<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K/A
AMENDMENT NO. 2 TO ANNUAL REPORT
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 2, 1999
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)
[LOGO APPEARS HERE]
<TABLE>
<S> <C>
Nevada 95-2043126
(State of incorporation or organization) (I.R.S. Employer Identification No.)
2100 East Grand Avenue
El Segundo, California 90245
(Address of principal executive offices) (zip code)
</TABLE>
Registrant's telephone number, including area code: (310) 615-0311
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class: Name of each exchange on which registered
- --------------------------------------- ----------------------------------------
Common Stock, $1.00 par value per share New York Stock Exchange
Preferred Stock Purchase Rights Pacific 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 June 18, 1999, the aggregate market value of stock held by non-
affiliates of the Registrant was approximately $10,619,000,000. A total of
159,638,183 shares of common stock was outstanding as of such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission within 120 days after April 2, 1999, are incorporated by reference
into Part III hereof.
The Registrant hereby amends and restates this Annual Report on Form 10-K to
correct a typographical error in the initial filing and the first amendment
thereto: the signature date of both filings was inadvertently indicated as 1998
rather than 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
---- ----
Part I
<C> <S> <C>
1. Business........................................................... 1
2. Properties......................................................... 6
3. Legal Proceedings.................................................. 7
4. Submission of Matters to a Vote of Security Holders................ 7
Part II
5. Market for the Registrant's Common Equity and Related Stockholder
Matters............................................................ 9
6. Selected Financial Data............................................ 9
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 11
7A. Quantitative and Qualitative Disclosures about Market Risk......... 18
8. Financial Statements and Supplementary Data........................ 19
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 45
Part III
10. Directors and Executive Officers of the Registrant................. 45
11. Executive Compensation............................................. 45
12. Security Ownership of Certain Beneficial Owners and Management..... 45
13. Certain Relationships and Related Transactions..................... 45
Part IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 46
</TABLE>
<PAGE>
PART I
Item 1. Business
INTRODUCTION AND HISTORY
General
Computer Sciences Corporation ("CSC" or the "Company") is one of the world
leaders in the information technology ("I/T") services industry. Since it was
founded in 1959, the Company has helped clients use I/T more efficiently, thus
improving their operations and profitability. CSC does not have exclusive
agreements with hardware or software providers and believes that this "vendor
neutrality" enables it to better identify and manage solutions specifically
tailored to each client's needs. 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, both U.S. federal and global commercial, include
outsourcing, system integration and I/T and management consulting and other
professional services. Outsourcing includes operating all or a portion of a
customer's technology infrastructure, including systems analysis, applications
development, network operations, desktop computing 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 encompasses designing,
developing, implementing and integrating complete information systems. I/T and
management consulting and other professional services include advising clients
on the strategic acquisition and utilization of I/T, and on business strategy,
operations, change management and business process reengineering. 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 on global commercial industries including aerospace;
automotive; chemical and energy; consumer goods; 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 and energy 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:
Electronic commerce--CSC expanded its global e-business offerings with five
new solutions designed to accelerate the efforts of clients to meet the
demands of the emerging digital economy. The offerings include:
. Customer Relationship Management--provides applications and processes
for acquiring and retaining customers, and increasing profitability via
fundamental changes in marketing, sales and customer service;
. Electronic Bill Presentation--delivers personalized, electronic bills
over the Internet to reduce costs, improve customer service and exploit
cross-selling opportunities;
. Collaborative Planning--creates and facilitates processes, metrics and
technologies among electronic trading partners;
. Electronic Procurement--automates, streamlines and customizes a
company's purchasing process; and
. Secured Extranet Community--provides a secure online workspace for
information dissemination and collaboration among customers and/or trade
partners and employees.
1
<PAGE>
CSC LynxSM--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.
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.
Information Security (INFOSECSM)--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.
Major Markets
For four decades, CSC has provided I/T services to the U.S. federal
government. In fiscal 1986, when U.S. federal contracts represented 70% of the
Company's revenues, CSC decided to devote substantial resources to further
develop global commercial business 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 global
commercial market and diversified its business.
During the last three fiscal years, the Company's revenue mix was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. Commercial.......................................... 41% 42% 39%
Europe................................................... 29 27 26
Other International...................................... 7 6 6
--- --- ---
Global Commercial.......................................... 77 75 71
U.S. Federal Government.................................... 23 25 29
--- --- ---
Total Revenues............................................. 100% 100% 100%
=== === ===
</TABLE>
Global Commercial Market
United States--CSC is a major provider of outsourcing services to U.S.
commercial clients, including systems analysis, applications development,
network operations, and desktop and data center management. During fiscal
1999, the Company was awarded extensions and additional business with General
Dynamics, and was awarded new outsourcing contracts with AT&T, Republic
Services Corporation, Budget Group and Premier, Inc.
- --------
INFOSECSM is a service mark of the National Security Agency.
2
<PAGE>
General Dynamics extended its original 10-year outsourcing contract and
signed a new contract extending through 2004 at an estimated value of $500
million for three business units. In addition, CSC was designated as the
exclusive provider of I/T services to General Dynamics for all other business
units and future acquisitions. As a result, the Company signed a 10-year
outsourcing agreement with General Dynamics Information Systems and Computing
Devices Company Limited.
AT&T outsourced a portfolio of 50 systems applications supporting AT&T
Consumer Services. Included in this applications outsourcing effort are
software systems supporting telemarketing and customer support, provisioning
and provisioning support, and compensation and commissions for sales and
support.
Under the agreement with Republic Services Corporation, CSC acquired and
manages Republic National Bank's data center, help-desk, network and
communications operations.
For Budget Group, Inc., CSC is combining its outsourcing and business
transformation skills to help streamline and consolidate I/T operations
including data centers, networks, user support, applications and maintenance.
Premier, Inc. is an alliance of approximately 220 U.S. hospitals and
healthcare systems for which CSC will support internal I/T operations
including application development, hardware, networks and desktop management.
The application development support will include intranet, e-commerce and
contract management associated with Premier's global purchasing operations.
CSC also provides consulting and technical services to its U.S. commercial
clients, both in the development and integration of computer and
communications systems and in 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. As a
prime contractor to the U.S. Postal Service ("USPS"), CSC is providing
comprehensive business consulting and I/T services to improve the payroll and
benefit function of the USPS, one of the world's largest employers with a
payroll of over 850,000 people.
CSC also made two acquisitions during fiscal 1999 to broaden its offerings
in the U.S. commercial consulting area. The Company acquired Onward
Technologies Inc., a Web-focused consulting, development and systems
integration firm to extend its expertise in Internet marketing, electronic
commerce and customer extranets, accelerating the creation of a center of
excellence focused on helping CSC achieve its electronic commerce goals. CSC
also acquired T-Wack Software Group, Inc., a software design and development
firm based in Buffalo Grove, IL.
The Company markets business information systems, software and services to
the insurance and financial services industries and to the U.S. 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 U.S. 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., a major credit services
company, the Company offers retail chains and other large credit grantors the
benefits of a national file of consumer credit histories. The national file
enables customers to obtain credit information from a single source, instead
of dealing with multiple reporting services.
International--The Company's international operations provide a wide range
of information technology services to commercial and public sector clients.
