
termination costs. At March 28, 1997, $7,184,000 of the $26,104,000 amount is
reflected in accrued expenses.
In connection with the fiscal 1996 acquisition of Hogan discussed in note 1,
Continuum effected a plan to integrate, restructure and realign its expanded
business. As a result, approximately $50,100,000 of special charges were
expensed, including $9,600,000 of transaction and $9,800,000 of restructuring
costs (which includes the consolidation of facilities and data processing and
employee terminations). In addition, non-cash adjustments to the carrying value
of certain tangible and intangible assets of $30,700,000 were recorded,
including $20,200,000 to capitalized software (see note 1).
Fiscal 1996 charges also included $26,000,000, related to an acquisition,
which was assigned to purchased research and development and subsequently
expensed with no income tax benefit.
27
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--INCOME TAXES
The sources of income before taxes, classified as between domestic entities
and those entities domiciled outside of the United States, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------
(IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Domestic entities........................................ $ 270,353 $ 198,571 $ 203,968
Entities outside the United States....................... 32,960 (1,641) 16,846
---------- ---------- ----------
$ 303,313 $ 196,930 $ 220,814
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The provisions for taxes on income, classified as between current and
deferred and as between taxing jurisdictions, consist of the following:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
(IN THOUSANDS) 1997 1996 1995
- ------------------------------------------------------------ ---------- --------- ---------
<S> <C> <C> <C>
Current portion:
Federal................................................... $ 89,368 $ 27,611 $ 50,190
State..................................................... 12,065 2,282 5,983
Foreign................................................... 11,420 14,258 7,153
---------- --------- ---------
112,853 44,151 63,326
---------- --------- ---------
Deferred portion:
Federal................................................... 3,566 38,980 12,339
State..................................................... 664 7,540 1,223
Foreign................................................... (6,183) (3,172) 689
---------- --------- ---------
(1,953) 43,348 14,251
---------- --------- ---------
Total provision for taxes................................. $ 110,900 $ 87,499 $ 77,577
---------- --------- ---------
---------- --------- ---------
</TABLE>
The major elements contributing to the difference between the federal
statutory tax rate and the effective tax rate are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate....................................................... 35.0% 35.0% 35.0%
State income tax, less effect of federal deduction................... 2.8 3.7 2.7
Goodwill amortization................................................ .6 1.8 1.3
Utilization of tax credits........................................... (1.9) (.2) (.9)
Tax benefit of loss on sale.......................................... (2.2) (3.0)
Restructuring/purchased R&D.......................................... 5.5
Other................................................................ .1 .8
--------- --------- ---------
Effective tax rate................................................... 36.6% 44.4% 35.1%
--------- --------- ---------
--------- --------- ---------
</TABLE>
28
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--INCOME TAXES (CONTINUED)
The tax effects of significant temporary differences that comprise deferred
tax balances are as follows:
<TABLE>
<CAPTION>
MARCH 28, MARCH 29,
(IN THOUSANDS) 1997 1996
- -------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Deferred tax assets (liabilities)
Deferred income................................................... $ 2,055 $ 8,153
Employee benefits................................................. 788 (761)
Provisions for contract settlement................................ 16,047 15,866
Currency exchange................................................. (623) 1,427
Other assets...................................................... 8,096 10,879
Contract accounting............................................... (90,963) (75,925)
Depreciation and amortization..................................... (73,921) (69,875)
Prepayments....................................................... (7,460) (24,601)
R&D venture....................................................... 2,371
Tax loss/credit carryforwards..................................... 2,405
Other assets (liabilities)........................................ 4,967 (6,536)
----------- -----------
Total deferred taxes................................................ $ (141,014) $ (136,597)
----------- -----------
----------- -----------
</TABLE>
Of the above deferred amounts, $63,473,000 and $51,620,000 are included in
current income taxes payable at March 28, 1997 and March 29, 1996, respectively.
During fiscal 1996, the Internal Revenue Service (IRS) completed its
examination of the Company's consolidated federal income tax returns for fiscal
years 1987 through 1991, and assessed the Company additional federal income tax
plus interest. The Company filed a protest regarding the assessment and is
currently in the final stages of resolving the issue with the Appeals Division
of the IRS. In the opinion of management the results of the appeal will not have
a material effect on the financial statements.
29
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
MARCH 28, MARCH 29,
(IN THOUSANDS) 1997 1996
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Billed trade accounts............................................. $ 884,772 $ 844,914
Recoverable amounts under contracts in progress................... 376,266 234,195
Other receivables................................................. 32,965 27,748
------------ ------------
$ 1,294,003 $ 1,106,857
------------ ------------
------------ ------------
</TABLE>
Amounts due under long-term contracts include the following items:
<TABLE>
<CAPTION>
MARCH 28, MARCH 29,
(IN THOUSANDS) 1997 1996
- ---------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Included in billed trade accounts receivable--
Amounts retained in accordance with contract terms, due upon
completion or other specified event................................. $ 8,848 $ 8,764
---------- ----------
---------- ----------
Included in recoverable amounts under contracts in progress:
Amounts on fixed price contracts not billable in accordance
with contract terms until some future date........................ $ 231,115 $ 113,920
Amounts retained in accordance with contract terms, due upon
completion or other specified event............................... 31,072 17,412
Excess of costs over provisional billings, awaiting clearance for
final billing or future negotiation............................... 26,056 18,093
Accrued award fees.................................................. 12,120 11,756
Amounts on completed work, negotiated and awaiting contractual
document.......................................................... 4,106 3,082
Unrecovered costs related to claims................................. 4,554 11,202
---------- ----------
$ 309,023 $ 175,465
---------- ----------
---------- ----------
</TABLE>
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 1998 except for $4,554,000 of unrecovered costs related
to claims and $120,616,000 of other items to be collected during fiscal 1999 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.
30
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--DEBT
SHORT-TERM
At March 28, 1997, the Company had uncommitted lines of credit of
$80,000,000 with domestic banks. As of March 28, 1997, the Company had no
borrowings outstanding under these lines of credit.
At March 28, 1997, the Company also had committed lines of credit of
$125,000,000 with certain foreign banks. As of March 28, 1997, the Company had
$20,311,000 of borrowings outstanding under these lines of credit. These
short-term lines of credit carry no commitment fees or significant covenants. At
March 28, 1997, the weighted average interest rate on borrowings under these
short-term lines of credit was 5.0%. At March 29, 1996, the rate was 5.2%.
LONG-TERM
<TABLE>
<CAPTION>
MARCH 28, MARCH 29,
(IN THOUSANDS) 1997 1996
- ---------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Commercial paper...................................................... $ 296,937 $ 246,834
6.8% term notes, due April 1999....................................... 150,000 150,000
6.5% term notes, due November 2001.................................... 150,000
Capitalized lease liabilities, at varying interest rates, payable in
monthly installments through fiscal 2000............................ 17,451 9,313
Notes payable, at varying interest rates (from 5.0% to 7.2%) through
fiscal 2003......................................................... 26,076 27,090
Other obligations..................................................... 314
---------- ----------
Total long-term debt.................................................. 640,464 433,551
Less current maturities............................................... 9,622 6,917
---------- ----------
$ 630,842 $ 426,634
---------- ----------
---------- ----------
</TABLE>
At March 28, 1997, the weighted average interest rate on the Company's
commercial paper was 5.4%. During September 1995, CSC Enterprises (see note 11)
entered into a credit agreement to provide standby support for the commercial
paper program. The standby agreement was increased from $350,000,000 to
$490,000,000 during September 1996 and expires during September 1999.
Capitalized lease liabilities shown above represent amounts due under leases
for the use of computers and related equipment. Included in property and
equipment are related assets of $11,823,000 (1997) and $10,362,000 (1996), less
accumulated amortization of $6,055,000 and $4,396,000, 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 $862 million of retained earnings were available for cash
dividends at March 28, 1997.
The carrying value of the Company's long-term debt is $640 million at March
28, 1997, as shown above. The corresponding fair value, as defined by SFAS No.
107, approximates the carrying value using the current rates available to the
Company for debt of the same remaining maturities.
Maturities of long-term debt are $9,622,000 (1998), $10,233,000 (1999),
$452,111,000 (2000), $0 (2001), $156,000,000 (2002) and $12,498,000 thereafter.
31
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--RETIREMENT PLANS
PENSIONS
The Company and its subsidiaries have several pension plans, as described
below.
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:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------
(IN THOUSANDS) 1997 1996 1995
- ---------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Service cost--benefits earned during the year............. $ 42,831 $ 32,351 $ 28,016
Interest cost on projected benefit obligation............. 36,553 28,590 24,645
Actual return on assets................................... (61,133) (68,449) (10,425)
Net amortization and deferral:
Amortization of initial net asset gains................. (320) (538) (520)
Amortization of prior service costs..................... 1,703 1,432 1,393
Amortization of net loss................................ 999 518 613
Asset gain (loss) deferred.............................. 21,503 37,893 (15,704)
SFAS No. 88 curtailment................................. (2,090)
---------- ---------- ----------
Net periodic pension cost................................. $ 42,136 $ 31,797 $ 25,928
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
32
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--RETIREMENT PLANS (CONTINUED)
The following table sets forth the funded status and amounts recognized in
the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFIT ACCUMULATED BENEFIT
BENEFIT OBLIGATIONS BENEFIT OBLIGATIONS
(IN THOUSANDS) OBLIGATIONS EXCEED ASSETS OBLIGATIONS EXCEED ASSETS
- ------------------------------------------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations: Vested
benefit obligation.................................. $ (420,373) $ (55,379) $ (302,917) $ (54,306)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Accumulated benefit obligation...................... $ (448,778) $ (68,421) $ (322,233) $ (70,626)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Projected benefit obligation.......................... $ (534,327) $ (81,155) $ (382,798) $ (87,278)
Plan assets at fair market value...................... 572,802 46,554 419,915 55,292
------------- ------------- ------------- -------------
Projected benefit obligation less than (in excess of)
plan assets......................................... 38,475 (34,601) 37,117 (31,986)
Unrecognized net (gain) loss.......................... (40,428) 2,497 (20,005) 2,423
Prior service cost not yet recognized in net periodic
pension cost........................................ 8,393 7,500 2,514 7,398
Unrecognized (net asset) obligation being amortized
over future service periods of plan participants.... 2,677 759 1,095 940
Adjustment to reflect minimum liability............... (8,762) (9,934)
Contribution in fourth fiscal quarter................. 1,940
------------- ------------- ------------- -------------
Pension asset (liability)............................. $ 9,117 $ (30,667) $ 20,721 $ (31,159)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Assumptions used in the accounting for the Company's plans were:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
U.S. PLAN
Discount or settlement rate............................................. 7.50% 7.50% 8.00%
Rate of increase in compensation levels................................. 5.41 5.85 6.25
Expected long-term rate of return on assets............................. 8.50 8.50 8.50
NON-U.S. PLANS
Discount or settlement rates............................................ 6.00 - 8.00 7.00 - 9.00 7.00 - 9.00
Rates of increase in compensation levels................................ 3.50 - 6.00 3.50 - 6.50 3.50 - 6.50
Expected long-term rates of return on assets............................ 6.00 - 9.00 7.00 - 9.25 7.00 - 9.00
</TABLE>
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.
At March 28, 1997, plan assets included 2,760,162 shares of the
33
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--RETIREMENT PLANS (CONTINUED)
Company's common stock. During fiscal 1997, 1996 and 1995, the Company
contributed $29,772,000, $20,809,000 and $18,252,000, respectively.
OTHER POST-RETIREMENT BENEFITS
The Company provides healthcare and life insurance benefits for certain
retired U.S. employees, generally for those employed prior to August 1992. It is
the Company's funding policy to make contributions to the related plans as
required for recovery on government contracts. Most non-U.S. employees are
covered by government sponsored programs at no direct cost to the Company other
than related payroll taxes. The net periodic post-retirement benefit costs,
relating principally to retiree healthcare, amounted to $4,931,000, $5,100,000
and $5,368,000 in fiscal 1997, 1996 and 1995, respectively.
Net periodic post-retirement benefit cost included the following components:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
(IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service cost, benefits earned during the period................ $ 865 $ 831 $ 969
Interest cost on accumulated benefit obligation................ 3,031 3,018 2,885
Actual return on plan assets................................... (1,565) (1,463) (7)
Amortization of initial obligation............................. 1,633 1,633 1,633
Amortization of prior service cost............................. 36
Amortization of net (gain) loss................................ (44) (42) 78
Asset gain (loss) deferred..................................... 975 1,123 (190)
--------- --------- ---------
Net provision for post-retirement benefits..................... $ 4,931 $ 5,100 $ 5,368
--------- --------- ---------
--------- --------- ---------
</TABLE>
The status of the plan and amounts recognized in the Company's consolidated
balance sheets are as follows:
<TABLE>
<CAPTION>
MARCH 28, MARCH 29,
(IN THOUSANDS) 1997 1996
- ------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligation applicable to:
Retirees.............................................................................. $ (20,302) $ (21,047)
Fully eligible plan participants...................................................... (3,518) (4,309)
Other active plan participants........................................................ (13,109) (16,056)
---------- ----------
Accumulated post-retirement benefit obligation............................................ (36,929) (41,412)
Plan assets at fair market value.......................................................... 12,721 8,582
---------- ----------
Accumulated post-retirement benefit obligation in excess of plan assets................... (24,208) (32,830)
Unrecognized net gain..................................................................... (9,419) (2,105)
Unrecognized transition obligation........................................................ 25,359 26,992
Prior service cost not yet recognized in net periodic post-retirement benefit cost........ 649 501
---------- ----------
Accrued post-retirement benefit liability................................................. $ (7,619) $ (7,442)
---------- ----------
---------- ----------
</TABLE>
34
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--RETIREMENT PLANS (CONTINUED)
The assumed rate of return on plan assets was 7.0%, and the discount rate
used to estimate the accumulated post-retirement benefit obligation was 7.5% for
both fiscal 1997 and 1996. Plan assets include indexed and short-term investment
funds. The assumed healthcare cost trend rate used in measuring the expected
benefit obligation was 9.0% for fiscal 1997, declining to 5.0% for 2005 and
subsequent years. A one-percentage point increase in the assumed healthcare cost
trend rate would increase the accumulated post-retirement benefit obligation as
of March 28, 1997, and the net periodic post-retirement benefit cost for fiscal
year 1997 by $3,984,000 and $518,000, respectively.
35
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company has operating leases for the use of certain property and
equipment. Substantially all operating leases are noncancelable or cancelable
only by the payment of penalties. All lease payments are based on the lapse of
time but include, in some cases, payments for insurance, maintenance and
property taxes. There are no purchase options on operating leases at favorable
terms, but most leases have one or more renewal options. Certain leases on real
property are subject to annual escalations for increases in utilities and
property taxes. Lease rental expense amounted to $162,777,000 (1997),
$148,088,000 (1996), and $138,222,000 (1995).
Minimum fixed rentals required for the next five years and thereafter under
operating leases in effect at March 28, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR REAL ESTATE EQUIPMENT
- --------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1998................................................................. $ 75,198 $ 45,489
1999................................................................. 59,759 25,614
2000................................................................. 49,250 7,600
2001................................................................. 41,273 2,562
2002................................................................. 31,019 589
Thereafter........................................................... 107,466 297
----------- -----------
$ 363,965 $ 82,151
----------- -----------
----------- -----------
</TABLE>
A shareholder of the Company provides data processing and consulting
services and licenses certain software products to the Company. During the
fiscal years ended March 28, 1997, March 29, 1996 and March 31, 1995, the
Company incurred aggregate expenses of $22,788,000, $22,647,000 and $15,662,000,
respectively, related thereto, which are included in costs of services.
CONTINGENCIES
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The Company's
customer base includes Fortune 500 companies, the U.S. Federal government, and
other significant, well-known companies operating in North America, Europe and
the Pacific Rim. Credit risk with respect to accounts receivable is minimized
because of the nature and diversification of the Company's customer base.
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 results of operations or
financial position.
36
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCK INCENTIVE AND STOCK PURCHASE PLANS
STOCK INCENTIVE PLANS
The Company has seven stock incentive plans which authorize the issuance of
stock options, restricted stock and other stock-based incentives to employees
upon terms approved by the Compensation Committee. In addition, on August 1,
1996, in connection with the acquisition of Continuum, the Company assumed
outstanding employee and non-employee director options to purchase an aggregate
of 2,976,000 shares of Continuum common stock at an average exercise price of
$26.77 per share (which is equivalent to 2,351,000 shares of CSC common stock at
an average exercise price of $33.89 per share), and 28,628 shares of restricted
Continuum common stock were converted into 22,616 shares of restricted CSC
common stock.
At March 28, 1997, March 29, 1996 and March 31, 1995, 2,294,465, 3,426,000
and 1,574,000 shares, respectively, of CSC common stock were available for the
grant of future stock options. These amounts represent the number of CSC shares
then available for option under the Company's seven stock incentive plans, plus
the number of CSC share equivalents then available for assumed stock options,
minus the 61,075 CSC share equivalents that were available for assumed stock
options immediately prior to, but not after, the acquisition of Continuum by
CSC.
Information concerning stock options granted under stock incentive plans is
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year........... 6,986,440 $ 30.89 7,163,943 $ 25.54 6,311,434 $ 21.31
Granted.................................. 1,574,368 69.48 1,328,692 49.49 1,774,029 37.51
Exercised................................ (1,459,090) 25.53 (1,183,516) 18.77 (631,169) 17.64
Canceled................................. (522,837) 41.80 (322,679) 33.01 (290,351) 24.02
----------- ----------- ----------
Outstanding, end of year................. 6,578,881 $ 40.45 6,986,440 $ 30.89 7,163,943 $ 25.54
----------- ----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ----------- ---------- -----------
Exercisable, end of year................. 2,706,443 $ 27.57 2,380,949 $ 22.37 2,187,003 $ 18.31
----------- ----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARCH 28, 1997
--------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE REMAINING NUMBER EXERCISE
RANGE OF OPTION EXERCISE PRICE OUTSTANDING PRICE CONTRACTUAL LIFE EXERCISABLE PRICE
- --------------------------------------- ----------- ------------- ------------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
$.33 - $22.15.......................... 1,376,112 $ 18.02 4.5 1,137,260 $ 17.59
22.17 - 30.22.......................... 1,554,081 25.38 6.2 744,509 24.81
30.25 - 47.89.......................... 1,491,228 40.95 7.7 573,534 39.65
48.13 - 70.88.......................... 1,506,960 61.74 8.9 244,740 52.93
71.25 - 81.00.......................... 650,500 73.43 9.2 6,400 72.34
</TABLE>
The Company uses the intrinsic value based method of accounting for
stock-based compensation, under which compensation cost is measured as the
excess, if any, of the quoted market price of the stock at the grant date over
the amount an employee must pay to acquire the stock and amortized over the
vesting
37
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCK INCENTIVE AND STOCK PURCHASE PLANS (CONTINUED)
period. Compensation cost recognized for stock incentive plans was $1,184,000,
$1,262,000 and $1,639,000 for fiscal 1997, 1996 and 1995, respectively.
