<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
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 3, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No.: 1-4850
COMPUTER SCIENCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<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>
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS: REGISTERED
- -------------------------------------- -----------------------------------
Common Stock, $1.00 par value per
share New York Stock Exchange
Preferred Stock Purchase Rights Pacific 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 29, 1998, the aggregate market value of stock held by non-
affiliates of the Registrant was approximately $8,140,000,000. A total of
157,481,167 shares of common stock was outstanding as of such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1998 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission within 120 days after April 3, 1998, are incorporated by reference
into Part III hereof.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
PART I
<C> <S> <C>
1. Business........................................................... 1
2. Properties......................................................... 4
3. Legal Proceedings.................................................. 5
4. Submission of Matters to a Vote of Security Holders................ 5
PART II
5. Market for the Registrant's Common Equity and Related Stockholder 7
Matters............................................................
6. Selected Financial Data............................................ 7
7. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations..............................................
8. Financial Statements and Supplementary Data........................ 15
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 41
PART III
10. Directors and Executive Officers of the Registrant................. 41
11. Executive Compensation............................................. 41
12. Security Ownership of Certain Beneficial Owners and Management..... 41
13. Certain Relationships and Related Transactions..................... 41
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 42
</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 ("I/T") services
industry. CSC offers a broad array of professional services to industry and
government, and specializes in the application of advanced and complex I/T to
achieve its customers' strategic objectives. The Company's services include:
Outsourcing--Operating all or a portion of a customer's technology
infrastructure, including systems analysis, applications development, network
operations, and desktop and data center management. CSC also provides business
process outsourcing, which is the management of a client's non-core business
functions, such as claims processing, credit checking, or customer call
centers.
Systems Integration--Designing, developing, implementing and integrating
complete information systems.
I/T and Management Consulting and Other Professional Services--Advising
clients on the strategic acquisition and utilization of I/T, and on business
strategy, operations, change management and business process reengineering,
which involves the fundamental redesign of operations to achieve efficiencies
and improve competitive position. The Company also licenses sophisticated
software systems for certain vertical markets.
PRACTICE AREAS
The Company's service offerings are focused primarily on the U.S. federal
government and commercial industries including aerospace; automotive;
chemical, oil and gas; consumer goods; energy; financial services; healthcare;
manufacturing; media; public sector; retail/distribution; telecommunications;
traffic and transportation; travel and hospitality; and utilities. Because of
the size of its offerings within the financial services, healthcare, and
chemical, oil and gas industries, CSC has formed vertical industry groups to
better deliver integrated solutions to clients in these industries.
CSC has also formed dedicated practice groups with respect to certain key
technical solutions that have broad application to both industry and
government. These solutions include:
CSC Lynx(SM)--A framework for rapid systems development. Distributed
information technology solutions enable faster access to information and the
ability to process business transactions via the Internet. CSC has developed a
framework that includes components, an architecture, a process and tools for
creating these solutions quickly.
Data Warehousing--A repository for company data that allows for complex
analysis and decision making based on historical enterprise data. CSC's
customers are able to "test drive" solutions in the Company's data warehouse
applications lab.
Electronic Commerce--CSC's global initiative, e-Wave, leverages Internet
technology to deliver powerful digital solutions for transacting business on
the Internet.
Enterprise Resource Planning ("ERP")--Enterprise-wide applications that can
integrate disparate business functions, such as finance, manufacturing and
human resources, into one cohesive system making data easier to find, update
and analyze. CSC has global alliances with four software companies which
comprise approximately 70% of the ERP market, and has developed a customized
methodology for faster implementation of ERP systems.
- --------
CSC Lynx(SM) is a registered service mark of Computer Sciences Corporation.
<PAGE>
Information Security (INFOSEC(SM))--CSC's INFOSEC capabilities originated from
its security contracts with the Department of Defense and other U.S. federal
agencies. The Company's INFOSEC practice develops and tests new world-class
solutions for both government and commercial clients.
Supply Chain Management--A process for capturing efficiencies throughout the
business and logistics functions that move goods and information between an
organization and its suppliers, manufacturers, distributors and customers.
This process can provide greater value to customers, quicker time-to-market
and reduced costs. CSC's supply chain practice uses the Company's best
practices center to demonstrate proven solutions to CSC's customers.
Year 2000 Compliance--Solutions for enabling computers to function
effectively when processing dates after 1999. Computer programs with two-
digit, rather than four-digit, date fields are unable to recognize the
difference between dates beginning 19XX and dates beginning 20XX, which may
cause computer systems to make errors or fail. CSC's Year 2000 practice
focuses on issues and methodologies addressing all aspects of Year 2000
compliance.
MAJOR MARKETS
For more than three decades, CSC has provided I/T services to the U.S.
federal government, ranging from traditional systems integration and
outsourcing to advanced technical undertakings and complex project management.
In fiscal 1986, when U.S. federal contracts represented 70% of its revenues,
CSC decided to devote substantial resources to further develop its other
businesses in order to accelerate its growth and take advantage of the
competencies gained as a leader in the federal sector. As a result of this
strategy, CSC has increased its penetration of the domestic commercial and
international markets and diversified its business.
During the last three fiscal years, the Company's revenue mix was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. Commercial......................................... 42% 39% 37%
Europe.................................................. 27 26 24
Other International..................................... 6 6 6
--- --- ---
Global Commercial..................................... 75 71 67
U.S. Federal Government................................. 25 29 33
--- --- ---
Total Revenues........................................ 100% 100% 100%
=== === ===
</TABLE>
U.S. COMMERCIAL MARKET
CSC is a major provider of outsourcing services, including systems analysis,
applications development, network operations, and desktop and data center
management. During fiscal 1998, the Company entered into a major technology
alliance with E. I. du Pont de Nemours and Company ("DuPont"), pursuant to
which CSC now operates DuPont's global information systems and technology
infrastructure and provides selected applications and software services. This
alliance allowed the Company to launch a new vertical business unit to support
the chemical, oil and gas industry. The unit includes industry specialists in
18 countries who joined CSC as part of the DuPont alliance, together with
CSC's well-established industry practice in Europe.
At CNA Financial Corporation ("CNA"), CSC is responsible for the creation of
new life insurance business process services and data service operations. The
business process services will handle many administrative processes involved
in insurance--from issuing policies to processing claims and managing record-
keeping functions. CNA transferred more than half of its Chicago-based data
center operations to CSC. Other new outsourcing contracts in fiscal 1998
include General Dynamics Corporation, Helix Health, and Managed Care
Assistance Corporation.
- --------
INFOSEC(SM) is a registered service mark of Computer Sciences Corporation.
2
<PAGE>
CSC also provides consulting and technical services in the development and
integration of computer and communications systems, as well as various
industry-specific I/T services. The Company's experience includes business
process reengineering, the setting of information technology strategy, the
development of information systems for a wide range of applications and the
operation of computer facilities.
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.
EUROPE AND OTHER INTERNATIONAL MARKETS
The Company's international operations, with major offices in the United
Kingdom, France, Germany, Belgium, the Netherlands, Denmark, Australia and
Singapore, 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 recent contracts with
Nokia Telecommunications, Australian Mutual Provident Society, Deutsche
Leasing AG, New South Wales Department of Community Services, Kaman Aerospace
and Belgian Ministry of Finance.
U.S. FEDERAL MARKET
For more than three decades, the Company has provided I/T services to the
U.S. federal government. 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 the Federal Computer Acquisition Center outsourcing
contract and contracts to provide various I/T services to the Department of
Transportation, FAA National Airspace System, HCFA, FDA, NASA, U.S. Bureau of
the Census, U.S. Navy and U.S. Marine Corps.
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
Weapon Systems and providing technical information systems security
applications to the Department of Defense, among other federal agencies
and departments.
3
<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, better value, 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 I/T 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 has 650 offices worldwide, and currently employs approximately
45,000 persons, of which more than 34,000 are highly trained professionals.
The services provided by CSC require proficiency in many fields, such as
computer sciences, programming, mathematics, physics, engineering, astronomy,
geology, operations, research, economics, statistics and business
administration.
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
OWNED PROPERTIES AS OF APPROXIMATE
APRIL 3, 1998 SQUARE FOOTAGE GENERAL USAGE
- ---------------------- -------------- -------------
<S> <C> <C>
Copenhagen, Denmark........ 423,000 Computer and General Office Facility
Falls Church, Virginia..... 290,000 General Office
El Segundo, California..... 206,000 General Office
Austin, Texas.............. 187,000 General Office
Newark, Delaware........... 183,000 Computer and General Office Facility
San Diego, California...... 178,000 Computer and General Office Facility
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 General Office
Sterling, Virginia......... 45,000 General Office
Various other U.S. and
foreign locations......... 44,000 Primarily General Office
<CAPTION>
LEASED PROPERTIES AS OF
APRIL 3, 1998
- -----------------------
<S> <C> <C>
Washington, D.C. area...... 957,000 Computer and General Office Facility
Texas...................... 722,000 Computer and General Office Facility
Australia and other Pacific
Rim locations............. 502,000 Computer and General Office Facility
United Kingdom............. 482,000 General Office
Germany.................... 434,000 General Office
New Jersey................. 434,000 General Office
Boston, Massachusetts area. 277,000 General Office
Connecticut................ 204,000 General Office
Detroit, Michigan area..... 189,000 General Office
Ohio....................... 182,000 General Office
Chicago, Illinois area..... 161,000 General Office
Albany, New York area...... 140,000 General Office
California................. 136,000 General Office
Denmark.................... 136,000 General Office
Various other U.S. and
foreign locations......... 1,058,000 Computer and General Office Facility
</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 1999 through 2018.
4
<PAGE>
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.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED AS TERM AS POSITION HELD WITH THE FAMILY
NAME AGE AN OFFICER OFFICER REGISTRANT RELATIONSHIP
---- --- ---------- ---------- ---------------------- ------------
<C> <C> <C> <C> <S> <C>
Van B. Honeycutt* 53 1987 Indefinite Chairman, President and None
Chief Executive Officer
Leon J. Level* 57 1989 Indefinite Vice President and Chief None
Financial Officer
Harvey N. Bernstein 51 1988 Indefinite Vice President None
Edward P. Boykin 59 1995 Indefinite Vice President None
Milton E. Cooper 59 1992 Indefinite Vice President None
Scott M. Delanty 43 1997 Indefinite Vice President and None
Controller
Hayward D. Fisk 55 1989 Indefinite Vice President, General None
Counsel and Secretary
Ronald W. Mackintosh 49 1993 Indefinite Vice President None
Thomas R. Madison, Jr. 52 1995 Indefinite Vice President None
C. Bruce Plowman 60 1989 Indefinite Vice President None
Paul T. Tucker 50 1997 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 and has held numerous positions
with several divisions of the Company. He was elected a Vice President in
1995. Since May, 1998, he has been responsible for leveraging
5
<PAGE>
the capabilities that exist within the J.P. Morgan and DuPont accounts in
Delaware and Asia Pacific. Previously, he was President of The Pinnacle
Alliance, a CSC-managed organization providing information technology
outsourcing and other services to J.P. Morgan, from 1996 to 1998, and
President of the Technology Management Group from 1993 to 1996.
Milton E. Cooper joined the Company in 1984 as Group Vice President of
program development. He was named President of the Federal Sector, formerly
known as the Systems Group, in December 1991 and became a Corporate Vice
President in January 1992. A veteran of 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.
Scott M. Delanty joined the Company in 1989 and served as Assistant
Controller until December, 1997, when he was elected Vice President and
Controller. Prior to joining the Company, he held various executive-level
finance positions in the healthcare industry and was an audit manager with the
public accounting firm of Ernst & Young LLP. He is a Certified Public
Accountant.
Hayward D. Fisk joined the Company in 1989 as Vice President, General
Counsel and Secretary. Prior to joining the Company, he was associated for 21
years with Sprint Corporation (formerly United Telecommunications, Inc.), in
various legal and executive officer positions, most recently as Vice President
and Associate General Counsel.
Ronald W. Mackintosh joined the Company in 1988 as a result of the Index
acquisition, where he was Managing Director of its London office. Previously
he was a partner in the London office of Nolan, Norton & Company. In 1991, he
was named Chief Executive Officer of the Company's U.K. Operations and,
subsequently, President of the European Group. In 1993 he was elected a Vice
President of the Company.
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.
C. Bruce Plowman joined the Company in 1982 as Director of Corporate
Communications. In 1989, he was elected a Vice President with responsibility
for investor relations, marketing communications, public relations and
employee communications. Prior to joining CSC, he spent 16 years at
Continental Airlines, where he was Director of Public Information.
Paul T. Tucker joined the Company in 1996 as a Corporate Development
executive, and in August, 1997 was elected Vice President of Corporate
Development. Prior to joining the Company, he was President and
Chief Executive Officer of Knight-Ridder Financial, an electronic real-time
financial market information company, from 1990 to 1995. Previously, he
founded and served as President and Chief Technologist of HAL Communications
Corp., a communications hardware and software company, and was an Associate
Professor and Senior Research Engineer at the University of Illinois.
Thomas Williams joined the Company in 1970 and has held a number of
managerial and technical positions within CSC. He currently is President of
the Chemicals, Oil and Gas Group. 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 Exchange under the ticker symbol "CSC."
As of June 17, 1998, the number of registered shareholders of Computer
Sciences Corporation's common stock was 8,879. The table shows the high and
low intra-day prices of the Company's common stock as reported on the
composite tape of the New York Stock Exchange for each quarter during the last
two calendar years and through June 17, 1998, adjusted for a 2-for-1 stock
split in the form of a 100% stock dividend paid March 23, 1998 to shareholders
of record March 2, 1998.
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- --------------
CALENDAR QUARTER HIGH LOW HIGH LOW HIGH LOW
---------------- ------ -------- ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
1st....................... 56 3/4 39 31/32 41 3/16 30 13/16 40 3/8 32 9/16
2nd....................... 59 7/8* 49 1/8* 40 1/16 28 15/16 39 3/4 34 1/16
3rd....................... 41 9/16 34 1/2 38 5/8 32 1/16
4th....................... 43 7/8 33 5/8 43 1/4 35
</TABLE>
- --------
* Through June 17, 1998.
ITEM 6. SELECTED FINANCIAL DATA
COMPUTER SCIENCES CORPORATION
<TABLE>
<CAPTION>
FIVE-YEAR REVIEW
------------------------------------------------------
APRIL 3, MARCH 28, MARCH 29, MARCH 31, APRIL 1,
IN THOUSANDS EXCEPT PER- 1998 1997 1996 1995 1994
SHARE AMOUNTS ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total assets............ $4,046,795 $3,493,087 $2,936,019 $2,631,580 $2,064,192
Debt:
Long-term............. 736,054 630,842 426,634 335,696 292,493
Short-term............ 7,110 20,311 71,422 128,237 17,772
Current maturities.... 21,811 9,622 6,917 11,933 35,761
---------- ---------- ---------- ---------- ----------
Total............... 764,975 660,775 504,973 475,866 346,026
Stockholders' equity.... 2,001,275 1,669,560 1,420,113 1,290,769 912,497
Working capital......... 767,820 533,915 430,484 390,726 249,020
Property and equipment:
At cost............... 1,944,799 1,668,905 1,249,729 994,520 778,376
Accumulated
depreciation and
amortization......... 987,606 780,836 569,670 430,249 352,852
---------- ---------- ---------- ---------- ----------
Property and
equipment, net....... 957,193 888,069 680,059 564,271 425,524
Current assets to
current liabilities.... 1.6:1 1.5:1 1.5:1 1.4:1 1.3:1
Debt to total
capitalization......... 27.7% 28.4% 26.2% 26.9% 27.5%
Book value per share.... $12.75 $10.88 $9.40 $8.67 $6.52
Stock price range (high) 56.75 43.25 40.38 26.31 20.88
(low).. 28.94 30.81 23.25 17.63 11.67
</TABLE>
7
<PAGE>
FIVE-YEAR REVIEW (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------
IN THOUSANDS EXCEPT PER- 1998 1997 1996 1995 1994
SHARE AMOUNTS ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................ $6,600,838 $5,616,048 $4,740,760 $3,788,026 $2,896,390
---------- ---------- ---------- ---------- ----------
Costs of services....... 5,149,218 4,413,173 3,692,267 2,961,955 2,268,655
Selling, general and
administrative......... 602,708 485,113 471,309 383,973 294,641
Depreciation and
amortization........... 386,854 333,247 272,058 190,240 146,602
Interest, net........... 42,096 32,273 32,143 27,304 12,979
Special charges......... 229,093 48,929 76,053 3,740 48,592
---------- ---------- ---------- ---------- ----------
Total costs and
expenses............... 6,409,969 5,312,735 4,543,830 3,567,212 2,771,469
---------- ---------- ---------- ---------- ----------
Income before taxes..... 190,869 303,313 196,930 220,814 124,921
Taxes on income......... (69,500) 110,900 87,499 77,577 57,499
---------- ---------- ---------- ---------- ----------
Income before cumulative
effect of accounting
change................. 260,369 192,413 109,431 143,237 67,422
Cumulative effect of
accounting change for
income taxes........... 4,900
---------- ---------- ---------- ---------- ----------
Net income.............. $ 260,369 $ 192,413 $ 109,431 $ 143,237 $ 72,322
========== ========== ========== ========== ==========
Basic earnings per
common share before
cumulative effect of
accounting change...... $1.68 $1.27 $0.74 $1.02 $0.50
Cumulative effect of
accounting change for
income taxes........... 0.04
---------- ---------- ---------- ---------- ----------
Basic earnings per
common share........... $1.68 $1.27 $0.74 $1.02 $0.54
========== ========== ========== ========== ==========
Diluted earnings per
common share before
cumulative effect of
accounting change...... $1.64 $1.23 $0.71 $1.00 $0.49
Cumulative effect of
accounting change for
income taxes........... 0.04
---------- ---------- ---------- ---------- ----------
Diluted earnings per
common share........... $1.64 $1.23 $0.71 $1.00 $0.53
========== ========== ========== ========== ==========
Average common shares
outstanding............ 155,125 151,895 148,865 140,297 134,265
Average common shares
outstanding assuming
dilution............... 158,526 156,394 153,070 143,702 136,733
</TABLE>
NOTES:
A discussion of "Income Before Taxes" and "Net Income and Earnings per
Share" before and after special items is included in Management's Discussion
and Analysis of Financial Condition and Results of Operations ("MD&A"). A
discussion of "Special Items" for the three fiscal years ended 1998 is also
included in MD&A. The fiscal 1995 special charge of $3,740 (1 cent per share
after tax) relates to the sale of the Company's tax processing operations. The
fiscal 1994 special charge of $48,592 (28 cents per share after tax) relates
to two acquisitions by Continuum.
The selected financial data has been restated for fiscal 1994 through 1996
to include the results of business combinations accounted for as poolings of
interests. Per-share amounts and shares are restated for a two-for-one stock
split, paid in the form of a 100% stock dividend on March 23, 1998.
No dividends were paid by CSC. A fiscal 1996 acquisition, accounted for as a
pooling of interests, paid dividends of $.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 1998, 1997 and 1996 from
the following market sectors:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
---------------- ---------------- -----------
PERCENT PERCENT
AMOUNT CHANGE AMOUNT CHANGE AMOUNT
DOLLARS IN MILLIONS -------- ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
U.S. Commercial................... $2,775.5 29% $2,159.7 22% $1,770.8
Europe............................ 1,771.0 21 1,467.1 32 1,109.6
Other International............... 423.6 20 353.6 22 288.9
-------- -------- --------
Global Commercial............... 4,970.1 25 3,980.4 26 3,169.3
U.S. Federal Government........... 1,630.7 0 1,635.6 4 1,571.5
-------- -------- --------
Total........................... $6,600.8 18 $5,616.0 18 $4,740.8
======== ======== ========
</TABLE>
The Company's 18% revenue growth for fiscal 1998 compared with 1997 was
propelled by strong increases in its global commercial operations. U.S.
commercial revenue grew 29% or $615.8 million during fiscal 1998. More than
half of the growth was generated by increases in outsourcing. Fiscal 1998 U.S.
outsourcing revenue growth was fueled by major new contracts including E.I. du
Pont de Nemours and Company ("DuPont") and CNA Financial Corporation, and by
increases in revenues from vertical markets such as financial services and
healthcare. Consulting and systems integration services contributed about a
quarter of the Company's other U.S. commercial revenue growth during fiscal
1998 due to strong demand for enterprise resource planning ("ERP") services,
electronic commerce and Year 2000 assessment and renovation activities.
For fiscal 1997, U.S. commercial revenues grew 22%, or $388.9 million.
Nearly half of the growth was provided by increases in outsourcing. Fiscal
1997 outsourcing revenue growth was derived from additional services provided
to the Hughes Electronics Corporation and new contracts, including the
Pinnacle Alliance with J.P. Morgan & Co. Incorporated ("J.P. Morgan"), Bath
Iron Works Corporation, ING Financial Services International, Hyatt Hotels
Corp. and Baker & Taylor, Inc. The remainder of the U.S. commercial revenue
growth was derived principally from increased demand for consulting and
systems integration services, the acquisition of American Practice Management,
Inc. and growth within the financial services sector.
Effective August 1, 1996, the Company acquired The Continuum Company, Inc.
("Continuum"), in a transaction 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.
The Company's European operations generated revenue growth of 21%, or $303.9
million, for fiscal 1998 compared to 1997. The growth was primarily due to
outsourcing services provided to British Aerospace plc, DuPont and J.P.
Morgan, and strong demand throughout Europe for consulting and systems
integration activities and ERP services.
Other international operations contributed revenue growth of 20%, or $70
million, during fiscal 1998. The growth was primarily attributable to
increased outsourcing business in Australia as well as increases in the
financial services sector.
CSC's European operations generated revenue growth of 32%, or $357.5
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
9
<PAGE>
in the United Kingdom, including a full year of activity on the Company's
contract to manage the information technology operations of Anglian Water plc,
and (3) increased demand for consulting services in Germany, especially in the
area of ERP applications.
During fiscal 1997, other international revenues increased 22% to $353.6
million. The growth was principally due to increased outsourcing activity in
Australia and the acquisition of McDonnell Information Systems Ltd., a leading
provider of healthcare information systems to the Australasian healthcare
industry.
The Company's U.S. federal government revenues were derived from the
following agencies:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
---------------- ---------------- -----------
PERCENT PERCENT
AMOUNT CHANGE AMOUNT CHANGE AMOUNT
DOLLARS IN MILLIONS -------- ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Department of Defense............. $1,071.9 (1)% $1,082.8 13% $ 961.6
NASA.............................. 298.6 0 299.4 (3) 310.1
Other civil agencies.............. 260.2 3 253.4 (15) 299.8
-------- -------- --------
Total U.S. Federal................ $1,630.7 0 $1,635.6 4 $1,571.5
======== ======== ========
</TABLE>
Federal revenues were essentially unchanged for fiscal 1998 compared to
1997. Gains were generated on certain task order contracts with the General
Services Administration and the Defense Integration Systems Agency ("DISA")
and by the acquisition of Information Technology Solutions, Inc. These gains
were offset primarily by the conclusion of two large contracts in late fiscal
1997. During fiscal 1997, the Company's federal revenue increased primarily
due to additional revenue generated on another task order contract for DISA
and increased ordering of a management information system by the U.S.
Department of Defense. Although CSC's fiscal 1998 and 1997 federal business
was impacted by restrained federal spending, the Company believes the pipeline
of new federal contract opportunities is robust.
During fiscal 1998, CSC announced federal contract awards with a total value
of $1.0 billion, compared with the $2.1 billion and $2.4 billion announced
during fiscal 1997 and 1996, respectively.
COSTS AND EXPENSES
The Company's costs and expenses before special charges were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
DOLLAR AMOUNT REVENUE
-------------------------- ----------------
1998 1997 1996 1998 1997 1996
DOLLARS IN MILLIONS -------- -------- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Costs of services................. $5,149.2 $4,413.2 $3,692.3 78.0% 78.6% 77.9%
Selling, general and
administrative................... 602.7 485.1 471.3 9.1 8.6 9.9
Depreciation and amortization..... 386.9 333.2 272.1 5.9 5.9 5.7
Interest expense, net............. 42.1 32.3 32.1 .6 .6 .7
-------- -------- -------- ---- ---- ----
Total............................. $6,180.9 $5,263.8 $4,467.8 93.6% 93.7% 94.2%
======== ======== ======== ==== ==== ====
</TABLE>
COSTS OF SERVICES
The Company's costs of services as a percent of revenue decreased to 78% for
fiscal 1998 from 78.6% for fiscal 1997. The decrease relates to growth in
commercial business versus federal business. The commercial growth occurred in
the healthcare and financial services vertical markets as well as outsourcing,
consulting and European operations. Improvements in European operations also
contributed to the reduction in costs of services. The increase in costs of
services in fiscal 1997 was primarily related to excess costs in the Company's
U.S. telecommunications operations combined with lower telecommunications
software sales and increases in costs in European operations.