CSC has major offices in the United Kingdom, France, Germany, Belgium, the
Netherlands, Denmark, Italy, Australia, and Singapore, and provides
substantially the same services to its international customers that it
provides to its 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, ICO Global
Communications, Australian Mutual Provident Society,
3
<PAGE>
Deutsche Leasing AG, New South Wales Department of Community Services, Kaman
Aerospace and Belgian Ministry of Finance.
During fiscal 1999, the Company increased its presence in the international
markets through the following acquisitions:
. Approximately 74% of CSA Holdings, Ltd., a leading Asian I/T services
provider headquartered in Singapore. CSA has regional offices in 10
Asian countries with operations and distributor arrangements extending
their presence to other countries;
. KPMG Peat Marwick SA, a Paris-based management consulting and
information technology services firm, significantly increasing CSC's
capabilities in France;
. SYS-AID, a Dutch management consulting and I/T services company
specializing in logistics, finance and I/T support, including
implementation of ERP systems;
. Pergamon Gesellschaft fur angewandte Informatik mbH, an I/T consulting
firm headquartered in Wurzburg, Germany specializing in the financial
services market;
. Informatica Group SpA, an Italian information technology consultancy and
systems integration company, providing a full range of I/T services to
the Italian banking and finance, industrial, telecommunications,
insurance and public sectors; and
. Progres 2, Progres Iniziativa, Progres Progetti, and Progres Veneto,
four I/T services and consulting companies now operating as CSC Progres
and headquartered in Milan, Italy.
U.S. Federal Government Market
The Company provides a broad array of services to the U.S. federal
government, ranging from traditional systems integration and outsourcing to
advanced technical undertakings and complex project management. CSC has
extensive experience in the development of software for mission-critical
systems for defense and civil agency applications, and also provides systems
engineering and technical assistance in network management, satellite
communications, intelligence, aerospace, logistics, and related high-
technology fields.
The Internal Revenue Service selected the CSC PRIME Alliance to enter into a
strategic partnership with the IRS to modernize the United States tax system.
CSC leads the CSC PRIME Alliance, which includes six other companies:
International Business Machines Corporation, KPMG Peat Marwick LLP, Lucent
Technologies Inc., Northrop Grumman Corporation, Science Applications
International Corporation, and UNISYS Corporation. The CSC PRIME Alliance
combines CSC's global capabilities with the specialized business, technical
and consulting capabilities of the other alliance members.
In August 1998, CSC was awarded the first U.S. federal government
outsourcing contract involving the voluntary transition of federal employees
to the private sector. Under the agreement with the National Security Agency
("NSA"), titled the NSA BREAKTHROUGH Program, CSC will maintain daily computer
systems operations and provide services involving development support for
software enhancements, configuration management, installations and upgrades of
hardware and systems software and associated customer support.
In January 1999, the U.S. General Service Administration selected CSC as one
of ten companies to provide I/T services and support for the Federal
Technology Service, Federal Information Systems Support program under an
indefinite delivery/indefinite quantity contract. Under this type of contract,
a group of service providers is selected to provide as yet unspecified
services to a U.S. federal agency or department, which then assigns each
required project within the specified scope of work to one of the service
providers within the selected group. The contract calls for the ten selected
companies to provide services and support for a two-year base period, with
eight one-year extension options.
4
<PAGE>
Other typical activities in the U.S. federal market 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.
COMPETITION
The I/T 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 the
Company's management, CSC is positioned to compete effectively in the global
commercial and U.S. federal government markets based on its technology and
systems expertise and large project management skills. 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 700 offices worldwide, and currently employs approximately
50,000 persons, of which more than 42,000 are 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.
5
<PAGE>
Item 2. Properties
<TABLE>
<CAPTION>
Owned properties as of Approximate
April 2, 1999 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
Wilmington, Delaware....... 175,000 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
Hong Kong.................. 73,000 General Office
Singapore.................. 61,000 General Office
St. Leonards, NSW,
Australia................. 60,000 General Office
Sterling, Virginia......... 45,000 General Office
Various other U.S. and
foreign locations......... 73,000 Primarily General Office
<CAPTION>
Leased properties as of
April 2, 1999
- -----------------------
<S> <C> <C>
Washington, D.C. area...... 948,000 Computer and General Office Facility
Texas...................... 616,000 Computer and General Office Facility
United Kingdom............. 538,000 General Office
Germany.................... 453,000 General Office
Australia and other Pacific
Rim locations............. 443,000 Computer and General Office Facility
New Jersey................. 413,000 General Office
Boston, Massachusetts area. 255,000 General Office
France..................... 165,000 General Office
Chicago, Illinois area..... 161,000 General Office
Ohio....................... 152,000 General Office
Albany, New York area...... 134,000 General Office
Detroit, Michigan area..... 120,000 General Office
Denmark.................... 115,000 General Office
California................. 114,000 General Office
Connecticut................ 109,000 General Office
Alabama.................... 109,000 General Office
Various other U.S. and
foreign locations......... 837,000 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 2000 through 2018.
6
<PAGE>
Item 3. Legal Proceedings
The Company is engaged in several legal proceedings resulting from the
unsolicited tender offer for the Company by Computer Associates International,
Inc. during fiscal 1998. These proceedings include various stockholder class
action lawsuits filed in Nevada, and litigation in California between the
Company, Computer Associates, Bear, Stearns & Co. Inc. and certain related
persons and entities. The Company is also party to a number of other disputes
which involve or may involve litigation. It is the opinion of the Company's
management that the ultimate liability, if any, with respect to these
proceedings and disputes will not be material to the Company's consolidated
financial statements.
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* 54 1987 Indefinite Chairman, President and None
Chief Executive Officer
Leon J. Level* 58 1989 Indefinite Vice President and None
Chief Financial Officer
Harvey N. Bernstein 52 1988 Indefinite Vice President None
Edward P. Boykin 60 1995 Indefinite Vice President None
Milton E. Cooper 60 1992 Indefinite Vice President None
Scott M. Delanty 44 1997 Indefinite Vice President and None
Controller
Hayward D. Fisk 56 1989 Indefinite Vice President, General None
Counsel and Secretary
Ronald W. Mackintosh 50 1993 Indefinite Vice President None
C. Bruce Plowman 61 1989 Indefinite Vice President None
Paul T. Tucker 51 1997 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, 1999, he has been President of the Financial
7
<PAGE>
Services Group. From 1998 to 1999, he was responsible for leveraging 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 36 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.
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.
8
<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 18, 1999, the number of registered shareholders of Computer
Sciences Corporation's common stock was 8,818. 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 18, 1999.