The following pro forma net income and earnings per share information has
been determined as if the Company had accounted for stock-based compensation
awarded under the stock incentive plans using the fair value based method. Under
the fair value method, the estimated fair value of awards would be charged
against income on a straight-line basis over the vesting period. The pro forma
effect on net income for fiscal 1996 and 1997 is not representative of the pro
forma effect on net income in future years because, as required by SFAS No. 123,
"Accounting for Stock-Based Compensation," no consideration has been given to
awards granted prior to fiscal 1996.
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
AS PRO AS PRO
(IN THOUSANDS EXCEPT FOR EARNINGS PER SHARE) REPORTED FORMA REPORTED FORMA
- ----------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income....................................................... $ 192,413 $ 182,649 $ 109,431 $ 106,063
Earnings Per Share............................................... 2.46 2.34 1.43 1.39
</TABLE>
The weighted average fair value of options granted under the stock incentive
plans during fiscal 1997 and 1996 were $91.36 and $65.71, respectively. The fair
value of each option grant was estimated on the date of grant using the
Black-Scholes Model with the following weighted average assumptions. The risk-
free interest rates for fiscal 1997 and 1996 were 6.55% and 6.16%, respectively.
The expected volatility of the market price of the Company's common stock for
fiscal 1997 and 1996 grants was 26% and 26%, respectively. The expected average
term of the granted options was 5.75 years.
At March 28, 1997, March 29, 1996 and March 31, 1995, 148,241; 200,174 and
253,880 shares, respectively, of CSC restricted stock were outstanding, net of
shares forfeited by or repurchased from terminated employees, and shares for
which the restrictions have lapsed. Restricted stock awards consist of shares of
common stock of the Company granted at par value. Shares of restricted stock
become outstanding when granted, receive dividends and have voting rights. The
shares are subject to forfeiture and to restrictions which limit the sale or
transfer during the restriction period. An amount equal to the excess of fair
market value of the shares at the date of grant over par value is expensed over
the restriction period. Shares of Continuum restricted stock vest ratably on the
first five anniversaries of the date of issuance, and were granted coincident
with cash bonuses aggregating $211,000 and $77,000 during the fiscal years ended
March 29, 1996 and March 31, 1995, respectively. Shares of CSC restricted stock
other than Continuum restricted stock generally vest on the fifth, sixth and
seventh anniversaries of the date of issuance. During the fiscal years ended
March 28, 1997, March 29, 1996 and March 31, 1995, the weighted average market
price per share of CSC restricted stock on the date of issuance was $22.98,
$21.43 and $19.88, respectively.
Certain acquired companies sold shares of their common stock to employees
and directors in exchange for non-interest bearing notes secured by the shares.
The outstanding principal balances of these notes amounted to $4,409,000 at
March 28, 1997 and are classified as a reduction of stockholders' equity.
STOCK PURCHASE PLAN
Prior to the acquisition of Continuum by CSC on August 1, 1996, Continuum
maintained an Employee Stock Purchase Plan which provided for the purchase of up
to 300,000 shares of Continuum
38
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCK INCENTIVE AND STOCK PURCHASE PLANS (CONTINUED)
common stock (equivalent to 237,000 shares of CSC stock) by its employees.
Substantially all employees of Continuum were eligible to participate, subject
to certain limitations. The plan provided for semi-annual purchases of stock at
85% of the market value of the stock on the first day or, if lower, the last day
of the six-month offering period. During the fiscal years ended March 28, 1997,
March 29, 1996 and March 31, 1995, 58,414; 80,383 and 71,834 shares of Continuum
common stock (equivalent to 46,147; 63,503 and 56,749 shares of CSC common
stock), respectively, were purchased with net proceeds of $2,044,000, $2,172,000
and $1,208,000, respectively.
NOTE 9--STOCKHOLDER RIGHTS PLAN
Pursuant to its 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
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 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.
39
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--SEGMENT AND GEOGRAPHIC INFORMATION
The Company's business involves operations in principally one industry
segment, providing information technology consulting, systems integration and
outsourcing. CSC operates primarily in the United States, Europe, Australia and
other Pacific Rim countries.
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------
(IN THOUSANDS) 1997 1996 1995
- ------------------------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Revenues
United States......................................................... $ 3,795,361 $ 3,342,317 $ 2,871,164
Europe................................................................ 1,474,933 1,109,616 663,394
Other................................................................. 345,754 288,827 253,468
------------ ------------ ------------
Total............................................................... $ 5,616,048 $ 4,740,760 $ 3,788,026
------------ ------------ ------------
------------ ------------ ------------
Operating income
United States......................................................... $ 338,849 $ 248,642 $ 254,633
Europe................................................................ 36,502 6,514 8,033
Other................................................................. 1,198 11,737 21,758
------------ ------------ ------------
Total............................................................... $ 376,549 $ 266,893 $ 284,424
------------ ------------ ------------
------------ ------------ ------------
Identifiable assets at year end
United States......................................................... $ 2,696,620 $ 1,844,305 $ 1,705,010
Europe................................................................ 726,953 931,183 786,370
Other................................................................. 157,285 160,531 140,200
------------ ------------ ------------
Total............................................................... $ 3,580,858 $ 2,936,019 $ 2,631,580
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
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. Operating
expenses include special charges.
The Company derives a major portion of its revenues from departments and
agencies of the United States government. At March 28, 1997, approximately 29%
of the Company's accounts receivable were due from the federal government.
Federal government revenues by agency/department are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------------------------------------
1997 1996 1995
--------------------------- --------------------------- ---------------------------
PERCENT PERCENT PERCENT
(IN THOUSANDS) AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
- ------------------------------------------- ------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Department of Defense...................... $ 1,082,885 19% $ 961,587 20% $ 823,812 22%
National Aeronautics and Space
Administration........................... 299,388 5 310,053 7 312,377 8
Other civil agencies....................... 253,394 5 299,859 6 353,206 9
-- -- --
------------ ------------ ------------
Total.................................... $ 1,635,667 29% $ 1,571,499 33% $ 1,489,395 39%
-- -- --
-- -- --
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
40
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--AGREEMENTS WITH EQUIFAX
During fiscal 1989, the Company entered into an agreement (the "Operating
Agreement") with Equifax Inc. and its subsidiary, Equifax Credit Information
Services, Inc. ("ECIS"), pursuant to which certain of the Company's subsidiaries
(collectively, the "Bureaus") became affiliated credit bureaus of ECIS and
purchase credit reporting services from the ECIS system for resale to their
customers. The Bureaus retain ownership of their credit files stored in the ECIS
system and receive revenues generated from the sale of the credit information
they contain. The Bureaus pay ECIS a fee for storing and maintaining the files
and for each report supplied by the ECIS system.
Pursuant to the Operating Agreement, the Company has an option to require
ECIS to purchase the collections business (the "Collections Put Option"), and a
separate option to require ECIS to purchase the credit reporting business and,
if not previously sold, the collections business (the "Total Put Option"). Both
options require six months' advance notice and expire on August 1, 2013. The
price of the Collections Put Option is determined by a financial formula. The
price of the Total Put Option is also determined by a financial formula if
notice of exercise is given on or prior to July 31, 1998. If notice of exercise
is given after July 31, 1998, the price of the Total Put Option is equal to
appraised value.
In the opinion of management, the price of the Total Put Option, as
determined using consistent methods of calculation under the financial formulas,
approximated $538 million at March 28, 1997. In its quarterly report for the
quarter ended March 31, 1997, Equifax Inc. stated that this price is currently
estimated at approximately $400 million.
The Operating Agreement has a 10-year term, which will automatically be
renewed indefinitely for successive 10-year periods unless the Company gives
notice of termination at least six months prior to the expiration of any such
term. In the event that on or prior to August 1, 2013 (i) the Company gives such
notice of termination and does not exercise the Total Put Option prior to the
termination of the then-current term or (ii) there is a change in control of the
Company, then ECIS has an option for 60 days after the date of such event to
require the Company to sell to it the credit reporting and collection businesses
at the price for the Total Put Option.
Effective December 1990, the Company, through affiliates, entered into a
joint venture, named CSC Enterprises, to operate the Company's credit services
operations and to carry out other business strategies through acquisition and
investment. The joint venture is structured as a general partnership, with one
of the Company's affiliates as the managing general partner. The Company
assigned its credit reporting and collections businesses and its rights under
the Operating Agreement to this partnership.
As of March 28, 1997, the partners of CSC Enterprises included affiliates of
CSC, affiliates of Equifax Inc., and Merel Corporation. The Company's rights
under the Operating Agreement, including its put options, remain exercisable by
the Company through its affiliates.
41
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--SUBSEQUENT EVENT: REORGANIZATION OF CSC ENTERPRISES
As a result of recent developments relating to CSC Enterprises, the Company
expects to recognize a net special credit of $2 million, or 2 cents per share,
in the quarter ending June 27, 1997. The net credit will result from a tax
benefit, estimated at $135 million, and an after-tax special charge, estimated
at $133 million, as described below.
During the fiscal quarter ending June 27, 1997, the Equifax affiliates
withdrew from CSC Enterprises. As a result of these withdrawals, CSC Enterprises
took actions with respect to its remaining assets that will cause CSC to
recognize an increase in the tax basis of certain of these assets. As required
by SFAS No. 109, this tax basis increase will result in a deferred tax asset,
estimated at $135 million, and a corresponding reduction of the company's
provision for income taxes during the current fiscal quarter. Through related
income tax deductions, the $135 million should be realized as cash savings over
the next three to five years.
In connection with these developments, CSC Enterprises reviewed its
operations, its market opportunities and the carrying value of its assets. Based
on this review, plans were initiated during the current fiscal quarter to
eliminate certain offerings and write down assets, primarily within its
telecommunications operations. As a result of these plans, the Company, through
CSC Enterprises, will recognize an after-tax special charge, estimated at $133
million, during the fiscal quarter ending June 27, 1997. This special charge,
which is principally non-cash, includes goodwill of $35 million, contract
termination costs of $29 million, deferred contract costs and other assets of
$24 million, telecommunications software and accruals of $21 million,
telecommunications property, equipment and intangible assets of $14 million and
other costs of $10 million.
CSC Enterprises is currently comprised of affiliates of CSC, one of which is
the managing general partner, and Merel Corporation. The Company's rights under
the Operating Agreement, including its put options, remain exercisable by the
Company through its affiliates.
42
<PAGE>
COMPUTER SCIENCES CORPORATION
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)*
<TABLE>
<CAPTION>
FISCAL 1997
------------------------------------------------------
(IN THOUSANDS EXCEPT PER-SHARE AMOUNTS) LST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ------------------------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues............................................... $1,303,892 $1,355,255 $1,421,638 $1,535,263
Income before taxes.................................... 71,773 27,010 87,690 116,840
Net income............................................. 45,277 14,006 57,390 75,740
Net earnings per share................................. 0.58 0.18 0.73 0.97
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996
------------------------------------------------------
LST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues............................................... $1,082,963 $1,128,648 $1,236,674 $1,292,475
Income before taxes.................................... 56,622 62,900 46,105 31,303
Net income............................................. 35,941 39,569 19,721 14,200
Net earnings per share................................. 0.47 0.51 0.25 0.18
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995
------------------------------------------------------
LST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues............................................... $ 831,202 $ 888,701 $ 930,570 $1,137,553
Income before taxes.................................... 43,838 48,599 53,666 74,711
Net income............................................. 27,502 30,544 33,903 51,288
Net earnings per share................................. 0.39 0.43 0.48 0.70
</TABLE>
- ------------------------
* Quarterly financial information has been restated for a business combination
accounted for as a pooling of interests.
43
<PAGE>
PART II--(CONTINUED)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding executive officers of the Company is included in Part
I. For the other information called for by Items 10, 11, 12 and 13, reference is
made to the sections entitled "Voting Securities and Principal Holders Thereof,"
"Item 1--Election of Directors" and "Executive Compensation" in the Registrant's
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission within 120 days after
March 28, 1997. Such sections are incorporated herein by reference in their
entirety, except for the material included in the "Executive Compensation"
section under the captions "Report of Compensation Committee on Annual
Compensation of Executive Officers" and "Comparison of Cumulative Total Return."
44
<PAGE>
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 15.
(3) EXHIBITS
The following exhibits are filed with this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
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...................................... (j)
3.1 Restated Articles of Incorporation, effective October 31, 1988.................................. (c)
3.2 Amendment to Restated Articles of Incorporation, effective August 10, 1992...................... (h)
3.3 Amendment to Restated Articles of Incorporation, effective July 31, 1996........................ (k)
3.4 Certificate of Amendment of Certificate of Designations of Series A Junior Participating
Preferred Stock, effective August 1, 1996..................................................... (m)
3.5 By-Laws, amended and restated effective February 3, 1997........................................ (o)
10.1 Annual Management Incentive Plan, effective April 2, 1983*...................................... (a)
10.2 1978 Stock Option Plan, amended and restated effective March 31, 1988*.......................... (l)
10.3 1980 Stock Option Plan, amended and restated effective March 31, 1988*.......................... (l)
10.4 1984 Stock Option Plan, amended and restated effective March 31, 1988*.......................... (l)
10.5 1987 Stock Incentive Plan*...................................................................... (b)
10.6 Schedule to the 1987 Stock Incentive Plan for United Kingdom personnel*......................... (b)
10.7 1990 Stock Incentive Plan*...................................................................... (f)
10.8 1992 Stock Incentive Plan, amended and restated effective August 9, 1993*....................... (l)
10.9 Schedule to the 1992 Stock Incentive Plan for United Kingdom personnel*......................... (o)
10.10 1995 Stock Incentive Plan*...................................................................... (i)
10.11 Deferred Compensation Plan, amended and restated effective November 4, 1996*.................... (n)
10.12 Supplemental Executive Retirement Plan, amended and restated effective November 4, 1996*........ (n)
10.13 1990 Nonemployee Director Retirement Plan, amended and restated effective December 6, 1996*..... (o)
10.14 Form of Indemnification Agreement for Directors................................................. (d)
10.15 Form of Indemnification Agreement for Officers.................................................. (e)
10.16 Information Technology Services Agreements with General Dynamics Corporation, dated as of
November 4, 1991.............................................................................. (g)
10.17 $350 million Credit Agreement dated as of September 6, 1995..................................... (i)
10.18 First Amendment to $350 million Credit Agreement dated September 23, 1996....................... (n)
10.19 Amended and Restated Rights Agreement, effective August 1, 1996................................. (m)
11 Calculation of Primary and Fully Diluted Earnings Per Share.....................................
21 Significant Active Subsidiaries and Affiliates of the Registrant................................
23 Independent Auditors' Consent...................................................................
27 Article 5 Financial Data Schedule...............................................................
99.1 Annual Report on Form 11-K for the Matched Asset Plan of the Registrant for the fiscal year
ended December 31, 1996.......................................................................
99.2 Annual Report on Form 11-K for the Hourly Savings Plan of CSC Outsourcing, Inc. for the fiscal
year ended December 31, 1996..................................................................
99.3 Annual Report on Form 11-K for the CUTW Hourly Savings Plan of CSC Outsourcing, Inc. for the
fiscal year ended December 31, 1996...........................................................
</TABLE>
45
<PAGE>
Notes to Exhibit Index:
*Management contract or compensatory plan or agreement
(a)-(e) These exhibits are incorporated herein by reference to the Company's
Annual Report on
Form 10-K for the fiscal years ended on the respective dates indicated
below:
(a) March 30, 1984 (d) April 3, 1992
(b) April 1, 1988 (e) March 31, 1995
(c) March 31, 1989
(f) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8 filed on August 15, 1990.
(g) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated November 4, 1991.
(h) Incorporated herein by reference to the Registrant's Proxy Statement for
its August 10, 1992 Annual Meeting of Stockholders.
(i) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q filed on November 13, 1995.
(j) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated April 28, 1996.
(k) Incorporated herein by reference to the Registrant's Proxy Statement for
its July 31, 1996 Annual Meeting of Stockholders.
(l) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q filed on August 12, 1996.
(m) Incorporated herein by reference to the Registrant's Current Report of Form
8-K dated August 1, 1996.
(n) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q filed on November 12, 1996.
(o) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q filed on February 10, 1997.
(B) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the fourth quarter of fiscal
1997.
46
<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
Dated: June 16, 1997
By: /s/ VAN B. HONEYCUTT
-----------------------------------------
Van B. Honeycutt,
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
Chairman, President and
/s/ VAN B. HONEYCUTT Chief Executive Officer
- ------------------------------ (Principal Executive June 16, 1997
Van B. Honeycutt Officer)
Vice President, Chief
/s/ LEON J. LEVEL Financial Officer and
- ------------------------------ Director (Principal June 16, 1997
Leon J. Level Financial Officer)
/s/ DENIS M. CRANE Vice President and
- ------------------------------ Controller (Principal June 16, 1997
Denis M. Crane Accounting Officer)
/s/ HOWARD P. ALLEN
- ------------------------------ Director June 16, 1997
Howard P. Allen
/s/ IRVING W. BAILEY, II
- ------------------------------ Director June 16, 1997
Irving W. Bailey, II
/s/ WILLIAM R. HOOVER
- ------------------------------ Director June 16, 1997
William R. Hoover
/s/ RICHARD C. LAWTON
- ------------------------------ Director June 16, 1997
Richard C. Lawton
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ THOMAS A. MCDONNELL
- ------------------------------ Director June 16, 1997
Thomas A. McDonnell
/s/ F. WARREN MCFARLAN
- ------------------------------ Director June 16, 1997
F. Warren McFarlan
/s/ JAMES R. MELLOR
- ------------------------------ Director June 16, 1997
James R. Mellor
/s/ WILLIAM P. RUTLEDGE
- ------------------------------ Director June 16, 1997
William P. Rutledge
</TABLE>
48
<PAGE>
COMPUTER SCIENCES CORPORATION AND SUBSIDIARIES
SCHEDULE VIII, VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED MARCH 28, 1997
<TABLE>
<CAPTION>
ADDITIONS
BALANCE, ----------------------------
BEGINNING CHARGED TO COST BALANCE,
(IN THOUSANDS) OF PERIOD AND EXPENSES OTHER(1) DEDUCTIONS END OF PERIOD
- ------------------------------------------- ----------------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended March 28, 1997
Allowance for doubtful receivables......... $ 45,425 $ 22,288 $ (618) $ 14,588 $ 52,507
Year ended March 29, 1996
Allowance for doubtful receivables......... 32,254 20,623 1,001 8,453 45,425
Year ended March 31, 1995
Allowance for doubtful receivables......... 35,099 8,881 1,643 13,369 32,254
</TABLE>
- ------------------------
(1) All years include balances from acquisitions, changes in balances due to
foreign currency exchange rates and recovery of prior-year charges.