10
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses as a percent of
revenue during fiscal 1998 increased to 9.1% from 8.6% for fiscal 1997. The
increase was largely related to the Company's overall growth in its commercial
operations as compared to its federal business. In particular, growth in the
Healthcare and Financial Services Groups contributed to the increase in SG&A
costs. The increase was partially offset by improvements within the Company's
U.S. outsourcing, consulting and systems integration operations.
For fiscal 1997, SG&A as a percent of revenue improved to 8.6% from 9.9% for
fiscal 1996. The improvements were largely attributable to the Company's
European operations and U.S. federal operations.
SPECIAL ITEMS
Special items for fiscal 1998 represent costs, expenses and benefits
associated with developments at CSC Enterprises and the Company's response to
a failed take-over attempt.
The Company recorded a net special credit of $1.7 million, or 1 cent per
share, at CSC Enterprises, a general partnership which operates certain of the
Company's credit services operations and carries out other business strategies
through acquisition and investment. The net credit resulted from a tax benefit
of $135 million and an after-tax charge of $133.3 million ($208.4 million
before tax). During the first quarter, several partners withdrew from CSC
Enterprises. These withdrawals caused CSC Enterprises to take actions which
caused CSC to recognize an increase in the tax basis of certain assets which
resulted in a deferred tax asset of $135 million and a corresponding reduction
in the Company's provision for taxes. 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 to
eliminate certain offerings and write down assets, primarily within its
telecommunications operations. As a result of these plans, an after-tax
special charge of $133.3 million was recognized. The charge is comprised of
$35 million of goodwill, $33.8 million of contract termination costs, $22.3
million of telecommunications software and accruals, $20.5 million of deferred
contract costs and other assets, $11.7 million of telecommunications property,
equipment and intangible assets, and $10 million of other costs.
Also, during fiscal 1998 the Company recorded a before-tax special charge of
$20.7 million, or 9 cents per share after tax, for costs relating to the
Company's response to a failed take-over attempt. The charge is comprised of
$14 million for investment banking expenses and $6.7 million for other
expenses such as legal costs, public relations and shareholder communications.
The fiscal 1997 special charge represents costs and expenses related to the
August 1 acquisition of Continuum. The amount of the charge, net of income tax
benefits on the tax deductible portion, is $35.3 million or 23 cents per
share. The charge is comprised of $11.0 million for investment banking and
other merger expenses; $11.8 million related to the write-off of certain
capitalized software, other assets and intangibles; and $26.1 million related
to the elimination of duplicate data-processing facilities, employee severance
costs and contract termination costs.
The fiscal 1996 special charges were largely related to Continuum's
acquisitions of Hogan Systems, Inc. and SOCS Holding, a Paris-based software
and services company. The special charges of $76.1 million, or 40 cents per
share after tax, included a $26.0 million non-cash charge resulting from the
write-off of certain software development activities at SOCS Holding,
restructuring and transaction costs of $19.4 million, and adjustments to the
carrying value of certain operating assets of $30.7 million.
INCOME BEFORE TAXES
The Company's income before taxes for the most recent three fiscal years is
as follows:
<TABLE>
<CAPTION>
DOLLAR AMOUNT MARGIN
-------------------- ----------------
1998 1997 1996 1998 1997 1996
DOLLARS IN MILLIONS ------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Before special charges..................... $420.0 $352.2 $273.0 6.4% 6.3% 5.8%
Income before taxes........................ 190.9 303.3 196.9 2.9 5.4 4.2
</TABLE>
11
<PAGE>
Income before special charges and taxes improved during fiscal 1998 as a
percentage of revenue. The .1% improvement during fiscal 1998 to a margin of
6.4% relates principally to the improvement in costs of services and
depreciation and amortization. Partially offsetting the improvement were
increases in SG&A expenses as a percent of revenue.
During fiscal 1997, income before special charges and taxes increased
principally due to improvement in SG&A expenses partially offset by increases
in costs of services and depreciation and amortization.
TAXES
The (benefit from) provision for income taxes as a percentage of pre-tax
earnings was (36.4)%, 36.6% and 44.4% for fiscal 1998, 1997 and 1996,
respectively. The fiscal 1998 rate includes the tax benefit associated with
the partnership withdrawals at CSC Enterprises. Before special items, the tax
rate was 35.1%, 35.4% and 37.3% for fiscal 1998, 1997 and 1996, respectively.
NET INCOME AND EARNINGS PER SHARE
The Company's net income and earnings per share for fiscal years 1998, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
DOLLAR AMOUNT MARGIN
-------------------- ----------------
1998 1997 1996 1998 1997 1996
DOLLARS IN MILLIONS, EXCEPT EPS ------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net income:
Before special items................... $272.6 $227.7 $171.2 4.1% 4.1% 3.6%
As reported............................ 260.4 192.4 109.4 3.9 3.4 2.3
Diluted earnings per share:
Before special items................... 1.72 1.46 1.12
As reported............................ 1.64 1.23 0.71
</TABLE>
During fiscal 1998, the Company's net income margin improved to 3.9% from
3.4%. The net special items incurred during fiscal 1998 reduced net income by
$12.2 million or .2% of revenue. In fiscal 1997, the Company's net income
margin improved to 3.4% from 2.3%. The special charge recorded in 1997 reduced
net income by $35.3 million or .6% of revenue.
Before special items, the net earnings margin was 4.1% for fiscal 1998 and
1997 and 3.6% for fiscal 1996. Although the net earnings margin before special
items for 1998 was the same as 1997, the Company registered an improvement in
cost of services as a percent of revenue and a lower tax rate before special
items. The improvement in 1997 was attributable to the reduction of SG&A as a
percent of revenue and a lower tax rate partially offset by an increase in
costs of services as a percent of revenue.
CASH FLOWS
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
---------------- ---------------- -----------
PERCENT PERCENT
AMOUNT CHANGE AMOUNT CHANGE AMOUNT
DOLLARS IN MILLIONS ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
Cash from operations.......... $ 583.3 17 % $ 500.4 30 % $ 384.0
Net cash used in investing.... (582.0) (14) (678.6) 28 (530.8)
Net cash provided by
financing.................... 162.7 (7) 175.0 230 53.1
------- ------- -------
Net increase (decrease) in
cash and cash equivalents.... 164.0 (3.2) (93.7)
Cash at beginning of year..... 110.7 113.9 207.6
------- ------- -------
Cash at end of year......... $ 274.7 148 $ 110.7 (3) $ 113.9
======= ======= =======
</TABLE>
12
<PAGE>
Historically, the majority of the Company's cash has been provided from
operating activities. The increases in cash from operations during fiscal 1998
and 1997 are primarily due to higher earnings, non-cash charges (depreciation
and amortization) and lower income tax payments, 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 1996
through 1998.
As described above, a majority of the Company's capital investments have
been funded by cash from operations. During fiscal 1997 the Company, through
affiliates, issued $150 million of term debt.
LIQUIDITY AND CAPITAL RESOURCES
The balance of cash and cash equivalents was $274.7 million at April 3,
1998, $110.7 million at March 28, 1997 and $113.9 million at March 29, 1996.
During this period, the Company's earnings have added substantially to equity.
At the end of fiscal 1998, CSC's ratio of debt to total capitalization was
27.7%.
<TABLE>
<CAPTION>
1998 1997 1996
DOLLARS IN MILLIONS -------- -------- --------
<S> <C> <C> <C>
Debt............................................. $ 765.0 $ 660.8 $ 505.0
Equity........................................... 2,001.3 1,669.6 1,420.1
-------- -------- --------
Total capitalization............................. $2,766.3 $2,330.4 $1,925.1
======== ======== ========
Debt to total capitalization..................... 27.7% 28.4% 26.2%
</TABLE>
During fiscal 1997, the Company increased its affiliates' credit agreement
from $350 million to $490 million to provide stand-by support for commercial
paper. At April 3, 1998, $115 million was available for borrowing under this
program, down from $193.1 million at March 28, 1997.
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.
DIVIDENDS AND REDEMPTION
It has been the Company's policy to invest earnings in the growth of the
Company rather than distribute earnings as dividends. This policy, under which
dividends have not been paid since fiscal 1969, is expected to continue, but
is subject to regular review by the Board of Directors.
On February 27, 1998, the Board of Directors redeemed the stock purchase
rights issued under the 1988 stockholder rights plan and established March 30,
1998 as the record date for payment of the redemption price of one sixth of
one cent per right, which was paid on April 13, 1998.
YEAR 2000
Throughout its history, CSC has dealt with ongoing significant changes in
the information technology industry. As a result, resources are constantly
being employed to modify, upgrade and enhance systems and infrastructure on
behalf of clients and internal needs. The Year 2000 issue represents another
one of these changes. It is the result of computer programs which represent
years as a two-digit field rather than a four-digit field. Any of such
programs that utilize date sensitive data may not properly recognize a date
field of 00 as the year 2000, but as some other date, typically the year 1900.
This could result in possible system failure or miscalculations which affect
normal business activity.
13
<PAGE>
The Company has established a comprehensive two-phase program to ensure that
its proprietary software and internal computer systems are Year 2000 ready.
The initial phase, which included planning, inventory and assessment, has been
completed. The final phase, which consists of correction, testing, deployment
and acceptance, is in process and is expected to be completed by mid-1999. The
Company expects that the cost of making its proprietary software and internal
systems compliant will not have a material effect on its overall financial
position or overall trends in results of operations.
The Company has initiated formal communications with all of its crucial
suppliers to determine that they are or will be Year 2000 capable.
The Company has been working with its clients and has completed an
assessment of its obligations to make their systems Year 2000 ready. As a
result of this assessment, the Company does not believe that these obligations
will have a material effect on the Company.
The Company has experienced significant growth in Year 2000 engagements and
expects that trend to continue for the next few years.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" and SFAS No. 132, "Employers' Disclosures about Pensions
and other Postretirement Benefits." The Company will adopt these standards for
fiscal 1999 which will expand or modify disclosures and will have no impact on
consolidated financial position, results of operations or cash flows.
During October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition,"
which supersedes SOP 91-1, "Software Revenue Recognition." SOP 97-2 provides
further guidance on recognizing revenue from sales of proprietary software and
is effective for transactions CSC enters into beginning in fiscal 1999. The
Company does not expect the adoption of SOP 97-2 to have a material impact on
consolidated financial position, results of operations or cash flows.
MARKET RISK
The Company has fixed-rate long-term debt obligations, short-term commercial
paper, and other borrowings which are subject to market risk from changes in
interest rates. During the ordinary course of business, the Company also
enters into certain transactions contracted in foreign currency which are
subject to market risk from changes in foreign currency exchange rates. The
Company may use foreign currency forward contracts or options to hedge
exposures arising from these transactions.
Sensitivity analysis is one technique used to measure the impact of changes
in interest rates and foreign exchange rates on the value of market-risk
sensitive financial instruments. A hypothetical ten-percent movement in
interest rates or a ten-percent fluctuation in the U.S. dollar against all
currencies would not have a material impact on the Company's future earnings,
fair value, or cash flows.
FORWARD-LOOKING STATEMENTS
All statements contained in this annual report, or in any other document
filed by the Company with the Securities and Exchange Commission, or in any
press release or other written or oral communication by or on behalf of the
Company, that do not directly and exclusively relate to historical facts
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements, which represent
the Company's expectations and beliefs, are subject to risks, uncertainties
and other factors, many of which are outside of the Company's control, that
could cause actual results to differ materially from such statements. These
factors include, without limitation, the following: (i) competitive pressures;
(ii) the Company's
14
<PAGE>
ability to attract and retain key personnel; (iii) changes in the demand for
information technology outsourcing and business process outsourcing; (iv)
changes in the financial condition of the Company's major commercial
customers; (v) changes in U.S. federal government spending levels for
information technology services; (vi) the Company's ability to consummate
strategic acquisitions and alliances; (vii) the future profitability of the
Company's customer contracts; (viii) the Company's ability to continue to
develop and expand its service offerings to address emerging business demand
and technological trends; and (ix) general economic conditions in countries in
which the Company does business.
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 Balance Sheets as of April 3, 1998 and March 28, 1997........ 18
Consolidated Statements of Income for the fiscal years ended April 3,
1998, March 28, 1997, and March 29, 1996................................. 20
Consolidated Statements of Cash Flows for the fiscal years ended April 3,
1998, March 28, 1997, and March 29, 1996................................. 21
Consolidated Statements of Stockholders' Equity for the fiscal years ended
April 3, 1998, March 28, 1997 and March 29, 1996......................... 22
Notes to Consolidated Financial Statements................................ 23
Quarterly Financial Information (Unaudited)............................... 40
SCHEDULE
Schedule VIII--Valuation and Qualifying Accounts.......................... 47
</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 April 3, 1998 and
March 28, 1997, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended April 3, 1998. Our audits also included the financial statement schedule
listed in the Index at Item 8. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. These consolidated financial
statements 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. for the year ended March 31, 1996. Such
statements reflect aggregate total revenues constituting 11% in 1996 of the
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 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 April 3, 1998 and March 28, 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended April 3, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Los Angeles, California
May 26, 1998
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 (which are not presented 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 referred to
above, 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>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
1998 1997
IN THOUSANDS ---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 274,688 $ 110,726
Receivables, net of allowance for doubtful accounts of
$75,373 (1998) and $52,507 (1997) (notes 4 and 10).... 1,456,330 1,294,003
Prepaid expenses and other current assets.............. 251,618 161,317
---------- ----------
Total current assets................................. 1,982,636 1,566,046
---------- ----------
Investments and other assets:
Purchased and internally developed software, net of
accumulated amortization of $120,675 (1998) and
$152,725 (1997)....................................... 125,430 132,627
Excess of cost of businesses acquired over related net
assets, net of accumulated amortization of $90,007
(1998) and $72,472 (1997)............................. 538,408 561,670
Other assets........................................... 443,128 344,675
---------- ----------
Total investments and other assets................... 1,106,966 1,038,972
---------- ----------
Property and equipment--at cost (note 5):
Land, buildings and leasehold improvements............. 301,437 291,878
Computers and related equipment........................ 1,490,765 1,255,455
Furniture and other equipment.......................... 152,597 121,572
---------- ----------
1,944,799 1,668,905
Less accumulated depreciation and amortization......... 987,606 780,836
---------- ----------
Property and equipment, net.......................... 957,193 888,069
---------- ----------
$4,046,795 $3,493,087
========== ==========
</TABLE>
(See notes to consolidated financial statements)
18
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
1998 1997
IN THOUSANDS EXCEPT SHARES ---------- ----------
<S> <C> <C>
Current liabilities:
Short-term debt and current maturities of long-term
debt (note 5)......................................... $ 28,921 $ 29,933
Accounts payable....................................... 317,787 295,112
Accrued payroll and related costs (note 6)............. 299,062 252,902
Other accrued expenses................................. 403,860 311,283
Deferred revenue....................................... 127,337 112,888
Federal, state and foreign income taxes (note 3)....... 37,849 30,013
---------- ----------
Total current liabilities............................ 1,214,816 1,032,131
---------- ----------
Long-term debt, net of current maturities (note 5)....... 736,054 630,842
---------- ----------
Deferred income taxes (note 3)........................... 83,216
---------- ----------
Other long-term liabilities (note 6)..................... 94,650 77,338
---------- ----------
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 157,324,565 (1998) and
76,924,836 (1997)..................................... 157,325 76,925
Additional paid-in capital............................. 660,971 569,719
Earnings retained for use in business.................. 1,236,968 1,055,183
Foreign currency translation and unfunded pension
adjustments........................................... (39,691) (14,625)
---------- ----------
2,015,573 1,687,202
Less common stock in treasury, at cost, 346,170 shares
(1998) and 332,220 shares (1997) (13,029) (11,982)
Unearned restricted stock (note 8)..................... (1,142) (1,251)
Notes receivable for shares sold (note 8).............. (127) (4,409)
---------- ----------
Stockholders' equity, net............................ 2,001,275 1,669,560
---------- ----------
$4,046,795 $3,493,087
========== ==========
</TABLE>
(See notes to consolidated financial statements)
19
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
APRIL 3, MARCH 28, MARCH 29,
1998 1997 1996
IN THOUSANDS EXCEPT PER-SHARE AMOUNTS ---------- ---------- ----------
<S> <C> <C> <C>
Revenues.................................... $6,600,838 $5,616,048 $4,740,760
---------- ---------- ----------
Costs of services........................... 5,149,218 4,413,173 3,692,267
Selling, general and administrative......... 602,708 485,113 471,309
Depreciation and amortization............... 386,854 333,247 272,058
Interest expense............................ 50,951 40,268 37,925
Interest income............................. (8,855) (7,995) (5,782)
Special charges (note 2).................... 229,093 48,929 76,053
---------- ---------- ----------
Total costs and expenses.................... 6,409,969 5,312,735 4,543,830
---------- ---------- ----------
Income before taxes......................... 190,869 303,313 196,930
Taxes on income (notes 2 and 3)............. (69,500) 110,900 87,499
---------- ---------- ----------
Net income.................................. $ 260,369 $ 192,413 $ 109,431
========== ========== ==========
Earnings per common share (note 1):
Basic..................................... $ 1.68 $ 1.27 $ 0.74
========== ========== ==========
Diluted................................... $ 1.64 $ 1.23 $ 0.71
========== ========== ==========
</TABLE>
(See notes to consolidated financial statements)
20
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
APRIL 3, MARCH 28, MARCH 29,
IN THOUSANDS, INCREASE (DECREASE) IN CASH AND 1998 1997 1996
CASH EQUIVALENTS --------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 260,369 $ 192,413 $ 109,431
Adjustments to reconcile net income to net cash
provided:
Depreciation and amortization................. 386,854 333,247 272,058
Special items, net of tax..................... 97,870 11,884 73,186
Provision for losses on accounts receivable... 20,058 33,501 20,623
Changes in assets and liabilities, net of
effects of acquisitions:
Increase in receivables..................... (221,974) (164,184) (163,517)
(Increase) decrease in prepaid expenses..... (86,815) (39,692) 7,234
Increase in accounts payable and accruals... 109,575 97,294 28,768
Increase in income taxes payable............ 3,683 29,028 25,959
Increase (decrease) in deferred revenue..... 13,817 (3,304) 12,518
Other changes, net.......................... (133) 10,235 (2,274)
--------- --------- ---------
Net cash provided by operating activities..... 583,304 500,422 383,986
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment............. (349,316) (322,434) (275,841)
Outsourcing contracts........................... (145,974) (102,508) (114,144)
Acquisitions, net of cash acquired.............. (103,269) (176,693) (76,878)
Dispositions.................................... 75,827 6,229 7,380
Purchased and internally developed software..... (64,052) (77,227) (56,767)
Other investing cash flows, net................. 4,777 (6,011) (14,555)
--------- --------- ---------
Net cash used in investing activities........... (582,007) (678,644) (530,805)
--------- --------- ---------
Cash flows from financing activities:
Net borrowing (repayment) of commercial paper... 77,953 50,188 (587)
Borrowings under lines of credit................ 61,281 48,180 78,457
Repayment of borrowings under lines of credit... (73,022) (99,283) (38,376)
Proceeds from term debt issuance................ 32,568 150,000 43,541
Principal payments on long-term debt............ (10,959) (29,843) (58,476)
Proceeds from stock option transactions......... 61,488 42,869 18,511
Other financing cash flows...................... 13,356 12,964 10,023
--------- --------- ---------
Net cash provided by financing activities....... 162,665 175,075 53,093
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents...................................... 163,962 (3,147) (93,726)
Cash and cash equivalents at beginning of year.... 110,726 113,873 207,599
--------- --------- ---------
Cash and cash equivalents at end of year.......... $ 274,688 $ 110,726 $ 113,873
========= ========= =========
</TABLE>
(See notes to consolidated financial statements)
21
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
CURRENCY NOTES
EARNINGS AND RECEIVABLE
COMMON STOCK ADDITIONAL RETAINED UNFUNDED COMMON UNEARNED FOR
--------------------- PAID-IN FOR USE IN PENSION STOCK IN RESTRICTED SHARES
IN THOUSANDS EXCEPT SHARES AMOUNT CAPITAL BUSINESS ADJUSTMENTS TREASURY STOCK SOLD
SHARES ----------- -------- ---------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1995................... 74,248,357 $ 74,248 $465,742 $ 753,339 $ 6,652 $ (5,179) $(2,981) $(1,052)
Stock option
transactions........... 1,347,368 1,348 40,460 (5,309) (3,888)
Granting of restricted
stock of $200 net of
amortization and
forfeitures of $1,093.. 4,130 4 196 893
Net income.............. 109,431
Currency translation
adjustment............. (12,218) (28)
Unfunded pension
obligation............. (1,648)
Retirement of Hogan
treasury stock......... (171,233) (171) 171
Repayment of notes...... 103
----------- -------- -------- ---------- -------- -------- ------- -------
Balance at March 29,
1996................... 75,428,622 75,429 506,569 862,770 (7,214) (10,488) (2,088) (4,865)
Stock option
transactions........... 1,501,214 1,501 63,240 (1,494) (1,125)
Amortization and
forfeitures of
restricted stock....... (5,000) (5) (90) 837
Net income.............. 192,413
Currency translation
adjustment............. (7,182) (24)
Unfunded pension
obligation............. (229)
Repayment of notes...... 1,605
----------- -------- -------- ---------- -------- -------- ------- -------
Balance at March 28,
1997................... 76,924,836 76,925 569,719 1,055,183 (14,625) (11,982) (1,251) (4,409)
Stock option
transactions........... 2,077,103 2,077 91,252 (1,047)
Amortization and
forfeitures of
restricted stock....... 109
Net income.............. 260,369
Currency translation
adjustment............. (23,287)
Unfunded pension
obligation............. (1,779)
Repayment of notes...... 4,282
Effect of two-for-one
stock split............ 78,322,626 78,323 (78,323)
Stock purchase rights
redemption............. (261)
----------- -------- -------- ---------- -------- -------- ------- -------
Balance at April 3,
1998................... 157,324,565 $157,325 $660,971 $1,236,968 $(39,691) $(13,029) $(1,142) $ (127)
=========== ======== ======== ========== ======== ======== ======= =======
</TABLE>
(See notes to consolidated financial statements)
22
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION 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 1.58 shares of common stock of the Company and each outstanding option to
purchase shares of Continuum common stock was converted into an option to
purchase 1.58 shares of CSC common stock. The acquisition has been accounted
for as a pooling of interests, and previously reported consolidated financial
statements of the Company for periods ended prior to August 1, 1996 have been
restated to include the financial position and results of operations of
Continuum.
OTHER ACQUISITIONS
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 7,606,000 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 April 3, 1998, 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 $61,460, $199,302 and $34,497; and assumed liabilities of $47,632,
$125,511 and $18,628 for fiscal 1998, 1997 and 1996 respectively. The excess
of cost of businesses acquired over related net assets was $89,028, $139,504
and $22,448 for the three fiscal years ended 1998.
INCOME RECOGNITION
The Company provides services under time and materials, level of effort,
cost-based and fixed price contracts. For time and materials and level of
effort types of contracts, income is recorded as the costs are incurred,
income being the difference between such costs and the agreed-upon billing
amounts. For cost-based contracts, income is recorded by applying an estimated
factor to costs as incurred, such factor being determined by the contract
provisions and prior experience. For fixed price contracts, income is recorded
on the basis of the estimated percentage of completion of services rendered.
Losses, if any, on fixed price contracts are recognized during the period in
which the loss is determined.
Revenues from certain information processing services are recorded at the
time the service is utilized by the customer. Revenues from sales of
proprietary software are generally recognized upon receipt of a signed
contract documenting a customer commitment; however, if significant
customization is part of the transaction, such revenues are recognized over
the period of delivery.
23
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION
The Company's depreciation and amortization policies are as follows:
<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
Leasehold improvements............. Shorter of lease term or useful life
Investments and Other Assets:
Purchased and internally developed
software.......................... 2 to 10 years
Credit information files........... 10 to 20 years
Excess of cost of businesses
acquired over related net assets.. Up to 40 years
Deferred contract costs............ Contract life
</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 $76,969 and $71,709 as of April 3,
1998 and March 28, 1997, respectively. The related amortization expense was
$17,358, $20,073 and $19,947 for the three fiscal years ended 1998. During
March 1996, $20,200 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 $102,723 and $89,378 for fiscal 1998 and 1997,
respectively. The related amortization expense was $15,371, $12,112 and
$12,764 for the three fiscal years ended 1998.
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
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest........................................... $50,909 $37,910 $36,322
Taxes on income.................................... 30,613 63,899 50,703
</TABLE>
24
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
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.
STOCK SPLIT
All share data with the exception of prior year share amounts in the
Consolidated Balance Sheets and Consolidated Statements of Stockholders'
Equity have been restated to reflect the two-for-one stock split in the form
of a 100% stock dividend paid on March 23, 1998.