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- ----------------
Calendar Quarter High Low High Low High Low
---------------- ------ -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1st................... 74 3/8 54 15/16 56 3/4 39 31/32 41 3/16 30 13/16
2nd................... 68 1/8* 52 3/8* 65 49 1/8 40 1/16 28 15/16
3rd................... 74 7/8 51 1/2 41 9/16 34 1/2
4th................... 70 15/16 46 1/4 43 7/8 33 5/8
</TABLE>
- --------
* Through June 18, 1999
Item 6. Selected Financial Data
COMPUTER SCIENCES CORPORATION
<TABLE>
<CAPTION>
Five-Year Review
------------------------------------------------------
April 2, April 3, March 28, March 29, March 31,
In thousands except per-share 1999 1998 1997 1996 1995
amounts ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total assets................. $5,007,709 $4,046,795 $3,493,087 $2,936,019 $2,631,580
Debt:
Long-term.................. 397,860 736,054 630,842 426,634 335,696
Short-term................. 426,421 7,110 20,311 71,422 128,237
Current maturities......... 166,521 21,811 9,622 6,917 11,933
---------- ---------- ---------- ---------- ----------
Total.................... 990,802 764,975 660,775 504,973 475,866
Stockholders' equity......... 2,399,854 2,001,275 1,669,560 1,420,113 1,290,769
Working capital.............. 587,573 767,820 533,915 430,484 390,726
Property and equipment:
At cost.................... 2,313,444 1,944,799 1,668,905 1,249,729 994,520
Accumulated depreciation
and amortization.......... 1,226,569 987,606 780,836 569,670 430,249
---------- ---------- ---------- ---------- ----------
Property and equipment,
net....................... 1,086,875 957,193 888,069 680,059 564,271
Current assets to current
liabilities................. 1.3:1 1.6:1 1.5:1 1.5:1 1.4:1
Debt to total capitalization. 29.2% 27.7% 28.4% 26.2% 26.9%
Book value per share......... $15.08 $12.75 $10.88 $9.43 $8.70
Stock price range (high)..... 74.88 56.75 43.25 40.38 26.31
(low)................ 46.25 28.94 30.81 23.25 17.63
</TABLE>
9
<PAGE>
Five-Year Review (continued)
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------------
In thousands except per- 1999 1998 1997 1996 1995
share amounts ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................ $7,659,965 $6,600,838 $5,616,048 $4,740,760 $3,788,026
---------- ---------- ---------- ---------- ----------
Costs of services....... 5,973,837 5,149,218 4,413,173 3,692,267 2,961,955
Selling, general and
administrative......... 695,828 602,708 485,113 471,309 383,973
Depreciation and
amortization........... 445,035 386,854 333,247 272,058 190,240
Interest, net........... 33,908 42,096 32,273 32,143 27,304
Special charges......... 229,093 48,929 76,053 3,740
---------- ---------- ---------- ---------- ----------
Total costs and
expenses............... 7,148,608 6,409,969 5,312,735 4,543,830 3,567,212
---------- ---------- ---------- ---------- ----------
Income before taxes..... 511,357 190,869 303,313 196,930 220,814
Taxes on income......... 170,200 (69,500) 110,900 87,499 77,577
---------- ---------- ---------- ---------- ----------
Net income.............. $ 341,157 $ 260,369 $ 192,413 $ 109,431 $ 143,237
========== ========== ========== ========== ==========
Basic earnings per
common share........... $2.16 $1.68 $1.27 $0.74 $1.02
========== ========== ========== ========== ==========
Diluted earnings per
common share........... $2.11 $1.64 $1.23 $0.71 $1.00
========== ========== ========== ========== ==========
Average common shares
outstanding............ 158,213 155,125 151,895 148,865 140,297
Average common shares
outstanding assuming
dilution............... 161,949 158,526 156,394 153,070 143,702
</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 fiscal years ended 1997 and 1998 is also
included in MD&A. The fiscal 1996 special charge of $76,053 (40 cents per
share after tax) relates to two acquisitions by a company subsequently
acquired by CSC and accounted for as a pooling of interests. 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 selected financial data has been restated for fiscal 1995 through 1996
to include the results of business combinations accounted for as poolings of
interests.
No dividends were paid by CSC during the five years presented. A fiscal 1996
acquisition, accounted for as a pooling of interests, paid dividends of $.17
per share during fiscal 1995.
10
<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 1999, 1998 and 1997 from
the following market sectors:
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998 Fiscal 1997
---------------- ---------------- -----------
Percent Percent
Amount Change Amount Change Amount
Dollars in millions -------- ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
U. S. Commercial................ $3,128.3 13% $2,775.5 29% $2,159.7
Europe.......................... 2,250.1 27 1,771.0 20 1,474.9
Other International............. 516.1 22 423.6 22 345.8
-------- -------- --------
Global Commercial................. 5,894.5 19 4,970.1 25 3,980.4
U. S. Federal Government.......... 1,765.5 8 1,630.7 0 1,635.6
-------- -------- --------
Total............................. $7,660.0 16 $6,600.8 18 $5,616.0
======== ======== ========
</TABLE>
The Company's 16% overall revenue growth for fiscal 1999 over 1998 resulted
principally from continued strong global demand for information technology
("I/T") services. Global commercial revenue grew 19%, or $924 million, during
fiscal 1999. Over 60% of the global commercial growth was provided from
international operations.
For fiscal 1999, U.S. commercial revenue grew 13%, or 17% excluding fiscal
1998 revenue from activities in the Company's collections and
telecommunications operations, which were subsequently sold or phased out.
More than two-thirds of the U.S. commercial growth was generated by
information technology outsourcing contracts. The remainder of the growth was
fueled by demand for consulting and systems integration activities and by
further expansion in the Company's financial services and healthcare vertical
markets. For fiscal 1998, U.S. commercial revenues grew 29%, or $616 million.
More than half of the growth was provided by increases in outsourcing
activities. Major new outsourcing contracts, including E.I. du Pont de Nemours
and Company ("DuPont") and increases in revenues from vertical markets such as
financial services and healthcare, contributed to U.S. commercial revenue
growth. Consulting and systems integration services contributed about a
quarter of the Company's other U.S. commercial revenue growth during fiscal
1998 as a result of strong demand for enterprise resource planning ("ERP")
services, electronic commerce and Year 2000 assessment and renovation
activities.
The Company's European operations accounted for revenue growth of 27%, or
$479 million, for fiscal 1999 compared to 1998. The growth was primarily due
to (a) outsourcing services provided to British Aerospace plc ("BAe"), DuPont,
Hartmann & Braun, (b) the acquisition of KPMG Peat Marwick SA, a Paris-based
management consulting and I/T services firm, and (c) continued strong demand
throughout Europe for consulting and systems integration activities and ERP
services. CSC's European operations accounted for revenue growth of 20%, or
$296 million, for fiscal 1998 versus 1997. The growth was principally due to
increases in outsourcing services provided to BAe, DuPont and J.P. Morgan &
Co. Incorporated and increased demand for consulting and systems integration
activities.
Other international operations provided revenue growth of 22%, or $93
million, during fiscal 1999. The growth was primarily attributable to the
acquisition of CSA Holdings, Ltd., a leading Asian information technology
services provider headquartered in Singapore, expansion of the financial
services sector and additional outsourcing activities in Australia. During
fiscal 1998, other international revenues increased 22%, or $78 million. The
growth was primarily attributable to increased outsourcing business in
Australia as well as increases in the financial services sector.