49
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
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. (j)
3.1 Restated Articles of Incorporation, effective October 31, 1988 (c)
3.2 Amendment to Restated Articles of Incorporation, effective August 10, 1992 (h)
3.3 Amendment to Restated Articles of Incorporation, effective July 31, 1996 (k)
3.4 Certificate of Amendment of Certificate of Designations of Series A Junior Participating
Preferred Stock, effective August 1, 1996 (m)
3.5 By-Laws, amended and restated effective February 3, 1997 (o)
10.1 Annual Management Incentive Plan, effective April 2, 1983* (a)
10.2 1978 Stock Option Plan, amended and restated effective March 31, 1988* (l)
10.3 1980 Stock Option Plan, amended and restated effective March 31, 1988* (l)
10.4 1984 Stock Option Plan, amended and restated effective March 31, 1988* (l)
10.5 1987 Stock Incentive Plan* (b)
10.6 Schedule to the 1987 Stock Incentive Plan for United Kingdom personnel* (b)
10.7 1990 Stock Incentive Plan* (f)
10.8 1992 Stock Incentive Plan, amended and restated effective August 9, 1993* (l)
10.9 Schedule to the 1992 Stock Incentive Plan for United Kingdom personnel* (o)
10.10 1995 Stock Incentive Plan* (i)
10.11 Deferred Compensation Plan, amended and restated effective November 4, 1996* (n)
10.12 Supplemental Executive Retirement Plan, amended and restated effective November 4, 1996* (n)
10.13 1990 Nonemployee Director Retirement Plan, amended and restated effective December 6, 1996* (o)
10.14 Form of Indemnification Agreement for Directors (d)
10.15 Form of Indemnification Agreement for Officers (e)
10.16 Information Technology Services Agreements with General Dynamics Corporation, dated as of
November 4, 1991 (g)
10.17 $350 million Credit Agreement dated as of September 6, 1995 (i)
10.18 First Amendment to $350 million Credit Agreement dated September 23, 1996 (n)
10.19 Amended and Restated Rights Agreement, effective August 1, 1996 (m)
11 Calculation of Primary and Fully Diluted Earnings Per Share
21 Significant Active Subsidiaries and Affiliates of the Registrant
23 Independent Auditors' Consent
27 Article 5 Financial Data Schedule
99.1 Annual Report on Form 11-K for the Matched Asset Plan of the Registrant for the fiscal year ended
December 31, 1996
99.2 Annual Report on Form 11-K for the Hourly Savings Plan of CSC Outsourcing, Inc. for the fiscal
year ended December 31, 1996
99.3 Annual Report on Form 11-K for the CUTW Hourly Savings Plan of CSC Outsourcing, Inc. for the
fiscal year ended December 31, 1996
</TABLE>
<PAGE>
Notes to Exhibit Index:
* Management contract or compensatory plan or agreement
(a)-(e) These exhibits are incorporated herein by reference to the Company's
Annual Report on
Form 10-K for the fiscal years ended on the respective dates indicated
below:
<TABLE>
<S> <C>
(a) March 30, 1984 (d) April 3, 1992
(b) April 1, 1988 (e) March 31, 1995
(c) March 31, 1989
</TABLE>
(f) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8 filed on August 15, 1990.
(g) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated November 4, 1991.
(h) Incorporated herein by reference to the Registrant's Proxy Statement for its
August 10, 1992 Annual Meeting of Stockholders.
(i) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q filed on November 13, 1995.
(j) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated April 28, 1996.
(k) Incorporated herein by reference to the Registrant's Proxy Statement for its
July 31, 1996 Annual Meeting of Stockholders.
(l) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q filed on August 12, 1996.
(m) Incorporated herein by reference to the Registrant's Current Report of Form
8-K dated August 1, 1996.
(n) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q filed on November 12, 1996.
(o) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q filed on February 10, 1997.
<PAGE>
EXHIBIT 11
COMPUTER SCIENCES CORPORATION AND SUBSIDIARIES
EXHIBIT XI, CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
MARCH 28, MARCH 29, MARCH 31,
(DOLLARS IN THOUSANDS) 1997 1996 1995
- ------------------------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Net Income.............................................................. $192,413 $109,431 $143,237
------------ ------------ ------------
------------ ------------ ------------
Shares
Average shares outstanding............................................ 75,947,284 74,432,531 70,148,723
Common stock equivalents.............................................. 2,249,578 2,102,263 1,702,226
------------ ------------ ------------
Total for primary calculation......................................... 78,196,862 76,534,794 71,850,949
Additional for fully diluted calculation.............................. 3,331 714,176 558,771
------------ ------------ ------------
Total for fully diluted calculation................................. 78,200,193 77,248,970 72,409,720
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE>
EXHIBIT 21
COMPUTER SCIENCES CORPORATION
EXHIBIT XXI, SIGNIFICANT ACTIVE SUBSIDIARIES AND AFFILIATES
AS OF MARCH 28, 1997
<TABLE>
<CAPTION>
STATE OR COUNTRY PERCENT OF
ENTITY OF FORMATION OWNERSHIP
- ----------------------------------------------------------------------------- ----------------------- -----------
<S> <C> <C>
Computer Sciences Corporation................................................ Nevada
Aerospace Center Support (Partnership)..................................... Tennessee 55
American Practice Management, Inc.......................................... Delaware 100
Autec Range Services (Partnership)......................................... Florida 50
Calva Realty Corporation................................................... Nevada 100
Century Corporation........................................................ Nevada 100
CSC Credit Services, Inc................................................. Texas 100
CSC Enterprises, Inc................................................... Nevada 100
CSC Enterprises (Partnership)........................................ Delaware 97.07
CSC Accounts Management, Inc....................................... Texas 100
Credit Bureau of Tulsa, Inc...................................... Oklahoma 100
CSC Credit Services, Inc......................................... California 100
CSC Holdings Inc................................................... Nevada 100
CSC Domestic Enterprises, Inc.................................... Nevada 100
CSC Intelicom, Inc............................................. Nevada 100
CSC Outsourcing Inc............................................ Nevada 100
CSC Professional Services Group, Inc............................. Maryland 100
CSC Foreign Enterprises, Inc..................................... Nevada 100
CSC Computer Sciences S.A.................................... France 100
CSC Infogerance S.A.......................................... France 100
CSC Ouroumoff Consultants S.A................................ France 100
Computer Sciences Canada Inc............................................... Canada 100
Computer Sciences Raytheon (Partnership)................................... Florida 60
CSC Australia Pty. Limited................................................. Australia 100
Computer Sciences Corporation (NZ) Limited............................. New Zealand 100
CSC Computer Sciences VOF/SNC (Partnership)................................ Belgium 100
CSC Computer Management A/S................................................ Denmark 87.5
CSC Computer Sciences B.V.................................................. Nederlands 100
CSC Services Management B.V.............................................. Nederlands 100
CSC Computer Sciences GmbH................................................. Germany 100
CSC Computer Sciences Services Management GmbH........................... Germany 100
CSC Ploenzke AG.......................................................... Germany 75
CSC Ploenzke Consulting GmbH........................................... Germany 100
CSC Computer Sciences N.V./S.A............................................. Belgium 100
Experteam S.A./N.V....................................................... Belgium 60
Medical Business Channel S.A............................................. Belgium 100
CSC Consulting, Inc........................................................ Massachusetts 100
CSC Consulting Ltd......................................................... United Kingdom 100
CSC Computer Sciences Limited............................................ United Kingdom 100
CSC Index Limited........................................................ United Kingdom 100
</TABLE>
<PAGE>
COMPUTER SCIENCES CORPORATION
EXHIBIT XXI, SIGNIFICANT ACTIVE SUBSIDIARIES AND AFFILIATES
AS OF MARCH 28, 1997
<TABLE>
<CAPTION>
STATE OR COUNTRY PERCENT OF
ENTITY OF FORMATION OWNERSHIP
- ----------------------------------------------------------------------------- ----------------------- -----------
<S> <C> <C>
CSC Continuum Inc.......................................................... Delaware 100
Continuum Australia (Holdings) Ltd....................................... Delaware 100
Continuum (Europe) Limited............................................. United Kingdom 100
Continuum Direct Limited............................................. United Kingdom 100
CSC Continuum Limited.................................................. Australia 100
Continuum Australia Pacific Limited.................................. Australia 100
Computations Financial Systems Limited............................... Australia 100
Continuum Europe B.V................................................. Netherlands 100
Computations Services (M) Sdn Bhd.................................... Malaysia 100
CSC Information Systems Pty. Limited................................. Australia 100
Daragram Pty. Limited.............................................. Australia 100
Paxus Corporation Limited.............................................. Australia 100
Continuum Canada Inc............................................. Canada 100
Idaps Information Services Limited................................. New Zealand 100
Paxus Corporation Limited........................................ New Zealand 100
CSC Information Systems Limited................................ New Zealand 100
CSC New Zealand Limited........................................ New Zealand 100
Paxus Information Services Corporation......................... Delaware 100
Continuum (Hong Kong) Limited................................ Hong Kong 100
Continuum Software Services (Singapore) Pte Ltd.................... Singapore 100
Continuum Software Services (Malaysia) Sdn Bhd................... Malaysia 100
Paxus N.V.......................................................... Netherlands Antilles 100
Continuum (UK) Holdings Limited.................................. United Kingdom 100
Continuum Corporation Limited.................................. United Kingdom 100
Continuum Software Europe Limited............................ United Kingdom 100
Continuum (SICS) A/S........................................... Norway 100
Paxus Information Services Netherlands B.V....................... Netherlands 100
Alliance-One Services, L.P. (Partnership)............................ Delaware 100
Continuum SOCS S.A.S................................................... France 100
SOCS Holding S.A..................................................... France 100
SOCS S.A........................................................... France 100
Continuum (Deutschland) GmbH........................................... Germany 100
Continuum France SARL.................................................. France 100
Continuum (Ireland) Limited............................................ Ireland 100
Continuum Ra Group Limited............................................. United Kingdom 100
Ra Financial Systems Limited......................................... United Kingdom 100
Continuum Services B.V................................................. Netherlands 100
Continuum Systems Research, Inc........................................ Texas 100
CSC Continuum (Japan) Inc.............................................. Delaware 100
Hogan Systems, Inc..................................................... Texas 100
Hogan Systems GmbH................................................... Germany 100
Hogan Systems Pty. Limited........................................... Australia 100
Hogan Systems (UK) Limited........................................... United Kingdom 100
</TABLE>
<PAGE>
COMPUTER SCIENCES CORPORATION
EXHIBIT XXI, SIGNIFICANT ACTIVE SUBSIDIARIES AND AFFILIATES
AS OF MARCH 28, 1997
<TABLE>
<CAPTION>
STATE OR COUNTRY PERCENT OF
ENTITY OF FORMATION OWNERSHIP
- ----------------------------------------------------------------------------- ----------------------- -----------
<S> <C> <C>
New TPA Inc............................................................ Delaware 100
CSC Datacentralen A/S.................................................... Denmark 75
CSC Healthcare Systems, Inc.............................................. California 100
CSC International Systems Management Inc................................. Nevada 100
CSC Asset Management Inc............................................... Nevada 100
CSC Logic, Inc........................................................... Texas 100
CSC Ventures, Inc........................................................ Nevada 100
</TABLE>
<PAGE>
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,
333-00761 and 333-09387 of Computer Sciences Corporation on Forms S-8 of our
report dated May 23, 1997, appearing in this Annual Report on Form 10-K of
Computer Sciences Corporation for the year ended March 28, 1997.
DELOITTE & TOUCHE LLP
Los Angeles, California
June 20, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-28-1997
<PERIOD-START> MAR-30-1996
<PERIOD-END> MAR-28-1997
<CASH> 110,726
<SECURITIES> 0
<RECEIVABLES> 1,346,510
<ALLOWANCES> 52,507
<INVENTORY> 0
<CURRENT-ASSETS> 1,612,427
<PP&E> 1,668,905
<DEPRECIATION> 780,836
<TOTAL-ASSETS> 3,580,858
<CURRENT-LIABILITIES> 1,087,113
<BONDS> 630,842
0
0
<COMMON> 76,925
<OTHER-SE> 1,592,635
<TOTAL-LIABILITY-AND-EQUITY> 3,580,858
<SALES> 0
<TOTAL-REVENUES> 5,616,048
<CGS> 0
<TOTAL-COSTS> 4,379,672
<OTHER-EXPENSES> 333,247
<LOSS-PROVISION> 33,501
<INTEREST-EXPENSE> 32,273
<INCOME-PRETAX> 303,313
<INCOME-TAX> 110,900
<INCOME-CONTINUING> 192,413
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 192,413
<EPS-PRIMARY> 2.46
<EPS-DILUTED> 2.46
</TABLE>
<PAGE>
Exhibit 99.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
/ X / ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended: December 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ___________ to ___________
Commission file number: 1-4850
A. Full title of plan and the address of the plan, if different
from that of the issuer named below: CSC Matched Asset Plan
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
Computer Sciences Corporation
2100 East Grand Avenue
El Segundo, California 90245
<PAGE>
TABLE OF CONTENTS
Description Page
- ----------- ----
(A) FINANCIAL STATEMENTS:
Independent Auditors' Report .................................... 3
Statements of Net Assets Available for Benefits
As of December 31, 1996 and 1995 ................................ 4
Statements of Changes in Net Assets Available for Benefits
For the Years Ended December 31, 1996 and 1995 .................. 5
Notes to Financial Statements ................................... 6
(B) EXHIBIT:
Independent Auditors' Consent ................................... E-1
(C) SUPPLEMENTAL SCHEDULES:
Schedule of Assets Held for Investment Purposes ................. S-1
Schedule of Reportable Transactions ............................. S-2
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Employee Retirement Plan Committee
Computer Sciences Corporation
El Segundo, California
We have audited the accompanying statements of net assets available for benefits
of the Computer Sciences Corporation Matched Asset Plan (the "Plan") as of
December 31, 1996 and 1995, and the related statements of changes in net assets
available for benefits for the years then ended. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1996 and 1995, and the changes in net assets available for benefits
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in
Section C of the table of contents are presented for the purpose of additional
analysis and are not a required part of the basic financial statements, but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. These supplemental schedules are the responsibility of
the Plan's management. Such schedules have been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, are fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/Deloitte & Touche LLP
May 30, 1997
3
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
STATEMENTS OF NET ASSETS
AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Investments (Notes 2, 5, 9 and 10):
Short-term investments $ 4,881,963 $ 10,365,460
Long-term investments--at fair value:
Interest in registered investment companies
Brinson U.S. Bond Fund 69,326,850 48,488,514
Brinson U.S. Stock Fund 37,602,556 37,038,021
Brinson U.S. Equity Fund 190,510,057 136,221,964
Mellon Stock Index Funds 58,160,214 33,224,815
CSC Company stock 220,003,596 174,584,246
Employee loans (Note 6) 16,021,749 13,707,311
Plan interest in Master Trust 91,252,142 58,741,224
Guaranteed investment contracts--at contract value 61,203,657 81,854,138
------------ ------------
Total investments 748,962,784 594,225,693
------------ ------------
Receivables:
Employer contribution 323,412 290,013
Participants' contribution 3,111,463 2,491,947
Accrued income 42,949 41,668
Plan to plan transfers (Note 8) 3,303,099 903
Other 79,569
------------ ------------
Total Receivables 6,780,923 2,904,100
------------ ------------
Total Assets 755,743,707 597,129,793
------------ ------------
LIABILITIES
Accounts Payable 968,671 949,287
Accrued Expenses 218,770 180,915
Unsettled Trade Payables 85,443
------------ ------------
Total Liabilities 1,272,884 1,130,202
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $754,470,823 $595,999,591
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements
4
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
ADDITIONS
Investment Income:
Net appreciation in fair value of
investments (Note 9) $ 76,497,351 $ 98,167,163
Interest 5,423,422 6,778,781
Dividends 9,668,924 7,935,204
Plan interest in Master Trust investment income 3,071,796 5,143,489
------------- -------------
94,661,493 118,024,637
Less Investment Management Fees (833,263) (594,867)
------------- -------------
93,828,230 117,429,770
Contributions:
Employee 66,417,162 58,859,224
Employer 11,665,836 10,356,204
Employee Rollovers 15,151,958 14,294,926
Transfers From Other Plans (Note 8) 17,337,285 3,925,306
------------- -------------
110,572,241 87,435,660
------------- -------------
Total Additions 204,400,471 204,865,430
------------- -------------
DEDUCTIONS
Distributions to Participants (Notes 1 and 7) 45,929,239 40,485,979
------------- -------------
Total Deductions 45,929,239 40,485,979
------------- -------------
Net Increase 158,471,232 164,379,451
Net Assets Available for Benefits at Beginning
of Year 595,999,591 431,620,140
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $754,470,823 $595,999,591
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
Note 1 DESCRIPTION OF THE PLAN
The following brief description of the Computer Sciences Corporation Matched
Asset Plan (the "Plan") is provided for general information purposes only.
Participants should refer to the Plan documents for more complete information.
The Plan was adopted by the action of the Board of Directors of Computer
Sciences Corporation (the "Company") taken on November 3, 1986, and constitutes
an amendment and restatement of the Employee Stock Purchase Plan ("the Prior
Plan").
The Plan is a continuation of the Prior Plan and is qualified under the Internal
Revenue Code (the "Code"), as amended, Section 401(a) and, effective as of
January 1, 1987, with respect to the portion thereof that qualifies as a
qualified cash or deferred arrangement, to satisfy the requirement of Code
Section 401(k). It is also subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA").
The Company reserves the right to discontinue its contributions and terminate
the Plan subject to the provisions of ERISA. Upon such termination, the
participants' rights to the Company's contributions vest immediately and the
account balances are fully paid to the participants.
ELIGIBILITY AND PARTICIPATION
Any eligible employee who has satisfied the Plan's age and service requirements,
and is employed by the Company, and who receives a stated compensation in
respect of employment on the payroll of the Company, is eligible to become a
participant, with the exception of a person who is represented by a collective
bargaining unit and whose benefits have been the subject of good faith
bargaining under a contract that does not specify that such person is eligible
to participate in the Plan. In addition, the Company may determine to exempt
all employees of any division, unit, facility or class from coverage under the
Plan. Any person who leaves the employ of the Company and, at a later time
becomes re-employed, must reapply to participate in the Plan, provided he or she
otherwise meets the eligibility requirements.
There were approximately 17,267 participating employees at December 31, 1996.
6
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
EMPLOYEE AND COMPANY CONTRIBUTIONS
Subject to certain limitations described below, an eligible employee who elects
to become a participant may authorize any whole percentage (at least 1% but not
more than 15%) of such employee's monthly compensation (as defined in the Plan)
to be deferred and contributed to the trust fund on his or her behalf, up to a
maximum amount of $9,500 for calendar year 1996. Any compensation deferral in
excess of $9,500, together with income allocable to that excess, will be
returned to a participant. Any matching Company contributions attributable to
any excess contribution, and income allocable thereto, will either be returned
to the Company or applied to reduce future matching Company contributions.
In order to qualify for the special tax treatment accorded to plans by Section
401(k) of the Code, contributions on behalf of participants under the Plan must
meet two nondiscrimination tests designed to prevent a disproportionate
compensation deferral election by employees who are highly compensated in
relation to other employees. The Committee may cause the percentage authorized
by the highly compensated participants to be reduced if the Plan does not meet
both of the nondiscrimination tests.
A participant is not permitted to make voluntary after-tax contributions to the
Plan.