EARNINGS PER SHARE
During fiscal 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share." This statement requires
presentation of both basic and diluted EPS and restatement of all prior-period
EPS data presented. Basic earnings per common share are computed using the
weighted average number of common shares outstanding during the period.
Diluted earnings per share reflect the incremental shares issuable upon the
assumed exercise of stock options.
Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income for basic and diluted EPS............. $260,369 $192,413 $109,431
======== ======== ========
Common share information (in thousands)
Average common shares outstanding for basic
EPS........................................... 155,125 151,895 148,865
Dilutive effect of stock options............... 3,401 4,499 4,205
-------- -------- --------
Shares for diluted EPS......................... 158,526 156,394 153,070
======== ======== ========
Basic EPS........................................ $ 1.68 $ 1.27 $ 0.74
Diluted EPS...................................... 1.64 1.23 0.71
</TABLE>
In accordance with SFAS No. 128, the computation of diluted EPS did not
include stock options which were antidilutive, as their exercise price was
greater than the average market price of the Company's common stock during the
year. The number of such options was 95,310, 249,813 and 136,973 at April 3,
1998, March 27, 1997 and March 28, 1996, respectively.
25
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued SFAS No. 130,
"Reporting Comprehensive Income," SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" and SFAS No. 132, "Employers'
Disclosures about Pensions and other Postretirement Benefits." During fiscal
1999, the Company will adopt these standards, which will expand or modify
disclosures but will have no impact on consolidated financial position,
results of operations or cash flows.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition,"
which supersedes SOP 91-1, "Software Revenue Recognition." SOP 97-2 provides
further guidance on recognizing revenue from sales of proprietary software and
is effective for transactions CSC enters into beginning in fiscal 1999. The
Company does not expect the adoption of SOP 97-2 to have a material impact on
consolidated financial position, results of operations or cash flows.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements in order to conform to the current presentation.
NOTE 2--SPECIAL ITEMS
Special items in fiscal 1998 represent costs, expenses, and benefits
associated with developments at CSC Enterprises and the Company's response to
a failed take-over attempt.
During the fiscal quarter ended June 27, 1997, CSC recognized a net special
credit of $1,707, or 1 cent per share, at CSC Enterprises, a general
partnership of which CSC, through one of its affiliates, is the managing
general partner. This net credit resulted from a tax benefit of $135,000 and
an after-tax special charge of $133,293 ($208,393 before tax). During the
fiscal quarter ended June 27, 1997, several partners withdrew from CSC
Enterprises. As a result of these withdrawals, CSC Enterprises took actions
that caused CSC to recognize an increase in the tax basis of certain assets.
As required by SFAS No. 109, this tax basis increase resulted in a permanent
difference between the tax and book basis of certain assets, which established
a deferred tax asset of $135,000 and a corresponding reduction of CSC's
provision for income taxes during the quarter ended June 27, 1997. In
connection with these developments, CSC Enterprises reviewed its operations,
its market opportunities and the carrying value of its assets. Based on this
review, certain offerings and assets were eliminated, primarily within its
telecommunications operations. As a result, CSC recognized an after-tax
special charge of $133,293 during the fiscal quarter ended June 27, 1997. This
special charge included goodwill of $35,000, contract termination costs of
$34,000, deferred contract costs and other assets of $20,000,
telecommunications software and accruals of $22,000, telecommunications
property, equipment and intangible assets of $12,000 and other costs of
$10,000.
In the fourth quarter of fiscal 1998, the Company recorded a before-tax
special charge of $20,700, or 9 cents per share after tax, for costs relating
to the Company's response to a failed take-over attempt. The charge is
comprised of $14,000 for investment banking expenses and $6,700 for other
expenses such as legal costs, public relations and shareholder communications.
The fiscal 1997 special charge represents costs and expenses related to the
August 1 acquisition of Continuum. The amount of the charge, net of income tax
benefits on the tax deductible portion, is $35,280, or
26
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 2--SPECIAL ITEMS (CONTINUED)
23 cents per share. The charge is composed of $11,040 for investment banking
and other merger expenses; $11,785 related to the write-off of certain
capitalized software, other assets and intangibles; and $26,104 related to the
elimination of duplicate data processing facilities, employee severance costs
and contract termination costs.
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 of special charges were expensed,
including $9,600 of transaction and $9,800 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 were recorded, including
$20,200 to capitalized software.
Fiscal 1996 charges also included $26,000, related to an acquisition, which
was assigned to purchased research and development and subsequently expensed
with no income tax benefit. The combined fiscal 1996 after-tax special charges
recorded were $61,800, or 40 cents per share.
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
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Domestic entities................................ $ 96,438 $270,353 $198,571
Entities outside the United States............... 94,431 32,960 (1,641)
-------- -------- --------
$190,869 $303,313 $196,930
======== ======== ========
</TABLE>
The provisions (credits) for taxes on income, classified as between current
and deferred and as between taxing jurisdictions, consist of the following:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Current portion:
Federal........................................ $(12,275) $ 83,185 $27,611
State.......................................... (2,051) 12,065 2,282
Foreign........................................ 39,299 10,529 14,258
-------- -------- -------
24,973 105,779 44,151
-------- -------- -------
Deferred portion:
Federal........................................ (82,170) 3,566 38,980
State.......................................... (8,812) 664 7,540
Foreign........................................ (3,491) 891 (3,172)
-------- -------- -------
(94,473) 5,121 43,348
-------- -------- -------
Total provision (credit) for taxes............... $(69,500) $110,900 $87,499
======== ======== =======
</TABLE>
27
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 3--INCOME TAXES (CONTINUED)
Included in the fiscal 1998 current portion is $27,000 (composed of $26,200
federal and $800 state) of the $135,000 deferred tax asset described in Note 2
and $81,900 related to the other fiscal 1998 special items, also described in
Note 2. The fiscal 1998 deferred portion includes the remaining $108,000
(composed of $104,800 federal and $3,200 state) of the $135,000 deferred tax
asset.
The major elements contributing to the difference between the federal
statutory tax rate and the effective tax rate are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Statutory rate........................................... 35.0 % 35.0% 35.0%
State income tax, less effect of federal deduction....... 2.2 2.8 3.7
Goodwill amortization.................................... .4 .6 1.8
Utilization of tax credits/losses........................ (2.2) (1.9) (.2)
Special items............................................ (71.5) 1.2 4.9
Other.................................................... (.3) (1.1) (.8)
----- ---- ----
Effective tax rate....................................... (36.4)% 36.6% 44.4%
===== ==== ====
</TABLE>
The fiscal 1998 special items percentage relates principally to the $135,000
tax benefit described in Note 2. The fiscal 1997 and 1996 special items
percentages are the result of non-deductible acquisition-related costs.
The tax effects of significant temporary differences that comprise deferred
tax balances are as follows:
<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets (liabilities)
Deferred income..................................... $ 1,457 $ 2,055
Employee benefits................................... (1,421) 788
Provisions for contract settlement.................. 4,121 16,047
Currency exchange................................... 18,909 (623)
Other assets........................................ 22,438 8,096
Contract accounting................................. (109,343) (90,963)
Depreciation and amortization....................... 54,420 (73,921)
Prepayments......................................... (41,083) (7,460)
Tax loss/credit carryforwards....................... 20,231
Other assets (liabilities).......................... (998) 4,967
--------- ---------
Total deferred taxes.................................. $ (31,269) $(141,014)
========= =========
</TABLE>
Of the above deferred amounts, $111,277 and $57,799 are included in current
income taxes payable at April 3, 1998 and March 28, 1997, 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 during fiscal 1996
regarding the assessment and took the issue before the Appeals Division of the
IRS. During fiscal 1998, the Appeals Division completed its review of the
matter and is in the process of completing their report. The results are not
expected to have a material effect on the financial statements.
28
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 4--RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
1998 1997
---------- ----------
<S> <C> <C>
Billed trade accounts.............................. $1,043,703 $ 884,772
Recoverable amounts under contracts in progress.... 366,778 376,266
Other receivables.................................. 45,849 32,965
---------- ----------
$1,456,330 $1,294,003
========== ==========
Amounts due under long-term contracts include the following items:
<CAPTION>
APRIL 3, MARCH 28,
1998 1997
---------- ----------
<S> <C> <C>
Included in billed trade accounts receivable--
Amounts retained in accordance with contract
terms, due upon completion or other specified
event........................................... $ 3,556 $ 8,848
========== ==========
Included in recoverable amounts under contracts in
progress:
Amounts on fixed price contracts not billable in
accordance with contract terms until some future
date............................................ $ 240,814 $ 231,115
Amounts retained in accordance with contract
terms, due upon completion or other specified
event........................................... 23,246 31,072
Excess of costs over provisional billings,
awaiting clearance for final billing or future
negotiation..................................... 6,593 26,056
Accrued award fees............................... 14,647 12,120
Amounts on completed work, negotiated and
awaiting contractual document................... 3,670 4,106
Unrecovered costs related to claims.............. 3,902 4,554
---------- ----------
$ 292,872 $ 309,023
========== ==========
</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 1999 except for $3,896 of unrecovered costs related to
claims and $118,949 of other items to be collected during fiscal 2000 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.
NOTE 5--DEBT
SHORT-TERM
At April 3, 1998, the Company had uncommitted lines of credit of $45,000
with domestic banks. As of April 3, 1998, the Company had no borrowings
outstanding under these lines of credit.
29
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 5--DEBT (CONTINUED)
At April 3, 1998, the Company also had uncommitted lines of credit of
$101,393 with certain foreign banks. As of April 3, 1998, the Company had
$24,626 of borrowings outstanding under these lines of credit. These short-
term lines of credit carry no commitment fees or significant covenants. At
April 3, 1998, the weighted average interest rate on borrowings under these
short-term lines of credit was 4.7%. At March 28, 1997, the rate was 5.0%.
LONG-TERM
<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
1998 1997
-------- --------
<S> <C> <C>
Commercial paper........................................ $375,023 $296,937
6.8% term notes, due April 1999......................... 150,000 150,000
6.5% term notes, due November 2001...................... 150,000 150,000
Capitalized lease liabilities, at varying interest
rates, payable in monthly installments through fiscal
2003................................................... 21,603 17,451
Notes payable, at varying interest rates (from 3.5% to
6.5%) through fiscal 2004.............................. 61,239 26,076
-------- --------
Total long-term debt.................................... 757,865 640,464
Less current maturities................................. 21,811 9,622
-------- --------
$736,054 $630,842
======== ========
</TABLE>
The weighted average interest rate on the Company's commercial paper was
5.5% and 5.4% at April 3, 1998 and March 28, 1997, respectively.
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 $18,895 (1998) and $11,823 (1997), less
accumulated amortization of $5,378 and $6,055, respectively.
Certain of the Company's borrowing arrangements contain covenants that
require the Company to maintain certain financial ratios and that limit the
amount of dividend payments. Under the most restrictive requirement,
approximately $1,066,000 of retained earnings were available for cash
dividends at April 3, 1998.
The carrying value of the Company's long-term debt is $757,865 at April 3,
1998, as shown above. The corresponding fair value approximates the carrying
value using the current interest rates available to the Company for debt of
the same remaining maturities.
Maturities of long-term debt by fiscal year are $21,811 (1999), $541,529
(2000), $13,538 (2001), $158,010 (2002), $1,006 (2003) and $21,971 thereafter.
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
30
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 6--RETIREMENT PLANS (CONTINUED)
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
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost--benefits earned during the year. $ 54,629 $ 42,831 $ 32,351
Interest cost on projected benefit obligation. 50,469 36,553 28,590
Actual return on assets....................... (98,071) (61,133) (68,449)
Net amortization and deferral:
Amortization of initial net obligations (net
assets).................................... 280 (320) (538)
Amortization of prior service costs......... 2,830 1,703 1,432
Amortization of net loss.................... 965 999 518
Asset gain deferred......................... 43,757 21,503 37,893
-------- -------- --------
Net periodic pension cost..................... $ 54,859 $ 42,136 $ 31,797
======== ======== ========
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------
1998 1997
--------------------------- ---------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFIT ACCUMULATED BENEFIT
BENEFIT OBLIGATIONS BENEFIT OBLIGATIONS
OBLIGATIONS EXCEED ASSETS OBLIGATIONS EXCEED ASSETS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested benefit
obligation........... $(602,062) $(68,904) $(446,978) $(28,774)
========= ======== ========= ========
Accumulated benefit
obligation........... $(628,771) $(84,741) $(475,791) $(41,408)
========= ======== ========= ========
Projected benefit
obligation............. $(820,390) $(92,594) $(570,739) $(44,743)
Plan assets at fair
market value........... 848,336 53,826 604,969 14,387
--------- -------- --------- --------
Projected benefit
obligation less than
(in excess of) plan
assets................. 27,946 (38,768) 34,230 (30,356)
Unrecognized net (gain)
loss................... (67,949) 13,402 (42,796) 4,865
Prior service cost not
yet recognized in net
periodic pension cost.. 19,820 2,968 11,308 4,585
Unrecognized net
obligation being
amortized over future
service periods of plan
participants........... 877 4,406 2,677 759
Adjustment to reflect
minimum liability...... (8,775) (8,762)
Contribution in fourth
fiscal quarter......... 2,560 1,940
--------- -------- --------- --------
Pension (liability)
asset.................. $ (16,746) $(26,767) $ 7,359 $(28,909)
========= ======== ========= ========
</TABLE>
31
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 6--RETIREMENT PLANS (CONTINUED)
Assumptions used in the accounting for the Company's plans were:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
U.S. plans
Discount or settlement rate.................... 7.25% 7.50% 7.50%
Rates of increase in compensation levels....... 4.00-5.92 4.00-6.17 4.00-6.17
Expected long-term rate of return on assets.... 8.50 8.50 8.50
Non-U.S. plans
Discount or settlement rates................... 3.50-7.50 6.00-8.00 7.00-9.00
Rates of increase in compensation levels....... 2.50-5.00 3.50-6.00 3.50-6.50
Expected long-term rates of return on assets... 6.00-8.25 6.00-9.00 7.00-9.25
</TABLE>
Plan assets include equity and fixed income securities, real estate
investments, insurance contracts and short term investments.
The Company sponsors several defined contribution plans for substantially
all U.S. employees and certain foreign employees. The plans allow employees to
contribute a portion of their earnings in accordance with specified
guidelines. At April 3, 1998, plan assets included 5,729,033 shares of the
Company's common stock. During fiscal 1998, 1997 and 1996, the Company
contributed $35,216, $29,772 and $20,809, respectively.
OTHER POSTRETIREMENT 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 postretirement benefit
costs, relating principally to retiree healthcare, amounted to $4,496, $4,931
and $5,100 in fiscal 1998, 1997 and 1996, respectively.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost, benefits earned during the
period....................................... $ 662 $ 865 $ 831
Interest cost on accumulated benefit
obligation................................... 3,044 3,031 3,018
Actual return on plan assets.................. (3,543) (1,565) (1,463)
Amortization of initial obligation............ 1,633 1,633 1,633
Amortization of prior service cost............ 490 36
Amortization of net gain...................... (389) (44) (42)
Asset gain deferred........................... 2,599 975 1,123
------- ------- -------
Net provision for postretirement benefits..... $ 4,496 $ 4,931 $ 5,100
======= ======= =======
</TABLE>
32
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 6--RETIREMENT PLANS (CONTINUED)
The status of the plan and amounts recognized in the Company's consolidated
balance sheets are as follows:
<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
1998 1997
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligation
applicable to:
Retirees............................................ $(21,456) $(20,302)
Fully eligible plan participants.................... (6,510) (3,518)
Other active plan participants...................... (19,860) (13,109)
-------- --------
Accumulated postretirement benefit obligation......... (47,826) (36,929)
Plan assets at fair market value...................... 20,311 12,721
-------- --------
Accumulated postretirement benefit obligation in
excess of plan assets................................ (27,515) (24,208)
Unrecognized net gain................................. (7,481) (9,419)
Unrecognized transition obligation.................... 23,726 25,359
Prior service cost not yet recognized in net periodic
postretirement benefit cost.......................... 4,900 649
-------- --------
Accrued postretirement benefit liability.............. $ (6,370) $ (7,619)
======== ========
</TABLE>
The assumed rate of return on plan assets was 8.5% and 7.5% for fiscal 1998
and 1997, respectively, and the discount rate used to estimate the accumulated
postretirement benefit obligation was 7.25% and 7.5% for fiscal 1998 and 1997,
respectively. Plan assets include equity and fixed income securities and short
term investments. The assumed healthcare cost trend rate used in measuring the
expected benefit obligation was 8.5% for fiscal 1998, declining to 5.0% for
2004 and subsequent years. A one-percentage point increase in the assumed
healthcare cost trend rate would increase the accumulated postretirement
benefit obligation as of April 3, 1998, and the net periodic postretirement
benefit cost for fiscal 1998 by $5,123 and $561, respectively.
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 $183,128 (1998), $162,777
(1997), and $148,088 (1996).
Minimum fixed rentals required for the next five years and thereafter under
operating leases in effect at April 3, 1998 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR REAL ESTATE EQUIPMENT
----------- ----------- ---------
<S> <C> <C>
1999................................................. $ 79,260 $50,163
2000................................................. 66,041 21,672
2001................................................. 55,192 7,526
2002................................................. 44,456 1,844
2003................................................. 36,300 127
Thereafter........................................... 100,636 44
-------- -------
$381,885 $81,376
======== =======
</TABLE>
33
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 7--COMMITMENTS AND CONTINGENCIES (CONTINUED)
DST Systems, Inc., a shareholder of the Company, provides data processing
and consulting services and licenses certain software products to the Company.
During the fiscal years ended April 3, 1998, March 28, 1997 and March 29,
1996, the Company incurred aggregate expenses of $27,271, $22,788 and $22,647,
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.
Furthermore, the Company continuously reviews its accounts receivables and
records provisions for doubtful accounts as needed.
The Company is currently party to a number of disputes which involve or may
involve litigation. 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.
NOTE 8--STOCK INCENTIVE PLANS
Stock Options. 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 4,702,000
shares of CSC common stock at an average exercise price of $16.95 per share),
and shares of restricted Continuum common stock were converted into 45,232
shares of restricted CSC common stock. At April 3, 1998, March 28, 1997 and
March 29, 1996, 1,938,838, 4,588,930 and 6,852,000 shares, respectively, of
CSC common stock were available for the grant to employees of future stock
options, restricted stock or other stock-based incentives.
Information concerning stock options granted under stock incentive plans is
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 13,157,762 $20.22 13,972,880 $15.45 14,327,886 $12.77
Granted................. 3,285,950 35.36 3,148,736 34.74 2,657,384 24.75
Exercised............... (3,820,152) 15.20 (2,918,180) 12.77 (2,367,032) 9.39
Canceled................ (776,702) 28.83 (1,045,674) 20.90 (645,358) 16.51
---------- ---------- ----------
Outstanding, end of
year................... 11,846,858 25.48 13,157,762 20.23 13,972,880 15.45
========== ====== ========== ====== ========== ======
Exercisable, end of
year................... 4,261,089 $16.21 5,412,886 $13.79 4,761,898 $11.19
========== ====== ========== ====== ========== ======
</TABLE>
34
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 8--STOCK INCENTIVE PLANS (CONTINUED)
<TABLE>
<CAPTION>
APRIL 3, 1998
----------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
WEIGHTED WEIGHTED AVERAGE WEIGHTED
RANGE OF OPTION EXERCISE NUMBER AVERAGE REMAINING NUMBER AVERAGE
PRICE OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
- ------------------------ ----------- -------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ .17-$12.17.......... 2,520,076 $10.12 4.0 2,117,491 $ 9.84
12.25-22.69.......... 2,416,970 17.93 6.1 1,386,796 17.26
23.38-33.50.......... 1,276,640 26.03 7.5 276,200 26.27
33.75-33.94.......... 2,541,400 33.93 9.1 19,070 33.76
34.00-53.28.......... 3,091,772 36.72 8.5 461,532 35.59
</TABLE>
The Company uses the intrinsic value based method of accounting for stock
options, under which compensation cost is equal to the excess, if any, of the
quoted market price of the stock at the option grant date over the exercise
price, and is amortized over the vesting period. Compensation cost recognized
with respect to stock options was $377, $442 and $213 for fiscal 1998, 1997
and 1996, respectively.
Restricted Stock. Restricted stock awards consist of shares of common stock
of the Company sold at par value ($1 per share). Upon sale to an employee,
shares of restricted stock become outstanding, receive dividends and have
voting rights. The shares are subject to forfeiture and to restrictions which
limit the sale or transfer during the restriction period.
The restrictions on shares of Continuum restricted stock lapse ratably on
the first five anniversaries of the date of sale, and were granted coincident
with cash bonuses aggregating $211 during the fiscal year ended March 29,
1996. The restrictions on shares of CSC restricted stock (other than Continuum
restricted stock) generally lapse on the fifth, sixth and seventh
anniversaries of the date of sale.
At April 3, 1998, March 28, 1997 and March 29, 1996, 165,302, 296,482 and
400,348 shares, respectively, of CSC restricted stock were outstanding, net of
shares forfeited by or repurchased from terminated employees, and shares for
which the restrictions have lapsed.
The Company uses the intrinsic value based method of accounting for
restricted stock, under which compensation cost is equal to the excess, if
any, of the quoted market price of the stock at the date of sale to the
employee over the sales price, and is amortized over the restriction period.
Compensation cost recognized with respect to restricted stock was $645, $742
and $1,049 during fiscal 1998, 1997 and 1996, respectively.
Restricted Stock Units. During fiscal 1998, the Company adopted a stock
incentive plan which authorizes the issuance of stock options, restricted
stock and other stock-based incentives to nonemployee directors upon terms
approved by the Company's Board of Directors. As of April 3, 1998, 22,488
restricted stock units ("RSUs") had been awarded to nonemployee directors
under this plan and were outstanding on that date.
When a holder of RSUs ceases to be a director of the Company, the RSUs are
automatically redeemed for shares of CSC common stock and dividend equivalents
with respect to such shares. At the holder's election, which must be made
within 30 days after the date of the award, the RSUs may be redeemed (i) as an
entirety, upon the day the holder ceases to be a director, or (ii) in
substantially equal amounts upon the first five, ten or fifteen anniversaries
of such day.
35
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 8--STOCK INCENTIVE PLANS (CONTINUED)
There are two types of RSUs: (i) those awarded in lieu of vested retirement
benefits under other plans ("Accrued Benefit RSUs"); and (ii) those awarded as
a form of future retirement benefits ("Future Benefit RSUs"). When a holder of
Accrued Benefit RSUs ceases to be a director of the Company, the number of
shares of CSC common stock to be delivered by the Company upon redemption of
the RSUs is equal to the number of such RSUs awarded. When a holder of Future
Benefit RSUs ceases to be a director, the number of shares to be delivered
upon redemption is equal to 20% of the number of such RSUs awarded, multiplied
by the number of full years (but not in excess of 5) that the holder served as
a director after the date of award.
At April 3, 1998, 8,778 Accrued Benefit RSUs and 13,710 Future Benefit RSUs
were outstanding, and 77,512 shares of CSC common stock remained available for
the grant to nonemployee directors of future RSUs or other stock-based
incentives.
The Company uses the intrinsic value based method of accounting for RSUs,
under which compensation cost is equal to 100% of the total number of the RSUs
awarded, multiplied by the quoted market price of the stock at the date of
award, and is amortized, in the case of Future Benefit RSUs, over the vesting
period. Compensation cost recognized with respect to RSUs was $413 for fiscal
1998.
Pro Forma Information. 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 stock option awards would be charged against income on a straight-line
basis over the vesting period. The effects on pro forma disclosures of
applying SFAS No. 123, "Accounting for Stock-Based Compensation," are not
likely to be representative of the effects on pro forma disclosures of future
years, because SFAS No. 123 is applicable only to options granted subsequent
to fiscal 1995.
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ---------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income.............. $260,369 $246,161 $192,413 $182,649 $109,431 $106,063
Basic earnings per
share.................. 1.68 1.59 1.27 1.20 0.74 0.71
Diluted earnings per
share.................. 1.64 1.55 1.23 1.17 0.71 0.69
</TABLE>
The weighted average fair values of stock options granted during fiscal
1998, 1997 and 1996 were $12.08, $11.53 and $8.11, respectively. The fair
value of each stock option was estimated on the date of grant using the Black-
Scholes option-pricing model with the following weighted average assumptions
used for grants in 1998, 1997 and 1996, respectively: risk-free interest rates
of 6.43%, 6.55% and 6.16%; expected volatility of 28%, 26% and 26%; and
expected lives in years of 6.06, 5.75 and 5.75.