11
<PAGE>
The Company's U.S. federal government revenues were derived from the
following sources:
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998 Fiscal 1997
---------------- ---------------- -----------
Percent Percent
Amount Change Amount Change Amount
Dollars in millions -------- ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Department of Defense............. $1,112.7 4% $1,071.9 (1)% $1,082.8
Civil agencies.................... 652.8 17 558.8 1 552.8
-------- -------- --------
Total U. S. Federal............... $1,765.5 8 $1,630.7 0 $1,635.6
======== ======== ========
</TABLE>
Revenue from the U.S. federal government increased 8% during fiscal 1999
versus 1998. The increase includes additional task order contracts with the
General Services Administration, increased ordering of a management
information system for the U.S. Department of Defense ("DOD") and the
acquisition of the DOD Ballistic Missile Defense Organization support
contract. Revenue gains during fiscal 1999 were partially offset by reductions
in work performed for NASA and the winding down of several contracts. Federal
revenues for fiscal 1998 were essentially unchanged compared to 1997. Gains
were generated on certain task order contracts with the General Services
Administration and the Defense Integration Systems Agency 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 1999, CSC announced federal contract awards with a total value
of $2.9 billion, compared with the $1.0 billion and $2.1 billion announced
during fiscal 1998 and 1997, respectively. In addition, during December 1998,
the Internal Revenue Service selected the CSC PRIME Alliance to enter into a
strategic partnership with the IRS to modernize the U.S. tax system. This
award, the value of which is not quantified, has the potential to become the
Company's largest contract.
Costs and Expenses
The Company's costs and expenses before special charges were as follows:
<TABLE>
<CAPTION>
Dollar Amount Percentage of Revenue
-------------------------- -----------------------
1999 1998 1997 1999 1998 1997
Dollars in millions -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Costs of services........... $5,973.9 $5,149.2 $4,413.2 78.0% 78.0% 78.6%
Selling, general and
administrative............. 695.8 602.7 485.1 9.1 9.1 8.6
Depreciation and
amortization............... 445.0 386.9 333.2 5.8 5.9 5.9
Interest expense, net....... 33.9 42.1 32.3 .4 .6 .6
-------- -------- -------- ------- ------- -------
Total....................... $7,148.6 $6,180.9 $5,263.8 93.3% 93.6% 93.7%
======== ======== ======== ======= ======= =======
</TABLE>
Costs of Services
For fiscal 1999, the Company's costs of services as a percentage of revenue
was unchanged. The decrease in costs of services as a percent of revenue for
fiscal 1998 was principally related to commercial growth in the healthcare and
financial services vertical markets, as well as outsourcing, consulting and
European operations, combined with performance improvements generated in
Europe.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses as a percentage of
revenue was unchanged for fiscal 1999 versus 1998.
During fiscal 1998, SG&A as a percent of revenue increased to 9.1% from
8.6%. The increase was primarily attributable to growth in the Company's
healthcare and financial services groups.
12
<PAGE>
Special Items
There were no special items during fiscal 1999.
The fiscal 1998 special items 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 first quarter net special
credit of $1.7 million, or 1 cent per share, at CSC Enterprises, a general
partnership which then operated certain of the Company's credit services
operations and carried 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. As required by
Statement of Financial Accounting Standards ("SFAS") No. 109, this tax basis
increase from the previous tax basis resulted in a deferred tax asset of
$135 million and a corresponding reduction in the Company's provision for
taxes. The tax basis increase is temporary and will be realized over time
through an increase in depreciation and amortization expense for income tax
purposes. In connection with the partner withdrawals and related 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, a pre-tax special
charge of $208.4 million ($133.3 million after tax) was recognized. The charge
is comprised of goodwill write-offs of $56.3 million ($35 million after tax),
contract termination costs of $54.3 million ($33.8 million after tax),
deferred contract costs and other assets of $33.1 million ($20.5 million after
tax), telecommunications software and accruals of $35.8 million ($22.3 million
after tax), telecommunications property, equipment and intangible assets of
$18.9 million ($11.7 million after tax), and other non-deductible costs of $10
million.
During the fourth quarter of fiscal 1998, the Company recorded a before-tax
special charge of $20.7 million, or equivalent to 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 $14.4 million for investment banking expenses and
$6.3 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, 1996, acquisition of the Continuum Company, Inc. 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.
Income Before Taxes
The Company's income before taxes and margin for the most recent three
fiscal years is as follows:
<TABLE>
<CAPTION>
Dollar Amount Margin
-------------------- ----------------
1999 1998 1997 1999 1998 1997
Dollars in millions ------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Before special charges................... $511.4 $420.0 $352.2 6.7% 6.4% 6.3%
Income before taxes...................... 511.4 190.9 303.3 6.7 2.9 5.4
</TABLE>
Income before special charges and taxes improved during fiscal 1999 as a
percentage of revenue. The .3% margin improvement to 6.7% principally relates
to lower depreciation and amortization as a percent of revenue in both the
U.S. Federal and Global Commercial operations of the Company. Lower net
interest expense as a percent of revenue also contributed to the margin
improvement.
During fiscal 1998, income before special charges and taxes increased
principally to the performance improvements in costs of services and
depreciation and amortization. Partially offsetting the improvements were
increases in SG&A expenses.
13
<PAGE>
Taxes
The provision for (benefit from) income taxes as a percentage of pre-tax
earnings was 33.3%, (36.4)% and 36.6% for fiscal 1999, 1998 and 1997,
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% and 35.4% for fiscal 1998 and 1997, respectively. The decrease
in the fiscal 1999 tax rate from 35.1% to 33.3% is principally the result of
utilization of foreign operating losses not previously recognized and research
tax credits.
Net Income and Earnings per Share
The Company's net income and diluted earnings per share for fiscal years
1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Dollar Amount Margin
-------------------- ----------------
1999 1998 1997 1999 1998 1997
Dollars in millions, except EPS ------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net income:
Before special items................... $341.2 $272.6 $227.7 4.5% 4.1% 4.1%
As reported............................ 341.2 260.4 192.4 4.5 3.9 3.4
Diluted earnings per share:
Before special items................... 2.11 1.72 1.46
As reported............................ 2.11 1.64 1.23
</TABLE>
During fiscal 1999, the Company's net income margin improved to 4.5% from
3.9%. The improvement is primarily related to a reduction in depreciation and
amortization as a percent of revenue, lower net interest and a lower tax rate.
For 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,
principally related to the costs relating to the Company's response to a
failed take-over attempt described above.
Before special items, the net earnings margin was 4.1% for fiscal 1998 and
1997. 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.
Cash Flows
<TABLE>
<CAPTION>
Fiscal
Fiscal 1999 Fiscal 1998 1997
--------------- --------------- ------
Percent Percent
Amount Change Amount Change Amount
Dollars in millions ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Cash from operations................ $814.1 40% $583.3 17 % $500.4
Net cash used in investing.......... (705.1) 22 (577.1) (14) (676.5)
Net cash provided by financing...... 219.2 35 162.7 (7) 175.0
Effect of exchange rate changes on
cash and cash equivalents.......... (.3) (4.9) (2.1)
------ ------ ------
Net increase (decrease) in cash and
cash equivalents................... 327.9 164.0 (3.2)
Cash at beginning of year........... 274.7 110.7 113.9
------ ------ ------
Cash at end of year............... $602.6 $274.7 $110.7
====== ====== ======
</TABLE>
Historically, the majority of the Company's cash has been provided from
operating activities. The increases in cash from operations during fiscal 1999
and 1998 are primarily due to higher earnings, non-cash charges (depreciation
and amortization) and lower net income tax payments, partially offset by
increased working capital requirements.
14
<PAGE>
The Company's investments principally relate to purchases of computer
equipment and software that support the Company's expanding global 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 several acquisitions during fiscal 1997 through 1999. The
acquisitions, individually or collectively, were not material to the Company's
consolidated financial statements.