The Company will contribute and forward to the trust fund, together with a
compensation deferral contribution equal to each participant's qualifying
compensation deferral, an amount equal to 50% of the first 3% of the
participant's compensation deferral (except for a small number of participants,
to whom under the terms of their contract agreement the Company will contribute
an amount equal to 50% of the first 4% of the participant's compensation
deferral). Matching contributions will be invested in the Company Stock Fund,
which invests primarily in the common stock of Computer Sciences Corporation.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contribution and
allocations of the Company's contribution and Plan earnings, and is charged with
an allocation of investment management fees. Allocations are based on
participant earnings or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can provided from the participant's
vested account.
7
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
VESTING OF PARTICIPANTS' INTERESTS/FORFEITURES
A participant's interest in his or her Compensation Deferral Account, Retirement
Account, After Tax Account, and Rollover Account is at all times fully vested in
the participant or, when appropriate, in the participant's beneficiary or legal
representative.
The vested interest of each participant in the value of his or her Matching
Contributions Account depends on the number of full years of service such
participant has with the Company, as shown below:
NUMBER OF FULL YEARS OF SERVICE VESTED INTEREST IN MATCHING CONTRIBUTION
- ------------------------------- ----------------------------------------
1 .................................. 0%
2 .................................. 25%
3 .................................. 50%
4 .................................. 75%
5 ................................. 100%
(except for a small number of participants, who under the terms of their
contract agreement will vest 100% after 2 years or more)
Any nonvested portion of the Matching Contributions Account will be forfeited
upon withdrawal from the Plan. Forfeitures may be applied to reduce future
matching contributions by the Company. Such forfeitures during 1996 and 1995
amounted to $1,097,819 and $1,120,945, respectively.
DISTRIBUTABLE AMOUNTS, WITHDRAWALS AND REFUNDS
A participant may become entitled to a distribution of his or her distributable
benefit by reason of retirement, death, total and permanent disability,
voluntary termination of employment, or dismissal. The rules of payment of a
participant's distributable benefit depend upon age of the participant, the
number of years of service completed by the participant and the type of
severance. The total amounts distributed during 1996 and 1995 were $44,996,599
and $39,637,011, respectively.
8
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
While still an employee, a participant may, upon at least a 30 day written
notice to the Committee, make a withdrawal of his or her compensation deferral
contributions if the Committee finds, after considering the participant's
request, that an adequate financial hardship and resulting need for such amount
has been demonstrated by the participant. These withdrawals during 1996 and 1995
totaled $932,640 and $848,968, respectively.
In order for the Plan to meet the nondiscrimination tests, the Committee has
caused the compensation deferral percentage for certain highly compensated
employees to be reduced, which has also resulted in the return of excess
compensation deferrals.
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies followed in preparation of the financial
statements of the Plan of the Company conform with generally accepted accounting
principles. The following is a summary of the significant policies.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
ASSETS OF THE PLAN
The assets of the Plan are held in a trust with five sub-accounts representing
the investment options. The investment income in the respective sub-accounts is
allocated to the participants. Contributions to, and payments from, the Plan
are specifically identified to the applicable sub-accounts within the trust.
SECURITY TRANSACTIONS
Security transactions are accounted for on a trade-date basis. Dividend income
is recorded on the ex-dividend date. Interest income is accounted for on the
accrual basis.
In general, participants in the Stock Fund receive distributions in certificates
for shares of the common stock of the Company.
9
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
VALUATION OF INVESTMENT SECURITIES
Investments in common stocks and mutual funds are stated at fair value based
upon closing sales prices reported on recognized securities exchanges on the
last business day of the plan year or, for the listed securities having no sales
reported and for unlisted securities, upon last reported bid prices on that
date. Investments in short-term investments are stated at cost which
approximates fair value.
VALUATION OF GUARANTEED INVESTMENT CONTRACTS
The Plan holds guaranteed investment contracts, which are considered to be fully
benefit responsive as access to the funds of these contracts is not restricted.
The guaranteed investment contracts are valued at contract value in accordance
with SOP 94-4. Contract value represents contributions made by participants,
plus interest at the contract rates, less withdrawals or transfers by
participants.
Based on the treasury yield curve for similar type of investments, the fair
value of the guaranteed investment contracts at December 31, 1996 and 1995 was
approximately $61,675,000 and $83,860,000, respectively. The average yield and
crediting interest rates were approximately 7.18% and 7.60% for 1996 and 1995,
respectively. The crediting interest rate is based on an agreed-upon formula
with the issuer, but cannot be less than zero.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
Note 3 INCOME TAX STATUS
The Internal Revenue Service has determined and informed the Company by a letter
dated July 18, 1996, that the Plan and related trust are designed in accordance
with applicable sections of the Internal Revenue Code (IRC).
The Committee believes that the Plan is designed and operated to qualify under
Section 401(a) of the Code and, with respect to its qualified cash or deferred
arrangement, under Section 401(k) of the Code. When the requirements of Section
401(k) of the Code are satisfied, the following tax consequences result:
10
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
(i) A participant is not subject to federal income tax on Company
contributions to the Plan or on income or realized gains in Plan Accounts
attributable to the participant until a distribution from the Plan is made to
him or her.
(ii) The participant is able to exclude from his or her income for federal
income tax purposes, the amount of his or her compensation deferral
contributions, subject to a maximum exclusion of $9,500 and $9,240 for 1996
and 1995 taxable years of the participant, respectively.
(iii) On distribution of a participant's vested interest in the Plan, the
participant generally is subject to federal income taxation, except that: (1)
tax on "net unrealized appreciation" on any Company stock distributed as a
part of a "lump sum distribution" generally is deferred until the participant
disposes of such stock, and (2) tax may be deferred to the extent the
participant is eligible for and complies with certain rules permitting the
"rollover" of a qualifying distribution to another retirement plan, or
individual retirement account.
Note 4 RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
December 31,
--------------------------
1996 1995
------------ ------------
Net assets available for benefits per the
financial statements $754,470,823 $595,999,591
Amounts allocated to withdrawing participants (10,290,463) (7,912,936)
------------ ------------
Net assets available for benefits per Form 5500 $744,180,360 $588,086,655
------------ ------------
------------ ------------
11
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
Year ended
December 31, 1996
-------------------
Benefits paid to participants per the financial statements $45,929,239
Add: Amounts allocated to withdrawing participants at
December 31, 1996 10,290,463
Less: Amounts allocated to withdrawing participants at
December 31, 1995 (7,912,936)
-------------------
Benefits paid to participants per the Form 5500 $48,306,766
-------------------
-------------------
Amounts allocated to withdrawing participants are recorded on the Form 5500
for benefit claims that have been processed and approved for payment prior to
December 31, 1996 but not paid as of that date.
Note 5 INVESTMENT FUNDS
Participant contributions - Subject to rules the Committee may from time to
time adopt, each participant has the right to designate one or more of the
following investment funds established by the Committee for the investment of
his or her compensation deferral contributions, in increments of 10%.
THE FIXED INCOME FUND
The fund is invested in contracts with insurance companies and other
financial institutions. These institutions agree to repay principal with
interest at a fixed rate of return for the life of each contract. This is a
commitment by the insurance company or the financial institution to make
agreed upon payments and that agreement is not secured, insured or guaranteed
by the Company or any other third party. Approximately half of the fund is
invested in contracts with insurance companies.
12
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
The remainder of the fund (including the proceeds from maturing insurance
contracts, newly invested money and interest from insurance contracts) is in
the Master Trust which was established for the investment of assets of the
Plan and several other Company sponsored benefit plans. The Master Trust is
an actively managed, short-term (1-3 years) U.S. Bond Fund managed by Payden
& Rygel. Each participating plan has an undivided interest in the Master
Trust. The assets of the Master Trust are held by the Trustee. At December
31, 1996 and 1995, the Plan's interest in the net assets of the Master Trust
was approximately 90% and 93%, respectively. Investment income and
administrative expenses relating to the Master Trust are allocated to
individual plans based upon average monthly balances invested by each plan.
The following table represents the fair value of investments for the Master
Trust.
December 31,
-----------------------------
1996 1995
------------- -------------
Investments at fair value:
Corporate bonds $ 20,904,676 $ 15,709,394
U.S. government securities 56,633,626 44,628,463
Other bonds 2,112,040 2,085,848
Short-term investments 21,131,915 0
Accrued income 1,061,097 648,263
------------- -------------
$101,843,354 $ 63,071,968
------------- -------------
------------- -------------
Investment income for the Master Trust is as follows:
December 31,
-----------------------------
1996 1995
------------- -------------
Investment income:
Net (depreciation) appreciation in fair value
of investments $(1,007,670) $2,230,357
Interest:
Corporate bonds 1,180,044 659,260
U.S. government securities 2,485,788 2,234,361
Other bonds 139,500 0
Short-term investments 627,305 241,759
------------- -------------
3,424,967 5,365,737
Less investment management fees (61,373) (17,548)
------------- -------------
$ 3,363,594 $5,348,189
------------- -------------
------------- -------------
13
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
THE BALANCED FUND
The fund is invested with Brinson Partners Inc. The Brinson Partners Inc.
U.S. Bond and U.S. Stock Only Funds are actively managed portfolios invested
in U.S. stocks, bonds and cash. The stock portfolio consists of large,
intermediate and small companies. The bond portion of the portfolio is
primarily invested in U.S. Treasury, government agency and corporate issues.
This fund's investment objective is to maximize total return, consisting of
capital appreciation and current income.
THE ACTIVE EQUITY FUND
The fund is invested with Brinson Partners Inc. The Brinson Partners Inc.
U.S. Equity Fund is invested in common stocks traded in the U.S. The fund's
objective is to maximize total return which consists of capital appreciation
and current income.
THE STOCK INDEX FUND
The fund is managed by Mellon Capital Management. The objective of the fund
is to exceed the performance of the Standard & Poor's 500 Stock Index. The
Stock Index Fund either invests in a stock portfolio designed to track the
performance of the S&P Stock Index and/or creates a synthetic S&P 500
portfolio using (unlevered) financial futures and options. Assets used as
collateral for futures/options positions are comprised of various market or
debt instruments.
THE COMPANY STOCK FUND
Amounts allocated to this investment alternative will be used to purchase
shares of CSC common stock which will be held for the benefit of the
participant. The performance of this investment will depend upon the
performance of CSC's stock. The Trustee may purchase Company stock on
national securities exchanges or elsewhere.
After an initial election has been made, a participant may designate a
different Fund into which future compensation deferral contributions shall be
invested as of the first day of any payroll period that coincides with or
immediately follows the first day of a calendar quarter. In addition, a
participant may elect to redesignate any amounts in his or her accounts as of
the last business day of any calendar quarter to be invested in a different
Fund. These elections may be made by giving such advance notice as may be
required by the Plan administrator.
14
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
Company contributions - In accordance with the provisions of the Plan, the
Trustee must promptly invest matching Company contributions paid into the
trust fund in the Company Stock Fund. An exception is in the case of a
participant who has (i) attained at least age 59 1/2, or (ii) has been
credited with at least five years of service and has attained at least age 55
and has made an election to designate different Funds.
NUMBER OF PARTICIPANTS
The approximate number of participants having account balances in each of the
six separate funds at December 31, 1996 was as follows:
Investment Fund Number of Participants
--------------- ----------------------
The Fixed Income Fund .................................. 11,582
The Balanced Fund ...................................... 11,145
The Active Equity Fund ................................. 14,335
The Stock Index Fund ................................... 9,113
The Company Stock Fund ................................. 20,067
The Loan Fund .......................................... 2,530
The sum of the number of participants shown above is greater than the total
number of participants in the Plan because many are participating in more
than one fund.
Note 6 PARTICIPANT LOANS
The Plan allows participants to borrow from their vested account balances
from a minimum of $1,000 up to a maximum of $50,000 or 50% of their vested
account balances, subject to certain limitations. The loans bear interest at
the prime rate quoted in the Wall Street Journal plus 1%, which is set on a
quarterly basis. Loan terms range from 1-5 years or up to 15 years for
purchase of primary residence. Loans are recorded at cost, which approximate
fair value, on the Statement of Net Assets Available for Benefits.
The loans (which are accounted for in the Loan Fund) are deducted from the
participants' vested account balances based on their investment elections
with respect to the funds described in Note 5. Loan repayments are credited
to the participants' accounts according to their current investment election.
15
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
Note 7 BENEFITS PAYABLE
As of December 31, 1996 and 1995, net assets available for benefits included
benefits of $10,290,463 and $7,912,936 respectively, due to participants who
have withdrawn from participation in the Plan.
Note 8 TRANSFERS FROM OTHER PLANS
During the two years ended December 31, 1996, the Plan merged with the Hyatt
Corporation 401(k) Plan; CSC Credit Services Employee Savings Plan; James River
Corporation of Virginia Stockplus Investment Plan; The DiBianca-Bergman Group,
Inc. Profit Sharing Plan; First Chicago Corporation Savings Incentive Plan; and
CSC Professional Services Group, Inc. Tax-Deferred Savings and Retirement Plan
("PSG"). A detail description of these mergers is as follows:
The Plan received $18,031 on January 17, 1997, $91 on November 20, 1996, $3,262
on November 18, 1996, $32,620 on October 8, 1996, and $358,391 on October 1,
1996 from the Hyatt Corporation 401(k) Plan. These amounts represent the
balances of 36 participants as of October 1, 1996.
The Plan received $2,228,649 on December 11, 1996 and $11,382,454 on December 2,
1996 from the CSC Credit Services Employee Savings Plan. These amounts
represent the balances of 861 participants as of November 30, 1996.
The Plan received $4,438 on September 5, 1996, $5,339 on January 30, 1996,
$15,596 on December 28, 1995, and $1,335,627 on October 27, 1995 from the James
River Corporation of Virginia Stockplus Investment Plan. These amounts represent
the balances of 74 participants as of September 30, 1995.
The Plan received $912 on January 22, 1996, $202 on November 21, 1995, $934,151
on October 27, 1995 from The DiBianca-Berkman Group, Inc. Profit Sharing Plan.
These amounts represent the balances of 31 participants as of October 27, 1995.
The Plan received $182,529 on December 21, 1995, and $1,402,158 on December 1,
1995 from the First Chicago Corporation Savings Incentive Plan. These amounts
represent the balances of 29 participants as of November 30, 1995.
16
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
The Plan received $2,608,494 on May 31, 1995, $1,929,791 on March 10, 1995, and
$2,300,481 on March 8, 1995 from the PSG. These amounts were accrued in 1994
and represent the remaining balances for 1,516 participants as of December 30,
1994. On April 24, 1995, the Plan returned $7,981 to Corestate Bank due to
excess transfer from the PSG merger.