Promissory Notes. Certain acquired companies sold shares of their common
stock to employees and directors in exchange for non-interest bearing
promissory notes secured by the shares. The outstanding principal balances of
these notes amounted to $127 at April 3, 1998 and are classified as a
reduction of stockholders' equity.
36
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 9--STOCKHOLDER PURCHASE RIGHTS PLAN
On December 21, 1988, the Company adopted a stockholder rights plan pursuant
to which it issued one right for each outstanding share of its common stock.
On February 27, 1998, the Company's Board of Directors redeemed these rights
for one sixth of one cent per right. The redemption price was paid after the
end of fiscal 1998 to the holders of record of rights as of the close of
business March 30, 1998.
On February 18, 1998, the Company adopted a new stockholder rights plan
pursuant to which it issued one right for each outstanding share of its common
stock. These rights, which are attached to and trade only together with the
common stock, are not currently exercisable. On the tenth business day after
any person or entity becomes the beneficial owner of 10% or more of CSC's
common stock, each right (other than rights held by the 10% stockholder, which
will become void) will become exercisable to purchase, for $250, CSC common
stock having a market value of $500. The rights expire February 18, 2008, and
may be redeemed by the Board of Directors at $.0005 per right at any time
before they become exercisable.
NOTE 10--SEGMENT AND GEOGRAPHIC INFORMATION
The Company's business involves operations in principally one industry
segment, providing management and 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
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
United States........................... $4,406,236 $3,795,361 $3,342,317
Europe.................................. 1,770,955 1,474,933 1,109,616
Other................................... 423,647 345,754 288,827
---------- ---------- ----------
Total................................. $6,600,838 $5,616,048 $4,740,760
========== ========== ==========
Operating income
United States........................... $ 165,625 $ 342,353 $ 248,642
Europe.................................. 108,788 32,998 6,514
Other................................... 14,355 1,198 11,737
---------- ---------- ----------
Total................................. $ 288,768 $ 376,549 $ 266,893
========== ========== ==========
Identifiable assets at year end
United States........................... $2,579,269 $2,608,849 $1,844,305
Europe.................................. 1,193,131 726,953 931,183
Other................................... 274,395 157,285 160,531
---------- ---------- ----------
Total................................. $4,046,795 $3,493,087 $2,936,019
========== ========== ==========
</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.
37
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 10--SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
The composition of the special charges included in the operating income
above is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
United States....................................... $229,093 $27,247 $42,138
Europe.............................................. 10,300 31,816
Other............................................... 11,382 2,099
-------- ------- -------
Total............................................. $229,093 $48,929 $76,053
======== ======= =======
</TABLE>
The Company derives a significant portion of its revenues from departments
and agencies of the United States government. At April 3, 1998, approximately
27% 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
-----------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Department of Defense... $1,071,958 16% $1,082,885 19% $ 961,587 20%
National Aeronautics and
Space Administration... 298,592 5 299,388 5 310,053 7
Other civil agencies.... 260,183 4 253,394 5 299,859 6
---------- --- ---------- --- ---------- ---
Total................. $1,630,733 25% $1,635,667 29% $1,571,499 33%
========== === ========== === ========== ===
</TABLE>
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 "Credit Reporting
Put Option"). Both options require six months' advance notice and expire on
August 1, 2013.
On November 25, 1997, the Collections Put Option was exercised and the
collections business was sold for approximately $38,000. The transaction was
consummated after the end of fiscal 1998.
The exercise price of the Credit Reporting Put Option is determined by
certain financial formulas if notice of exercise is given on or prior to July
31, 1998. In the opinion of management, the exercise price of the Credit
Reporting Put Option on or prior to July 31, 1998, as determined using
consistent methods of calculation under the financial formulas, approximated
$526,000 at April 3, 1998. In its annual report for the year ended
38
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
NOTE 11--AGREEMENTS WITH EQUIFAX (CONTINUED)
December 31, 1997, Equifax Inc. stated that this exercise price is currently
estimated at approximately $375,000. Both amounts have been reduced to reflect
the sale of the collections business, which occurred after April 3, 1998.
If notice of exercise of the Credit Reporting Put Option is given after July
31, 1998, the exercise price is equal to the appraised value of the assets
subject to the option.
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 Credit Reporting Put
Option prior to the termination of the then-current term or (ii) there is a
change in control of the Company, then ECIS has an option for 60 days after
the date of such event to require the Company to sell to it the credit
reporting business at the Credit Reporting Put Option exercise price.
Effective December 1990, the Company established a joint venture, named CSC
Enterprises, to operate the Company's credit services and collections
businesses, and to carry out other business strategies through acquisition and
investment. The joint venture is structured as a general partnership, and an
affiliate of the Company is the managing general partner. The Company assigned
to this partnership its credit reporting and collections businesses and all of
its rights under the Operating Agreement.
As of March 28, 1997, the partners of CSC Enterprises included affiliates of
CSC, affiliates of Equifax Inc., and Merel Corporation. As described in Note
2, during the fiscal quarter ended June 27, 1997 the Equifax affiliates
withdrew from CSC Enterprises and CSC recognized a deferred tax asset of
$135,000 and an after-tax special charge of $133,293.
As of April 3, 1998, the partners of CSC Enterprises included the Company,
certain affiliates of the Company and Merel Corporation. The Company's rights
under the Operating Agreement, including its put option exercise rights,
remain exercisable by the Company through its affiliates.
39
<PAGE>
COMPUTER SCIENCES CORPORATION
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1998
--------------------------------------------
1ST 2ND 3RD 4TH
IN THOUSANDS EXCEPT PER-SHARE QUARTER QUARTER QUARTER QUARTER
AMOUNTS ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues......................... $1,488,750 $1,578,824 $1,664,092 $1,869,172
Income before taxes.............. (127,612) 92,353 106,632 119,496
Net income....................... 52,588 58,553 69,132 80,096
Net earnings per share:
Basic.......................... 0.34 0.38 0.44 0.51
Diluted........................ 0.33 0.37 0.44 0.50
<CAPTION>
FISCAL 1997
--------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER 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:
Basic.......................... 0.30 0.09 0.38 0.49
Diluted........................ 0.29 0.09 0.37 0.48
<CAPTION>
FISCAL 1996
--------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER 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:
Basic.......................... 0.24 0.27 0.13 0.10
Diluted........................ 0.24 0.26 0.13 0.09
</TABLE>
A discussion of "special items" for the three fiscal years ended 1998 is
included in Note 2 to the consolidated financial statements.
40
<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 1998 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after April 3, 1998. 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."
41
<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 48.
(3) EXHIBITS
The following exhibits are filed with this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
3.1 Restated Articles of Incorporation, effective October 31, 1988 (c)
3.2 Amendment to Restated Articles of Incorporation, effective
August 10, 1992 (i)
3.3 Amendment to Restated Articles of Incorporation, effective July
31, 1996 (l)
3.4 Certificate of Amendment of Certificate of Designations of
Series A Junior Participating Preferred Stock, effective August
1, 1996 (n)
3.5 Bylaws, amended and restated effective May 4, 1998
10.1 1978 Stock Option Plan, amended and restated effective March 31,
1988* (m)
10.2 1980 Stock Option Plan, amended and restated effective March 31,
1988* (m)
10.3 1984 Stock Option Plan, amended and restated effective March 31,
1988* (m)
10.4 1987 Stock Incentive Plan* (b)
10.5 Schedule to the 1987 Stock Incentive Plan for United Kingdom
personnel* (b)
10.6 1990 Stock Incentive Plan* (g)
10.7 1992 Stock Incentive Plan, amended and restated effective August
9, 1993* (m)
10.8 Schedule to the 1992 Stock Incentive Plan for United Kingdom
personnel* (p)
10.9 1995 Stock Incentive Plan* (j)
10.10 Form of Stock Option Agreement* (t)
10.11 Form of Restricted Stock Agreement* (t)
10.12 Annual Management Incentive Plan, effective April 2, 1983* (a)
10.13 Supplemental Executive Retirement Plan, amended and restated
effective February 27, 1998* (t)
10.14 Deferred Compensation Plan, amended and restated effective
February 2, 1998* (r)
10.15 Severance Plan for Senior Management and Key Employees, amended
and restated effective February 18, 1998 (s)
10.16 Severance Agreement with Van B. Honeycutt, effective February 2,
1998 (r)
10.17 Form of Indemnification Agreement for Officers (e)
10.18 Form of Indemnification Agreement for Directors (d)
10.19 1997 Nonemployee Director Stock Incentive Plan (q)
10.20 Form of Restricted Stock Unit Agreement
10.21 1990 Nonemployee Director Retirement Plan, amended and restated
effective February 2, 1998 (r)
10.22 Information Technology Services Agreements with General Dynamics
Corporation, dated as of November 4, 1991 (h)
10.23 Rights Agreement dated December 21, 1988, amended and restated
effective February 18, 1998 (s)
10.24 Rights Agreement dated February 18, 1998 (s)
21 Significant Active Subsidiaries and Affiliates of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule
99.1 Annual Report on Form 11-K for the Matched Asset Plan of the
Registrant for the fiscal year ended December 31, 1997
99.2 Annual Report on Form 11-K for the Hourly Savings Plan of CSC
Outsourcing, Inc. for the fiscal year ended December 31, 1997
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,
1997
</TABLE>
- --------
*Management contract or compensatory plan or agreement
42
<PAGE>
NOTES TO EXHIBIT INDEX:
(a)-(f) 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 (f) March 28, 1997
</TABLE>
(g) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8 filed on August 15, 1990.
(h) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated November 4, 1991.
(i) Incorporated herein by reference to the Registrant's Proxy Statement
for its August 10, 1992 Annual Meeting of Stockholders.
(j) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on November 13, 1995.
(k) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated April 28, 1996.
(l) Incorporated herein by reference to the Registrant's Proxy Statement
for its July 31, 1996 Annual Meeting of Stockholders.
(m) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on August 12, 1996.
(n) Incorporated herein by reference to the Registrant's Current Report of
Form 8-K dated August 1, 1996.
(o) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on November 12, 1996.
(p) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on February 10, 1997.
(q) Incorporated herein by reference to the Registrant's Proxy Statement
for its August 11, 1997 Annual Meeting of Stockholders.
(r) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on February 9, 1998.
(s) Incorporated herein by reference to the Registrant's
Solicitation/Recommendation Statement on Schedule 14D-9 filed on
February 26, 1998.
(t) Incorporated herein by reference to Amendment No. 2 to the Registrant's
Solicitation/ Recommendation Statement on Schedule 14D-9 filed on March
2, 1998.
43
<PAGE>
(B)REPORTS ON FORM 8-K
There were three reports on Form 8-K filed during the fourth quarter of
fiscal 1998:
(1) on February 2, 1998, the Registrant filed a Current Report on Form 8-K
dated February 2, 1998 which reported that on that date, the Board of
Directors of the Registrant declared a 2-for-1 stock split in the form
of a 100% stock dividend with respect the Registrant's common stock,
payable to stockholders of record on March 2, 1998;
(2) on February 4, 1998, the Registrant filed a Current Report on Form 8-K
dated February 2, 1998 which clarified that the previously reported 2-
for-1 stock split in the form of a 100% stock dividend with respect the
Registrant's common stock was payable on March 23, 1998 to stockholders
of record as of March 2, 1998; and
(3) on February 17, 1998, the Registrant filed a Current Report on Form 8-K
dated February 16, 1998 which reported that on February 16, 1998, the
Board of Directors of the Registrant amended the Bylaws to opt out of
the "Control Shares" provisions of the Nevada Revised Statutes.
44
<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 15, 1998 /s/ Van B. Honeycutt
By: ___________________________
VAN B. HONEYCUTT,
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Van B. Honeycutt Chairman, President and June 15, 1998
____________________________________ Chief Executive Officer
VAN B. HONEYCUTT (Principal Executive
Officer)
/s/ Leon J. Level Vice President, Chief June 15, 1998
____________________________________ Financial Officer and
LEON J. LEVEL Director (Principal
Financial Officer)
/s/ Scott M. Delanty Vice President and June 15, 1998
____________________________________ Controller (Principal
SCOTT M. DELANTY Accounting Officer)
Director
____________________________________
RICHARD C. LAWTON
Director
____________________________________
IRVING W. BAILEY, II
/s/ William R. Hoover Director June 15, 1998
____________________________________
WILLIAM R. HOOVER
/s/ Thomas A. McDonnell Director June 15, 1998
____________________________________
THOMAS A. MCDONNELL
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ F. Warren McFarlan Director June 15, 1998
____________________________________
F. WARREN MCFARLAN
/s/ James R. Mellor Director June 15, 1998
____________________________________
JAMES R. MELLOR
/s/ William P. Rutledge Director June 15, 1998
____________________________________
WILLIAM P. RUTLEDGE
</TABLE>
46
<PAGE>
COMPUTER SCIENCES CORPORATION AND SUBSIDIARIES
SCHEDULE VIII, VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED APRIL 3, 1998
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE, CHARGED TO COST BALANCE,
BEGINNING OF PERIOD AND EXPENSES OTHER (1) DEDUCTIONS END OF PERIOD
IN THOUSANDS ------------------- --------------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended April 3, 1998
Allowance for doubtful
receivables............ $52,507 $31,828 $3,724 $12,686 $75,373
Year ended March 28,
1997
Allowance for doubtful
receivables............ 45,425 22,288 (618) 14,588 52,507
Year ended March 29,
1996
Allowance for doubtful
receivables............ 32,254 20,623 1,001 8,453 45,425
</TABLE>
- --------
(1) Includes balances from acquisitions, changes in balances due to foreign
currency exchange rates and recovery of prior-year charges.
47
<PAGE>
EXHIBIT 3.5
BYLAWS
OF
COMPUTER SCIENCES CORPORATION
As amended May 4, 1998
<PAGE>
BYLAWS
OF
COMPUTER SCIENCES CORPORATION
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the corporation
----------------
in the State of Nevada shall be in the City of Reno, County of Washoe.
SECTION 2. OTHER OFFICES. The corporation may also have offices in
-------------
such other places, both within and without the State of Nevada, as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF ANNUAL MEETINGS. Annual meetings of the
------------------------
stockholders shall be held at the office of the corporation in the City of El
Segundo, State of California or at such other place, within or without the state
of California, as shall be designated by the Board of Directors.
SECTION 2. DATE OF ANNUAL MEETINGS; ELECTION OF DIRECTORS. Annual
----------------------------------------------
meetings of the stockholders shall be held at such time and date as the Board of
Directors shall determine. At each such annual meeting, the stockholders of the
corporation shall elect a Board of Directors and transact such other business as
has properly been brought before the meeting in accordance with Section 12 of
this Article II.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders,
----------------
for any purpose or purposes, unless otherwise prescribed by statute, by the
Articles of Incorporation or by these Bylaws, may be called by the Chairman of
the Board, the Board of Directors, or by the president and not otherwise, except
as provided in the following sentence. In the event the corporation shall have
failed to hold its annual meeting of stockholders for a period of 18 months from
the last preceding annual meeting at which directors were elected or if such
annual meeting shall have been held but directors shall not have been elected at
such annual meeting, a special meeting of the stockholders shall be called by
the president or secretary at the request in writing of a majority of the Board
of Directors or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request from stockholders shall be directed to the
Chairman of the Board, the president, the vice president or the secretary. To
be in proper written form, a stockholder's notice
<PAGE>
must set forth (i) the name and record address of such stockholder, (ii) the
class or series and number of shares of capital stock of the corporation which
are owned beneficially or of record by such stockholder, (iii) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the election of directors
and any material interest of such stockholder in such election and (iv) a
representation that such stockholder intends to appear in person or by proxy at
such special meeting to vote on the election of directors at such meeting. The
business transacted at such special meeting shall be confined to the election of
directors.
SECTION 4. NOTICES OF MEETINGS. Notices of meetings of the
-------------------
stockholders shall be in writing and signed by the president, a vice president,
the secretary, an assistant secretary, or by such other person or persons as the
directors shall designate. Such notice shall state the purpose or purposes for
which the meeting is called and the time when, and the place where, it is to be
held. A copy of such notice shall be either delivered personally or shall be
mailed, postage prepaid, to each stockholder of record entitled to vote at such
meeting not less than ten (10) nor more than sixty (60) days before such
meeting. If mailed, it shall be directed to the stockholder at his address as
it appears upon the records of the corporation and upon such mailing of any such
notice, the service thereof shall be complete, and the time of the notice shall
begin to run from the date upon which such notice is deposited in the mail for
transmission to such stockholder. If no such address appears on the books of
the corporation and a stockholder has given no address for the purpose of
notice, then notice shall be deemed to have been given to such stockholder if it
is published at least once in a newspaper of general circulation in the county
in which the principal executive office of the corporation is located. An
affidavit of the mailing or publication of any such notice shall be prima facie
evidence of the giving of such notice.
Personal delivery of any such notice to any officer of a corporation
or association, or to any member of a partnership shall constitute delivery of
such notice to such corporation, association or partnership. If any notice
addressed to the stockholder at the address of such stockholder appearing on the
books of the corporation is returned to the corporation by the United States
Postal Service marked to indicate that it is unable to deliver the notice to the
stockholder at such address, all future notices shall be deemed to have been
duly given to such stockholder, without further mailing, if the same shall be
available for the stockholder upon written demand of the stockholder at the
principal executive office of the corporation for a period of one year from the
date of the giving of the notice to all other stockholders.
SECTION 5. QUORUM. The holders of a majority of the stock issued and
------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by the statutes of Nevada
or by the Articles of Incorporation. Regardless of whether or not a quorum is
present
2
<PAGE>
or represented at any annual or special meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present in
person or represented by proxy, provided that when any stockholders' meeting is
adjourned for more than forty-five (45) days, or if after adjournment a new
record date is fixed for the adjourned meeting, notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
At such adjourned meeting at which a quorum shall be present or represented by
proxy, any business may be transacted which might have been transacted at the
meeting as originally noticed.
SECTION 6. VOTE REQUIRED. When a quorum is present or represented at
-------------
any meeting, the holders of a majority of the stock present in person or
represented by proxy and voting shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of the
statutes of Nevada, the Articles of Incorporation or these Bylaws, a different
vote is required, in which case such express provision shall govern and control
the decision of such question. The stockholders present at a duly called or
held meeting at which a quorum is present may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum.
SECTION 7. CUMULATIVE VOTING. Except as otherwise provided in the
-----------------
Articles of Incorporation, every stockholder of record of the corporation shall
be entitled at each meeting of the stockholders to one vote for each share of
stock standing in his name on the books of the corporation. At all elections of
directors of this corporation, each holder of shares of capital stock possessing
voting power shall be entitled to as many votes as shall equal the number of his
shares of stock multiplied by the number of directors to be elected, and he may
cast all of such votes for a single director or may distribute them among the
number to be voted for or any two or more of them, as he may see fit. The
stockholders of this corporation and any proxyholders for such stockholders are
entitled to exercise the right to cumulative voting at any meeting held for the
election of directors if: (a) not less than forty-eight (48) hours before the
time fixed for holding such meeting, if notice of the meeting has been given at
least ten (10) days prior to the date of the meeting, and otherwise not less
than twenty-four (24) hours before such time, a stockholder of this corporation
has given notice in writing to the president or secretary of the corporation
that he desires that the voting at such election of directors shall be
cumulative; and (b) at such meeting, prior to the commencement of voting for the
election of directors, an announcement of the giving of such notice has been
made by the chairman or the secretary of the meeting or by or on behalf of the
stockholder giving such notice. Notice to stockholders of the requirements of
the preceding sentence shall be contained in the notice calling such meeting or
in the proxy material accompanying such notice.
3
<PAGE>
SECTION 8. CONDUCT OF MEETINGS. Subject to the requirements of the
-------------------
statutes of Nevada, and the express provisions of the Articles of Incorporation
and these Bylaws, all annual and special meetings of stockholders shall be
conducted in accordance with such rules and procedures as the Board of Directors
may determine and, as to matters not governed by such rules and procedures, as
the chairman of such meeting shall determine. The chairman of any annual or
special meeting of stockholders shall be designated by the Board of Directors
and, in the absence of any such designation, shall be the president of the
corporation.
SECTION 9. PROXIES. At any meeting of the stockholders, any
-------
stockholder may be represented and vote by a proxy or proxies appointed by an
instrument in writing. In the event that such instrument in writing shall
designate two or more persons to act as proxies, a majority of such persons
present at the meeting, or, if only one shall be present, then that one shall
have and may exercise all of the powers conferred by such written instrument
upon all of the persons so designated unless the instrument shall otherwise
provide. No such proxy shall be valid after the expiration of six (6) months
from the date of its execution, unless coupled with an interest, or unless the
person executing it specifies therein the length of time for which it is to
continue in force, which in no case shall exceed seven (7) years from the date
of its execution. Subject to the above, any proxy duly executed is not revoked
and continues in full force and effect until (i) an instrument revoking it or
duly executed proxy bearing a later date is filed with the secretary of the
corporation or, (ii) the person executing the proxy attends such meeting and
votes the shares subject to the proxy, or (iii) written notice of the death or
incapacity of the maker of such proxy is received by the corporation before the
vote pursuant thereto is counted.
SECTION 10. ACTION BY WRITTEN CONSENT. Any action, except election
-------------------------
of directors, which may be taken by a vote of the stockholders at a meeting, may
be taken without a meeting and without notice if authorized by the written
consent of stockholders holding at least ninety percent (90%) of the voting
power.
SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting of
----------------------
stockholders, the Board of Directors may appoint inspectors of election to act
at such meeting and any adjournment thereof. If inspectors of election are not
so appointed, or if any persons so appointed fail to appear or refuse to act,
then, unless other persons are appointed by the Board of Directors prior to the
meeting, the chairman of any such meeting may, and on the request of any
stockholder or a stockholder proxy shall, appoint inspectors of election (or
persons to replace those who fail to appear or refuse to act) at the meeting.
The number of inspectors shall not exceed three.
The duties of such inspectors shall include: (a) determining the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, and the authenticity,
validity and effect of proxies; (b) receiving votes, ballots or consents; (c)
hearing and determining all
4
<PAGE>
challenges and questions in any way arising in connection with the right to
vote; (d) counting and tabulating all votes or consents and determining the
result; and (e) taking such other action as may be proper to conduct the
election or vote with fairness to all stockholders. In the determination of the
validity and effect of proxies, the dates contained on the forms of proxy shall
presumptively determine the order of execution of the proxies, regardless of the
postmark dates on the envelopes in which they are mailed. The inspectors of
election shall perform their duties impartially, in good faith, to the best of
their ability and as expeditiously as is practical. If there are three
inspectors of election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all. Any report
or certificate made by the inspectors of election is prima facie evidence of the
facts stated therein.
SECTION 12. ACTION AT MEETINGS OF STOCKHOLDERS. No business may be
----------------------------------
transacted at an annual meeting of stockholders, other than business that is
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (b) otherwise properly brought
before the annual meeting by or at the direction of the Board of Directors or
(c) otherwise properly brought before the annual meeting by any stockholder of
the Corporation (i) who is a stockholder of record on the date of the giving of
the notice provided for in this Section 12 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 12.
In addition to any other applicable requirements, for business
properly to be brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
Chairman of the Board, if any, the President, or the Secretary of the
Corporation.
To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
one hundred twenty (120) days nor more than one hundred fifty (150) days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
-------- -------
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the 5:00 o'clock, p.m., Los Angeles, California time on
the tenth (10th) day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure of the date of the annual
meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice must set forth as
to each matter such stockholder proposes to bring before the annual meeting (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of such stockholder, (iii) the class or series and
number of
5
<PAGE>
shares of capital stock of the Corporation which are owned beneficially or of
record by such stockholder, (iv) a description of all arrangements or
understandings between such stockholder and any other person or persons
(including their names) in connection with the proposal of such business by such
stockholder and any material interest of such stockholder in such business and
(v) a representation that such stockholder intends to appear in person or by
proxy at the annual meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 12, provided, however, that, once business
-------- -------
has been brought properly before the annual meeting in accordance with such
procedures, nothing in this Section 12 shall be deemed to preclude discussion by
any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not brought properly before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not brought properly before the meeting and such
business shall not be transacted.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The exact number of directors that
-------------------
shall constitute the authorized number of members of the Board shall be nine
(9), all of whom shall be at least 18 years of age. The authorized number of
directors may from time to time be increased to not more than fifteen (15) or
decreased to not less than three (3) by resolution of the directors of the
corporation amending this section of the Bylaws in compliance with Article VIII,
Section 2 of these Bylaws. Except as provided in Section 2 of this Article III,
each director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders.