As described above, a majority of the Company's capital investments have
been funded by cash from operations. During fiscal 1999 the Company issued
$200 million of 6.25% notes due in 2009. Proceeds were used for general
corporate purposes and, subsequent to year end, to repay the $150 million
6.80% notes due April 1999.
Liquidity and Capital Resources
The balance of cash and cash equivalents was $602.6 million at April 2,
1999, $274.7 million at April 3, 1998 and $110.7 million at March 28, 1997.
During this period, the Company's earnings have added substantially to equity.
At the end of fiscal 1999, CSC's ratio of debt to total capitalization was
29.2%. Giving effect to the aforementioned April 1999 paydown of the $150
million notes, the ratio of debt to total capitalization was 25.9%.
<TABLE>
<CAPTION>
1999 1998 1997
Dollars in millions -------- -------- --------
<S> <C> <C> <C>
Debt............................................. $ 990.8 $ 765.0 $ 660.8
Equity........................................... 2,399.9 2,001.3 1,669.6
-------- -------- --------
Total capitalization............................. $3,390.7 $2,766.3 $2,330.4
======== ======== ========
Debt to total capitalization..................... 29.2% 27.7% 28.4%
</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. $115 million was available for borrowing under this program, at the end
of both fiscal 1999 and 1998.
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, cash balances, 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 and/or the exercise of the put option (as described
in Note 11 to the Company's consolidated financial statements).
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, which had been issued under the 1988 stockholder rights plan, for one
sixth of one cent per right. The redemption was paid on April 13, 1998.
Year 2000 Readiness Disclosure
Since its inception, 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 for internal needs. The Year 2000 issue represents another one
of these changes. It is the result of computer systems that represent years as
a two-digit rather than a four-digit field. Any of such systems 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, miscalculations, or data corruption, thereby
affecting normal business activity.
15
<PAGE>
The Company has established a two-phase program to ensure that its
proprietary products, internal computer systems and facilities are Year 2000
ready. In order to launch this program, monitor progress and coordinate the
Company's Year 2000 activities, the Year 2000 Assurance Office was established
with this charter and reports directly to the Chairman, President, and Chief
Executive Officer. The initial phase, which included planning, inventory and
assessment, has been completed for all of the Company's existing business. The
final phase, which consists of correction, testing, deployment and acceptance,
is in process and is expected to be substantially completed during the
Company's quarter ending October 1, 1999. A very small percentage of the final
phase activities may not be completed by October 1, 1999, as certain clients
have not yet upgraded applications for which they are responsible, thereby
delaying their move from a non-year 2000 ready platform.
The Company expects that its Year 2000 preparation efforts will not have a
material effect on its overall financial position or results of operations.
The Company currently estimates that the total fiscal 1999 and 2000 operating
costs associated with making its proprietary products, internal systems and
infrastructure Year 2000 ready, as well as estimates for contingency planning
and monitoring, including the cost of Company personnel diverted to Year 2000
assignments, will total approximately $51 million, of which approximately $25
million had been incurred as of the end of fiscal 1999. In addition, the
Company currently estimates that related capital expenditures for fiscal 1999
and 2000 will be approximately $13 million, of which approximately $8 million
had been incurred as of the end of fiscal 1999. The Company's total current
estimate for Year 2000 compliance has increased by approximately $7 million
since the third quarter of fiscal 1999 due to revised remediation estimates in
Australia, some clients scheduling system changes later than originally
planned, and increased estimates for contingency and crisis management
planning.
Some of these capital expenditures represent equipment replacements that
have been or will be accelerated due to Year 2000 issues. The operating costs
described above are generally not incremental, but reflect the reallocation of
existing resources. The Company has not deferred any significant information
technology projects as a result of the Year 2000 efforts.
As of the end of fiscal 1999, (a) the Company had completed approximately
78% of items it has identified as necessary to be Year 2000 ready, including
activities to correct Year 2000 issues, contingency planning and ancillary
efforts and (b) the Company had completed approximately 89% of items it has
identified as necessary to correct critical Year 2000 items.
The Company has completed an assessment of its obligations and
responsibilities to its customers in respect of Year 2000 issues arising from
contractual engagements for computer goods and services, including obligations
arising from the licensing of the Company's proprietary software products. As
a result of this assessment, it is management's opinion that these obligations
will not have a material effect on the Company.
The Company has initiated formal communications with all of its crucial
suppliers to determine whether they are or will be Year 2000 ready. By October
1, 1999, the Company expects to have identified and replaced any such
suppliers that will not be Year 2000 ready. The Company is also contacting
property owners to determine the readiness of its leased facilities with
respect to facility infrastructure systems. As of the end of fiscal 1999, over
80% of the company's crucial suppliers, property owners, and landlords have
been determined to have adequate programs in place to be Year 2000 ready
before the end of 1999. Evaluation of the remaining 20% should be completed by
October 1, 1999.
In the opinion of the Company's management, the most reasonably likely worst
case scenario includes the possibility that the Company and/or its crucial
suppliers are unable to complete their Year 2000 readiness efforts prior to
the onset of failures, the effects of which could have a material adverse
impact on the Company's operations. The Company could also be impacted
materially by any significant economic, financial market or infrastructure
disruption attributable to the Year 2000 issue.
The Company has developed initial drafts of Year 2000 transition,
contingency and crisis management plans. Final drafts will be completed during
the quarter ending October 1, 1999. These plans include the use of
16
<PAGE>
exercises and drills with various relevant scenarios. As a result of lessons
learned from the exercises, the contingency plans may be modified. The Company
has also established the infrastructure for a Year 2000 corporate command
center that will be fully operational during November 1999. This command
center will be linked to each business unit's Year 2000 crisis management
center, which will be connected to internal and client-support help desks.
Euro Conversion
On January 1, 1999 the euro currency was introduced in 11 of the 15 member
countries in the European Union. Although euro notes and coins will not be
available until the latter part of the transition period in 2002, the euro is
traded on the currency exchanges and is available for non-cash transactions.
The Company established a European steering group during 1997 to determine
the Company's approach to the euro and to develop plans to ensure that
customer expectations and statutory requirements are met. The Company was
ready by January 1, 1999 to deal with any customer or supplier who wished to
transact in euros and all European intercompany transactions since January 1
have been invoiced and settled in euros. The Company's European Group plans to
implement infrastructure during calendar 1999 which will provide all the
internal systems functionality required to deal with the euro during the
transition period and thereafter. The transition period lasts until July 2002
when the national currencies will no longer be legal tender. The incremental
system cost to CSC of introducing the euro will not be material.
The Company does not believe that the introduction of the euro will
negatively impact the enforceability of client contracts or require it to
incur any material cost thereunder for which it will not be paid. CSC will
continue to review the impact of the euro conversion during the transition
period, but does not expect it to have a material impact on its overall
financial position or results of operations.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires all derivatives to be recorded on the balance sheet at fair
value and establishes accounting standards for hedging activities. In May
1999, the FASB proposed amending SFAS No. 133 to defer its effective date one
year to fiscal years beginning after June 15, 2000. The Company is currently
assessing the impact this statement will have and, based on preliminary
estimates, does not expect the adoption to have a material impact on its
consolidated financial position or results of operations.
During 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement requires the
capitalization of internal use computer software costs provided that certain
criteria are met. These capitalized software costs will be amortized on a
straight-line basis over the useful life of the software. The Company will
adopt this statement effective April 3, 1999. The adoption of this statement
is not expected to have a material impact on the company's consolidated
financial position, results of operations or cash flows.