17
<PAGE>
<TABLE>
<CAPTION>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
Note 9 STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS BY FUND
DECEMBER 31, 1996
----------------------------------------------------------------------------
FIXED ACTIVE STOCK COMPANY
INCOME BALANCED EQUITY INDEX STOCK
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments
Long-term investments
At fair value
Interest in registered investment companies: $106,929,406 $190,510,057 $ 58,160,214
CSC Company stock $220,003,596
Plan interest in Master Trust $ 91,252,142
Employee loans
Guaranteed investment contracts-at contract
value 61,203,657
Short-term investments 4,259 1,002,060 1,725,971 529,309 1,620,364
Receivables
Employer's contribution 948 349 549 199 321,367
Participants' contribution 578,061 523,666 992,373 469,869 547,284
Accrued Income 21,270 4,186 10,370 2,267 4,856
Plan to plan transfer 638,176 1,409,723 624,325 200,660 430,215
Interfund Transfers 6,895 (76,674) 676,188 440,241 (1,046,650)
------------ ------------ ------------ ------------ ------------
TOTAL ASSETS 153,705,408 109,792,716 194,539,833 59,802,759 221,881,032
LIABILITIES
Accounts Payable 106,233 93,222 204,416 130,133 733,016
Accrued Expenses 33,945 66,931 111,438 5,872 584
Unsettled Trade Payables 85,443
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES 140,178 160,153 315,854 136,005 819,043
------------ ------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $153,565,230 $109,632,563 $194,223,979 $ 59,666,754 $221,061,989
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
-----------------------------
EMPLOYEE
LOANS TOTAL
------------- ------------
<CAPTION>
<S> <C> <C>
ASSETS
Investments
Long-term investments
At fair value
Interest in registered investment companies: $355,599,677
CSC Company stock 220,003,596
Plan interest in Master Trust 91,252,142
Employee loans $ 16,021,749 16,021,749
Guaranteed investment contracts-at contract
value 61,203,657
Short-term investments 4,881,963
Receivables
Employer's contribution 323,412
Participants' contribution 210 3,111,463
Accrued Income 42,949
Plan to plan transfer 3,303,099
Interfund Transfers -
------------- ------------
TOTAL ASSETS 16,021,959 755,743,707
LIABILITIES
Accounts Payable (298,349) 968,671
Accrued Expenses 218,770
Unsettled Trade Payables 85,443
------------- ------------
TOTAL LIABILITIES (298,349) 1,272,884
------------- ------------
NET ASSETS AVAILABLE FOR BENEFITS $ 16,320,308 $754,470,823
------------- ------------
------------- ------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
Note 9 STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS BY FUND
DECEMBER 31, 1995
----------------------------------------------------------------------------
FIXED ACTIVE STOCK COMPANY
INCOME BALANCED EQUITY INDEX STOCK
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments
Long-term investments
At fair value
Interest in registered investment companies $ 85,526,535 $136,221,964 $ 33,224,815
CSC Company stock $174,584,246
Plan interest in Master Trust $ 58,741,224
Employee loans
Guaranteed investment contracts--at contract
value 81,854,138
Short-term Investments 1,186,638 5,329,047 1,359,311 1,181,897 1,308,567
Receivables
Employer's contribution 1,133 317 589 181 287,793
Participants' contribution 564,364 470,031 728,796 262,477 466,279
Accrued Income 5,448 26,337 3,687 1,776 4,420
Plan to plan transfer (202) 1,105
Interfund Transfers (208,078) 42,025 172,270 201,904 (208,121)
Other (126,538) (28,475) 74,600 51,557 51,425
------------ ------------ ------------ ------------ ------------
TOTAL ASSETS 142,018,127 91,365,817 138,561,217 34,924,607 176,495,714
LIABILITIES
Accounts Payable 150,899 123,862 149,280 73,133 684,875
Accrued Expenses 28,900 60,318 86,098 5,389 210
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES 179,799 184,180 235,378 78,522 685,085
------------ ------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $141,838,328 $ 91,181,637 $138,325,839 $ 34,846,085 $175,810,629
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
-----------------------------
EMPLOYEE
LOANS TOTAL
------------- ------------
<CAPTION>
<S> <C> <C>
ASSETS
Investments
Long-term investments
At fair value
Interest in registered investment companies $254,973,314
CSC Company stock 174,584,246
Plan interest in Master Trust 58,741,224
Employee loans $ 13,707,311 13,707,311
Guaranteed investment contracts--at contract
value 81,854,138
Short-term Investments 10,365,460
Receivables
Employer's contribution 290,013
Participants' contribution 2,491,947
Accrued Income 41,668
Plan to plan transfer 903
Interfund Transfers -
Other 57,000 79,569
------------- ------------
TOTAL ASSETS 13,764,311 597,129,793
LIABILITIES
Accounts Payable (232,762) 949,287
Accrued Expenses 180,915
------------- ------------
TOTAL LIABILITIES (232,762) 1,130,202
------------- ------------
NET ASSETS AVAILABLE FOR BENEFITS 13,997,073 595,999,591
------------- ------------
------------- ------------
</TABLE>
19
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
Note 9 STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------
FIXED ACTIVE STOCK
INCOME BALANCED EQUITY INDEX
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment Income
Net Appreciation in Fair Value of Investments $ 7,547,384 $ 28,745,707 $ 7,279,167
Interest Income $ 5,090,729 205,856 49,938 29,240
Dividend Income 4,153,832 3,269,456 2,245,636
Investment Management Fees (135,732) (260,280) (412,398) (22,207)
Plan interest in Master Trust investment income 3,071,796
------------- ------------- ------------- -------------
8,026,793 11,646,792 31,652,703 9,531,836
------------- ------------- ------------- -------------
Contributions
Employee 13,970,518 12,556,922 21,248,658 8,868,348
Employer 26,881 9,261 18,460 5,176
Employee Rollovers 3,009,593 2,248,932 4,313,516 2,440,965
Transfers From Other Plans 8,210,754 1,430,613 3,672,511 1,318,907
Interfund Transfers (7,758,207) (2,208,569) 6,569,672 6,429,915
------------- ------------- ------------- -------------
17,459,539 14,037,159 35,822,817 19,063,311
------------- ------------- ------------- -------------
TOTAL ADDITIONS 25,486,332 25,683,951 67,475,520 28,595,147
------------- ------------- ------------- -------------
DEDUCTIONS TO NET ASSETS ATTRIBUTABLE TO:
Distributions to Participants 13,759,430 7,233,025 11,577,380 3,774,478
------------- ------------- ------------- -------------
TOTAL DEDUCTIONS 13,759,430 7,233,025 11,577,380 3,774,478
------------- ------------- ------------- -------------
NET INCREASE 11,726,902 18,450,926 55,898,140 24,820,669
------------- ------------- ------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 141,838,328 91,181,637 138,325,839 34,846,085
------------- ------------- ------------- -------------
End of Year $ 153,565,230 $ 109,632,563 $ 194,223,979 $ 59,666,754
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
COMPANY EMPLOYEE
STOCK LOANS TOTAL
------------- ------------- -------------
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment Income
Net Appreciation in Fair Value of Investments $ 32,925,093 $ 76,497,351
Interest Income 47,205 $ 454 5,423,422
Dividend Income 9,668,924
Investment Management Fees (2,646) (833,263)
Plan interest in Master Trust investment income 3,071,796
------------- ------------- -------------
32,969,652 454 93,828,230
------------- ------------- -------------
Contributions
Employee 15,207,730 (5,435,014) 66,417,162
Employer 11,606,058 11,665,836
Employee Rollovers 3,138,952 15,151,958
Transfers From Other Plans 2,686,469 18,031 17,337,285
Interfund Transfers (3,032,357) (454) -
------------- ------------- -------------
29,606,852 (5,417,437) 110,572,241
------------- ------------- -------------
TOTAL ADDITIONS 62,576,504 (5,416,983) 204,400,471
------------- ------------- -------------
DEDUCTIONS TO NET ASSETS ATTRIBUTABLE TO:
Distributions to Participants 17,325,144 (7,740,218) 45,929,239
------------- ------------- -------------
TOTAL DEDUCTIONS 17,325,144 (7,740,218) 45,929,239
------------- ------------- -------------
NET INCREASE 45,251,360 2,323,235 158,471,232
------------- ------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 175,810,629 13,997,073 595,999,591
------------- ------------- -------------
End of Year $ 221,061,989 $ 16,320,308 $ 754,470,823
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
20
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
Note 9 STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------
FIXED ACTIVE STOCK
INCOME BALANCED EQUITY INDEX
------------- ------------- ------------- -------------
<S> <S> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment Income
Net Appreciation in Fair Value of Investments $ 14,762,527 $ 30,074,070 $ 5,852,806
Interest Income $ 6,533,680 100,918 56,177 34,508
Dividend Income 3,739,825 2,730,134 1,465,245 7,935,204
Investment Management Fees (67,999) (215,252) (291,526) (19,880)
Plan interest in Master Trust investment income 5,143,489 5,143,489
------------- ------------- ------------- -------------
11,609,170 18,388,018 32,568,855 7,332,679
------------- ------------- ------------- -------------
Contributions
Employee 15,048,897 12,548,910 18,017,448 5,765,258
Employer 27,194 7,055 15,919 5,993
Employee Rollovers 4,152,909 2,313,312 3,494,005 1,546,117
Transfers From Other Plans 1,046,454 629,561 897,176 882,203
Interfund Transfers (26,941,864) 2,710,681 16,295,489 6,739,080
------------- ------------- ------------- -------------
(6,666,410) 18,209,519 38,720,037 14,938,651
------------- ------------- ------------- -------------
TOTAL ADDITIONS 4,942,760 36,597,537 71,288,892 22,271,330
------------- ------------- ------------- -------------
DEDUCTIONS TO NET ASSETS ATTRIBUTABLE TO:
Distributions to Participants 13,692,065 7,132,890 9,026,105 2,355,622
------------- ------------- ------------- -------------
TOTAL DEDUCTIONS 13,692,065 7,132,890 9,026,105 2,355,622
------------- ------------- ------------- -------------
NET (DECREASE) INCREASE (8,749,305) 29,464,647 62,262,787 19,915,708
------------- ------------- ------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 150,587,633 61,716,990 76,063,052 14,930,377
------------- ------------- ------------- -------------
End of Year $ 141,838,328 $ 91,181,637 $ 138,325,839 $ 34,846,085
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------
COMPANY EMPLOYEE
STOCK LOANS TOTAL
------------- ------------- -------------
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment Income
Net Appreciation in Fair Value of Investments $ 47,477,760 $ 98,167,163
Interest Income 53,490 $ 8 6,778,781
Dividend Income
Investment Management Fees (210) (594,867)
Plan interest in Master Trust investment income 5,143,489
------------- ------------- -------------
47,531,040 8 117,429,770
------------- ------------- -------------
Contributions
Employee 12,415,545 (4,936,834) 58,859,224
Employer 10,300,043 10,356,204
Employee Rollovers 2,788,583 14,294,926
Transfers From Other Plans 398,524 71,388 3,925,306
Interfund Transfers 1,196,622 (8)
------------- ------------- -------------
27,099,317 (4,865,454) 87,435,660
------------- ------------- -------------
TOTAL ADDITIONS 74,630,357 (4,865,446) 204,865,430
------------- ------------- -------------
DEDUCTIONS TO NET ASSETS ATTRIBUTABLE TO:
Distributions to Participants 14,386,994 (6,107,697) 40,485,979
------------- ------------- -------------
TOTAL DEDUCTIONS 14,386,994 (6,107,697) 40,485,979
------------- ------------- -------------
NET (DECREASE) INCREASE 60,243,363 1,242,251 164,379,451
------------- ------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 115,567,266 12,754,822 431,620,140
------------- ------------- -------------
End of Year $ 175,810,629 $ 13,997,073 $ 595,999,591
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
21
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Note 10 INVESTMENTS 1996 PRINCIPAL FAIR VALUE OR
---------------- AMOUNT OR CONTRACT
SHARES COST VALUE
FIXED INCOME FUND -------------- ------------- -------------
<S> <C> <C> <C>
Guaranteed Investment Contracts $ 61,203,657 $ 61,203,657 $ 61,203,657
Interest in Master Trust* sh. 90,242,972 91,366,037 91,252,142
BNY Collective Short-Term Invst. Fund sh. 4,259 4,259 4,259
BALANCED FUND
Brinson Partners Inc U.S. Bond Fund* sh. 629,901 68,157,142 69,326,850
Brinson Partners Inc U.S. Stock Only Fund* sh. 136,456 28,472,176 37,602,556
Brinson Partners Inc U.S. Cash Mgmt Fund sh. 1 1 1
BNY Collective Short-Term Invst. Fund sh. 1,002,060 1,002,060 1,002,060
ACTIVE EQUITY FUND
Brinson Partners Inc U.S. Equity Portfolio* sh. 645,808 123,827,039 190,510,057
Brinson Partners Inc U.S. Cash Mgmt Fund sh. 2 2 2
BNY Collective Short-Term Invst. Fund sh. 1,725,969 1,725,969 1,725,968
STOCK INDEX FUND
Mellon Capital Mgmt. Stock Index Fund* sh. 244,687 43,023,873 56,186,765
Mellon Capital EB Daily Opening Stock Index Fund sh. 10,853 1,997,925 1,973,449
Mellon Capital Temporary Investment Fund sh. 470 470 470
BNY Collective Short-Term Invst. Fund sh. 528,839 528,839 528,839
COMPANY STOCK FUND
Computer Sciences Common Stock* sh. 2,678,887 80,092,261 220,003,596
BNY Collective Short-Term Invst. Fund sh. 1,620,364 1,620,364 1,620,364
EMPLOYEE LOAN FUND
Participant Loans $ 16,021,749 16,021,749 16,021,749
-------------- --------------
$ 519,043,823 $ 748,962,784
-------------- --------------
-------------- --------------
TOTAL LONG-TERM INVESTMENTS $ 514,161,859 $ 744,080,821
TOTAL SHORT-TERM INVESTMENTS 4,881,964 4,881,963
-------------- --------------
$ 519,043,823 $ 748,962,784
-------------- --------------
-------------- --------------
</TABLE>
* represents investments greater
than 5% of Plan's net assets
22
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Note 10 INVESTMENTS 1995 PRINCIPAL FAIR VALUE OR
---------------- AMOUNT OR CONTRACT
SHARES COST VALUE
-------------- ------------- -------------
<S> <C> <C> <C>
FIXED INCOME FUND
Guaranteed Investment Contracts $ 81,854,138 $ 81,854,138 $ 81,854,138
Interest in Master Trust* sh. 57,775,322 57,507,378 58,741,224
BNY Collective Short-Term Invst. Fund sh. 1,186,638 1,186,638 1,186,638
BALANCED FUND
BRINSON PARTNERS INC.:
U.S. Bond Fund* sh. 460,104 46,867,192 48,488,514
U.S. Stock Only Fund* sh. 170,758 34,575,827 37,038,021
U.S. Cash Management Fund sh. 4,620,046 4,620,046 4,620,046
BNY Collective Short-Term Invst. Fund sh. 709,001 709,001 709,001
ACTIVE EQUITY FUND
Brinson Partners Inc.:
U.S. Equity Portfolio* sh. 563,003 98,207,385 136,221,964
U.S. Cash Management Fund 1 1 1
BNY Collective Short-Term Invst. Fund sh. 1,359,310 1,359,310 1,359,310
STOCK INDEX FUND
Mellon Capital:
Mellon Capital Mgmt. Stock Index Fund* sh. 82,951 27,186,835 33,224,815
Mellon Temporary Investment Fund sh. 12 12 12
BNY Collective Short-Term Invst. Fund sh. 1,181,885 1,181,885 1,181,885
COMPANY STOCK FUND
Computer Sciences Common Stock* sh. 2,485,185 62,965,219 174,584,246
BNY Collective Short-Term Invst. Fund sh. 1,308,567 1,308,567 1,308,567
EMPLOYEE LOAN FUND
Participant Loans $ 13,707,311 13,707,311 13,707,311
------------- -------------
$ 433,236,745 $ 594,225,693
TOTAL LONG-TERM INVESTMENTS 422,871,285 583,860,233
TOTAL SHORT-TERM INVESTMENTS 10,365,460 10,365,460
------------- -------------
$ 433,236,745 $ 594,225,693
------------- -------------
------------- -------------
</TABLE>
* represents investments greater
than 5% of Plan's net assets
23
<PAGE>
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Act of 1934, the
Computer Sciences Corporation Retirement Committee has duly caused this annual
report to be signed on its behalf by the undersigned thereunto duly authorized.
CSC MATCHED ASSET PLAN
Date: June 23, 1997 By: /S/LEON J. LEVEL
-----------------------
Leon J. Level
Chairman,
Computer Sciences Corporation
Retirement Plans Committee
24
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Computer Sciences Corporation
Registration Statement No. 333-00755 on Form S-8 of our report dated May 30,
1997, appearing in this Annual Report on Form 11-K of the Computer Sciences
Corporation Matched Asset Plan for the year ended December 31, 1996.
/s/Deloitte & Touche LLP
Los Angeles, California
June 20, 1997
E-1
<PAGE>
1996
FORM 5500 ITEM 27(A)
COMPUTER SCIENCES CORPORATION
EIN 95-2043126
MATCHED ASSET PLAN 001
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
-----------------------------------------------
<TABLE>
<CAPTION>
(a) (b) Identity of issue, borrower, (c) Description of investment including maturity date, (d) Cost (e) Current
lessor or similar party rate of interest, collateral, par or maturity value Value
- --- -------------------------------- ------------------------------------------------------- ----------- ------------
<S> <C> <C> <C> <C>
Allstate Life Insurance Co. Guaranteed Investment Contract 7.78% 9/30/97 $ 3,397,697 $ 3,397,697
Principal Mutual Life Insurance Guaranteed Investment Contract 8.10% 4/1/97 799,784 799,784
Co.
Prudential Life Insurance Co. Guaranteed Investment Contract 7.92% 3/31/97 12,728,297 12,728,297
Pacific Mutual Life Insurance Co. Guaranteed Investment Contract 6.85% 3/31/98 4,461,168 4,461,168
Provident Life & Accident Ins. Guaranteed Investment Contract 7.80% 9/30/97 5,900,680 5,900,680
Prudential Life Insurance Co. Guaranteed Investment Contract 5.77% 3/31/98 3,960,879 3,960,879
Canada Life Insurance Co. Guaranteed Investment Contract 5.75% 3/31/98 3,389,096 3,389,096
Protective Life Insurance Co. Guaranteed Investment Contract 5.66% 9/30/97 7,357,545 7,357,545
Provident National Assurance Guaranteed Investment Contract 8.01% 3/31/97 4,389,880 4,389,880
Hartford Life Insurance Co. Guaranteed Investment Contract 7.80% 6/30/98 1,839,252 1,839,252
Hartford Life Insurance Co. Guaranteed Investment Contract 7.80% 6/30/98 2,692,929 2,692,929
Hartford Life Insurance Co. Guaranteed Investment Contract 8.80% 6/30/97 5,859,796 5,859,796
Providian Corporation Guaranteed Investment Contract 5.08% 12/31/97 4,155,059 4,155,059
Lincoln Life Insurance Co. Guaranteed Investment Contract 271,596 271,596
Brinson Trust Company, Inc. Mutual Fund - U.S. Bond Fund 68,157,142 69,326,850
Brinson Trust Company, Inc. Mutual Fund - U.S. Stock Fund 28,472,176 37,602,556
Brinson Trust Company, Inc. Mutual Fund - U.S. Equity Portfolio 123,827,039 190,510,057
Mellon Capital Management Corp. Mutual Fund - Stock Index Fund 1,997,925 1,973,449
Mellon Capital Management Corp. Mutual Fund - Stock Index Fund 43,023,873 56,186,765
* Computer Sciences Corporation Common Stock 80,092,261 220,003,596
* Computer Sciences Corporation Employee Loan Fund (8.25%-10%) (1/3/97-1/27/12) 16,021,749 16,021,749
Brinson Trust Company, Inc. U.S. Cash Management Fund 3 3
Mellon Capital Management Corp. Mellon Temporary Investment Fund 470 470
* Bank of New York BNY Collective Short-Term Invst. Fund 4,881,490 4,881,490
------------- -------------
TOTAL ASSETS HELD FOR INVESTMENT PURPOSES $ 427,677,786 $ 657,710,642
------------- -------------
------------- -------------
</TABLE>
* represents party in interest
S-1
<PAGE>
1996
FORM 5500 ITEM 27(D)
COMPUTER SCIENCES CORPORATION
EIN 95-2043126
MATCHED ASSET PLAN 001
SCHEDULE OF REPORTABLE TRANSACTIONS
<TABLE>
<CAPTION>
(H) CURRENT
VALUE
OF ASSET ON (I) NET GAIN
(A) IDENTITY OF PARTY INVOLVED (B) DESCRIPTION OF ASSET (C) PURCHASE (D) SELLING (G) COST OF TRANSACTION OR (LOSS)
PRICE PRICE ASSET DATE
- ------------------------------ ------------------------ ------------ ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
SINGLE TRANSACTIONS IN EXCESS OF 5%
- -----------------------------------
None to Report
</TABLE>
S-2
<PAGE>
Exhibit 99.2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
/x/ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended: December 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _____ to _____
Commission file number: 1-4850
A. Full title of plan and the address of the plan, if different
from that of the issuer named below: CSC Outsourcing, Inc. Hourly
Savings Plan
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office: Computer Sciences
Corporation
2100 East Grand Avenue
El Segundo, California 90245
<PAGE>
TABLE OF CONTENTS
Description Page
- ----------- ----
(a) Financial Statements:
Independent Auditors' Report.................................. 3
Statements of Net Assets Available for Benefits
As of December 31, 1996 and 1995.............................. 4
Statements of Changes in Net Assets Available for Benefits
For the Years Ended December 31, 1996 and 1995................ 5
Notes to Financial Statements................................. 6
(b) Exhibit:
Independent Auditors' Consent................................. E-1
(c) Supplemental Schedules:
Schedule of Assets Held for Investment Purposes............... S-1
Schedule of Reportable Transactions........................... S-2
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Employee Retirement Plan Committee
Computer Sciences Corporation
El Segundo, California
We have audited the accompanying statements of net assets available for
benefits of the Computer Sciences Corporation Outsourcing, Inc. Hourly
Savings Plan (the "Plan") as of December 31, 1996 and 1995, and the related
statements of changes in net assets available for benefits for the years then
ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the Plan
as of December 31, 1996 and 1995, and the changes in net assets available for
benefits for the years then ended in conformity with generally accepted
accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in
Section C of the table of contents are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements, but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. These supplemental schedules are the
responsibility of the Plan's management. Such schedules have been subjected
to the auditing procedures applied in our audits of the basic financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/Deloitte & Touche LLP
May 30, 1997
3
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING INC. HOURLY SAVINGS PLAN
STATEMENTS OF NET ASSETS
AVAILABLE FOR BENEFITS
DECEMBER 31
----------------------
1996 1995
----------- ----------
ASSETS
Investments (Notes 2, 5, 8 and 9)
Short-term $ 4,359 $ 8,135
Long-term--at fair value
Interest in registered investment companies
Mellon Capital Government Fund 986,754 993,410
Brinson U.S. Equity Fund 1,304,881 1,048,069
CSC common stock 427,707 340,923
Interest in Master Trust 120,628 131,597
Guaranteed investment contracts--at contract value 2,428,333 2,257,557
----------- ----------
Total investments 5,272,662 4,779,691
Receivables:
Participants' Contributions 5,498 7,916
Accrued income 20 119
Other 10,371
----------- ----------
Total receivables 5,518 18,406
----------- ----------
Total assets 5,278,180 4,798,097
----------- ----------
LIABILITIES
Accrued expenses 921 875
Forfeitures payable 1,165 1,488
Other 552 3,952
----------- ----------
Total Liabilities 2,638 6,315
----------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $ 5,275,542 $4,791,782
----------- ----------
----------- ----------
4
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING INC. HOURLY SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED
DECEMBER 31
--------------------------
1996 1995
------------- -----------
ADDITIONS
Investment Income:
Net appreciation in fair value of investments $ 237,527 $ 413,589
Interest 172,628 189,243
Dividends 92,518 111,139
Plan interest in Master Trust investment income 7,543 4,359
------------- -----------
510,216 718,330
Investment Management Fees (3,639) (3,581)
------------- -----------
506,577 714,749
Contributions:
Employee 176,912 235,970
Employer 80,725 106,302
------------- -----------
257,637 342,272
------------- -----------
Total Additions 764,214 1,057,021
------------- -----------
DEDUCTIONS
Distributions to Participants (Notes 1 and 7) 280,454 1,235,284
------------- -----------
Total Deductions 280,454 1,235,284
------------- -----------
Net Increase (Decrease) 483,760 (178,263)
Net assets available for benefits at beginning of year 4,791,782 4,970,045
------------- -----------
NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 5,275,542 $ 4,791,782
------------- -----------
------------- -----------
5
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING, INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
Note 1 DESCRIPTION OF THE PLAN
The following brief description of the Computer Sciences Corporation
Outsourcing Inc. Hourly Savings Plan (the "Plan"), formerly the TMD Hourly
Savings Plan, of Computer Sciences Corporation (the "Company") is provided for
general information purposes only. Participants should refer to the Plan
document for more complete information.