SECTION 2. VACANCIES. Vacancies, including those caused by (i) the
---------
death, removal, or resignation of directors, (ii) the failure of stockholders to
elect directors at any annual meeting, and (iii) an increase in the number of
directors, may be filled by a majority of the remaining directors though less
than a quorum. When one or more directors shall give notice of his or their
resignation to the Board, effective at a future date, the acceptance of such
resignation shall not be necessary to make it effective. The Board shall have
power to fill such vacancy or vacancies to take effect when such resignation or
resignations shall become effective, each director so appointed to hold office
during the remainder of the term of office of the resigning director or
directors. No director or directors of this corporation shall be removed from
office except upon the affirmative vote of stockholders owning a fraction of the
total number of outstanding shares of the Company's voting stock
6
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equal to (a) one (1) minus (b) the ratio of (x) one (1) divided by (y) the sum
of one (1) plus the authorized number of directors.
SECTION 3. AUTHORITY. The business of the corporation shall be
---------
managed and all corporate powers shall be exercised by or under the direction of
the Board of Directors.
SECTION 4. MEETINGS. The Board of Directors of the corporation may
--------
hold meetings, both regular and special, at such place, either within or without
the State of Nevada, which has been designated by resolution of the Board of
Directors. In the absence of such designation, meetings shall be held at the
office of the corporation in the City of El Segundo, State of California.
SECTION 5. FIRST MEETING. The first meeting of the newly elected
-------------
Board of Directors shall be held immediately following the annual meeting of the
stockholders and no notice of such meeting to the newly elected directors shall
be necessary in order legally to constitute a meeting, provided a quorum shall
be present.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of
----------------
Directors may be held without notice at such time and place as shall from time
to time be determined by the Board.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of
----------------
Directors may be called by the Chairman of the Board, or the president and shall
be called by the president or secretary at the written request of two directors.
Notice of the time and place of special meetings shall be given within 30 days
to each director (a) personally or by telephone, telegraph, facsimile or
electronic means, in each case at least twenty four (24) hours prior to the
holding of the meeting, or (b) by mail, charges prepaid, addressed to him at his
address as it is shown upon the records of the corporation (or, if it is not so
shown on such records and is not readily ascertainable, at the place at which
the meetings of the directors are regularly held) at least three (3) days prior
to the holding of the meeting. Notice by mail shall be deemed to have been
given at the time a written notice is deposited in the United States mails,
postage prepaid. Any other written notice shall be deemed to have been given at
the time it is personally delivered to the recipient or is delivered to a common
carrier for transmission, or actually transmitted by the person giving the
notice by electronic means, to the recipient. Oral notice shall be deemed to
have been given at the time it is communicated, in person or by telephone or
wireless, to the recipient or to a person at the office of the recipient who the
person giving the notice has reason to believe will promptly communicate it to
the recipient. Any notice, waiver of notice or consent to holding a meeting
shall state the time, date and place of the meeting but need not specify the
purpose of the meeting.
SECTION 8. QUORUM. Presence in person of a majority of the Board of
------
Directors, at a meeting duly assembled, shall be necessary to constitute a
quorum
7
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for the transaction of business and the act of a majority of the directors
present and voting at any meeting, at which a quorum is then present, shall be
the act of the Board of Directors, except as may be otherwise specifically
provided by the statutes of Nevada or by the Articles of Incorporation. A
meeting at which a quorum is initially present shall not continue to transact
business in the absence of a quorum.
SECTION 9. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by
-------------------------
the Articles of Incorporation or by these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if a written consent thereto is signed by all members of the
Board. Such written consent shall be filed with the minutes of proceedings of
the Board of Directors.
SECTION 10. TELEPHONIC MEETINGS. Unless otherwise restricted by the
-------------------
Articles of Incorporation or these Bylaws, members of the Board of Directors or
of any committee designated by the Board of Directors may participate in a
meeting of the Board or committee by means of a conference telephone network or
a similar communications method by which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to the
preceding sentence constitutes presence in person at such meeting.
SECTION 11. ADJOURNMENT. A majority of the directors present at any
-----------
meeting, whether or not a quorum is present, may adjourn any directors' meeting
to another time, date and place. If any meeting is adjourned for more than
twenty-four (24) hours, notice of any adjournment to another time, date and
place shall be given, prior to the time of the adjourned meeting, to the
directors who were not present at the time of adjournment. If any meeting is
adjourned for less than twenty-four (24) hours, notice of any adjournment shall
be given to absent directors, prior to the time of the adjourned meeting, unless
the time, date and place is fixed at the meeting adjourned.
SECTION 12. COMMITTEES. The Board of Directors may, by resolution
----------
passed by a majority of the whole Board, designate one or more committees of the
Board of Directors. Such committee or committees shall have such name or names,
shall have such duties and shall exercise such powers as may be determined from
time to time by the Board of Directors.
SECTION 13. COMMITTEE MINUTES. The committees shall keep regular
-----------------
minutes of their proceedings and report the same to the Board of Directors.
SECTION 14. COMPENSATION OF DIRECTORS. The directors shall receive
-------------------------
such compensation for their services as directors, and such additional
compensation for their services as members of any committees of the Board of
Directors, as may be authorized by the Board of Directors.
8
<PAGE>
SECTION 15. MANDATORY RETIREMENT OF DIRECTORS. A director of the
---------------------------------
Corporation shall not serve beyond, and shall automatically retire at, the close
of the first meeting of the Board of Directors held during the month in which
such director shall become age 70; provided, however, that any person who was a
director on December 6, 1996 and who was age 65 or older on such date may serve
until, but shall automatically retire at, the close of the first meeting of the
Board of Directors held during the month in which such director shall become age
72. If no meeting of the Board of Directors is held during such month, the
director shall automatically retire as of the last day of such month.
Notwithstanding the foregoing, if the Board of Directors shall determine that it
is in the best interests of the Corporation and its stockholders for a person to
continue to serve as a director of the Corporation for a period of time not
exceeding one year after the date upon which this Section 15 would otherwise
require such person to retire, then such person shall not be so required to
retire until the end of such period of time.
ARTICLE IV
OFFICERS
SECTION 1. PRINCIPAL OFFICERS. The officers of the corporation shall
------------------
be elected by the Board of Directors and shall be a president, a secretary and a
treasurer. A resident agent for the corporation in the State of Nevada shall be
designated by the Board of Directors. Any person may hold two or more offices.
SECTION 2. OTHER OFFICERS. The Board of Directors may also elect one
--------------
or more vice presidents, assistant secretaries and assistant treasurers, and
such other officers and agents, as it shall deem necessary.
SECTION 3. QUALIFICATION AND REMOVAL. The officers of the
-------------------------
corporation mentioned in Section 1 of this Article IV shall hold office until
their successors are elected and qualify. Any such officer and any other
officer elected by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors.
SECTION 4. RESIGNATION. Any officer may resign at any time by giving
-----------
written notice to the corporation, without prejudice, however, to the rights, if
any, of the corporation under any contract to which such officer is a party.
Any such resignation shall take effect at the date of the receipt of such notice
or at any later time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
SECTION 5. POWERS AND DUTIES; EXECUTION OF CONTRACTS. Officers of
-----------------------------------------
this corporation shall have such powers and duties as may be determined by the
Board of Directors. Unless otherwise specified by the Board of Directors, the
president shall be the chief executive officer of the corporation. Contracts
and other instruments in the normal course of business may be executed on behalf
of
9
<PAGE>
the corporation by the president or any vice president of the corporation, or
any other person authorized by resolution of the Board of Directors.
ARTICLE V
STOCK AND STOCKHOLDERS
SECTION 1. ISSUANCE. Every stockholder shall be issued a certificate
--------
representing the number of shares owned by him in the corporation. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the certificate shall contain a statement setting
forth the office or agency of the corporation from which stockholders may obtain
a copy of a statement or summary of the designations, preferences and relative
or other special rights of the various classes of stock or series thereof and
the qualifications, limitations or restrictions of such rights. The corporation
shall furnish to its stockholders, upon request and without charge, a copy of
such statement or summary.
SECTION 2. FACSIMILE SIGNATURES. Whenever any certificate is
--------------------
countersigned or otherwise authenticated by a transfer agent or transfer clerk,
and by a registrar, then a facsimile of the signatures of the officers of the
corporation may be printed or lithographed upon such certificate in lieu of the
actual signatures. In case any officer or officers who shall have signed, or
whose facsimile signature or signatures shall have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
corporation, before such certificates shall have been delivered by the
corporation, such certificates may nevertheless be issued as though the person
or persons who signed such certificates, had not ceased to be an officer of the
corporation.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a
-----------------
new stock certificate to be issued in place of any certificate alleged to have
been lost or destroyed, and may require the making of an affidavit of that fact
by the person claiming the stock certificate to be lost or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent, require the owner of the lost or
destroyed certificate to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost or destroyed.
SECTION 4. TRANSFER OF STOCK. Upon surrender to the corporation or
-----------------
the transfer agent of the corporation of a certificate for shares duly endorsed
for transfer, it shall be the duty of the corporation to issue a new
certificate, cancel the old certificate and record the transaction upon its
books.
SECTION 5. RECORD DATE. The directors may fix a date not more than
-----------
sixty (60) days prior to the holding of any meeting as the date as of which
stockholders entitled to notice of and to vote at such meeting shall be
determined;
10
<PAGE>
and only stockholders of record on such day shall be entitled to notice or to
vote at such meeting. If no record date is fixed by the Board of Directors (a)
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be the sixtieth (60th) day preceding the day on
which the meeting is held; (b) the record date for determining stockholders
entitled to give consent to corporate action in writing without a meeting, when
no prior action by the Board has been taken, shall be the day on which the first
written consent is given; and (c) the record date for determining stockholders
for any other purpose shall be the day on which the Board of Directors adopts
the resolution relating thereto, or the sixtieth (60th) day prior to the date of
such action, whichever is later. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting unless the Board of Directors fixes a new record date
for the adjourned meeting, but the Board of Directors shall fix a new record
date if the meeting is adjourned for more than forty-five (45) days from the
date set for the original meeting.
SECTION 6. REGISTERED STOCK. The corporation shall be entitled to
----------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner and shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the statutes of Nevada.
SECTION 7. DIVIDENDS. In the event a dividend is declared, the stock
---------
transfer books will not be closed but a record date will be fixed by the Board
of Directors and only shareholders of record on that date shall be entitled to
the dividend.
ARTICLE VI
INDEMNIFICATION
SECTION 1. INDEMNITY OF DIRECTORS, OFFICERS AND AGENTS. The
-------------------------------------------
corporation shall indemnify and hold harmless any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was or has agreed to
become a director or officer of the corporation or is serving at the request of
the corporation as a director or officer of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise or by reason of
actions alleged to have been taken or omitted in such capacity or in any other
capacity while serving as a director or officer. The indemnification of
directors and officers by the corporation shall be to the fullest extent
authorized or permitted by applicable law, as such law exists or may hereafter
be amended (but only to the extent that such amendment permits the corporation
to provide broader indemnification rights than permitted prior to the
amendment). The indemnification of directors and officers shall be against all
loss, liability and expense (including attorneys fees, costs, damages,
judgments, fines,
11
<PAGE>
amounts paid in settlement and ERISA excise taxes or penalties) actually and
reasonably incurred by or on behalf of a director or officer in connection with
such action, suit or proceeding, including any appeals; provided, however, that
with respect to any action, suit or proceeding initiated by a director or
officer, the corporation shall indemnify such director or officer only if the
action, suit or proceeding was authorized by the board of directors of the
corporation, except with respect to a suit for the enforcement of rights to
indemnification or advancement of expenses in accordance with Section 3 hereof.
SECTION 2. EXPENSES The expenses of directors and officers incurred
--------
as a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative shall be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding; provided, however, that if applicable law so
requires, the advance payment of expenses shall be made only upon receipt by the
corporation of an undertaking by or on behalf of the director or officer to
repay all amounts as advanced in the event that it is ultimately determined by a
final decision, order or decree of a court of competent jurisdiction that the
director or officer is not entitled to be indemnified for such expenses under
this Article VI.
SECTION 3. ENFORCEMENT Any director or officer may enforce his or
-----------
her rights to indemnification or advance payments for expenses in a suit brought
against the corporation if his or her request for indemnification or advance
payments for expenses is wholly or partially refused by the corporation or if
there is no determination with respect to such request within 60 days from
receipt by the corporation of a written notice from the director or officer for
such a determination. If a director or officer is successful in establishing in
a suit his or her entitlement to receive or recover an advancement of expenses
or a right to indemnification, in whole or in part, he or she shall also be
indemnified by the corporation for costs and expenses incurred in such suit. It
shall be a defense to any such suit (other than a suit brought to enforce a
claim for the advancement of expenses under Section 2 of this Article VI where
the required undertaking, if any, has been received by the corporation) that the
claimant has not met the standard of conduct set forth in the Nevada General
Corporation Law. Neither the failure of the corporation to have made a
determination prior to the commencement of such suit that indemnification of the
director or officer is proper in the circumstances because the director or
officer has met the applicable standard of conduct nor a determination by the
corporation that the director or officer has not met such applicable standard of
conduct shall be a defense to the suit or create a presumption that the director
or officer has not met the applicable standard of conduct. In a suit brought by
a director or officer to enforce a right under this Section 3 or by the
corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that a director or officer is not entitled to
be indemnified or is not entitled to an advancement of expenses under this
Section 3 or otherwise, shall be on the corporation.
12
<PAGE>
SECTION 4. NON-EXCLUSIVITY The right to indemnification and to the
---------------
payment of expenses as they are incurred and in advance of the final disposition
of the action, suit or proceeding shall not be exclusive of any other right to
which a person may be entitled under these articles of incorporation or any
bylaw, agreement, statute, vote of stockholders or disinterested directors or
otherwise. The right to indemnification under Section 1 hereof shall continue
for a person who has ceased to be a director or officer and shall inure to the
benefit of his or her heirs, next of kin, executors, administrators and legal
representatives.
SECTION 5. SETTLEMENT The corporation shall not be obligated to
----------
reimburse the amount of any settlement unless it has agreed to such settlement.
If any person shall unreasonably fail to enter into a settlement of any action,
suit or proceeding within the scope of Section 1 hereof, offered or assented to
by the opposing party or parties and which is acceptable to the corporation,
then, notwithstanding any other provision of this Article VI, the
indemnification obligation of the corporation in connection with such action,
suit or proceeding shall be limited to the total of the amount at which
settlement could have been made and the expenses incurred by such person prior
to the time the settlement could reasonably have been effected.
SECTION 6. PURCHASE OF INSURANCE. The corporation may purchase and
---------------------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article VI.
SECTION 7. CONDITIONS The corporation may, to the extent authorized
----------
from time to time by the Board of Directors, grant rights to indemnification and
to the advancement of expenses to any employee or agent of the corporation or to
any director, officer, employee or agent of any of its subsidiaries to the
fullest extent of the provisions of this Article VI subject to the imposition of
any conditions or limitations as the Board of Directors may deem necessary or
appropriate.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. EXERCISE OF RIGHTS. All rights incident to any and all
------------------
shares of another corporation or corporations standing in the name of this
corporation may be exercised by such officer, agent or proxyholder as the Board
of Directors may designate. In the absence of such designation, such rights may
be exercised by the Chairman of the Board or the president of this corporation,
or by any other person authorized to do so by the Chairman of the Board or the
president
13
<PAGE>
of this corporation. Except as provided below, shares of this corporation owned
by any subsidiary of this corporation shall not be entitled to vote on any
matter. Shares of this corporation held by this corporation in a fiduciary
capacity and shares of this corporation held in a fiduciary capacity by any
subsidiary of this corporation, shall not be entitled to vote on any matter,
except to the extent that the settler or beneficial owner possesses and
exercises a right to vote or to give this corporation or such subsidiary binding
instructions as to how to vote such shares.
Solely for purposes of Section 1 of this Article VII, a "subsidiary"
of this corporation shall mean a corporation, shares of which possessing more
than fifty percent (50%) of the power to vote for the election of directors at
the time determination of such voting power is made, are owned directly, or
indirectly through one or more subsidiaries, by this corporation.
SECTION 2. INTERPRETATION. Unless the context of a Section of these
-------------
Bylaws otherwise requires, the terms used in these Bylaws shall have the
meanings provided in, and these Bylaws shall be construed in accordance with the
Nevada statutes relating to private corporations, as found in Chapter 78 of the
Nevada Revised Statutes or any subsequent statute.
ARTICLE VIII
AMENDMENTS
SECTION 1. STOCKHOLDER AMENDMENTS. Bylaws may be adopted, amended or
----------------------
repealed by the affirmative vote of more than eighty percent (80%) of the
outstanding voting shares of this corporation.
SECTION 2. AMENDMENTS BY BOARD OF DIRECTORS. Subject to the right of
--------------------------------
stockholders as provided in Section 1 of this Article VIII, Bylaws may be
adopted, amended or repealed by the Board of Directors.
ARTICLE IX
"ACQUISITION OF CONTROLLING INTEREST" PROVISIONS OF
THE NEVADA GENERAL CORPORATION LAW SHALL NOT APPLY
On and after February 16, 1998, the provisions of Section 78.378 to
78.3793, inclusive, of the Nevada Revised Statutes shall not apply to the
corporation.
14
<PAGE>
EXHIBIT 10.20
COMPUTER SCIENCES CORPORATION
1997 NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
ACCRUED BENEFIT RESTRICTED STOCK UNIT AGREEMENT
-----------------------------------------------
This Accrued Benefit Restricted Stock Unit Agreement ("Agreement") is
made and entered into as of the date indicated on the signature page hereto (the
"Grant Date") by and between Computer Sciences Corporation, a Nevada corporation
(the "Company"), and the nonemployee director of the Company executing this
Agreement (the "Director").
WHEREAS, the Company's 1997 Nonemployee Director Stock Incentive Plan
(the "Plan") was adopted by the Board of Directors of the Company (the "Board")
on June 16, 1997 and approved by the stockholders of the Company on August 11,
1997;
WHEREAS, pursuant to the Plan, the Company is authorized to grant
awards to directors of the Company who are not, and have never, employees of the
Company or any of its subsidiaries;
WHEREAS, such awards may include restricted stock units with respect
to shares of the common stock, par value $1.00 per share, of the Company (the
"Common Stock"), which restricted stock units shall contain such terms and
conditions as may be determined by the Board, as the administrator of the Plan;
and
WHEREAS, the Company desires to grant to the Director, and the
Director desires to accept, a restricted stock unit upon the terms and
conditions set forth herein, which terms and conditions have been approved by
the Board;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. Grant of RSU. The Company hereby grants to the Director, and the
------------
Director hereby accepts, a restricted stock unit with respect to the number of
shares of Common Stock indicated on the signature page hereto (the "Total RSU
Shares") upon the terms and conditions set forth in this Agreement (the "RSU").
2. Adjustment of Total RSU Shares. In the event that the outstanding
------------------------------
securities of the class then subject to the RSU are increased, decreased or
exchanged for or converted into cash, property and/or a different number or kind
of securities, or cash, property and/or securities are distributed in respect of
such outstanding securities, in either case as a result of a reorganization,
merger, consolidation, recapitalization, reclassification, dividend (other than
a regular cash dividend) or other distribution, stock split, reverse stock split
or the like, or in the event that substantially all of the property and assets
of the Company are sold, then the Board shall make appropriate and proportionate
adjustments in the number and type of shares or other securities or cash or
other property that are thereafter subject to the RSU.
<PAGE>
3. Nontransferability of RSU. Neither the RSU nor any interest
-------------------------
therein may be sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner other than by will or the laws of descent
and distribution.
4. Plan. The RSU is granted pursuant to the Plan, as in effect on
----
the Grant Date, and is subject to all the terms and conditions of the Plan, as
the same may be amended from time to time; provided, however, that no such
amendment shall deprive the Director, without his or her consent, of the RSU or
of any of the Director's rights under this Agreement. The interpretation and
construction by the Board of the Plan and this Agreement shall be final and
binding upon the Director.
5. Stockholder Rights. No person or entity shall be entitled to
------------------
vote, receive dividends or be deemed for any purpose the holder of any of the
Total RSU Shares until the redemption of the RSU in accordance with the
provisions of this Agreement.
6. Successors. This Agreement shall be binding upon and inure to
----------
the benefit of the Company and its successors and assigns, on the one hand, and
the Director and his or her heirs, beneficiaries, legatees and personal
representatives, on the other hand.
7. Entire Agreement; Amendments and Waivers. This Agreement embodies
----------------------------------------
the entire understanding and agreement of the parties with respect to the
subject matter hereof, and no promise, condition, representation or warranty,
express or implied, not stated or incorporated by reference herein, shall bind
either party hereto. None of the terms and conditions of this Agreement may be
amended, modified, waived or canceled except by a writing, signed by the parties
hereto specifying such amendment, modification, waiver or cancellation. A
waiver by either party at any time of compliance with any of the terms and
conditions of this Agreement shall not be considered a modification,
cancellation or consent to a future waiver of such terms and conditions or of
any preceding or succeeding breach thereof, unless expressly so stated.
8. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of California applicable
to contracts made and performed entirely within such state.
9. Redemption of RSU.
-----------------
(a) The RSU shall not be redeemable prior to the date upon which
the Director ceases to be a director of the Company (the "Termination
Date"). The Company shall redeem the RSU by delivering to the Director (or
after the Director's death, to the beneficiary designated by the Director
for such purpose), at such time or times as the Director shall elect
pursuant to Sections 9(c) and (d) hereof, the Total RSU Shares and the
Dividend Equivalents (as hereinafter defined).
(b) The term "Dividend Equivalents" shall mean, with respect to
each Total RSU Share being delivered by the Company upon redemption of the
RSU, an amount in cash equal to the aggregate amount of all regular cash
dividends paid on a share of Common Stock during the period between the
Grant Date and the date of such redemption, together with interest thereon
at the rate credited to amounts deferred under the Company's Deferred
Compensation Plan, as such rate is changed from time to time.
2
<PAGE>
(c) Subject to Section 9(d) hereof, the Director hereby
irrevocably elects for the RSU to be redeemed, and for the Total RSU Shares and
the Dividend Equivalents to be delivered by the Company to the Director, at the
following time or times: [CHECK ONE OF THE FOLLOWING]
_____ (i) as an entirety within 30 days following the Termination
Date
_____ (ii) in as equal amounts of whole shares as possible on each of
the first five anniversaries of the Termination Date
_____ (iii) in as equal amounts of whole shares as possible on each of
the first ten anniversaries of the Termination Date
_____ (iv) in as equal amounts of whole shares as possible on each of
the first fifteen anniversaries of the Termination Date
(d) Notwithstanding Section 9(c) hereof, in the event that the
Director shall die at any time prior to the redemption in full of the RSU, the
Director hereby irrevocably elects for the previously unredeemed part of the RSU
to be redeemed, and for the previously undelivered Total RSU Shares and Dividend
Equivalents to be delivered by the Company to beneficiary designated by the
Director for such purpose, at the following time or times:
[CHECK ONE OF THE FOLLOWING]
_____ (i) as an entirety within 30 days following the date of death
_____ (ii) in as equal amounts of whole shares as possible over the
remaining term of the five, ten or fifteen-year period
elected pursuant to Section 9(d) hereof
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the Grant Date indicated below.
DIRECTOR COMPUTER SCIENCES CORPORATION
___________________________ By_________________________
[NAME] Van B. Honeycutt
Grant Date: [DATE] Chairman, President and
Total RSU Shares: [NUMBER] Chief Executive Officer
3
<PAGE>
COMPUTER SCIENCES CORPORATION
1997 NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
FUTURE BENEFIT RESTRICTED STOCK UNIT AGREEMENT
----------------------------------------------
This Future Benefit Restricted Stock Unit Agreement ("Agreement") is
made and entered into as of the date indicated on the signature page hereto (the
"Grant Date") by and between Computer Sciences Corporation, a Nevada corporation
(the "Company"), and the nonemployee director of the Company executing this
Agreement (the "Director").
WHEREAS, the Company's 1997 Nonemployee Director Stock Incentive Plan
(the "Plan") was adopted by the Board of Directors of the Company (the "Board")
on June 16, 1997 and approved by the stockholders of the Company on August 11,
1997;
WHEREAS, pursuant to the Plan, the Company is authorized to grant
awards to directors of the Company who are not, and have never, employees of the
Company or any of its subsidiaries;
WHEREAS, such awards may include restricted stock units with respect
to shares of the common stock, par value $1.00 per share, of the Company (the
"Common Stock"), which restricted stock units shall contain such terms and
conditions as may be determined by the Board, as the administrator of the Plan;
and
WHEREAS, the Company desires to grant to the Director, and the
Director desires to accept, a restricted stock unit upon the terms and
conditions set forth herein, which terms and conditions have been approved by
the Board;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. Grant of RSU. The Company hereby grants to the Director, and the
------------
Director hereby accepts, a restricted stock unit with respect to the number of
shares of Common Stock indicated on the signature page hereto (the "Total RSU
Shares") upon the terms and conditions set forth in this Agreement (the "RSU").