Forward-Looking Statements
All statements contained in this annual report, or in any 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 represent the Company's
expectations and beliefs, and no assurance can be given that the results
described in such statements will be achieved.
17
<PAGE>
These statements 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 the results described in such statements. These
factors include, without limitation, the following: (i) general economic
conditions in countries in which the Company does business; (ii) competitive
pressures; (iii) changes in the financial condition of the Company's major
commercial customers; (iv) changes in the demand for information technology
outsourcing and business process outsourcing; (v) changes in U.S. federal
government spending levels for information technology services; (vi) the
future profitability of the Company's customer contracts; (vii) the Company's
ability to consummate strategic acquisitions and alliances; (viii) the
Company's ability to attract and retain key personnel; (ix) the Company's
ability to continue to develop and expand its service offerings to address
emerging business demands and technological trends; and (x) the ability of the
Company, and the ability of its customers and suppliers to become Year 2000
ready.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rates
The Company has fixed-rate long-term debt obligations, short-term commercial
paper and other borrowings subject to market risk from changes in interest
rates. Sensitivity analysis is one technique used to measure the impact of
changes in interest rates on the value of market-risk sensitive financial
instruments. A hypothetical 10% movement in interest rates would not have a
material impact on the Company's future earnings, fair value, or cash flows.
Foreign Currency
During the ordinary course of business, the Company enters into certain
contracts denominated in foreign currency. Potential foreign currency
exposures arising from these contracts are analyzed during the contract
bidding process. The Company generally manages these transactions by ensuring
costs to service contracts are incurred in the same currency in which revenue
is received. Short-term contract financing requirements are met by borrowing
in the same currency. By matching revenues, costs and borrowings to the same
currency, the Company has been able to substantially mitigate foreign currency
risk to earnings. If necessary, the Company may also use foreign currency
forward contracts or options to hedge exposures arising from these
transactions. The Company does not foresee changing its foreign currency
exposure management strategy.
During fiscal 1999, 36% of the Company's revenue was generated outside of
the United States. Using sensitivity analysis, a hypothetical ten-percent
increase in the value of the U.S. dollar against all currencies would decrease
revenue by 3.6% or $277 million, while a hypothetical ten-percent decrease in
the value of the U.S. dollar against all currencies would increase revenue by
3.6% or $277 million. In the opinion of management, a substantial portion of
this fluctuation would be offset by expenses incurred in local currency. As a
result, a hypothetical 10% movement of the value of the U.S. Dollar against
all currencies in either direction would not have a material impact on the
Company's net income.
The Company's primary unhedged assets and liabilities consist of local
currency cash balances and borrowings, respectively. At April 2, 1999, the
Company had approximately $135 million of non-U.S. dollar denominated cash and
short-term investments, and approximately $114 million of non-U.S. dollar
borrowings.
18
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Financial Statement Schedules
Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. 20
Consolidated Statements of Income for the fiscal years ended April 2,
1999, April 3, 1998, and March 28, 1997.................................. 21
Consolidated Balance Sheets as of April 2, 1999 and April 3, 1998......... 22
Consolidated Statements of Cash Flows for the fiscal years ended April 2,
1999, April 3, 1998, and March 28, 1997.................................. 24
Consolidated Statements of Stockholders' Equity for the fiscal years ended
April 2, 1999, April 3, 1998 and March 28, 1997.......................... 25
Notes to Consolidated Financial Statements................................ 26
Quarterly Financial Information (Unaudited)............................... 44
Schedule
Schedule VIII, Valuation and Qualifying Accounts.......................... 50
</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.
19
<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 2, 1999 and
April 3, 1998, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended April 2, 1999. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Computer Sciences Corporation
and Subsidiaries as of April 2, 1999 and April 3, 1998, and the results of
their operations and their cash flows for each of the three years in the
period ended April 2, 1999 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, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Los Angeles, California
May 26, 1999
20
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------
April 2, April 3, March 28,
1999 1998 1997
In thousands except per-share amounts ---------- ---------- ----------
<S> <C> <C> <C>
Revenues.................................... $7,659,965 $6,600,838 $5,616,048
---------- ---------- ----------
Costs of services........................... 5,973,837 5,149,218 4,413,173
Selling, general and administrative......... 695,828 602,708 485,113
Depreciation and amortization............... 445,035 386,854 333,247
Interest expense............................ 48,496 50,951 40,268
Interest income............................. (14,588) (8,855) (7,995)
Special charges (note 2).................... 229,093 48,929
---------- ---------- ----------
Total costs and expenses.................... 7,148,608 6,409,969 5,312,735
---------- ---------- ----------
Income before taxes......................... 511,357 190,869 303,313
Taxes on income (notes 2 and 3)............. 170,200 (69,500) 110,900
---------- ---------- ----------
Net income.................................. $ 341,157 $ 260,369 $ 192,413
========== ========== ==========
Earnings per common share:
Basic..................................... $ 2.16 $ 1.68 $ 1.27
========== ========== ==========
Diluted................................... $ 2.11 $ 1.64 $ 1.23
========== ========== ==========
</TABLE>
(See notes to consolidated financial statements)
21
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
April 2, April 3,
1999 1998
In thousands ---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 602,593 $ 274,688
Receivables, net of allowance for doubtful accounts of
$80,607 (1999) and $75,373 (1998) (notes 4 and 10).... 1,777,262 1,456,330
Prepaid expenses and other current assets.............. 289,130 251,618
---------- ----------
Total current assets................................. 2,668,985 1,982,636
---------- ----------
Investments and other assets:
Software, net of accumulated amortization of $158,906
(1999) and $120,675 (1998)............................ 168,237 125,430
Excess of cost of businesses acquired over related net
assets, net of accumulated amortization of $112,292
(1999) and $90,007 (1998)............................. 653,034 538,408
Other assets........................................... 430,578 443,128
---------- ----------
Total investments and other assets................... 1,251,849 1,106,966
---------- ----------
Property and equipment--at cost (note 5):
Land, buildings and leasehold improvements............. 364,168 301,437
Computers and related equipment........................ 1,757,822 1,490,765
Furniture and other equipment.......................... 191,454 152,597
---------- ----------
2,313,444 1,944,799
Less accumulated depreciation and amortization......... 1,226,569 987,606
---------- ----------
Property and equipment, net.......................... 1,086,875 957,193
---------- ----------
$5,007,709 $4,046,795
========== ==========
</TABLE>
(See notes to consolidated financial statements)
22
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
April 2, April 3,
1999 1998
In thousands except shares ---------- ----------
<S> <C> <C>
Current liabilities:
Short-term debt and current maturities of long-term
debt (note 5)......................................... $ 592,942 $ 28,921
Accounts payable....................................... 374,978 317,787