The Plan became effective May 2, 1992, as a result of the Company acquiring
the Data Systems Division of General Dynamics Corporation. The Plan is
administered by a committee consisting of four officers who are appointed by
the Board of Directors of the Company and serve without compensation, being
reimbursed by the Company for all expenditures incurred in the discharge of
their duties as members of the committee. The committee has the power to
interpret, construe and administer the Plan and to decide any dispute which
may arise under the Plan. The Trustee, The Bank of New York, administers the
Plan pursuant to a Trust Agreement entered into with the Company. Certain
administrative expenses (including Trustee fees) incurred for services
rendered to the Plan are paid by the Company.
The Plan is a voluntary, contributory, defined contribution plan and is
intended to satisfy the requirements of Section 401(a) and 401(k) of the
Internal Revenue Code (the "Code"). It is also subject to the provisions of
the Employee Retirement Income Security Act of 1974 ("ERISA").
The Company reserves the right to discontinue contributions and to terminate
the Plan subject to the provisions of ERISA. Upon such termination, the
participants' rights to the Company's contributions vest immediately and the
account balances are fully paid to the participants.
ELIGIBILITY AND PARTICIPATION
Employees are eligible to participate on specified enrollment dates if they
satisfy the Plan's service requirements, are an hourly paid employee of
Computer Sciences Corporation Outsourcing Inc. and are a member of a
collective bargaining unit for which participation in this Plan has been
provided by negotiated agreement. A rehired eligible employee may receive
service credit for his or her previous employment and is eligible to rejoin
the Plan on the next enrollment date.
There were approximately 120 participating employees at December 31, 1996.
6
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
EMPLOYEE AND COMPANY CONTRIBUTIONS
A participant may authorize before-tax and after-tax contributions to the Plan
subject to a maximum level of contributions (a certain percentage of base
earnings), as specified by the bargaining agreement covering the employee.
Depending on the investment election option the participant elects, the
Company will contribute, and forward to the Trust fund $0.50 for each $1.00
of the employee matched contribution together with the participant's before-
tax and after-tax contribution.
Participants in certain bargaining units who direct 100 percent of their
contributions to the Plan's stock fund will receive a monthly matching
contribution of $1.00 for each $1.00 of employee matched contributions.
Participants under certain bargaining units may contribute additional
unmatched contributions at various percentages of base earnings to a maximum
specified by the union agreement covering the employee but only if a
participant contributes the maximum matched percentage for which he or she is
eligible. The employees' base earnings deferred and contributed to the Trust
fund cannot exceed $9,500 for calendar year 1996, the maximum allowable under
the Code. Annual after-tax contributions to the Plan (including employee and
Company matching contributions) are limited to $30,000 for each participant.
Any compensation deferral in excess of $9,500 and any after-tax contributions
with matching Company contributions in excess of $30,000, together with income
allocable to those excess contributions will be returned to a participant.
Any matching Company contributions attributable to any excess contribution,
and income allocable thereto, will either be returned to the Company or
applied to reduce future matching Company contributions.
Participants may change their investment elections as of any enrollment date
if at least a 30 day prior notice is given. However, participants under
certain circumstances may be eligible to change their investment elections
within a 30 day window period. Participants may transfer their existing
account balances in 25 percent increments. Transfer elections are effective
on the first quarterly enrollment date following receipt of a 30 day prior
notice from the participant.
Company contributions - In accordance with the provisions of the Plan, the
Trustee must promptly invest matching Company contributions paid into the
Trust Fund in the same fund as the participant contributions.
The Plan does not permit employees to rollover a qualified distribution from
another Plan.
7
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contribution and
allocations of the Company's contribution and Plan earnings, and is charged
with an allocation of investment management fees. Allocations are based on
participant earnings or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's vested account.
VESTING OF PARTICIPANTS' INTERESTS/FORFEITURES
Participants are 100 percent vested at all times in their before-tax and
after-tax contribution accounts. Company matching contributions and
investment earnings thereon vest according to a five-year cliff vesting
schedule as shown in the following table:
Number of Full Years of Service Vested Interest in Matching Contribution
------------------------------- ----------------------------------------
1 ................................... 0%
2 ................................... 0%
3 .................... .............. 0%
4 .................................... 0%
5 or more ............................ 100%
The vesting schedule is overridden under extraordinary circumstances as
specified in the Plan document, in which the participant (or beneficiary(ies))
immediately becomes fully vested in all employer contributions and earnings,
regardless of his or her number of years of service.
Any nonvested balances will be immediately forfeited from the participant's
account at termination.
DISTRIBUTABLE AMOUNTS, WITHDRAWALS AND REFUNDS
The entire balance in all accounts is distributed to participants who retire,
die, become disabled, are laid-off for four consecutive weeks, are discharged
without fault, or who involuntarily enter military service. Participants who
terminate for other reasons receive their vested balances. Nonvested balances
are forfeited immediately. The amounts distributed during 1996 and 1995
totaled $280,454 and $1,235,284, respectively.
8
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
While still an employee, a participant may make an in-service withdrawal of
all or a portion of his or her after-tax contributions, subject to frequency
of withdrawal penalties, as well as vested Company matching contributions,
plus the earnings on those amounts. Upon at least a 30 day written notice to
the Committee, a participant may make a hardship withdrawal of his or her
before-tax and after-tax contributions, as well as vested Company matching
contributions if the Committee finds, after considering the participant's
request, that an adequate financial hardship and resulting need for such
amount has been demonstrated by the participant. Both types of withdrawals
are subject to certain restrictions as described in the Plan document. No
hardship withdrawals were made in 1996 and 1995.
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies followed in preparation of the financial
statements of the Plan of the Company conform with generally accepted
accounting principles. The following is a summary of the significant
policies.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
ASSETS OF THE PLAN
The assets of the Plan are held in a trust with four sub-accounts. The
investment income in the respective sub-accounts is allocated to the
participants. Contributions to, and payments from, the Plan are specifically
identified to the applicable sub-accounts within the trust.
SECURITY TRANSACTIONS
Security transactions are accounted for on a trade date basis. Dividend
income is recorded on the ex-dividend date. Interest income is accounted for
on the accrual basis.
In general, participants in the Stock Fund receive distributions in
certificates for shares of the common stock of the Company.
9
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
VALUATION OF INVESTMENT SECURITIES
Investments in common stocks and mutual funds are stated at fair value based
upon closing sales prices reported on recognized securities exchanges on the
last business day of the plan year or, for the listed securities having no
sales reported and for unlisted securities, upon last reported bid prices on
that date. Investments in short-term securities are stated at cost which
approximates fair value.
VALUATION OF GUARANTEED INVESTMENT CONTRACTS
The Plan holds guaranteed investment contracts, which are considered to be
fully benefit responsive as access to the funds of these contracts is not
restricted. The guaranteed investment contracts are valued at contract value
in accordance with SOP 94-4. Contract value represents contributions made by
participants, plus interest at the contract rates, less withdrawals or
transfers by participants.
Based on treasury yield curves for similar type investments, the fair value of
guaranteed investment contracts at December 31, 1996 and 1995, was
approximately $2,480,000 and $2,360,000, respectively. The average yield and
crediting interest rates were approximately at 7.62% and 7.60% for 1996 and
1995, respectively. The crediting interest rate is based on an agreed-upon
formula with the issuer, but cannot be less than zero.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
Note 3 INCOME TAX STATUS
The Internal Revenue Service has determined and informed the Company by a
letter dated June 1, 1996, that the Plan and related trust are designed in
accordance with applicable sections of the Internal Revenue Code (IRC).
The Committee believes that the Plan is designed and operated to qualify under
Section 401(a) of the Code and, with respect to its qualified cash or deferred
arrangement, under Section 401(k) of the Code. Since the requirements of
Section 401(k) of the Code are satisfied, the following tax consequences
result:
10
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
(i) A participant is not subject to federal income tax on Company
contributions to the Plan or on income or realized gains in Plan Accounts
attributable to the participant until a distribution from the Plan is made to
him or her.
(ii) The participant is able to exclude from his or her income for federal
income tax purposes, the amount of his or her compensation deferral
contributions, subject to a maximum exclusion of $9,500 and $9,240 for 1996
and 1995 taxable years of the participant, respectively.
(iii) On distribution of a participant's vested interest in the Plan, the
participant generally is subject to federal income taxation, except that: (1)
tax on "net unrealized appreciation" on any Company stock distributed as a
part of a "lump sum distribution" generally would be deferred until the
participant disposes of such stock, and (2) tax may be deferred to the extent
the participant is eligible for and complies with certain rules permitting the
"rollover" of a qualifying distribution to another retirement plan, or
individual retirement account.
Note 4 RECONCILIATION OF FINANCIAL STATEMENT TO FORM 5500
December 31,
1996 1995
-------------- --------------
Net assets available for benefits per
the financial statements $ 5,275,542 $ 4,791,782
Amounts allocated to withdrawing participants (19,591) (32,278)
-------------- --------------
Net assets available for benefits per Form 5500 5,255,951 $ 4,759,504
-------------- --------------
-------------- --------------
11
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
Year Ended
December 31, 1996
-----------------
Benefits paid to participants per the financial statements $ 280,454
Add: Amounts allocated to withdrawing participants at
December 31, 1996 19,591
Less: Amounts allocated to withdrawing participants at
December 31, 1995 (32,278)
-----------------
Benefits paid to participants per the Form 5500 $ 267,767
-----------------
-----------------
Amounts allocated to withdrawing participants are recorded on the Form 5500
for benefit claims that have been processed and approved for payment prior to
December 31, 1996 but not yet paid as of that date.
Note 5 INVESTMENT FUNDS
Participant contributions - Subject to rules the bargaining units have
adopted, each participant has the right to designate one or more of the
following investment funds established by the Committee for the investment of
his or her compensation deferral contributions and after-tax contributions in
percentages determined by the bargaining units.
THE FIXED INCOME FUND
The fund is invested in contracts with insurance companies and other financial
institutions. These institutions agree to repay principal with interest at a
fixed rate of return for the life of each contract. This is a commitment by
the insurance company or the financial institution to make agreed upon
payments and that agreement is not secured, insured or guaranteed by the
Company or any other third party.
12
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING, INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
The remainder of the fund (including the proceeds from maturing insurance
contracts, newly invested money and interest from insurance contracts) is in
the Master Trust which was established for the investment of assets of the
Plan and several other Company sponsored benefit plans. The Master Trust is
an actively managed, short-term (1-3 years) U.S. Bond Fund managed by Payden
& Rygel. Each participating plan has an undivided interest in the Master
Trust. The assets of the Master Trust are held by the Trustee. At December
31, 1996 and 1995, the Plan's interest in the net assets of the Master Trust
was approximately 0.12% and 0.21%, respectively. Investment income and
administrative expenses relating to the Master Trust are allocated to
individual plans based upon average monthly balances invested by each plan.
The following table represents the fair value of investments for the Master
Trust.
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------- --------------
<S> <C> <C>
Investments at fair value:
Corporate bonds $ 20,904,676 $ 15,709,394
U.S. government securities 56,633,626 44,628,463
Other bonds 2,112,040 2,085,848
Short-term investments 21,131,915 0
Accrued income 1,061,097 648,263
-------------- --------------
$ 101,843,354 $ 63,071,968
-------------- --------------
-------------- --------------
Investment income for the Master Trust is as follows:
<CAPTION>
December 31,
1996 1995
-------------- --------------
Investment income:
Net (depreciation) appreciation in fair value
of investments $ (1,007,670) $ 2,230,357
Corporate bonds 1,180,044 659,260
U.S. government securities 2,485,788 2,234,361
Other bonds 139,500 0
Short-term investments 627,305 241,759
-------------- --------------
3,424,967 5,365,737
Less investment management fees (61,373) (17,548)
-------------- --------------
$ 3,363,594 $ 5,348,189
-------------- --------------
-------------- --------------
</TABLE>
GOVERNMENT BOND FUND
13
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING, INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
This fund is invested in bonds issued or guaranteed by the U.S. Government or
U.S. Government agencies. The fund is managed by Mellon Capital with the
objective of tracking to the Intermediate Government Bond Index.
THE ACTIVE EQUITY FUND
The fund is invested with Brinson Partners Inc. The Brinson Partners Inc.
U.S. Equity Portfolio is invested in common stocks traded in the U.S. The
fund's objective is to maximize total return which consists of capital
appreciation and current income.
THE COMPANY STOCK FUND
Amounts allocated to this investment alternative will be used to purchase
shares of Computer Sciences Corporation common stock that are held for the
benefit of the participant. The performance of this investment depends upon
the performance of Computer Sciences Corporation's stock. The Trustee may
purchase Company stock on national securities exchanges or elsewhere.
NUMBER OF PARTICIPANTS
The approximate number of participants having account balances in each of the
four separate funds at December 31, 1996 were as follows:
Investment Fund Number of Participants
--------------- ----------------------
The Fixed Income Fund ............................. 124
The Government Bond Fund .......................... 67
The Active Equity Fund ............................ 84
The Company Stock Fund ............................ 54
The sum of the number of participants shown above is greater than the total
number of participants in the Plan because many are participating in more than
one fund.
14
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING, INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
Note 6 PARTICIPANT LOANS
The Plan has a loan provision in place which is available to participants
covered by certain bargaining units. No loans were outstanding as of December
31, 1996.
Note 7 BENEFITS PAYABLE
As of December 31, 1996 and 1995, net assets available for benefits included
benefits of $19,591 and $32,278, respectively, due to participants who have
withdrawn from participation in the Plan.