2. Adjustment of Total RSU Shares. In the event that the outstanding
------------------------------
securities of the class then subject to the RSU are increased, decreased or
exchanged for or converted into cash, property and/or a different number or kind
of securities, or cash, property and/or securities are distributed in respect of
such outstanding securities, in either case as a result of a reorganization,
merger, consolidation, recapitalization, reclassification, dividend (other than
a regular cash dividend) or other distribution, stock split, reverse stock split
or the like, or in the event that substantially all of the property and assets
of the Company are sold, then the Board shall make appropriate and proportionate
adjustments in the number and type of shares or other securities or cash or
other property that are thereafter subject to the RSU.
3. Nontransferability of RSU. Neither the RSU nor any interest
-------------------------
therein may be sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner other than by will or the laws of descent
and distribution.
4. Plan. The RSU is granted pursuant to the Plan, as in effect on
----
the Grant Date, and is subject to all the terms and conditions of the Plan, as
the same may be
<PAGE>
amended from time to time; provided, however, that no such amendment shall
deprive the Director, without his or her consent, of the RSU or of any of the
Director's rights under this Agreement. The interpretation and construction by
the Board of the Plan and this Agreement shall be final and binding upon the
Director.
5. Stockholder Rights. No person or entity shall be entitled to
------------------
vote, receive dividends or be deemed for any purpose the holder of any of the
Total RSU Shares until the redemption of the RSU in accordance with the
provisions of this Agreement.
6. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the Company and its successors and assigns, on the one hand, and the
Director and his or her heirs, beneficiaries, legatees and personal
representatives, on the other hand.
7. Entire Agreement; Amendments and Waivers. This Agreement embodies
----------------------------------------
the entire understanding and agreement of the parties with respect to the
subject matter hereof, and no promise, condition, representation or warranty,
express or implied, not stated or incorporated by reference herein, shall bind
either party hereto. None of the terms and conditions of this Agreement may be
amended, modified, waived or canceled except by a writing, signed by the parties
hereto specifying such amendment, modification, waiver or cancellation. A
waiver by either party at any time of compliance with any of the terms and
conditions of this Agreement shall not be considered a modification,
cancellation or consent to a future waiver of such terms and conditions or of
any preceding or succeeding breach thereof, unless expressly so stated.
8. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of California applicable
to contracts made and performed entirely within such state.
9. Redemption of RSU.
-----------------
(a) The RSU shall not be redeemable prior to the date upon which
the Director ceases to be a director of the Company (the "Termination
Date"). The Company shall redeem the RSU by delivering to the Director (or
after the Director's death, to the beneficiary designated by the Director
for such purpose), at such time or times as the Director shall elect
pursuant to Sections 9(d) and (e) hereof, the Redemption Shares and the
Dividend Equivalents (as such terms are hereinafter defined).
(b) The term "Redemption Shares" shall mean that number of shares
of Common Stock equal to the following percentage of the Total RSU Shares,
rounded to the nearest whole share, determined as of the Termination Date:
<TABLE>
<CAPTION>
Percentage of Total RSUs Shares
Number of Full Years of Service as Director (Rounded to the Nearest Whole Share)
Between Grant Date and Termination Date To Be Delivered Upon Redemption of RSU
------------------------------------------- --------------------------------------
<S> <C>
At least 1, but less than 2 20%
At least 2, but less than 3 40%
At least 3, but less than 4 60%
At least 4, but less than 5 80%
At least 5 100%
</TABLE>
2
<PAGE>
(c) The term "Dividend Equivalents" shall mean, with respect to
each Redemption Share being delivered by the Company upon redemption of the
RSU, an amount in cash equal to the aggregate amount of all regular cash
dividends paid on a share of Common Stock during the period between the
Grant Date and the date of such redemption, together with interest thereon
at the rate credited to amounts deferred under the Company's Deferred
Compensation Plan, as such rate is changed from time to time.
(d) Subject to Section 9(e) hereof, the Director hereby
irrevocably elects for the RSU to be redeemed, and for the Redemption
Shares and the Dividend Equivalents to be delivered by the Company to the
Director, at the following time or times:
[CHECK ONE OF THE FOLLOWING]
_____ (i) as an entirety within 30 days following the Termination
Date
_____ (ii) in as equal amounts of whole shares as possible on each
of the first five anniversaries of the Termination Date
_____ (iii) in as equal amounts of whole shares as possible on each
of the first ten anniversaries of the Termination Date
_____ (iv) in as equal amounts of whole shares as possible on each
of the first fifteen anniversaries of the Termination
Date
(e) Notwithstanding Section 9(d) hereof, in the event that
the Director shall die at any time prior to the redemption in full of the
RSU, the Director hereby irrevocably elects for the previously unredeemed
part of the RSU to be redeemed, and for the previously undelivered
Redemption Shares and Dividend Equivalents to be delivered by the Company
to beneficiary designated by the Director for such purpose, at the
following time or times:
[CHECK ONE OF THE FOLLOWING]
_____ (i) as an entirety within 30 days following the date of death
_____ (ii) in as equal amounts of whole shares as possible over the
remaining term of the five, ten or fifteen-year period
elected pursuant to Section 9(d) hereof
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the Grant Date indicated below.
DIRECTOR COMPUTER SCIENCES CORPORATION
By
- ------------------------------ ----------------------------
[NAME] Van B. Honeycutt
Grant Date: [DATE] Chairman, President and
Chief Executive Officer
Total RSU Shares: [NUMBER]
3
<PAGE>
COMPUTER SCIENCES CORPORATION
EXHIBIT 21, Significant Active Subsidiaries and Affiliates
As of April 3, 1998
<TABLE>
<CAPTION>
State of Percentage
Name Incorporation of Ownership
- --------------------------------------------------------------------- --------------------------- ------------------
<S> <C> <C>
Aerospace Center Support (Partnership) Tennessee 55
Alliance-One Services, 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 99.8775
CSC Holdings Inc. Nevada 100
Credit Bureau of Tulsa, Inc. Oklahoma 100
CSC Accounts Management, Inc. Texas 100
CSC Credit Services, Inc. California 100
CSC Accounts Resolution, Inc. Nevada 100
CSC Domestic Enterprises, Inc. Nevada 100
CSC International Consulting AB Sweden 100
CSC Outsourcing Inc. Nevada 100
CSC Professional Services Group, Inc. Maryland 100
Information Technology Solutions, Inc. Virginia 100
CSC Foreign Enterprises, Inc. Nevada 100
CSC Computer Sciences S.A. France 100
CSC Infogerance S.A. France 100
Computer Sciences Canada Inc. Canada 100
Computer Sciences Corporation Continuum - Informatica, Lda Portugal 100
Computer Sciences Raytheon (Partnership) Florida 60
Continuum (Australia) Holdings Ltd. Delaware 100
CSC Financial Services Group Limited Australia 100
Computations Australia Pacific Limited Australia 100
Computations Financial Systems Limited Australia 100
Computations Insurance Systems Limited Australia 100
Computations International Insurance Systems Limited Australia 100
Computations Services (M) Sdn Bhd Malaysia 100
Continuum Europe B.V. Netherlands 100
Paxus Corporation Limited Australia 100
Capsco Pty. Limited Australia 100
Idaps Investments Pty. Ltd Australia 100
CSC Computer Sciences Pte Limited Singapore 100
Continuum Software Services (Malaysia) Sdn Bhd Malaysia 100
PT Continuum Indonesia Indonesia 100
Idaps Information Services Limited New Zealand 100
Paxus Corporation Limited New Zealand 100
CSC New Zealand Limited New Zealand 100
CSC Financial Services Group (Hong Kong) Limited Hong Kong 100
Paxus Information Services (Hong Kong) Limited Hong Kong 100
Continuum Canada Inc. Canada 100
Paxus N.V. Netherlands Antilles 100
Continuum (UK) Holdings Limited United Kingdom 100
Computer Sciences International A/S Norway 100
CSC Corporation Limited United Kingdom 100
Paxus Australia Pty. Limited Australia 100
Paxus Broker Services Ltd. Australia 100
Continuum (Deutschland) GmbH Germany 100
Continuum France SARL France 100
</TABLE>
<PAGE>
COMPUTER SCIENCES CORPORATION
EXHIBIT 21, Significant Active Subsidiaries and Affiliates
As of April 3, 1998
<TABLE>
<CAPTION>
State of Percentage
Name Incorporation of Ownership
- --------------------------------------------------------------------- --------------------------- ------------------
<S> <C> <C>
Continuum (Ireland) Limited Ireland 100
CPK (Partnership) Hawaii 55
CSC Australia Pty. Limited Australia 100
Computer Sciences Corporation (NZ) Limited New Zealand 100
CSC Computer Management A/S Denmark 87.5
CSC Computer Sciences B.V. Netherlands 100
Continuum Services B.V. Netherlands 100
CSC Kobra Beheer B.V. Netherlands 100
CSC Services Management B.V. Netherlands 100
CSC Computer Sciences Iberica, S.A. Spain 100
CSC Computer Sciences Italia S.p.A. Italy 100
CSC Computer Sciences Limited United Kingdom 100
CSC Investment Services Management Limited United Kingdom 75
CSC Computer Sciences N.V./S.A. Belgium 100
CSC Computer Sciences S.A. Luxembourg 100
Experteam S.A./N.V. Belgium 60
CSC Computer Sciences SARL Switzerland 100
CSC Computer Sciences Services Management GmbH Germany 100
CSC Computer Sciences VOF/SNC (Partnership) Belgium 100
CSC Consulting, Inc. Massachusetts 100
Onward Technologies, Inc. Massachusetts 100
CSC Continuum (Japan) Inc. Delaware 100
CSC Continuum (UK) Limited United Kingdom 100
CSC Danmark A/S Denmark 75
CSC Information Systems A/S Denmark 70
Dansk Datalab ApS Denmark 100
CSC Financial Services Limited United Kingdom 100
Computer Sciences Corporation Services (Pty) Limited South Africa 100
Continuum Direct Limited United Kingdom 100
CSC Foreign Sales Corporation Barbados 100
CSC Geographic Technologies Inc. Nevada 100
CSC Healthcare Inc. California 100
CSC Index Limited United Kingdom 100
Kalchas Limited United Kingdom 100
CSC International Systems Management Inc. Nevada 100
CSC Asset Management Inc. Nevada 100
CSC Logic, Inc. Texas 100
CSC Ploenzke AG Germany 75.00025
CSC Ploenzke (Austria) GmbH Austria 100
CSC Ploenzke Consulting GmbH Germany 100
CSC Ploenzke IT - Services GmbH Germany 100
CSC Ploenzke, S.A. Spain 100
CSC Ploenzke (Schweiz) AG Switzerland 76
CSC Ra Group Limited United Kingdom 100
CSC Ventures, Inc. Nevada 100
Fairfax Ventures, Inc. Nevada 100
GfAI (Slovensko) s.r.o. Slovakia 100
GfAI Telematica s.r.o. Czech Republic 100
Hogan Systems GmbH Germany 100
Hogan Systems Pty. Limited Australia 100
Quotel Insurance Systems Limited United Kingdom 100
SOCS S.A. France 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, 333-09387
and 333-33327 of Computer Sciences Corporation on Forms S-8 of our report dated
May 26, 1998, appearing in this Annual Report on Form 10-K of Computer Sciences
Corporation for the year ended April 3, 1998.
DELOITTE & TOUCHE LLP
Los Angeles, California
June 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-03-1998
<PERIOD-START> MAR-29-1997
<PERIOD-END> APR-03-1998
<CASH> 274,688
<SECURITIES> 0
<RECEIVABLES> 1,531,703
<ALLOWANCES> 75,373
<INVENTORY> 0
<CURRENT-ASSETS> 1,982,636
<PP&E> 1,944,799
<DEPRECIATION> 987,606
<TOTAL-ASSETS> 4,046,795
<CURRENT-LIABILITIES> 1,214,816
<BONDS> 736,054
0
0
<COMMON> 157,325
<OTHER-SE> 1,843,950
<TOTAL-LIABILITY-AND-EQUITY> 4,046,795
<SALES> 0
<TOTAL-REVENUES> 6,600,838
<CGS> 0
<TOTAL-COSTS> 5,117,390
<OTHER-EXPENSES> 386,854
<LOSS-PROVISION> 31,828
<INTEREST-EXPENSE> 42,096
<INCOME-PRETAX> 190,869
<INCOME-TAX> (69,500)
<INCOME-CONTINUING> 260,369
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 260,369
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.64
</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, 1997
[_] 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: Computer Sciences Corporation 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
1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
(a) Financial Statements:
Independent Auditors' Report................................................... 3
Statements of Net Assets Available for Benefits
As of December 31, 1997 and 1996............................................... 4
Statements of Changes in Net Assets Available for Benefits
For the Years Ended December 31, 1997 and 1996................................. 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
</TABLE>
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, 1997 and 1996, 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, 1997 and 1996, 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
June 5, 1998
3
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
STATEMENTS OF NET ASSETS
AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1997 1996
------------ -------------
<S> <C> <C>
ASSETS
Investments (Notes 2, 5, 9 and 10):
Short-term investments $ 14,812,841 $ 4,881,963
Long-term investments--at fair value:
Brinson U.S. Bond Fund 84,332,245 69,326,850
Brinson U.S. Stock Fund 40,159,408 37,602,556
Brinson U.S. Equity Fund 249,786,910 190,510,057
Mellon Stock Index Funds 110,042,765 58,160,214
CSC Company stock 238,770,004 220,003,596
Employee loans (Note 6) 20,422,664 16,021,749
Plan interest in Master Trust 142,956,868 91,252,142
Guaranteed investment contracts--at contract value 15,231,349 61,203,657
------------ ------------
Total investments 916,515,054 748,962,784
------------ ------------
Receivables:
Employer contribution 452,287 323,412
Participants' contribution 3,900,688 3,111,463
Accrued income 15,259 42,949
Total Receivables 4,368,234 6,780,923
------------ ------------
Total Assets 920,883,288 755,743,707
------------ ------------
LIABILITIES
Accounts Payable 1,482,254 1,054,114
Accrued Expenses 325,925 218,770
------------ ------------
Total Liabilities 1,808,179 1,272,884
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $919,075,109 $754,470,823
============ ============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
ADDITIONS
Investment Income:
Net appreciation in fair value of investments (Note 9) $ 65,905,291 $ 76,497,351
Interest 3,031,996 5,423,422
Dividends 15,217,887 9,668,924
Plan interest in Master Trust investment income 7,283,958 3,071,796
------------ ------------
91,439,132 94,661,493
Less Investment Management Fees (972,982) (833,263)
------------ ------------
90,466,150 93,828,230
Contributions:
Employee 88,006,055 66,417,162
Employer 14,800,519 11,665,836
Employee Rollovers 18,922,266 15,151,958
Transfers From Other Plans (Note 8) 23,324,149 17,337,285
------------ ------------
145,052,989 110,572,241
------------ ------------
Total Additions 235,519,139 204,400,471
------------ ------------
DEDUCTIONS
Distributions to Participants (Notes 1 and 7) 70,914,853 45,929,239
------------ ------------
Total Deductions 70,914,853 45,929,239
------------ ------------
Net Increase 164,604,286 158,471,232
Net Assets Available for Benefits at Beginning of Year 754,470,823 595,999,591
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $919,075,109 $754,470,823
============ ============
</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, 1997
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 18,755 participating employees at December 31, 1997.
6
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1997
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 1997. 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 two groups of employees: the
first group is a small number of employees 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; and the second group to
whom under the terms of their contract agreement the Company will contribute an
amount equal to 100% of the first 7% of the participant's compensation
deferral). Matching contributions will be invested in the Company Stock Fund,
which invests in the common stock of Computer Sciences Corporation.
Participant Accounts
- --------------------
Each participant's account is credited with the participant's contribution and
the Company's matching contribution and allocations of 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.
7
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1997
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.
Each participant has a vested interest in the value of his or her Matching
Contribution Account equal to twenty-five percent (25%) after completing two
full years of service and increasing by twenty-five percent (25%) for each
additional full year of service (except for a small number of participants who,
under the terms of their contract agreement, will vest 100% after 2 years).
Vesting accelerates to 100% in the event of reaching age 65 while employed by
the Company or upon severance by reason of death or total and permanent
disability.
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 1997 and 1996
amounted to $1,410,024 and $1,097,819, 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 1997 and 1996 were $70,097,198
and $44,996,599, respectively.
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 1997 and 1996
totaled $817,655 and $932,640, 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.
8
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1997
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 Company Stock Fund receive distributions in
certificates for shares of the common stock of the Company.
Valuation of Investment Securities
- ----------------------------------
Investments in common stocks and institutional investment vehicles 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.
9
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1997
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, 1997 and 1996 was
approximately $15,294,818 and $61,675,000, respectively. The average yield and
crediting interest rates were approximately 6.79% and 7.18% for 1997 and 1996,
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:
(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 for both the 1997 and
1996 taxable years of the participant.
(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
10
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1997
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
---------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Net assets available for benefits per the financial
statements $919,075,109 $754,470,823
Amounts allocated to withdrawing participants (11,552,858) (10,290,463)
-------------- --------------
Net assets available for benefits per Form 5500 $907,522,251 $744,180,360
============== ==============
</TABLE>
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Benefits paid to participants per the financial statements $ 70,914,853
Add: Amounts allocated to withdrawing participants at
December 31, 1997 11,552,858
Less: Amounts allocated to withdrawing participants at
December 31, 1996 (10,290,463)
-------------
Benefits paid to participants per the Form 5500 $ 72,177,248
=============
</TABLE>
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, 1997 but not paid as of that date.
11
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1997
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%. 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 any month once within 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 month once within a 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.
Following are the investment funds available for participant contributions:
The Fixed Income Fund
- ---------------------
Approximately 13% of the Fixed Income Fund is invested in contracts with
insurance companies or 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 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 87% of the Fixed Income Fund represents holdings of units in a
Master Trust investment vehicle and is managed by BlackRock Financial
Management. The investment portfolio is actively managed and consists of short-
term (1-3 year) fixed income instruments which include: U.S. Treasury and agency
securities, corporate bonds, mortgage-backed securities and asset-backed fixed
income securities. All of the Fund's assets are rated single-A or better at the
time of purchase and all securities must be U.S. dollar denominated. All new
cash flows into the Fund are invested in this actively managed bond fund. At
December 31, 1997 and 1996, the Plan's interest in the net assets of the Master
Trust was approximately 89% and 90%, 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.
12
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1997
The following table represents the fair value of investments for the Master
Trust.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Investments at fair value:
Corporate bonds $105,242,979 $ 20,904,676
U.S. government securities 46,459,080 56,633,626
Other bonds 6,446,213 2,112,040
Short-term investments 1,371,261 21,131,915
Accrued income 1,198,486 1,061,097
-------------- --------------
$160,718,019 $101,843,354
============== ==============
</TABLE>
Investment income for the Master Trust is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
------------ -------------
<S> <C> <C>
Investment income:
Net appreciation (depreciation) in fair value of
investments $ 450,257 $(1,007,670)
Interest:
Corporate bonds 4,037,722 1,180,044
U.S. government securities 3,243,205 2,485,788
Other bonds 366,303 139,500
Short-term investments 485,226 627,305
------------ -------------
8,582,713 3,424,967
Less investment management fees (208,306) (61,373)
------------ -------------
$8,374,407 $ 3,363,594
============ =============
</TABLE>
The Balanced Fund
- -----------------
The Balanced Fund is managed by Brinson Partners, Inc. The Balanced Fund is
invested in an actively managed combination of a U.S. equity portfolio, a bond
portfolio and cash equivalents. The U.S. equity portfolio consists of large,
intermediate and small company stocks. The bond portfolio consists primarily of
U.S. Treasury, government agency and corporate issues. This Fund's objective is
to maximize risk-adjusted total returns relative to the U.S. Balanced Index over
a full economic cycle.
13
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1997
The Active Equity Fund
- ----------------------
The Active Equity Fund is managed by Brinson Partners, Inc. The Fund is broadly
diversified by issue and industry relative to the Wilshire 5000 index. The Fund
is typically invested in 70% large capitalization and 30% intermediate and small
capitalization stocks. The Fund may hold up to 50% in cash equivalents for
portfolio risk management purposes. The Fund's objective is to maximize risk-
adjusted total returns relative to the Wilshire 5000 index over a full economic
cycle.
The Stock Index Fund
- --------------------
The fund is managed by Mellon Capital Management. The objective of the fund is
to modestly 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 (unleveraged) 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 Computer Sciences Corporation common stock which will be held for the benefit
of the participant. The performance of this fund will depend upon the
performance of Computer Sciences Corporation stock. The Bank of New York (the
"Trustee") may purchase Company stock on national securities exchanges or
elsewhere.
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.
14
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1997
Number of Participants
- ----------------------
The approximate number of participants having account balances in each of the
six separate funds at December 31, 1997 was as follows:
<TABLE>
<CAPTION>
Investment Fund Number of Participants
- --------------- ------------------------
<S> <C>
The Fixed Income Fund............................................ 11,666
The Balanced Fund................................................ 12,081
The Active Equity Fund........................................... 16,699
The Stock Index Fund............................................. 12,347
The Company Stock Fund........................................... 22,459
The Loan Fund.................................................... 2,814
</TABLE>
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 a 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' accounts according to a priority specified in the Plan's loan
rules and, within each account, pro rata from the funds based on their balances
at the time. Loan repayments are reinvested in the participants' funds according
to their current investment election. The repayments are similarly allocated
among participants' accounts according to the priority specified in the Plan's
rules.
15
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1997
Note 7 Benefits Payable
----------------
As of December 31, 1997 and 1996, net assets available for benefits included
benefits of $11,552,858 and $10,290,463 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, 1997, the Plan had several transfers
from other plans. The asset values of these transfers were as follows:
$2,394,153 and $412,395 in 1997 and 1996 respectively from Bath Iron Works
Corporation Tax Deferred Savings Plan; $1,371,171 in 1997 from Planmetrics,
Inc. Savings and Profit Sharing Plan; $15,612,394 in 1997 from Dupont Conoco;
$355,773 in 1997 from SunBeam-Oster Company, Inc. 401(K) Savings and Profit
Sharing Plan; $8,168,573 in 1997 from CNA Employees' Saving Plan; $128,350 and
$16,914,202 in 1997 and 1996 respectively from Credit Services; $412,395 in
1996 from Hyatt Corporation 401(k) Plan; $9,777 in 1996 from James River
Corporation of Virginia Stockplus Investment Plan; and $912 in 1996 from
DiBianca-Berkman Group, Inc. Profit Sharing Plan.
The Plan also had several transfers to other plans in 1997 as a result of spin-
offs. The asset values of these transfers were as follows: $609,053 to S.T
Research; $3,270,348 to Mutual of New York; $740,644 to Artemis Holding; and
$86,221 to CTI.