Accrued payroll and related costs (note 6)............. 386,788 299,062
Other accrued expenses................................. 459,821 403,860
Deferred revenue....................................... 137,378 127,337
Federal, state and foreign income taxes (note 3)....... 129,505 37,849
---------- ----------
Total current liabilities............................ 2,081,412 1,214,816
---------- ----------
Long-term debt, net of current maturities (note 5)....... 397,860 736,054
---------- ----------
Other long-term liabilities (note 6)..................... 128,583 94,650
---------- ----------
Commitments and contingencies (notes 6 and 7)
Stockholders' equity (notes 5, 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 159,510,065 (1999) and 157,324,565 (1998)...... 159,510 157,325
Additional paid-in capital............................. 730,238 660,971
Earnings retained for use in business.................. 1,578,125 1,236,968
Accumulated other comprehensive income (loss).......... (53,235) (39,691)
---------- ----------
2,414,638 2,015,573
Less common stock in treasury, at cost, 369,607 shares
(1999) and 346,170 shares (1998)...................... (14,413) (13,029)
Unearned restricted stock and other (note 8)........... (371) (1,269)
---------- ----------
Stockholders' equity, net............................ 2,399,854 2,001,275
---------- ----------
$5,007,709 $4,046,795
========== ==========
</TABLE>
(See notes to consolidated financial statements)
23
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------
April 2, April 3, March 28,
In thousands, increase (decrease) in cash and 1999 1998 1997
cash equivalents --------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 341,157 $ 260,369 $ 192,413
Adjustments to reconcile net income to net cash
provided:
Depreciation and amortization.................. 445,035 386,854 333,247
Deferred taxes................................. 91,243 (94,473) 5,121
Special items, net of tax...................... 97,870 11,884
Provision for losses on accounts receivable.... 8,818 20,058 33,501
Changes in assets and liabilities, net of
effects of acquisitions:
Increase in receivables...................... (249,028) (221,974) (164,184)
Increase in prepaid expenses................. (8,674) (86,815) (39,692)
Increase in accounts payable and accruals.... 71,043 109,575 97,294
Increase in income taxes payable............. 96,340 98,156 23,907
Increase (decrease) in deferred revenue...... 10,042 13,817 (3,304)
Other changes, net........................... 8,086 (133) 10,235
--------- --------- ---------
Net cash provided by operating activities...... 814,062 583,304 500,422
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment............ (425,716) (349,316) (322,434)
Outsourcing contracts.......................... (85,286) (145,974) (102,508)
Acquisitions, net of cash acquired............. (156,965) (103,269) (176,693)
Dispositions................................... 37,947 75,827 6,229
Software....................................... (86,835) (64,052) (77,227)
Other investing cash flows, net................ 11,785 9,663 (3,900)
--------- --------- ---------
Net cash used in investing activities.......... (705,070) (577,121) (676,533)
--------- --------- ---------
Cash flows from financing activities:
Net (repayment) borrowing of commercial paper.. (42) 77,953 50,188
Borrowings under lines of credit............... 40,440 61,281 48,180
Repayment of borrowings under lines of credit.. (34,679) (73,022) (99,283)
Proceeds from term debt issuance............... 200,000 32,568 150,000
Principal payments on long-term debt........... (34,804) (10,959) (29,843)
Proceeds from stock option transactions........ 45,109 61,488 42,869
Other financing cash flows..................... 3,190 13,356 12,964
--------- --------- ---------
Net cash provided by financing activities...... 219,214 162,665 175,075
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents..................................... (301) (4,886) (2,111)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... 327,905 163,962 (3,147)
Cash and cash equivalents at beginning of year... 274,688 110,726 113,873
--------- --------- ---------
Cash and cash equivalents at end of year......... $ 602,593 $ 274,688 $ 110,726
========= ========= =========
</TABLE>
(See notes to consolidated financial statements)
24
<PAGE>
COMPUTER SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Earnings Accumulated Unearned
Common Stock Additional Retained Other Common Restricted
--------------------- Paid-In for Use in Comprehensive Stock in Stock and
In thousands except Shares Amount Capital Business Income (Loss) Treasury Other Total
shares ----------- -------- ---------- ---------- ------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 29,
1996................... 75,428,622 $ 75,429 $506,569 $ 862,770 $ (7,214) $(10,488) $(6,953) $1,420,113
Comprehensive income:
Net income.............. 192,413 192,413
Currency translation
adjustment............. (7,182) (7,182)
Unfunded pension
obligation............. (229) (229)
----------
Comprehensive income... 185,002
----------
Stock option
transactions........... 1,501,214 1,501 63,240 (1,494) (1,125) 62,122
Amortization and
forfeitures of
restricted stock....... (5,000) (5) (90) 813 718
Repayment of notes...... 1,605 1,605
----------- -------- -------- ---------- -------- -------- ------- ----------
Balance at March 28,
1997................... 76,924,836 76,925 569,719 1,055,183 (14,625) (11,982) (5,660) 1,669,560
Comprehensive income:
Net income.............. 260,369 260,369
Currency translation
adjustment............. (23,287) (23,287)
Unfunded pension
obligation............. (1,779) (1,779)
----------
Comprehensive income... 235,303
----------
Stock option
transactions........... 2,077,103 2,077 91,252 (1,047) 92,282
Amortization and
forfeitures of
restricted stock....... 109 109
Repayment of notes...... 4,282 4,282
Effect of two-for-one
stock split............ 78,322,626 78,323 (78,323)
Stock purchase rights
redemption............. (261) (261)
----------- -------- -------- ---------- -------- -------- ------- ----------
Balance at April 3,
1998................... 157,324,565 157,325 660,971 1,236,968 (39,691) (13,029) (1,269) 2,001,275
Comprehensive income:
Net income.............. 341,157 341,157
Currency translation
adjustment............. (12,860) (12,860)
Unfunded pension
obligation............. (684) (684)
----------
Comprehensive income... 327,613
----------
Stock option
transactions........... 2,185,500 2,185 69,267 (1,384) 70,068
Amortization and
forfeitures of
restricted stock....... 893 893
Repayment of notes...... 5 5
----------- -------- -------- ---------- -------- -------- ------- ----------
Balance at April 2,
1999................... 159,510,065 $159,510 $730,238 $1,578,125 $(53,235) $(14,413) $ (371) $2,399,854
=========== ======== ======== ========== ======== ======== ======= ==========
</TABLE>
(See notes to consolidated financial statements)
25
<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
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
CSC acquired The Continuum Company, Inc. ("Continuum") on August 1, 1996.
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
During the three years ended April 2, 1999, the Company made a number of
acquisitions in addition to the one 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 $231,367, $61,460 and $199,302; and assumed liabilities of $191,911,
$47,632 and $125,511 for fiscal 1999, 1998 and 1997 respectively. The excess
of cost of businesses acquired over related net assets was $152,294, $89,028
and $139,504 for the three fiscal years ended 1999.
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 long-term 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 recognized upon receipt of a signed contract
documenting customer commitment, delivery of the software and determination of
the fee amount and its probable collection. However, if significant
customization is part of the transaction, such revenues are recognized over
the period of delivery.
26
<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:
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 software are unamortized capitalized software development costs
of $122,208 and $76,969 as of April 2, 1999 and April 3, 1998, respectively.
The related amortization expense was $22,378, $17,358 and $20,073 for the
three fiscal years ended April 2, 1999.
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 $92,717 and $102,723 for fiscal 1999 and 1998,
respectively. The related amortization expense was $18,408, $15,371 and
$12,112 for the three fiscal years ended April 2, 1999.