15
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING, INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Note 8 INVESTMENTS 1996 PRINCIPAL FAIR VALUE
AMOUNT OR CONTRACT
OR SHARES COST VALUE
------------- -------------- --------------
<S> <C> <C> <C>
FIXED INCOME FUND
Guaranteed Investment Contracts:
Hartford Life* $ 1,467,392 $ 1,467,392 $ 1,467,392
Canada Life Insurance Company 49,963 49,963 49,963
Providian Corporation 285 285 285
Pacific Mutual Life Insurance 125,125 125,125 125,125
Provident National Assurance* 671,914 671,914 671,914
Protective Life 39,352 39,352 39,352
Prudential Life Insurance Company 74,302 74,302 74,302
Interest in Master Trust sh. 94,264 124,382 120,628
GOVERNMENT BOND FUND
Mellon Capital:
Government Bond Fund* sh. 8,156 990,814 986,754
Temporary Investment Fund sh. 90 90 90
BNY Short-Term Money Market Fund sh. 2,575 2,575 2,575
ACTIVE EQUITY FUND
Brinson Partners Inc.:
U.S. Equity Portfolio* sh. 4,423 768,825 1,304,881
U.S. Cash Management Fund sh. 2 2 2
BNY Short-Term Money Market Fund sh. 1,638 1,638 1,638
COMPANY STOCK FUND
Computer Sciences Common Stock* sh. 5,208 177,468 427,707
BNY Short-Term Money Market Fund sh. 54 54 54
-------------- --------------
$ 4,494,181 $ 5,272,662
-------------- --------------
-------------- --------------
TOTAL LONG-TERM INVESTMENTS $ 4,489,822 $ 5,268,303
TOTAL SHORT-TERM INVESTMENTS 4,359 4,359
-------------- --------------
$ 4,494,181 $ 5,272,662
-------------- --------------
-------------- --------------
</TABLE>
*represents investments greater than 5% of net assets
16
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING, INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Note 8 INVESTMENTS 1995 PRINCIPAL FAIR VALUE
AMOUNT OR CONTRACT
OR SHARES COST VALUE
------------- -------------- ---------------
<S> <C> <C> <C>
FIXED INCOME FUND
Guaranteed Investment Contracts:
Hartford Life* $ 1,361,217 $ 1,361,217 $ 1,361,217
Canada Life Insurance Company 48,285 48,285 48,285
Providian Corporation 272 272 272
Pacific Mutual Life Insurance 117,103 117,103 117,103
Provident National Assurance* 623,190 623,190 623,190
Protective Life 37,242 37,242 37,242
Prudential Life Insurance Company 70,248 70,248 70,248
Interest in Master Trust sh. 128,093 131,987 131,597
BNY Short-Term Money Market Fund sh. 3,700 3,700 3,700
GOVERNMENT BOND FUND
Mellon Capital:
Government Bond Fund* sh. 8,553 968,620 993,410
Cash Management Fund sh. 23 23 23
ACTIVE EQUITY FUND
Brinson Partners Inc.:
U.S. Equity Portfolio* sh. 4,332 712,141 1,048,069
U.S. Cash Management Fund sh. 2 2 2
BNY Short-Term Money Market Fund sh. 2,625 2,625 2,625
COMPANY STOCK FUND
Computer Sciences Common Stock* sh. 4,853 144,613 340,923
BNY Short-Term Money Market Fund sh. 1,785 1,785 1,785
----------- -----------
$ 4,223,053 $ 4,779,691
----------- -----------
----------- -----------
TOTAL LONG-TERM INVESTMENTS $ 4,214,918 $ 4,771,556
TOTAL SHORT-TERM INVESTMENTS 8,135 8,135
----------- -----------
$ 4,223,053 $ 4,779,691
----------- -----------
----------- -----------
</TABLE>
*represents investments greater than 5% of
net assets
17
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING, INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
Note 9 STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS BY FUND
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------
FIXED GOVERNMENT ACTIVE COMPANY
INCOME BOND EQUITY STOCK TOTAL
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments
Long-term Investments
At fair value
Interest in investment registered companies $ 986,754 $ 1,304,881 $ 2,291,635
Interest in Master Trust $ 120,628 120,628
Common Stock $ 427,707 427,707
At contract value
Guarantee Investment Contracts 2,428,333 2,428,333
Short-term Investments 2,665 1,640 54 4,359
Receivables
Participants' Contribution 3,045 316 356 1,781 5,498
Accrued Income 8 8 4 20
Interfund Transfers (258) 306 946 (994) -
-------------------------------------------------------------------
TOTAL ASSETS 2,551,748 990,049 1,307,831 428,552 5,278,180
LIABILITIES
Accrued Expenses 39 97 785 921
Forfeitures Payable 811 354 1,165
Other 463 101 (57) 45 552
-------------------------------------------------------------------
TOTAL LIABILITIES 1,313 198 728 399 2,638
-------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $ 2,550,435 $ 989,851 $ 1,307,103 $ 428,153 $ 5,275,542
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
18
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING, INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
Note 9 STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS BY FUND
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------
FIXED GOVERNMENT ACTIVE COMPANY
INCOME BOND EQUITY STOCK TOTAL
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments
Long-term Investments
At fair value
Interest in investment registered companies $ 993,410 $ 1,048,069 $ 2,041,479
Interest in Master Trust $ 131,597 131,597
Common Stock $ 340,923 340,923
At contract value
Guarantee Investment Contracts 2,257,557 2,257,557
Short-term Investments 3,700 23 2,627 1,785 8,135
Receivables
Participants' Contribution 4,150 826 2,095 845 7,916
Accrued Income 96 6 12 5 119
Other 10,371 10,371
Interfund Transfers (1,564) 61 135 1,368 -
-------------------------------------------------------------------
Total Assets 2,395,536 994,326 1,052,938 355,297 4,798,097
Liabilities
Accrued Expenses 51 157 667 875
Forfeitures Payable 1,065 423 1,488
Other 2,843 551 454 104 3,952
-------------------------------------------------------------------
TOTAL LIABILITIES 3,959 708 1,544 104 6,315
-------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $ 2,391,577 $ 993,618 $ 1,051,394 $ 355,193 $ 4,791,782
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
19
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING, INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
Note 9 STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------
FIXED GOVERNMENT ACTIVE COMPANY
INCOME BOND EQUITY STOCK TOTAL
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment Income
Net (Depreciation) Appreciation
in Fair Value of Investments $ (2,500) $ (28,215) $ 208,203 $ 60,039 $ 237,527
Interest in Master Trust Investment Income 7,543 7,543
Interest Income 172,227 137 193 71 172,628
Dividend Income 68,601 23,917 92,518
Investment Management Fees (185) (455) (2,999) (3,639)
----------- --------- ----------- --------- -----------
177,085 40,068 229,314 60,110 506,577
Contributions
Employee 82,094 20,647 46,123 28,048 176,912
Employer 37,052 9,604 21,693 12,376 80,725
Interfund Transfers (2,217) 869 892 456 -
----------- --------- ----------- --------- -----------
116,929 31,120 68,708 40,880 257,637
----------- --------- ----------- --------- -----------
TOTAL ADDITIONS 294,014 71,188 298,022 100,990 764,214
DEDUCTIONS TO NET ASSETS ATTRIBUTABLE TO:
Distributions to Participants 135,156 74,955 42,313 28,030 280,454
----------- --------- ----------- --------- -----------
TOTAL DEDUCTIONS 135,156 74,955 42,313 28,030 280,454
----------- --------- ----------- --------- -----------
NET INCREASE 158,858 (3,767) 255,709 72,960 483,760
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 2,391,577 993,618 1,051,394 355,193 4,791,782
----------- --------- ----------- --------- -----------
End of Year $ 2,550,435 $ 989,851 $ 1,307,103 $ 428,153 $ 5,275,542
----------- --------- ----------- --------- -----------
----------- --------- ----------- --------- -----------
</TABLE>
20
<PAGE>
COMPUTER SCIENCES CORPORATION
OUTSOURCING, INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
Note 9 STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------
FIXED GOVERNMENT ACTIVE COMPANY
INCOME BOND EQUITY STOCK TOTAL
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment Income
Net Appreciation in Fair Value of Investments $ 74,509 $ 242,798 $ 96,282 $ 413,589
Interest in Master Trust Investment Income $ 4,359 4,359
Interest Income 188,419 361 316 147 189,243
Dividend Income 88,980 22,159 111,139
Investment Management Fees (133) (996) (2,452) (3,581)
----------- ---------- ----------- --------- -----------
192,645 162,854 262,821 96,429 714,749
Contributions
Employee 130,083 20,997 58,852 26,038 235,970
Employer 58,398 12,371 24,897 10,636 106,302
Interfund Transfers (18,753) 2,111 15,722 920
----------- ---------- ----------- --------- -----------
169,728 35,479 99,471 37,594 342,272
----------- ---------- ----------- --------- -----------
Total Additions 362,373 198,333 362,292 134,023 1,057,021
Deductions to Net Assets Attributable to:
Distributions to Participants 615,029 462,996 66,677 90,582 1,235,284
----------- ---------- ----------- --------- -----------
Total Deductions 615,029 462,996 66,677 90,582 1,235,284
----------- ---------- ----------- --------- -----------
Net Increase (252,656) (264,663) 295,615 43,441 (178,263)
Net Assets Available for Benefits:
Beginning of Year 2,644,233 1,258,281 755,779 311,752 4,970,045
----------- ---------- ----------- --------- -----------
End of Year $ 2,391,577 $ 993,618 $ 1,051,394 $ 355,193 $ 4,791,782
----------- ---------- ----------- --------- -----------
----------- ---------- ----------- --------- -----------
</TABLE>
21
<PAGE>
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Act of 1934, the
Computer Sciences Corporation Retirement Committee has duly caused this annual
report to be signed on its behalf by the undersigned thereunto duly
authorized.
CSC OUTSOURCING, INC. HOURLY SAVINGS PLAN
Date: June 23, 1997 By: /s/ Leon J. Level
--------------------------------------
Leon J. Level
Chairman,
Computer Sciences Corporation
Retirement Plans Committee
22
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Computer Sciences Corporation
Registration Statement No. 333-00757 on Form S-8 of our report dated May 30,
1997, appearing in this Annual Report on Form 11-K of the Computer Sciences
Corporation Outsourcing Inc. Hourly Savings Plan for the year ended
December 31, 1996.
Deloitte & Touche LLP
Los Angeles, California
June 20, 1997
E-1
<PAGE>
1996
FORM 5500 ITEM 27(a)
COMPUTER SCIENCES CORPORATION
OUTSOURCING INC. HOURLY SAVINGS PLAN
EIN 88-0276684
<TABLE>
<CAPTION>
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
(a) (b) Identity of issue, borrower, lessor or (c) Description of investment, including maturity date, (d) Cost (e) Current
similar party rate of interest, collateral, par or maturity value Value
- -------------------------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Provident Life & Accident Insurance Guaranteed Investment Contract 7.80% 9/30/97 $ 671,914 $ 671,914
The Hartford Life Insurance Company Guaranteed Investment Contract 7.80% 6/30/98 1,467,392 1,467,392
Providian Corporation Guaranteed Investment Contract 5.08% 12/31/97 285 285
Pacific Mutual Life Insurance Guaranteed Investment Contract 6.85% 3/31/98 125,125 125,125
Prudential Life Insurance Company Guaranteed Investment Contract 5.77% 3/31/98 74,302 74,302
Canada Life Insurance Co. Guaranteed Investment Contract 5.75% 3/31/98 49,963 49,963
Protective Life Insurance Co. Guaranteed Investment Contract 5.66% 9/30/98 39,352 39,352
Mellon Intermediate Mutual Fund - Government Bond
Fund 990,814 986,754
Brinson Trust Company, Inc. Mutual Fund - U.S. Equity
Portfolio 768,825 1,304,881
* Computer Sciences Corporation Common Stock 177,468 427,707
Brinson Trust Company, Inc. U.S. Cash Management Fund 2 2
Mellon Bank N.A. Mellon Bank Temporary Investment
Fund 90 90
* Bank of New York BNY Short-Term Money Market Fund 4,267 4,267
------------ ------------
TOTAL ASSETS HELD FOR INVESTMENT PURPOSES $ 4,369,799 $ 5,152,034
------------ ------------
------------ ------------
</TABLE>
* represents party in interest
S-1
<PAGE>
1996
FORM 5500 ITEM 27(d)
COMPUTER SCIENCES CORPORATION
OUTSOURCING INC. HOURLY SAVINGS PLAN
EIN 88-0276684
<TABLE>
<CAPTION>
SCHEDULE OF REPORTABLE TRANSACTIONS
SINGLE TRANSACTIONS IN EXCESS OF 5%
(h) Current
Value
of Asset on
(a) Identity of Party Involved (b) Description of Asset (c) Purchase (d) Selling (g) Cost of Asset Transaction (i) Net Gain or
Price Price Date (Loss)
- ------------------------------ ------------------------ ------------ ----------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
None to Report
</TABLE>
S-2
<PAGE>
1996
FORM 5500 ITEM 27(d)
COMPUTER SCIENCES CORPORATION
OUTSOURCING INC. HOURLY SAVINGS PLAN
EIN 88-0276684
<TABLE>
<CAPTION>
SCHEDULE OF REPORTABLE TRANSACTIONS
SERIES TRANSACTIONS IN THE AGGREGATE IN EXCESS OF 5%
(h) Current
Value
of Asset on
(a) Identity of Party Involved (b) Description of Asset (c) Purchase (d) Selling (g) Cost of Asset Transaction (i) Net Gain or
Price Price Date (Loss)
- ------------------------------ ------------------------ ------------ ----------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Bank of New York BNY Short-Term Money
Market Fund
- Purchases $ 562,587 $ 562,587 $ 562,587
- Sales $ 566,430 566,430 566,430
</TABLE>
S-3
<PAGE>
Exhibit 99.3
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
/x/ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THESECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended: December 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _____ to _____
Commission file number: 1-4850
A. Full title of plan and the address of the plan, if different
from that of the issuer named below: CSC Outsourcing, Inc. CUTW Hourly
Savings Plan
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office: Computer Sciences Corporation
2100 East Grand Avenue
El Segundo, California 90245
<PAGE>
TABLE OF CONTENTS
Description Page
- ----------- ----
(a) FINANCIAL STATEMENTS:
Statement of Net Assets Available for Benefits
As of December 31, 1995 and 1996.................................. 3
Statement of Changes in Net Assets Available for Benefits
For the Five Months Ended December 31, 1995 and the Year Ended
December 31, 1996................................................. 4
Notes to the Financial Statements................................. 5
(b) SUPPLEMENTAL SCHEDULES:
Schedule of Assets Held for Investment Purposes .................. S-1
Schedule of Reportable Transactions .............................. S-2
2
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
STATEMENTS OF NET ASSETS
AVAILABLE FOR BENEFITS
DECEMBER 31
----------------------
1996 1995
----------- ----------
ASSETS
Investments (Note 8):
Short-term Investments $ 334 $ 5,677
Long-term Investments:
Interest in registered investment
companies - at fair value (Note 2):
Brinson U.S. Bond Fund 34,871 22,021
Brinson U.S. Stock Fund 18,904 16,162
Brinson U.S. Equity Fund 204,712 161,068
Mellon Stock Index Fund 42,979 28,633
CSC Company stock 328,664 214,684
Employee Loans 24,764 18,413
Plan Interest in Master Trust 73,214 55,204
----------- ----------
Total Investments 728,442 521,862
----------- ----------
Receivables:
Employee Contribution Receivable 2,290 2,307
Employer Contribution Receivable 1,450 1,184
Other Receivables 13 34
----------- ----------
Total Receivables 3,753 3,525
----------- ----------
TOTAL ASSETS 732,195 525,387
----------- ----------
LIABILITIES
Amounts Payable (Note 6) 8,361 2,637
----------- ----------
TOTAL LIABILITIES 8,361 2,637
----------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $723,834 $522,750
----------- ----------
----------- ----------
3
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE FIVE
ENDED MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment Income:
Net Appreciation in Fair Value of Investments
(Note 9) $ 84,006 $ 12,688
Interest 453 849
Dividends 7,404 644
Plan Interest in Master Trust Investment Income 2,715 1,004
----------------- -----------------
94,578 15,185
Less Investment Management Fees (800)
----------------- -----------------
93,778 15,185
Contributions:
Employee 69,713 23,887
Employer 37,593 12,254
Transfers From Prior Plan (Note 7) 471,424
----------------- -----------------
107,306 507,565
----------------- -----------------
TOTAL ADDITIONS 201,084 522,750
----------------- -----------------
NET INCREASE 201,084 522,750
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 522,750
----------------- -----------------
End of Year $723,834 $522,750
----------------- -----------------
----------------- -----------------
</TABLE>
4
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING, INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
Note 1 DESCRIPTION OF THE PLAN
The following brief description of the CSC Outsourcing Inc. CUTW Hourly
Savings Plan (the "Plan") of Computer Sciences Corporation (the "Company") is
provided for general information purposes only. Participants should refer to
the Plan document for more complete information.
The Plan became effective August 5, 1995, as a result of the Company
acquiring certain employees of the Southern New England Telephone Company.
The Plan is administered by a committee consisting of four officers (the
"Committee) who are appointed by the Board of Directors of the Company and
serve without compensation, being reimbursed by the Company for all
expenditures incurred in the discharge of their duties as members of the
Committee. The committee has the power to interpret, construe and administer
the Plan and to decide any dispute which may arise under the Plan. The
Trustee, The Bank of New York, administers the Trust pursuant to a Trust
Agreement entered into with the Company. All administrative expenses incurred
for services rendered to the Plan shall be paid from the Trust to the extent
not paid by the Company.
The Plan is a voluntary, contributory, defined contribution plan and is
intended to satisfy the requirements of Section 401(a) and 401(k) of the
Internal Revenue Code (the "Code").
The Company reserves the right to terminate the Plan at anytime. Upon such
termination, the participants' rights to the Company's contributions vest
immediately and the account balances are fully paid to the participants.
ELIGIBILITY AND PARTICIPATION
Employees are eligible to participate on specified enrollment dates if they
satisfy the Plan's eligibility requirements, are hourly paid employees of CSC
Outsourcing Inc. and are a member of a collective bargaining unit for which
participation in this Plan has been provided by negotiated agreement. A
rehired eligible employee is eligible to rejoin the Plan on the next
enrollment date.
There were approximately 40 participating employees at December 31, 1996.
5
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING, INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
EMPLOYEE AND COMPANY CONTRIBUTIONS
A participant may authorize before-tax and after-tax contributions to the
Plan subject to a maximum level of contributions (a certain percentage of
base earnings), as specified by the bargaining agreement covering the
employee. The Company will contribute, and forward to the Trust fund 66 2/3%
of the first 1% to 6% for the employee matched contribution together with
the participant's before-tax and after-tax contribution.
The employees' base earnings deferred and contributed to the Trust fund
cannot exceed $9,500 and $9,240 for calendar years 1996 and 1995,
respectively, the maximum allowable under the Code. Annual after-tax
contributions to the Plan (including employee and Company matching
contributions) are limited to $30,000 for each participant. Any compensation
deferral in excess of $9,500 and any after-tax contributions with matching
Company contributions in excess of $30,000, together with income allocable to
those excess contributions will be returned to a participant. Any matching
Company contributions attributable to any excess contribution, and income
allocable thereto, will either be returned to the Company or applied to
reduce future matching Company contributions.
VESTING OF PARTICIPANTS' INTERESTS/FORFEITURES
Participants are 100 percent vested at all times in their before-tax,
after-tax contribution and Company matching accounts.
DISTRIBUTABLE AMOUNTS, WITHDRAWALS AND REFUNDS
The entire balance in all accounts for participants who retire, die, become
disabled, or are discharged is distributed according to the provisions of the
Plan. There are no forfeitures. No amounts were distributed during 1996.
6
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING, INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
While still an employee, a participant may make an in-service withdrawal of
all or a part of the vested portion of his or her accounts attributable to
their contributions, as well as vested Company matching contributions, plus
the earnings on those amounts subject to the provisions of the Plan. Upon
written notice to the Committee, a participant may make a hardship withdrawal
of his or her before-tax and after-tax contributions, as well as Company
matching contributions if the Committee finds, after considering the
participant's request, that an adequate financial hardship and resulting need
for such amount has been demonstrated by the participant. A participant may
request a hardship withdrawal only if he or she first takes a loan of any
available monies in the Plan. Both types of withdrawals are subject to
certain restrictions as described in the Plan document. There were no
withdrawals in 1996.
FEDERAL INCOME TAX CONSEQUENCES
The Plan is intended to qualify under Section 401(a) of the Code and, with
respect to its qualified cash or deferred arrangement, under Section 401(k)
of the Code. Since the requirements of Section 401(k) of the Code are
satisfied, the following tax consequences result:
(i) A participant would not be subject to federal income tax on Company
contributions to the Plan or on income or realized gains in Plan Accounts
attributable to the participant until a distribution from the Plan is made to
him or her.
(ii) The participant would be able to exclude from his or her income for
federal income tax purposes, the amount of his or her compensation deferral
contributions, subject to a maximum exclusion of $9,500 and 9,240 for 1996
and 1995, respectively.
(iii) On distribution of a participant's vested interest in the Plan, the
participant generally would be subject to federal income taxation, except
that: (1) tax on "net unrealized appreciation" on any Company stock
distributed as a part of a "lump sum distribution" generally would be
deferred until the participant disposes of such stock, and (2) tax may be
deferred to the extent the participant is eligible for and complies with
certain rules permitting the "rollover" of a qualifying distribution to
another retirement plan, or individual retirement account.
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies followed in preparation of the
financial statements of the Plan of the Company conform with generally
accepted accounting principles. The following is a summary of the
significant policies.
7
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING, INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
ASSETS OF THE PLAN
The assets of the Plan are held in a trust with five sub-accounts, which
represents the investment options. The investment income in the respective
sub-accounts is allocated to the participants. Contributions to, and
payments from, the Plan are specifically identified to the applicable
sub-accounts within the trust.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
SECURITY TRANSACTIONS
Security transactions are accounted for on a trade date basis. Dividend
income is recorded on the ex-dividend date. Interest income is accounted for
on the accrual basis.
Participants in the Stock Fund may elect to receive distributions in
certificates for shares of the common stock of the Company.
VALUATION OF INVESTMENT SECURITIES
Investments in common stocks and mutual funds are stated at fair value based
upon closing sales prices reported on recognized securities exchanges on the
last business day of the month or, for the listed securities having no sales
reported and for unlisted securities, upon last reported bid prices on that
date. Investments in certificates of deposit, money market funds and
corporate debt instruments (commercial paper) are stated at cost which
approximates fair value.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
8
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING, INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
Note 3 INCOME TAX STATUS
The Company will apply for a determination letter within the applicable time
period, from the Internal Revenue Service substantiating that the Plan, as
amended, qualifies under Section 401(a) of the Code and, with respect to its
qualified cash or deferred arrangement, under Section 401(k) of the Code.