16
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 9 Statements of Net Assets Available for Benefits by Fund
-------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------
FIXED ACTIVE
INCOME BALANCED EQUITY
--------------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Investments
Short-term investments $6,176,886 $ 7,192,178 $ 885,362
Long-term investments
At fair value
Interest in registered investment companies 124,491,653 249,786,910
CSC Company stock
Employee loans
Plan interest in Master Trust 142,956,868
Guaranteed investment contracts--at contract
value 15,231,349
Receivables
Employer contribution 3,649 2,568 6,006
Participants' contribution 619,957 500,627 1,155,151
Accrued Income 3,207 2,140 5,575
Plan to plan transfers
Interfund Transfers 480,752 (43,101) (240,573)
------------- ------------ -------------
TOTAL ASSETS 165,472,668 132,146,065 251,598,431
LIABILITIES
Accounts Payable 324,067 74,935 155,307
Accrued Expenses 70,786 80,935 154,190
------------- ------------ --------------
TOTAL LIABILITIES 394,853 155,870 309,497
------------- ------------ --------------
NET ASSETS AVAILABLE FOR BENEFITS $165,077,815 $131,990,195 $251,288,934
============= ============ ==============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------------
STOCK COMPANY EMPLOYEE
INDEX STOCK LOANS
------------- ------------- ----------
<S> <C> <C> <C>
ASSETS
Investments
Short-term investments $ 460,515 $ 97,900
Long-term investments
At fair value
Interest in registered investment companies 110,042,765
CSC Company stock 238,770,004
Employee loans $20,422,664
Plan interest in Master Trust
Guaranteed investment contracts--at contract
value
Receivables
Employer contribution 3,887 436,177
Participants' contribution 779,456 845,624 (127)
Accrued Income 2,125 2,212
Plan to plan transfers
Interfund Transfers 2,237,379 (2,434,457)
------------ ------------ -----------
TOTAL ASSETS 113,526,127 237,717,460 20,422,537
LIABILITIES
Accounts Payable 136,793 809,105 (17,953)
Accrued Expenses 19,265 749
------------ ------------ -----------
TOTAL LIABILITIES 156,058 809,854 (17,953)
------------ ------------ -----------
NET ASSETS AVAILABLE FOR BENEFITS $113,370,069 $236,907,606 $20,440,490
============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
-------------
TOTAL
-------------
<S> <C>
ASSETS
Investments
Short-term investments $ 14,812,841
Long-term investments
At fair value
Interest in registered investment companies 484,321,328
CSC Company stock 238,770,004
Employee loans 20,422,664
Plan interest in Master Trust 142,956,868
Guaranteed investment contracts--at contract
value 15,231,349
Receivables
Employer contribution 452,287
Participants' contribution 3,900,688
Accrued Income 15,259
Plan to plan transfers
Interfund Transfers -
------------
TOTAL ASSETS 920,883,288
LIABILITIES
Accounts Payable 1,482,254
Accrued Expenses 325,925
------------
TOTAL LIABILITIES 1,808,179
------------
NET ASSETS AVAILABLE FOR BENEFITS $919,075,109
============
</TABLE>
17
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 9 Statements of Net Assets Available for Benefits by Fund
-------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------
FIXED ACTIVE STOCK
INCOME BALANCED EQUITY INDEX
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Investments
Short-term investments $ 4,259 $ 1,002,060 $ 1,725,971 $ 529,309
Long-term investments
At fair value
Interest in registered investment companies 106,929,406 190,510,057 58,160,214
CSC Company stock
Employee loans
Plan interest in Master Trust 91,252,142
Guaranteed investment contracts--at contract
value 61,203,657
Receivables
Employer contribution 948 349 549 199
Participants' contribution 578,061 523,666 992,373 469,869
Accrued Income 21,270 4,186 10,370 2,267
Plan to plan transfers 638,176 1,409,723 624,325 200,660
Interfund Transfers 6,895 (76,674) 676,188 440,241
------------- ------------ ------------ -----------
TOTAL ASSETS 153,705,408 109,792,716 194,539,833 59,802,759
LIABILITIES
Accounts Payable 106,233 93,222 204,416 130,133
Accrued Expenses 33,945 66,931 111,438 5,872
------------- ------------ ------------ -----------
TOTAL LIABILITIES 140,178 160,153 315,854 136,005
------------- ------------ ------------ -----------
NET ASSETS AVAILABLE FOR BENEFITS $153,565,230 $109,632,563 $194,223,979 $59,666,754
============= ============ ============ ===========
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------
COMPANY EMPLOYEE
STOCK LOANS TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
Investments
Short-term investments $ 1,620,364 $ 4,881,963
Long-term investments
At fair value
Interest in registered investment companies $355,599,677
CSC Company stock 220,003,596 220,003,596
Employee loans $16,021,749 16,021,749
Plan interest in Master Trust 91,252,142
Guaranteed investment contracts--at contract
value 61,203,657
Receivables
Employer contribution 321,367 323,412
Participants' contribution 547,284 210 3,111,463
Accrued Income 4,856 42,949
Plan to plan transfers 430,215 3,303,099
Interfund Transfers (1,046,650) -
------------ ----------- ------------
TOTAL ASSETS 221,881,032 16,021,959 755,743,707
LIABILITIES
Accounts Payable 818,459 (298,349) 1,054,114
Accrued Expenses 584 218,770
------------ ----------- ------------
TOTAL LIABILITIES 819,043 (298,349) 1,272,884
------------ ----------- ------------
NET ASSETS AVAILABLE FOR BENEFITS $221,061,989 $16,320,308 $754,470,823
============ =========== ============
</TABLE>
18
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 9 Statements of Changes in Net Assets Available for Benefits by Fund
------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------
FIXED ACTIVE
INCOME BALANCED EQUITY
---------------- --------------- ----------------
<S> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment Income:
Net Appreciation in Fair Value of Investments $ 206,077 $10,812,740 $31,087,793
Interest 2,838,297 34,120 75,383
Dividend 6,101,150 4,585,948
Plan interest in Master Trust investment income 7,283,958
Investment Management Fees (70,280) (303,570) (551,674)
------------ ------------ ------------
10,258,052 16,644,440 35,197,450
------------ ------------ ------------
Contributions:
Employee 15,787,189 13,765,687 29,150,336
Employer 104,254 72,544 183,292
Employee Rollovers 3,337,470 2,596,418 6,213,624
Transfers From Other Plans 13,215,479 1,247,156 3,005,062
Interfund Transfers (11,683,241) (1,195,825) 3,818,292
------------ ------------ ------------
20,761,151 16,485,980 42,370,606
------------ ------------ ------------
TOTAL ADDITIONS 31,019,203 33,130,420 77,568,056
------------ ------------ ------------
DEDUCTIONS TO NET ASSETS ATTRIBUTABLE TO:
Distributions to Participants 19,506,618 10,772,788 20,503,101
------------ ------------ ------------
TOTAL DEDUCTIONS 19,506,618 10,772,788 20,503,101
------------ ------------ ------------
NET INCREASE 11,512,585 22,357,632 57,064,955
------------ ------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 153,565,230 109,632,563 194,223,979
------------ ------------ ------------
End of Year $165,077,815 $131,990,195 $251,288,934
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------
STOCK COMPANY EMPLOYEE
INDEX STOCK LOANS
------------ ------------ -------------
<S> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment Income:
Net Appreciation in Fair Value of Investments $18,326,612 $5,472,069
Interest 41,929 42,267
Dividend 4,530,789
Plan interest in Master Trust investment income
Investment Management Fees (43,349) (4,109)
------------- ------------ ------------
22,855,981 5,510,227
------------- ------------ ------------
Contributions:
Employee 15,921,012 20,266,502 $(6,884,671)
Employer 96,929 14,343,500
Employee Rollovers 3,969,856 2,804,898
Transfers From Other Plans 3,283,548 (165,934) 2,738,838
Interfund Transfers 15,708,532 (6,647,758)
------------- ------------ ------------
38,979,877 30,601,208 (4,145,833)
------------- ------------ ------------
TOTAL ADDITIONS 61,835,858 36,111,435 (4,145,833)
------------- ------------ ------------
DEDUCTIONS TO NET ASSETS ATTRIBUTABLE TO:
Distributions to Participants 8,132,543 20,265,818 (8,266,015)
------------- ------------ ------------
TOTAL DEDUCTIONS 8,132,543 20,265,818 (8,266,015)
------------- ------------ ------------
NET INCREASE 53,703,315 15,845,617 4,120,182
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 59,666,754 221,061,989 16,320,308
------------- ------------ ------------
End of Year $113,370,069 $236,907,606 $20,440,490
============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------
TOTAL
-------------
<S> <C>
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment Income:
Net Appreciation in Fair Value of Investments $65,905,291
Interest 3,031,996
Dividend 15,217,887
Plan interest in Master Trust investment income 7,283,958
Investment Management Fees (972,982)
-------------
90,466,150
-------------
Contributions:
Employee 88,006,055
Employer 14,800,519
Employee Rollovers 18,922,266
Transfers From Other Plans 23,324,149
Interfund Transfers -
-------------
145,052,989
-------------
TOTAL ADDITIONS 235,519,139
-------------
DEDUCTIONS TO NET ASSETS ATTRIBUTABLE TO:
Distributions to Participants 70,914,853
-------------
TOTAL DEDUCTIONS 70,914,853
-------------
NET INCREASE 164,604,286
-------------
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 754,470,823
-------------
End of Year $919,075,109
=============
</TABLE>
19
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
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 $5,090,729 205,856 49,938 29,240
Dividend 4,153,832 3,269,456 2,245,636
Plan interest in Master Trust investment income 3,071,796
Investment Management Fees (135,732) (260,280) (412,398) (22,207)
------------ ------------ ------------ -----------
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
============ ============ ============ ===========
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------
COMPANY EMPLOYEE
STOCK LOANS TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment Income
Net Appreciation in Fair Value of Investments $32,925,093 $76,497,351
Interest 47,205 $ 454 5,423,422
Dividend 9,668,924
Plan interest in Master Trust investment income 3,071,796
Investment Management Fees (2,646) (833,263)
------------ ----------- ------------
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, 1997
<TABLE>
<CAPTION>
Note 10 Investments 1997 PRINCIPAL FAIR VALUE OR
---------------- AMOUNT OR SHARES COST CONTRACT VALUE
-------------------- ------------------ ------------------
<S> <C> <C> <C>
FIXED INCOME FUND
Guaranteed Investment Contracts $ 15,231,349 $ 15,231,349 $ 15,231,349
Interest in Master Trust* sh. 234,665,405 142,864,685 142,956,868
BNY Collective Short-Term Invst. Fund sh. 6,176,886 6,176,886 6,176,886
BALANCED FUND
Brinson Partners Inc. U.S. Bond Fund* sh. 698,494 81,072,821 84,332,245
Brinson Partners Inc. U.S. Stock Only Fund* sh. 113,806 25,472,338 40,159,408
Brinson Partners Inc. U.S. Cash Mgmt. Fund sh. 6,569,237 6,569,237 6,569,237
BNY Collective Short-Term Invst. Fund sh. 622,941 622,941 622,941
ACTIVE EQUITY FUND
Brinson Partners Inc. U.S. Equity Portfolio* sh. 719,179 152,634,615 249,786,910
Brinson Partners Inc. U.S. Cash Mgmt. Fund sh. 2 2 2
BNY Collective Short-Term Invst. Fund sh. 885,360 885,360 885,360
STOCK INDEX FUND
Mellon Capital Mgmt. Stock Index Fund* sh. 350,600 76,226,631 107,371,946
Mellon Capital EB Daily Opening Stock
Index Fund sh. 11,230 2,628,795 2,670,819
Mellon Capital Temporary Investment Fund sh. 465 465 465
BNY Collective Short-Term Invst. Fund sh. 460,050 460,050 460,050
COMPANY STOCK FUND
Computer Sciences Common Stock* sh. 2,859,521 96,856,806 238,770,004
BNY Collective Short-Term Invst. Fund sh. 97,900 97,900 97,900
EMPLOYEE LOAN FUND
Participant Loans $ 20,422,664 20,422,664 20,422,664
------------------ ------------------
$ 628,223,545 $ 916,515,054
================== ==================
TOTAL LONG-TERM INVESTMENTS $ 613,410,704 $ 901,702,213
TOTAL SHORT-TERM INVESTMENTS 14,812,841 14,812,841
------------------ ------------------
$ 628,223,545 $ 916,515,054
================== ==================
</TABLE>
* represents investments greater
than 5% of Plan's net assets
21
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Note 10 Investments 1996 PRINCIPAL FAIR VALUE OR
---------------- AMOUNT OR SHARES COST CONTRACT VALUE
-------------------- ------------------ ------------------
<S> <C> <C> <C>
FIXED INCOME FUND
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 1,725,968 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
------------------ ------------------
$519,043,822 $748,962,784
================== ==================
TOTAL LONG-TERM INVESTMENTS $514,161,859 $744,080,821
TOTAL SHORT-TERM INVESTMENTS 4,881,963 4,881,963
------------------ ------------------
$519,043,822 $748,962,784
================== ==================
</TABLE>
* represents investments greater
than 5% of Plan's net assets
22
<PAGE>
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Act of 1934, the
Computer Sciences Corporation Retirement Plans Committee has duly caused this
annual report to be signed on its behalf by the undersigned thereunto duly
authorized.
Computer Sciences Corporation
MATCHED ASSET PLAN
Date: June 25, 1998 By: /s/ LEON J. LEVEL
-------------------------
Leon J. Level
Chairman,
Computer Sciences Corporation
Retirement Plans Committee
23
<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 June 5,
1998, appearing in this Annual Report on Form 11-K of the Computer Sciences
Corporation Matched Asset Plan for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
June 25, 1998
E-1
<PAGE>
1997
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, (c) Description of investment including
borrower, lessor or maturity date, rate of interest, (d) Cost (e) Current
similar party collateral, par or maturity value Value
- -- ---------------------------- -------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Pacific Mutual Life Guaranteed Investment 6.85% 3/31/98 $ 4,766,758 $ 4,766,758
Insurance Co. Contract
Prudential Life Guaranteed Investment 5.77% 3/31/98 1,396,474 1,396,474
Insurance Co. Contract
Canada Life Insurance Co. Guaranteed Investment 5.75% 3/31/98 3,389,615 3,389,615
Contract
Hartford Life Insurance Co. Guaranteed Investment 7.80% 6/30/98 1,982,713 1,982,713
Contract
Hartford Life Insurance Co. Guaranteed Investment 7.80% 6/30/98 2,902,977 2,902,977
Contract
Prudential Life Guaranteed Investment 6.31% 9/30/98 792,812 792,812
Insurance Co. Contract
Brinson Trust Company, Inc. Mutual Fund - U.S. Bond 81,072,821 84,332,245
Fund
Brinson Trust Company, Inc. Mutual Fund - U.S. Stock 25,472,338 40,159,408
Fund
Brinson Trust Company, Inc. Mutual Fund - U.S. Equity 152,634,615 249,786,910
Portfolio
Mellon Capital Mutual Fund - Stock Index 2,628,795 2,670,819
Management Corp. Fund
Mellon Capital Mutual Fund - Stock Index 76,226,631 107,371,946
Management Corp. Fund
* Computer Sciences Common Stock 96,856,806 238,770,004
Corporation
* Computer Sciences Employee Loan Fund 20,422,664 20,422,664
Corporation (8.25%-10%) (1/27/12)
Brinson Trust Company, Inc. U.S. Cash Management Fund 6,569,239 6,569,239
Mellon Capital Mellon Temporary Investment 465 465
Management Corp. Fund
* Bank of New York BNY Collective Short-Term Invst. 8,243,137 8,243,137
Fund ------------- -------------
TOTAL ASSETS HELD FOR INVESTMENT PURPOSES $ 485,358,860 $ 773,558,186
============= =============
* represents party in interest
</TABLE>
S-1
<PAGE>
1997
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
(a) IDENTITY OF (b) DESCRIPTION (c) PURCHASE (d) SELLING (g) COST OF TRANSACTION (i) NET GAIN
PARTY INVOLVED OF ASSET PRICE PRICE ASSET DATE OR (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SINGLE TRANSACTIONS IN EXCESS OF 5%
- ------------------------------------
None to Report
</TABLE>
S-2
<PAGE>
1997
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
(a) IDENTITY OF (b) DESCRIPTION (c) PURCHASE (d) SELLING (g) COST OF TRANSACTION (i) NET GAIN
PARTY INVOLVED OF ASSET PRICE PRICE ASSET DATE OR (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SERIES TRANSACTIONS IN THE AGGREGATE IN EXCESS OF 5%
- ----------------------------------------------------
Mellon Capital Mutual Fund
Management - EB Temporary
Investment Fund
- Purchases $206,089,287 $206,089,287 $ 206,089,287
- Sales $206,726,266 206,726,266 206,726,266 --
</TABLE>
S-3
<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, 1997
[ ] 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
-----------------
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
(a) Financial Statements:
Independent Auditors' Report..................................... 3
Statements of Net Assets Available for Benefits
As of December 31, 1997 and 1996................................. 4
Statements of Changes in Net Assets Available for Benefits
For the Years Ended December 31, 1997 and 1996................... 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
</TABLE>
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 CSC Outsourcing Inc. Hourly Savings Plan (the "Plan") as of December 31,
1997 and 1996, 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, 1997 and 1996, 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
June 5, 1998
Los Angeles, California
3
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
STATEMENTS OF NET ASSETS
AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------
1997 1996
------------------- -------------------
<S> <C> <C>
ASSETS
Investments (Notes 2, 5, 8 and 9):
Short-term $ 24,281 $ 4,359
Long-term--at fair value
Mellon Capital Government Bond Fund 972,097 986,754
Brinson U.S. Equity Fund 1,502,152 1,304,881
CSC common stock 438,292 427,707
Employee loans (Note 6) 17,258
Interest in Master Trust 714,880 120,628
Guaranteed investment contracts--at contract value 1,394,969 2,428,333
------------------- -------------------
Total investments 5,063,929 5,272,662
------------------- -------------------
Receivables:
Participants' Contributions 7,172 5,498
Employer Contributions 1,450 20
Accrued income 123
------------------- -------------------
Total receivables 8,745 5,518
------------------- -------------------
Total assets 5,072,674 5,278,180
------------------- -------------------
LIABILITIES
Accrued expenses 1,323 921
Forfeitures payable 904 1,165
Other 486 552
------------------- -------------------
Total Liabilities 2,713 2,638
------------------- -------------------
NET ASSETS AVAILABLE FOR BENEFITS $5,069,961 $5,275,542
=================== ===================
</TABLE>
See notes to financial statements
4
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
---------------------------------------------
1997 1996
------------------- -------------------
<S> <C> <C>
ADDITIONS
Investment Income:
Net appreciation in fair value of investments $ 199,727 $ 237,527
Interest 155,032 172,628
Dividends 107,411 92,518
Plan interest in Master Trust investment income 19,303 7,543
------------------- -------------------
481,473 510,216
Investment Management Fees (4,092) (3,639)
------------------- -------------------
477,381 506,577
Contributions:
Employee 183,550 176,912
Employer 79,199 80,725
------------------- -------------------
262,749 257,637
------------------- -------------------
Total Additions 740,130 764,214
------------------- -------------------
DEDUCTIONS
Distributions to Participants (Notes 1 and 7) 945,711 280,454
------------------- -------------------
Total Deductions 945,711 280,454
------------------- -------------------
Net (Decrease) Increase (205,581) 483,760
Net assets available for benefits at beginning of year 5,275,542 4,791,782
------------------- -------------------
NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $5,069,961 $5,275,542
=================== ===================
</TABLE>
See notes to financial statements
5
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 1 Description of the Plan
-----------------------
The following brief description of the CSC Outsourcing Inc. Hourly Savings Plan
(the "Plan"), formerly the TMD Hourly Savings Plan, of CSC Outsourcing Inc. (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 members 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 Bank of New York (the "Trustee") 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 hourly paid employees of CSC
Outsourcing Inc. and are members 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 121 participating employees at December 31, 1997.
6
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
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 employee's
base earnings deferred and contributed to the Trust fund cannot exceed $9,500
for calendar year 1997, 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 funds as the participant contributions.
The Plan does not permit employees to rollover a qualified distribution from
another plan.
7
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Participant Accounts
- --------------------
Each participant's account is credited with the participant's contribution and
the Company's matching contribution and allocations of 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. Each participant has a vested interest in the value
of his or her Company matching contributions account and investment earnings
thereon equal to 100 percent after completing five full years of service.
The five-year cliff 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 1997 and 1996 totaled
$945,711 and $280,454, respectively.
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 1997 and 1996.
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.
8
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
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 Computer Sciences Corporation.
Valuation of Investment Securities
- ----------------------------------
Investments in common stocks and institutional investment vehicles 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, 1997 and 1996, was approximately
$1,407,371 and $2,480,000, respectively. The average yield and crediting
interest rates were approximately at 7.64% and 7.62% for 1997 and 1996,
respectively. The crediting interest rate is based on an agreed-upon formula
with the issuer, but cannot be less than zero.
9
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
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, 1995, 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:
(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 $9,500 for 1997 and
1996 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 Computer Sciences Corporation 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 Statements to Form 5500
---------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1997 1996
-------------------- --------------------
<S> <C> <C>
Net assets available for benefits per the financial
statements $5,069,961 $5,275,542
Amounts allocated to withdrawing participants (29,969) (19,591)
-------------------- --------------------
Net assets available for benefits per Form 5500 $5,039,992 $5,255,951
==================== ====================
</TABLE>
10
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
Benefits paid to participants per the financial statements $945,711
Add: Amounts allocated to withdrawing participants at
December 31, 1997 29,969
Less: Amounts allocated to withdrawing participants at
December 31, 1996 (19,591)
--------
Benefits paid to participants per the Form 5500 $956,089
========
</TABLE>
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, 1997 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
- ---------------------
Approximately 66% of the Fixed Income Fund is invested in contracts with
insurance companies or 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 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 34% of the Fixed Income Fund represents holdings of units in a
Master Trust investment vehicle and is managed by BlackRock Financial
Management. The investment portfolio is actively managed and consists of short-
term (1-3 year) fixed income instruments which include: U.S. Treasury and agency
securities, corporate bonds, mortgage-backed securities and asset-backed fixed
income securities. All of the Fund's assets are rated single-A or better at the
time of purchase and all securities must be U.S dollar denominated. All new cash
flows into the Fund are invested in this actively managed bond fund. At December
31, 1997 and 1996, the Plan's interest in the net assets of the Master Trust was
approximately 0.44% and 0.12%, 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.
11
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
The following table represents the fair value of investments for the Master
Trust.
<TABLE>
<CAPTION>
December 31,
1997 1996
------------------------- --------------------------
<S> <C> <C>
Investments at fair value:
Corporate bonds $105,242,979 $ 20,904,676
U.S. government securities 46,459,080 56,633,626
Other bonds 6,446,213 2,112,040
Short-term investments 1,371,261 21,131,915
Accrued income 1,198,486 1,061,097
------------ ------------
$160,718,019 $101,843,354
============ ============
</TABLE>
Investment income for the Master Trust is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
--------------------- ---------------------
<S> <C> <C>
Investment income:
Net appreciation (depreciation) in fair value of
investments $ 450,257 $(1,007,670)
Interest:
Corporate bonds 4,037,722 1,180,044
U.S. government securities 3,243,205 2,485,788
Other bonds 366,303 139,500
Short-term investments 485,226 627,305
---------- -----------
8,582,713 3,424,967
Less investment management fees (208,306) (61,373)
---------- -----------
$8,374,407 $ 3,363,594
========== ===========
</TABLE>
12
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Government Bond Fund
- --------------------
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 Active Equity Fund is managed by Brinson Partners, Inc. The Fund is broadly
diversified by issue and industry relative to the Wilshire 5000 index. The Fund
is typically invested in 70% large capitalization and 30% intermediate and small
capitalization stocks. The Fund may hold up to 50% in cash equivalents for
portfolio risk management purposes. The Fund's objective is to maximize risk-
adjusted total returns relative to the Wilshire 5000 index over a full economic
cycle.
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
Computer Sciences Corporation stock on national securities exchanges or
elsewhere.
Number of Participants
- ----------------------
The approximate number of participants having account balances in each of the
five separate funds at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Investment Fund Number of Participants
--------------- ----------------------
<S> <C>
The Fixed Income Fund......................................... 125
The Government Bond Fund...................................... 65
The Active Equity Fund........................................ 89
The Company Stock Fund........................................ 59
The Loan Fund 1
</TABLE>
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.
13
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 6 Participant Loans
-----------------
The Plan has a loan provision in place which is available to participants
covered by certain bargaining units. The Plan allows participants to borrow from
their vested account balances from a minimum of $500 up to a maximum of $50,000
or 50% of their vested account, 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 a 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' accounts according to a priority specified in the Plan's loan
rules and, within each account, pro rata from the funds based on their balances
at the time. Loan repayments are reinvested in the participants' funds according
to their current investment election. The repayments are similarly allocated
among participants' accounts according to the priority specified in the Plan's
rules.
Note 7 Benefits Payable
----------------
As of December 31, 1997 and 1996, net assets available for benefits included
benefits of $29,969 and $19,591, respectively, due to participants who have
withdrawn from participation in the Plan.
14
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Note 8 Investments 1997 PRINCIPAL FAIR VALUE
---------------- AMOUNT OR CONTRACT
OR SHARES COST VALUE
------------------ ----------------- -----------------
<S> <C> <C> <C>
FIXED INCOME FUND
Guaranteed Investment Contracts:
Hartford Life* $ 1,232,200 $1,232,200 $1,232,200
Canada Life Insurance Company 38,268 38,268 38,268
Pacific Mutual Life Insurance 104,106 104,106 104,106
Prudential Life Insurance Company 20,395 20,395 20,395
Interest in Master Trust* sh. 1,173,484 714,880 714,880
BNY Short-Term Money Market Fund 21,195 21,195 21,195
GOVERNMENT BOND FUND
Mellon Capital:
Government Bond Fund* sh. 7,450 970,317 972,097
Temporary Investment Fund 44 44 44
BNY Short-Term Money Market Fund 780 780 780
ACTIVE EQUITY FUND
Brinson Partners Inc.:
U.S. Equity Portfolio* sh. 4,325 807,043 1,502,152
U.S. Cash Management Fund 2 2 2
BNY Short-Term Money Market Fund 2,211 2,211 2,211
COMPANY STOCK FUND
Computer Sciences Common Stock* sh. 5,249 199,055 438,292
BNY Short-Term Money Market Fund 49 49 49
EMPLOYEE LOAN FUND
Participant Loan $ 17,258 17,258 17,258
----------------- -----------------
$4,127,803 $5,063,929
================= =================
TOTAL LONG-TERM INVESTMENTS $4,103,522 $5,039,648
TOTAL SHORT-TERM INVESTMENTS 24,281 24,281
----------------- -----------------
$4,127,803 $5,063,929
================= =================
</TABLE>
*represents investments greater than 5%
of net assets
15
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
<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>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 9 Statements of Net Assets Available for Benefits by Fund
-------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------------------
FIXED GOVERNMENT ACTIVE COMPANY EMPLOYEE
INCOME BOND EQUITY STOCK LOAN TOTAL
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments
Short-term investments $ 21,195 $ 824 $ 2,213 $ 49 $ 24,281
Long-term investments
At fair value
Interest in registered
investment companies 972,097 1,502,152 2,474,249
CSC Company stock 438,292 438,292
Employee loans $ 17,258 17,258
Interest in Master
Trust 714,880 714,880
At contract value
Guaranteed investment
contracts 1,394,969 1,394,969
Receivables
Participants'
Contributions 2,530 670 2,505 1,467 7,172
Employer
Contributions 738 (100) 469 343 1,450
Accrued Income 60 9 17 37 123
---------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS 2,134,372 973,500 1,507,356 440,188 17,258 5,072,674
LIABILITIES
Accrued Expenses 318 78 927 1,323
Forfeitures Payable 297 607 904
Other 486 486
---------- ---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES 615 78 1,534 486 2,713
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS AVAILABLE
FOR BENEFITS $2,133,757 $ 973,422 $1,505,822 $ 440,188 $ 16,772 $5,069,961
========== ========== ========== ========== ========== ==========
</TABLE>
17
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 9 Statements of Net Assets Available for Benefits by Fund
-------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------------------------------
FIXED GOVERNMENT ACTIVE COMPANY EMPLOYEE
INCOME BOND EQUITY STOCK LOAN TOTAL
---------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments
Short-term investments $ 2,665 $ 1,640 $ 54 $ 4,359
Long-term investments
At fair value
Interest in registered
investment companies 986,754 1,304,881 2,291,635
CSC Company Stock 427,707 427,707
Interest in Master Trust $ 120,628 120,628
At contract value
Guaranteed Investment
Contracts 2,428,333 2,428,333
Receivables
Participants' Contributions 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>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 9 Statements of Changes in Net Assets Available for Benefits by Fund
------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------------------
FIXED GOVERNMENT ACTIVE COMPANY EMPLOYEE
INCOME BOND EQUITY STOCK LOAN TOTAL
---------- ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
ATTRIBUTABLE TO:
Investment Income:
Net Appreciation
(Depreciation) in
Fair Value of
Investments $ 374 $ 4,076 $ 197,464 $ (2,187) $ 199,727
Interest in Master
Trust Investment Income 19,303 19,303
Interest 154,354 306 272 100 155,032
Dividends 68,760 29,119 9,532 107,411
Investment Management Fees (282) (339) (3,471) (4,092)
---------- ---------- ----------- ---------- ----------- -----------
173,749 72,803 223,384 7,445 477,381
---------- ---------- ----------- ---------- ----------- -----------
Contributions:
Employee 65,498 23,376 61,263 35,541 (2,128) 183,550
Employer 28,880 9,815 26,452 14,052 79,199
Interfund Transfers (1,345) (444) 826 963 -
---------- ---------- ----------- ---------- ----------- -----------
93,033 32,747 88,541 50,556 (2,128) 262,749
---------- ---------- ----------- ---------- ----------- -----------
TOTAL ADDITIONS 266,782 105,550 311,925 58,001 (2,128) 740,130
---------- ---------- ----------- ---------- ----------- -----------
DEDUCTIONS TO NET ASSETS
ATTRIBUTABLE TO:
Distributions to
Participants 683,460 121,979 113,206 45,966 (18,900) 945,711
---------- ---------- ----------- ---------- ----------- -----------
TOTAL DEDUCTIONS 683,460 121,979 113,206 45,966 (18,900) 945,711
---------- ---------- ----------- ---------- ----------- -----------
NET INCREASE (DECREASE) (416,678) (16,429) 198,719 12,035 16,772 (205,581)
---------- ---------- ----------- ---------- ----------- -----------
NET ASSETS AVAILABLE FOR
BENEFITS:
Beginning of Year 2,550,435 989,851 1,307,103 428,153 5,275,542
---------- ---------- ----------- ---------- ----------- -----------
End of Year $2,133,757 $ 973,422 $ 1,505,822 $ 440,188 $ 16,772 $ 5,069,961
========== ========== =========== ========== =========== ===========
</TABLE>
19
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 9 Statements of Changes in Net Assets Available for Benefits by Fund
------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------------
FIXED GOVERNMENT ACTIVE COMPANY EMPLOYEE
INCOME BOND EQUITY STOCK LOAN TOTAL
----------- ---------- ---------- --------- -------- ------------
<S> <C> <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 172,227 137 193 71 172,628
Dividends 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 (DECREASE) 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>
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Act of 1934, the
Computer Sciences Corporation Retirement Plans 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 25, 1998 By: /s/ LEON J. LEVEL
------------------------------------
Leon J. Level
Chairman,
Computer Sciences Corporation
Retirement Plans Committee
21
<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 June 5,
1998, appearing in this Annual Report on Form 11-K of the CSC Outsourcing Inc.
Hourly Savings Plan for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
June 25, 1998
E-1
<PAGE>
1997
FORM 5500 ITEM 27(a)
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
EIN 88-0276684
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
- -----------------------------------------------
<TABLE>
<CAPTION>
(a) (b) Identity of issue, borrower, (c) Description of investment, including (d) Cost (e) Current
lessor or similar party maturity date, rate of interest, collateral, Value
par or maturity value
- -- --------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
The Hartford Life Insurance Guaranteed Investment 7.80% 6/30/98 $1,232,200 $1,232,200
Company Contract
Pacific Mutual Life Insurance Guaranteed Investment 6.85% 3/31/98 104,106 104,106
Contract
Prudential Life Insurance Guaranteed Investment 5.77% 3/31/98 20,395 20,395
Company Contract
Canada Life Insurance Co. Guaranteed Investment 5.75% 3/31/98 38,268 38,268
Contract
Mellon Capital Mutual Fund - Government 970,317 970,317
Bond Fund
Brinson Trust Company, Inc. Mutual Fund - U.S. Equity 807,043 1,502,152
Portfolio
* Computer Sciences Corporation Common Stock 199,055 438,292
* Computer Sciences Corporation Employee Loan Fund (9.25%, 17,258 17,258
3/29/02)
Brinson Trust Company, Inc. U.S. Cash Management Fund 2 2
Mellon Bank N.A. Mellon Bank Temporary 44 44
Investment Fund
* Bank of New York BNY Short-Term Money Market 24,235 24,235
Fund
---------- ----------
TOTAL ASSETS HELD FOR INVESTMENT PURPOSES $3,412,923 $4,349,049
========== ==========
</TABLE>
* represents party in interest
S-1
<PAGE>
1997
FORM 5500 ITEM 27(d)
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
EIN 88-0276684
SCHEDULE OF REPORTABLE TRANSACTIONS
-----------------------------------
Single Transactions in Excess of 5%
<TABLE>
<CAPTION>
(h) CURRENT
VALUE
OF ASSET ON (i) NET
(c) PURCHASE (d) SELLING (g) COST OF TRANSACTION GAIN OR
(a) IDENTITY OF PARTY INVOLVED (b) DESCRIPTION OF ASSET PRICE PRICE ASSET DATE (LOSS)
- ------------------------------ ----------------------------- ------------- ------------ ------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
Bank of New York Short-Term Money Market Fund
- Purchase $ 312,839 $ 312,839 $ 312,839
- Purchase 8,404,567 8,404,567 8,404,567
- Sale $ 315,734 315,734 315,734 -
- Sale 8,404,567 8,404,567 8,404,567 -
Provident Life Insurance Co. Guaranteed Investment Contract
- Sale 553,568 553,568 553,568 -
</TABLE>
S-2
<PAGE>
1997
FORM 5500 ITEM 27(d)
CSC OUTSOURCING INC. 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 (i) NET
(c) PURCHASE (d) SELLING (g) COST OF TRANSACTION GAIN OR
(a) IDENTITY OF PARTY INVOLVED (b) DESCRIPTION OF ASSET PRICE PRICE ASSET DATE (LOSS)
- ------------------------------ ----------------------------- ------------- ------------ ------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
Bank of New York BNY Short-Term Money Market
Fund
- Purchases $9,795,730 $9,795,730 $9,975,730
- Sales $9,775,762 9,775,762 9,775,762 -
Provident Life Insurance Co. Guaranteed Investment Contract
- Purchases 33,920 33,920 33,920
- Sales 705,834 705,834 705,834 -
Hartford Life Insurance Co. Guaranteed Investment Contract
- Purchases 97,340 97,340 97,340
- Sales 332,532 332,532 332,532 -
</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 THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended: December 31, 1997
[_] 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
-----------------
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
(a) FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits
As of December 31, 1997 and 1996.................................................... 3
Statements of Changes in Net Assets Available for Benefits
As of December 31, 1997 and 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
</TABLE>
2
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
STATEMENTS OF NET ASSETS
AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Investments (Note 2, 5, 8 and 9):
Short-term Investments $ 4,824 $ 334
Long-term Investments - at fair value:
Interest in registered investment
companies
Brinson U.S. Bond Fund 46,049 34,871
Brinson U.S. Stock Fund 21,912 18,904
Brinson U.S. Equity Fund 262,330 204,712
Mellon Stock Index Fund 62,609 42,979
CSC Company stock 370,740 328,664
Employee Loans (Note 6) 28,881 24,764
Plan Interest in Master Trust 144,470 73,214
-------- --------
Total Investments 941,815 728,442
-------- --------
Receivables:
Employee Contributions 876 2,290
Employer Contributions 1,814 1,450
Other Receivables 7 13
-------- --------
Total Receivables 2,697 3,753
-------- --------
TOTAL ASSETS 944,512 732,195
-------- --------
LIABILITIES
Accounts Payable 2,974 8,361
-------- --------
TOTAL LIABILITIES 2,974 8,361
-------- --------
NET ASSETS AVAILABLE FOR BENEFITS $941,538 $723,834
======== ========
</TABLE>
See Notes to Financial Statements
3
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
-------------- -------------
<S> <C> <C>
ADDITIONS
Investment Income:
Net Appreciation in Fair Value of Investments
(Note 9) $ 64,395 $ 84,006
Interest 400 453
Dividends 10,574 7,404
Plan Interest in Master Trust Investment Income 5,424 2,715
-------- --------
80,793 94,578
Less Investment Management Fees (770) (800)
-------- --------
80,023 93,778
Contributions:
Employee 91,718 69,713
Employer 45,963 37,593
-------- --------
137,681 107,306
-------- --------
TOTAL ADDITIONS 217,704 201,084
-------- --------
NET INCREASE 217,704 201,084
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 723,834 522,750
-------- --------
End of Year $941,538 $723,834
======== ========
</TABLE>
See Notes to Financial Statements
4
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 1 Description of the Plan
-----------------------
The following brief description of the CSC Outsourcing Inc. CUTW Hourly Savings
Plan (the "Plan") of CSC Outsourcing Inc. (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 members (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 Bank of New York (the "Trustee"),
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"). 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 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 members 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 54 participating employees at December 31, 1997.
5
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
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 $9,500 for calendar years 1997 and 1996, 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.
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, 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 1997 and
1996.
6
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
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 such withdrawals made in 1997 and
1996.
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.
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 Computer Sciences Corporation.
7
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
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.
Note 3 Income Tax Status
-----------------
The Company will apply for a determination letter 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. The Committee believes the Plan is designed
and operated to qualify as such. When the requirements of Section 401(k) of the
Code are satisfied, the following tax consequences result:
(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 $9,500 for both the
1997 and 1996, 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 Computer Sciences Corporation 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.
8
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 4 Reconciliation of Financial Statements to Form 5500
---------------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1996
--------- ---------
<S> <C> <C>
Net assets available for benefits per the financial statements $941,538 $723,834
Amounts allocated to withdrawing participants (4,237) (0)
-------- --------
Net assets available for benefits per Form 5500 $937,301 $723,834
======== ========
</TABLE>
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
<TABLE>
<CAPTION>
Year ended
December 31, 1997
-----------------
<S> <C>
Benefits paid to participants per the financial statements $ 0
Add: Amounts allocated to withdrawing participants at
December 31, 1997 4,237
Less: Amounts allocated to withdrawing participants at
December 31, 1996 (0)
------
Benefits paid to participants per the Form 5500 $4,237
======
</TABLE>
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, 1997 but not paid as of that date.
Note 5 Investment Funds
----------------
Participant contributions - Subject to rules the bargaining unit has 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
- ---------------------
Approximately 13% of the Fixed Income Fund is invested in contracts with
insurance companies or 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 financial institution
to make agreed upon payments and that agreement is not secured, insured or
guaranteed by the Company or any other third party.
9
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Approximately 87% of the Fixed Income Fund is managed by BlackRock Financial
Management. The investment portfolio is actively managed and consists of short-
term (1-3 Year) fixed income instruments which include: U.S. Treasury and agency
securities, corporate bonds, mortgage-backed securities and asset-backed fixed
income securities. All of the Fund's assets are rated single-A or better at the
time of purchase and all securities must be U.S. dollar denominated. All new
cash flows into the Fund are invested in this actively managed bond fund. At
December 31, 1997 and 1996, the Plan's interest in the net assets of the Master
Trust was approximately .09% and .07%, 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,
------------------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Investments at fair value:
Corporate bonds $105,242,979 $ 20,904,676
U.S. government securities 46,459,080 56,633,626
Other bonds 6,446,213 2,112,040
Short-term investments 1,371,261 21,131,915
Accrued income 1,198,486 1,061,097
------------ ------------
$160,718,019 $101,843,354
============ ============
</TABLE>
Investment income for the Master Trust is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996
---------- -----------
<S> <C> <C>
Investment income:
Net appreciation (depreciation) in fair value of
investments $ 450,257 $(1,007,670)
Interest:
Corporate bonds 4,037,722 1,180,044
U.S. government securities 3,243,205 2,485,788
Other bonds 366,303 139,500
Short-term investments 485,226 627,305
---------- -----------
8,582,713 3,424,967
Less investment management fees (208,306) (61,373)
---------- -----------
$8,374,407 $ 3,363,594
========== ===========
</TABLE>
10
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
The Balanced Fund
- -----------------
The Balanced Fund is managed by Brinson Partners, Inc. The Balanced Fund is
invested in an actively managed combination of a U.S. equity portfolio, a bond
portfolio and cash equivalents. The U.S. equity portfolio consists of large,
intermediate and small company stocks. The bond portfolio consists primarily of
U.S. Treasury, government agency and corporate issues. This Fund's objective is
to maximize risk-adjusted total returns relative to the U.S. Balanced Index over
a full economic cycle.
The Active Equity Fund
- ----------------------
The Active Equity Fund is managed by Brinson Partners, Inc. The Fund is broadly
diversified by issue and industry relative to the Wilshire 5000 index. The Fund
is typically invested in 70% large capitalization and 30% intermediate and small
capitalization stocks. The Fund may hold up to 50% in cash equivalents for
portfolio risk management purposes. The Fund's objective is to maximize risk-
adjusted total returns relative to the Wilshire 5000 index over a full economic
cycle.
The Stock Index Fund
- --------------------
The Fund is managed by Mellon Capital Management. The objective of the Fund is
to modestly 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 (unleveraged) 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 Computer Sciences Corporation common stock which will be held for the benefit
of the participant. The performance of this investment will depend upon the
performance of Computer Sciences Corporation stock. The Trustee may purchase
Computer Sciences Corporation 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 participant's election form is not filed
within the time
11
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
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
six separate funds at December 31, 1997 was as follows:
<TABLE>
<CAPTION>
Investment Fund Number of Participants
--------------- ----------------------
<S> <C>
The Fixed Income Fund............................... 34
The Balanced Fund................................... 23
The Active Equity Fund.............................. 32
The Stock Index Fund................................ 23
The Company Stock Fund.............................. 54
The Loan Fund....................................... 14
</TABLE>
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 has a loan provision in place which is available to participants
covered by the bargaining unit. As of December 31, 1997, $28,881 of loans were
outstanding.
The loans (which are accounted for in the Loan Fund) are deducted from the
participants' accounts according to a priority specified in the Plan's loan
rules and, within each account, pro rata from the funds based on their balances
at the time. Loan repayments are reinvested in the participants' funds according
to their current investment election. The repayments are similarly allocated
among participants' accounts according to the priority specified in the Plan's
rules.
Note 7 Benefits Payable
----------------
As of December 31, 1997 and 1996, net assets available for benefits included
benefits of $4,237 and $0 respectively, due to participants who have withdrawn
from participation in the Plan.
12
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 8 Investments 1997
----------------
<TABLE>
<CAPTION>
SHARES/UNITS COST FAIR VALUE
----------------- --------- ----------
<S> <C> <C> <C>
FIXED INCOME FUND
Plan Interest in Master Trust sh. 37,149 $145,491 $144,470
BALANCED FUND
Brinson Trust Company Inc.
U.S. Bond Fund sh. 380 44,369 46,049
U.S. Stock Fund sh. 63 14,634 21,912
U.S. Cash Management Fund sh. 3,564 3,564 3,564
BNY Short-Term Money Market Fund sh. 856 856 856
ACTIVE EQUITY FUND
Brinson Trust Company, Inc.
U.S. Equity Portfolio sh. 755 191,200 262,330
STOCK INDEX FUND
Mellon EB Stock Index Fund sh. 199 43,383 60,944
Mellon EB Daily Opening Stock Index
Fund sh. 7 1,627 1,665
Mellon Temporary Investment Fund sh. 393 393 393
COMPANY STOCK FUND
Computer Sciences Common Stock sh. 4,440 315,269 370,740
BNY Short-Term Money Market Fund sh. 11 11 11
CSC EMPLOYEE LOAN FUND
Participant Loans sh. 28,881 28,881 28,881
-------- --------
$789,678 $941,815
======== ========
TOTAL LONG-TERM INVESTMENTS $784,854 $936,991
TOTAL SHORT-TERM INVESTMENTS 4,824 4,824
-------- --------
$789,678 $941,815
======== ========
</TABLE>
13
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 8 Investments 1996
----------------
<TABLE>
<CAPTION>
SHARES/UNITS COST FAIR VALUE
----------------- -------- ----------
<S> <C> <C> <C>
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
======== ========
</TABLE>
14
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 9 Statements of Net Assets Available for Benefits by Fund
-------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------------------
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 $ 4,420 $ 393 $ 11 $ 4,824
Long-term Investments:
Interest in registered investment
companies 67,961 $262,330 62,609 392,900
CSC Company stock 370,740 370,740
Employee Loans $28,881 28,881
Plan Interest in Master Trust $144,470 144,470
Employee Contributions Receivable 1,079 454 714 393 (1,764) 876
Employer Contribution Receivable 1,814 1,814
Accrued Income 1 3 0 0 3 7
Interfund Transfers 42 (321) (704) 117 866 0
-------- ------- -------- ------- -------- ------- --------
TOTAL ASSETS 145,592 72,517 262,340 63,512 371,670 28,881 944,512
LIABILITIES
Accounts Payable 43 42 160 9 0 2,720 2,974
-------- ------- -------- ------- -------- ------- --------
TOTAL LIABILITIES 43 42 160 9 0 2,720 2,974
-------- ------- -------- ------- -------- ------- --------
NET ASSETS AVAILABLE FOR BENEFITS $145,549 $72,475 $262,180 $63,503 $371,670 $26,161 $941,538
======== ======= ======== ======= ======== ======= ========
</TABLE>
15
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 9 Statements of Net Assets Available for Benefits by Fund
-------------------------------------------------------
<TABLE>
<CAPTION>
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
Accounts 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
======= ======= ======== ======= ======== ======= ========
</TABLE>
16
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 9 Statements of Changes in Net Assets Available for Benefits by Fund
------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------
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 $ 147 $ 5,640 $ 32,552 $11,862 $ 14,194 $ 64,395
Interest 8 86 27 202 77 400
Dividends 3,082 4,801 2,691 10,574
Plan Interest in Master Trust Investment
Income 5,424 5,424
Investment Management Fees (21) (149) (571) (29) (770)
-------- ------- -------- ------- -------- -------- --------
5,558 8,659 36,809 14,726 14,271 80,023
-------- ------- -------- ------- -------- -------- --------
Contributions:
Employee 21,249 10,870 16,371 9,814 43,556 (10,142) 91,718
Employer 45,963 45,963
Interfund Transfers 47,524 (579) 425 (47) (47,323) 0
-------- ------- -------- ------- -------- -------- --------
68,773 10,291 16,796 9,767 42,196 (10,142) 137,681
-------- ------- -------- ------- -------- -------- --------
TOTAL ADDITIONS 74,331 18,950 53,605 24,493 56,467 (10,142) 217,704
-------- ------- -------- ------- -------- -------- --------
DEDUCTIONS TO NET ASSETS ATTRIBUTABLE TO:
Distributions to Participants 2,593 1,479 3,273 1,798 10,557 (19,700) 0
-------- ------- -------- ------- -------- -------- --------
TOTAL DEDUCTIONS 2,593 1,479 3,273 1,798 10,557 (19,700) 0
-------- ------- -------- ------- -------- -------- --------
NET INCREASE 71,738 17,471 50,332 22,695 45,910 9,558 217,704
-------- ------- -------- ------- -------- -------- --------
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 73,809 55,004 211,848 40,808 325,762 16,603 723,834
-------- ------- -------- ------- -------- -------- --------
End of Year $145,547 $72,475 $262,180 $63,503 $371,672 $ 26,161 $941,538
======== ======= ======== ======= ======== ======== ========
</TABLE>
17
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1997
Note 9 Statements of Changes in Net Assets Available for Benefits by Fund
------------------------------------------------------------------
<TABLE>
<CAPTION>
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 $ 62 118 36 40 197 453
Dividends 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) 0
------- ------- -------- ------- -------- -------- --------
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) 0
------- ------- -------- ------- -------- -------- --------
TOTAL DEDUCTIONS 596 600 1,563 601 6,940 (10,300) 0
------- ------- -------- ------- -------- -------- --------
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>
18
<PAGE>
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Act of 1934, the
Computer Sciences Corporation Retirement Plans 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 25, 1998 By: /S/ LEON J. LEVEL
------------------------------
Leon J. Level
Chairman,
Computer Sciences Corporation
Retirement Plans Committee
19
<PAGE>
1997
FORM 5500 ITEM 27(a)
CSC OUTSOURCING INC.
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 44,369 46,049
Brinson Trust Company, Inc. Mutual Fund - U.S. Stock Fund 14,634 21,912
Brinson Trust Company, Inc. Mutual Fund - U.S. Equity Portfolio 191,200 262,330
Mellon Bank N.A. Mutual Fund - Index Performance Fund 43,383 60,944
Mellon Bank N.A. Mellon EB Daily Opening Stock Index
Fund 1,627 1,665
* Computer Sciences Corporation Common Stock 315,269 370,740
* Computer Sciences Corporation Employee Loan Fund 28,881 28,881
Mellon Bank N.A. Short-term Mellon Capital Management 393 393
Brinson Trust Company, Inc. Mutual Fund - U.S. Cash Management Fund 3,564 3,564
* Bank of New York BNY Short-Term Money Market Fund 867 867
-------- --------
TOTAL ASSETS HELD FOR INVESTMENT PURPOSES $644,187 $797,345
======== ========
</TABLE>
* represents party in interest
S-1
<PAGE>
1997
FORM 5500 ITEM 27(d)
CSC OUTSOURCING INC.
CUTW HOURLY SAVINGS PLAN
EIN 88-0276684
SCHEDULE OF REPORTABLE TRANSACTIONS
-----------------------------------
SINGLE TRANSACTIONS IN EXCESS OF 5%
<TABLE>
<CAPTION>
(h) CURRENT
VALUE
OF ASSET ON
(c) PURCHASE (d) SELLING (g) COST OF TRANSACTION (i) NET GAIN
(a) IDENTITY OF PARTY INVOLVED (b) DESCRIPTION OF ASSET PRICE PRICE ASSET DATE OR (LOSS)
------------------------------ ------------------------ ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CSC Common Stock Company Stock
-Sale $46,528 $47,331 $46,528 $(803)
</TABLE>
S-2
<PAGE>
1997
FORM 5500 ITEM 27(d)
CSC OUTSOURCING INC.
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
(c) PURCHASE (d) SELLING (g) COST OF TRANSACTION (i) NET GAIN
(a) IDENTITY OF PARTY INVOLVED (b) DESCRIPTION OF ASSET PRICE PRICE ASSET DATE OR (LOSS)
------------------------------ ------------------------ ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CSC Common Stock Company Stock
- Purchase $ 75,945 $ 75,945 $ 75,945
- Sale $ 48,063 48,866 48,063 $(803)
Bank of New York Short-Term Money Market Fund
- Purchase 157,209 157,209 157,209
- Sale 156,388 156,388 156,388 -
</TABLE>
S-3