Note 4 INVESTMENT FUNDS
Participant contributions - Subject to rules the bargaining units have adopted,
each participant has the right to designate one or more of the following
investment funds established by the Committee for the investment of his or her
compensation deferral contributions and after-tax contributions in percentages
determined by the bargaining unit.
THE FIXED INCOME FUND
The fund is invested in the Master Trust which was established for the
investment of assets of the Plan and several other Company sponsored benefit
plans. The Master Trust is an actively managed, short-term (1-3 years) U.S. Bond
Fund managed by Payden & Rygel. Each participating plan has an undivided
interest in the Master Trust. The assets of the Master Trust are held by the
Trustee. At December 31, 1996 and 1995, the Plan's interest in the net assets
of the Master Trust was approximately .07% and .08%, respectively. Investment
income and administrative expenses relating to the Master Trust are allocated to
individual plans based upon average monthly balances invested by each plan.
The following table represents the fair value of investments for the Master
Trust.
December 31,
----------------------------
1996 1995
------------- -------------
Investments at fair value:
Corporate bonds $ 20,904,676 $ 15,709,394
U.S. government securities 56,633,626 44,628,463
Other bonds 2,112,040 2,085,848
Short-term investments 21,131,915 0
Accrued income 1,061,097 648,263
------------- -------------
$ 101,843,354 $ 63,071,968
------------- -------------
------------- -------------
9
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING, INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
Investment income for the Master Trust is as follows:
December 31,
----------------------------
1996 1995
------------- -------------
Investment income:
Net appreciation in fair value of investments $ (1,007,670) $ 2,230,357
Interest:
Corporate bonds 1,180,044 659,260
U.S. government securities 2,485,788 2,234,361
Other bonds 139,500 0
Short-term investments 627,305 241,759
------------- -------------
3,424,967 5,365,737
Less investment management fees (61,373) (17,548)
------------- -------------
$ 3,363,594 $ 5,348,189
------------- -------------
------------- -------------
THE BALANCED FUND
The fund is invested with Brinson Trust Company. The Brinson Trust U.S.
Balanced Fund is an actively managed portfolio which applies their asset
allocation expertise to U.S. stocks, bonds and cash. Brinson Partners' U.S.
balanced investment strategy is developed in the context of their global
asset allocation process and is based on analysis of long term economic and
market conditions. The stock portfolio will typically consist of large,
intermediate and small companies which they believe offer sound value to the
investor. The bond portion of the portfolio emphasizes high quality and is
primarily invested in U.S. Treasury, government agency and corporate issues.
This fund's investment objective is to maximize total return, consisting of
capital appreciation and current income, without assuming undue risk.
THE ACTIVE EQUITY FUND
The fund is invested with Brinson Trust Company. The Brinson Trust U.S.
Equity Portfolio is invested in common stocks traded in the U.S. The fund's
objective is to maximize total return which consists of capital appreciation
and current income. The fund's investment philosophy is to utilize the
firm's extensive in-house research in the stock selection process.
10
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING, INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
THE STOCK INDEX FUND
The fund is invested with the Mellon Capital Management Stock Index Fund.
The fund is designed to closely follow or track the movement of the Standard
& Poor's 500 Composite Price Index (S&P 500), with enhancement to the index.
This fund provides an opportunity to invest in a broadly diversified
portfolio of U.S. stocks using a passive or "indexed" approach.
THE COMPANY STOCK FUND
Amounts allocated to this investment alternative will be used to purchase
shares of CSC common stock which will be held for the benefit of the
participant. The performance of this investment will depend upon the
performance of CSC's stock. The Trustee may purchase Company stock on
national securities exchanges or elsewhere.
In accordance with rules established by the Committee, participants may
change their investment elections as of the first day of the first payroll
period in the month, if filed within the prescribed time, by delivering an
election form to the Company. Participants may transfer their existing
account balances in 1 percent increments. Transfer elections are effective
as of the first day of the month, or the second month if the participants
election form is not filed within the time prescribed by the Committee,
following the month in which the participant files his election form with the
Company.
Company contributions - In accordance with the provisions of the Plan, the
Trustee must promptly invest matching Company contributions paid into the
Trust Fund in the same fund as the participant contributions.
NUMBER OF PARTICIPANTS
The approximate number of participants having account balances in each of the
five separate funds at December 31, 1996 was as follows:
Investment Fund Number of Participants
--------------- ----------------------
The Fixed Income Fund ............................. 22
The Balanced Fund ................................. 13
The Active Equity Fund ............................ 22
The Index Equity Fund ............................. 13
The CSC Stock Fund ................................ 40
11
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING, INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
The sum of the number of participants shown in the preceding page is greater
than the total number of participants in the Plan because many are participating
in more than one fund.
Note 5 PARTICIPANT LOANS
The Plan has a loan provision in place which is available to participants
covered by the bargaining unit. As of December 31, 1996, $24,764 of loans were
outstanding.
Note 6 BENEFITS PAYABLE
The Plan complies with the AICPA Audit and Accounting Guide, Audits of Employee
Benefit Plans. The guide recommends that benefits payable to persons who have
withdrawn from participation in a defined contribution plan be disclosed in the
footnotes to the financial statements rather than be recorded as a liability of
the Plan. As of December 31, 1996, net assets available for benefits included
no benefits due to participants who have withdrawn from participation in the
Plan.
Note 7 MERGING OF PLANS
The Plan received $453,011 on November 15, 1995 and $18,413 on December 29, 1995
from Boston Safe Deposit & Trust Co. These amounts represent the balances of 23
participants as of November 14, 1995.
12
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING, INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
Note 8 INVESTMENTS 1996
SHARES/UNITS COST FAIR VALUE
------------ -------- ----------
FIXED INCOME FUND
Plan Interest in Master Trust sh. 72,404 $ 74,383 $ 73,214
BALANCED FUND
Brinson Trust Company Inc.
U.S. Bond Fund sh. 317 34,597 34,871
U.S. Stock Fund sh. 69 14,745 18,904
ACTIVE EQUITY FUND
Brinson Trust Company, Inc.
U.S. Equity Portfolio sh. 694 165,873 204,712
STOCK INDEX FUND
Mellon EB Stock Index Fund sh. 84 35,904 42,252
Mellon EB Daily Opening Stock Index Fund sh. 4 729 727
BNY Short-Term Money Market Fund sh. 87 287 287
COMPANY STOCK FUND
Computer Sciences Common Stock sh. 4,002 282,768 328,664
BNY Short-Term Money Market Fund sh. 47 47 47
CSC EMPLOYEE LOAN FUND
Participant Loans sh. 24,764 24,764 24,764
-------- ----------
$634,097 $728,442
-------- ----------
-------- ----------
TOTAL LONG-TERM INVESTMENTS $633,763 $728,108
TOTAL SHORT-TERM INVESTMENTS 334 334
-------- ----------
$634,097 $728,442
-------- ----------
-------- ----------
13
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING, INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Note 8 INVESTMENTS 1995
Shares/Units Cost Fair Value
--------------- ----------- --------------
<S> <C> <C> <C>
FIXED INCOME FUND
Plan Interest in Master Trust sh. 54,480 $ 55,118 $ 55,204
BNY Short-Term Money Market Fund sh. 4 4 4
BALANCED FUND
Brinson Trust Company Inc.
U.S. Bond Fund sh. 209 21,612 22,021
U.S. Stock Fund sh. 5 15,450 16,162
U.S. Cash Management Fund sh. 2,136 2,136 2,136
BNY Short-Term Money Market Fund sh. 158 158 158
ACTIVE EQUITY FUND
Brinson Trust Company, Inc.
U.S. Equity Portfolio sh. 666 154,357 161,068
BNY Short-Term Money Market Fund sh. 193 193 193
STOCK INDEX FUND
Mellon EB Stock Index Fund sh. 154 27,815 28,633
Mellon Temporary Investment Fund sh. 328 328 328
BNY Short-Term Money Market Fund sh. 184 184 184
COMPANY STOCK FUND
Computer Sciences Common Stock sh. 3,056 210,665 214,684
BNY Short-Term Money Market Fund sh. ,674 2,674 2,674
CSC EMPLOYEE LOAN FUND
Participant Loans sh. 18,413 18,413 18,413
---------- ------------
$ 509,107 $ 521,862
---------- ------------
---------- ------------
TOTAL LONG-TERM INVESTMENTS $ 503,430 $ 516,185
TOTAL SHORT-TERM INVESTMENTS 5,677 5,677
---------- ------------
$ 509,107 $ 521,862
---------- ------------
---------- ------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
Note 9 STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS BY FUND
December 31, 1996
------------------------------------------------------------------------
Fixed Balanced Active Index Company Loan
Income Fund Equity Equity Stock Fund Total
--------- --------- ---------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term Investments $ 287 $ 47 $ 334
Long-term Investments:
Interest in registered investment
companies $ 53,775 $ 204,712 42,979 301,466
CSC Company stock 328,664 328,664
Employee Loans $ 24,764 24,764
Plan Interest in Master Trust $ 73,214 73,214
Employee Contribution Receivable 585 333 459 270 643 2,290
Employer Contribution Receivable 1,450 1,450
Accrued Income 4 4 1 4 13
Interfund Transfers 54 923 6,795 (2,725) (5,047)
--------- --------- ---------- -------- -------- -------- ---------
TOTAL ASSETS 73,853 55,035 211,970 40,812 325,761 24,764 732,195
LIABILITIES
Amounts Payable 44 31 121 4 8,161 8,361
--------- --------- ---------- -------- -------- -------- ---------
TOTAL LIABILITIES 44 31 121 4 8,161 8,361
--------- --------- ---------- -------- -------- -------- ---------
NET ASSETS AVAILABLE FOR BENEFITS $ 73,809 $ 55,004 $ 211,849 $40,808 $325,761 $ 16,603 $723,834
--------- --------- ---------- -------- -------- -------- ---------
--------- --------- ---------- -------- -------- -------- ---------
15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
Note 9 STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS BY FUND
December 31, 1996
------------------------------------------------------------------------
Fixed Balanced Active Index Company Loan
Income Fund Equity Equity Stock Fund Total
--------- --------- ---------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term Investments 4 2,293 193 512 2,675 5,677
Long-term Investments:
Interest in registered investment
companies 38,183 161,068 28,633 227,884
CSC Company stock 214,684 214,684
Employee Loans 18,413 18,413
Plan Interest in Master Trust 55,204 55,204
Employee Contribution Receivable 382 154 185 180 1,406 2,307
Employer Contribution Receivable 1,184 1,184
Accrued Income 4 14 4 2 10 34
--------- --------- ---------- -------- -------- -------- ---------
TOTAL ASSETS 55,594 40,644 161,450 29,327 219,959 18,413 525,387
LIABILITIES
Amounts Payable 2,637 2,637
--------- --------- ---------- -------- -------- -------- ---------
TOTAL LIABILITIES 2,637 2,637
--------- --------- ---------- -------- -------- -------- ---------
NET ASSETS AVAILABLE FOR BENEFITS $ 55,594 $ 40,644 $ 161,450 $ 29,327 $217,322 $18,413 $ 522,750
--------- --------- ---------- -------- -------- -------- ---------
--------- --------- ---------- -------- -------- -------- ---------
</TABLE>
16
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
Note 9 STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND
<TABLE>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
FIXED BALANCED ACTIVE INDEX COMPANY LOAN
INCOME FUND EQUITY EQUITY STOCK FUND TOTAL
------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment Income
Net Appreciation in Fair Value of Investments.......... $ 3,535 $ 32,210 $ 5,606 $ 42,655 $ 84,006
Interest Income........................................ $ 62 118 36 40 197 453
Dividend Income........................................ 1,918 3,707 1,779 7,404
Plan Interest in Master Trust Investment Income........ 2,715 2,715
Investment Management Fees............................. (135) (126) (517) (22) (800)
------- ------- -------- ------- -------- ------- --------
2,642 5,445 35,436 7,403 42,852 93,778
------- ------- -------- ------- -------- ------- --------
Contributions
Employee................................................ 14,703 7,682 8,675 6,692 44,071 (12,110) 69,713
Employer................................................ 37,593 37,593
Interfund Transfers .................................... 1,466 1,833 7,850 (2,013) (9,136)
------- ------- -------- ------- -------- ------- --------
16,169 9,515 16,525 4,679 72,528 (12,110) 107,306
------- ------- -------- ------- -------- ------- --------
TOTAL ADDITIONS....................................... 18,811 14,960 51,961 12,082 115,380 (12,110) 201,084
------- ------- -------- ------- -------- ------- --------
DEDUCTIONS TO NET ASSETS ATTRIBUTABLE TO:
Distributions to Participants............................ 596 600 1,563 601 6,940 (10,300)
------- ------- -------- ------- -------- ------- --------
TOTAL DEDUCTIONS...................................... 596 600 1,563 601 6,940 (10,300)
------- ------- -------- ------- -------- ------- --------
NET INCREASE.......................................... 18,215 14,360 50,398 11,481 108,440 (1,810) 201,084
------- ------- -------- ------- -------- ------- --------
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year........................................ 55,594 40,644 161,450 29,327 217,322 18,413 522,750
------- ------- -------- ------- -------- ------- --------
End of Year.............................................. $73,809 $55,004 $211,848 $40,808 $325,762 $16,603 $723,834
------- ------- -------- ------- -------- ------- --------
------- ------- -------- ------- -------- ------- --------
</TABLE>
17
<PAGE>
COMPUTER SCIENCES CORPORATION
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
Note 9 STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND
<TABLE>
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1995
-------------------------------------------------------------------
FIXED BALANCED ACTIVE INDEX COMPANY LOAN
INCOME FUND EQUITY EQUITY STOCK FUND TOTAL
------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment Income
Net Appreciation in Fair Value of Investments........... $ 1,121 $ 6,711 $ 818 $ 4,019 $ 12,688
Interest Income......................................... $ 436 35 23 16 358 849
Dividend Income......................................... 122 356 166 644
Plan Interest in Master Trust Investment Income......... 1,004 1,004
------- ------- -------- ------- -------- ------- --------
Investment Management Fees.............................. 1,440 1,278 7,090 1,000 4,377 15,185
------- ------- -------- ------- -------- ------- --------
Contributions
Employee................................................ 3,958 1,592 1,925 1,861 14,551 23,887
Employer................................................ 12,254 12,254
Transfers From Other Plans.............................. 50,196 37,774 152,436 26,466 186,139 18,413 471,424
------- ------- -------- ------- -------- ------- --------
54,154 39,366 154,361 28,327 212,944 18,413 507,565
------- ------- -------- ------- -------- ------- --------
TOTAL ADDITIONS....................................... 55,594 40,644 161,451 29,327 217,321 18,413 522,750
------- ------- -------- ------- -------- ------- --------
NET INCREASE.......................................... 55,594 40,644 161,451 29,327 217,321 18,413 522,750
------- ------- -------- ------- -------- ------- --------
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year........................................
------- ------- -------- ------- -------- ------- --------
End of Year.............................................. $55,594 $40,644 $161,451 $29,327 $217,321 $18,413 $522,750
------- ------- -------- ------- -------- ------- --------
</TABLE>
18
<PAGE>
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Act of 1934, the
Computer Sciences Corporation Retirement Committee has duly caused this annual
report to be signed on its behalf by the undersigned thereunto duly authorized.
CSC OUTSOURCING, INC. CUTW HOURLY SAVINGS PLAN
Date: June 23, 1997 By: /S/ LEON J. LEVEL
----------------------------------------
Leon J. Level
Chairman,
Computer Sciences Corporation
Retirement Plans Committee
19
<PAGE>
1996
FORM 5500 ITEM 27(a)
COMPUTER SCIENCES CORPORATION
EIN 88-0276684
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
<TABLE>
<CAPTION>
(e) CURRENT
(a) (b) ISSUER (c) DESCRIPTION OF INVESTMENT (d) COST VALUE
- --- ---------------------------- ------------------------------------- --------- -----------
<S> <C> <C> <C> <C>
Brinson Trust Company, Inc. Mutual Fund - U.S. Bond Fund 34,597 34,871
Brinson Trust Company, Inc. Mutual Fund - U.S. Stock Fund 14,745 18,904
Brinson Trust Company, Inc. Mutual Fund - U.S. Equity Portfolio 165,873 204,712
Mellon Bank N.A. Mutual Fund - Index Performance Fund 35,904 42,252
Mellon Bank N.A. Mellon EB Daily Opening Stock Index
Fund 729 727
* Computer Sciences Corporation Common Stock 210,665 328,664
Computer Sciences Corporation Employee Loan Fund 24,764 24,764
Mellon Bank N.A. Short-term Mellon Capital Management 287 287
* Bank of New York BNY Short-Term Money Market Fund 47 47
--------- ---------
TOTAL ASSETS HELD FOR INVESTMENT PURPOSES $ 487,611 $ 655,228
--------- ---------
--------- ---------
</TABLE>
* represents party in interest
S-1
<PAGE>
1996
FORM 5500 ITEM 27(d)
COMPUTER SCIENCES CORPORATION
CUTW HOURLY SAVINGS PLAN
EIN 88-0276684
SCHEDULE OF REPORTABLE TRANSACTIONS
SINGLE TRANSACTIONS IN EXCESS OF 5%
<TABLE>
<CAPTION>
(a) IDENTITY OF PARTY INVOLVED (b) DESCRIPTION OF ASSET (c) PURCHASE (d) SELLING (g) COST OF TRANSACTION (i) NET GAIN
PRICE PRICE ASSET DATE OR (LOSS)
- ------------------------------ ------------------------ ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
None to Report
</TABLE>
S-2
<PAGE>
1996
FORM 5500 ITEM 27(d)
COMPUTER SCIENCES CORPORATION
CUTW HOURLY SAVINGS PLAN
EIN 88-0276684
SCHEDULE OF REPORTABLE TRANSACTIONS
SERIES TRANSACTIONS IN THE AGGREGATE IN EXCESS OF 5%
<TABLE>
<CAPTION>
(h) CURRENT
VALUE
OF ASSET ON
(a) IDENTITY OF PARTY INVOLVED (b) DESCRIPTION OF ASSET (c) PURCHASE (d) SELLING (g) COST OF TRANSACTION (i) NET GAIN
PRICE PRICE ASSET DATE OR (LOSS)
- ------------------------------ ------------------------ ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
CSC Common Stock Company Stock
- - Purchase $ 79,902 $ 79,902 $ 9,902
- - Sale $ 8,578 7,930 8,578 $ 648
Mellon Capital Management Stock Index Fund
- - Purchase 13,112 13,112 13,112
- - Sale 13,154 13,154 13,154
Bank of New York Short-Term Money Market Fund
- - Purchase 132,524 132,524 132,524
- - Sale 135,690 135,690 135,690
</TABLE>
S-3