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 cash (refunds)/payments for
taxes on income are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Interest......................................... $ 45,327 $50,909 $37,910
Taxes on income.................................. (31,041) 30,613 63,899
</TABLE>
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
27
<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)
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 historical weighted average and per share amounts in the Consolidated
Statements of Income have been restated to reflect a two-for-one stock split
in the form of a 100% stock dividend paid on March 23, 1998. The Consolidated
Balance Sheets and the Consolidated Statements of Stockholders' Equity reflect
the actual number and par value of the issued and outstanding shares for each
of the fiscal periods presented. The Consolidated Statements of Stockholders'
Equity reflects the actual stock dividend in the period paid.
Earnings per Share
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
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income for basic and diluted EPS............. $341,157 $260,369 $192,413
======== ======== ========
Common share information (in thousands)
Average common shares outstanding for basic
EPS........................................... 158,213 155,125 151,895
Dilutive effect of stock options............... 3,736 3,401 4,499
-------- -------- --------
Shares for diluted EPS......................... 161,949 158,526 156,394
======== ======== ========
Basic EPS........................................ $ 2.16 $ 1.68 $ 1.27
Diluted EPS...................................... 2.11 1.64 1.23
</TABLE>
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 88,451, 95,310 and 249,813 for the year ended April 2, 1999, April
3, 1998 and March 28, 1997, respectively.
Recent Accounting Pronouncements
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
28
<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)
Information" and SFAS No. 132, "Employers' Disclosures about Pensions and
other Postretirement Benefits." The adoption of these standards expanded or
modified disclosures but had no impact on consolidated financial position,
results of operations or cash flows. The Company also adopted the American
Institute of Certified Public Accountants Statement of Position ("SOP") 97-2,
"Software Revenue Recognition." SOP 97-2 provides further guidance on
recognizing revenue from sales of proprietary software. The adoption of SOP
97-2 had no material impact on consolidated financial position, results of
operations or cash flows.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires all derivatives to be recorded on the balance sheet at fair
value and establishes accounting standards for hedging activities. In May
1999, the FASB proposed amending SFAS No. 133 to defer its effective date one
year to fiscal years beginning after June 15, 2000. The Company is currently
assessing the impact this statement will have and, based on preliminary
estimates, does not expect the adoption to have a material impact on its
consolidated financial position or results of operations.
During 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." This statement requires the capitalization of internal use
computer software costs provided that certain criteria are met. These
capitalized software costs will be amortized on a straight-line basis over the
useful life of the software. The Company will adopt this statement effective
April 3, 1999. The adoption of this statement is not expected to have a
material impact on the company's 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
There were no special items during fiscal 1999.
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 first quarter of fiscal 1998, CSC recorded 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. These
withdrawals caused CSC Enterprises to take 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 from the previous tax basis resulted in 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. The tax
basis increase is temporary and will be realized over time through an increase
in depreciation and amortization expense for income tax purposes. In
connection with the partner withdrawals and related 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 of
these plans, CSC recognized a pre-tax special charge of $208,393 ($133,293
after tax). This special charge included goodwill write-offs of $56,300
($35,000 after tax),
29
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 2--Special Items (continued)
contract termination costs of $54,300 ($34,000 after tax), deferred contract
costs and other assets of $33,093 ($20,493 after tax), telecommunications
software and accruals of $35,800 ($22,300 after tax), telecommunications
property, equipment and intangible assets of $18,900 ($11,700 after tax) and
other non-deductible costs of $10,000.
During 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 $14,400 for investment banking expenses and $6,300 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, 1996, acquisition of Continuum. The amount of the charge, net of
income tax benefits on the tax deductible portion, is $35,280, or 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.
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
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Domestic entities................................ $357,090 $ 96,438 $270,353
Entities outside the United States............... 154,267 94,431 32,960
-------- -------- --------
$511,357 $190,869 $303,313
======== ======== ========
</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
---------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current portion:
Federal....................................... $ 29,306 $(12,275) $ 83,185
State......................................... 5,289 (2,051) 12,065
Foreign....................................... 44,362 39,299 10,529
-------- -------- --------
78,957 24,973 105,779
-------- -------- --------
Deferred portion:
Federal....................................... 78,930 (82,170) 3,566
State......................................... 10,820 (8,812) 664
Foreign....................................... 1,493 (3,491) 891
-------- -------- --------
91,243 (94,473) 5,121
-------- -------- --------
Total provision (credit) for taxes.............. $170,200 $(69,500) $110,900
======== ======== ========
</TABLE>
30
<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
------------------
1999 1998 1997
---- ----- ----
<S> <C> <C> <C>
Statutory rate........................................... 35.0% 35.0% 35.0%
State income tax, less effect of federal deduction....... 2.1 2.2 2.8
Goodwill amortization.................................... .3 .4 .6
Utilization of tax credits/losses........................ (3.3) (2.2) (1.9)
Special items............................................ (71.5) 1.2
Other.................................................... (.8) (.3) (1.1)
---- ----- ----
Effective tax rate....................................... 33.3% (36.4)% 36.6%
==== ===== ====
</TABLE>
The fiscal 1998 special items percentage relates principally to the $135,000
tax benefit described in Note 2. The fiscal 1997 special items percentage is
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 2, April 3,
1999 1998
--------- --------
<S> <C> <C>
Deferred tax assets (liabilities)
Deferred income...................................... $ 7,816 $ 1,457
Employee benefits.................................... 18,846 (1,421)
Provisions for contract settlement................... 1,086 4,121
Currency exchange.................................... 23,765 18,909
Other assets......................................... 17,037 22,438
Contract accounting.................................. (111,537) (109,343)
Depreciation and amortization........................ (50,922) 54,420
Prepayments.......................................... (79,676) (41,083)
Tax loss/credit carryforwards........................ 37,351 20,231
Other assets (liabilities)........................... 13,722 (998)
--------- --------
Total deferred taxes................................... $(122,512) $(31,269)
========= ========
</TABLE>
Of the above deferred amounts, $127,576 and $111,277 are included in current
income taxes at April 2, 1999 and April 3, 1998, respectively.
The Internal Revenue Service ("IRS") has completed its examination of the
Company's consolidated federal income tax returns for fiscal years 1987
through 1991. The results did not have a material effect on the Company's
financial position or results of operations. The IRS has substantially
completed its examination of the Company's federal income tax returns for
fiscal years 1992 through 1994. The results are not expected to have a
material effect on the Company's financial position or results of operations.
31
<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 2, April 3,
1999 1998
---------- ----------
<S> <C> <C>
Billed trade accounts................................ $1,329,487 $1,043,703
Recoverable amounts under contracts in progress...... 414,321 366,778
Other receivables.................................... 33,454 45,849
---------- ----------
$1,777,262 $1,456,330
========== ==========
</TABLE>
Recoverable amounts under contracts in progress 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. The balance at April 2, 1999 is expected to be collected
during fiscal 2000 except for $80,835 to be collected during fiscal 2001 and
thereafter.
Note 5--Debt
Short-term
At April 2, 1999, the Company had an uncommitted line of credit of $45,000
with a domestic bank. As of April 2, 1999, the Company had no borrowings
outstanding under this line of credit.
At April 2, 1999, the Company had uncommitted lines of credit of $171,202
with certain foreign banks. As of April 2, 1999, the Company had $46,452 of
borrowings outstanding under these lines of credit. These short-term lines of
credit carry no commitment fees or significant covenants. The weighted average
interest rate on borrowings under these short-term lines of credit was 3.9%
and 4.7% at April 2, 1999, and April 3, 1998, respectively.
The Company also had outstanding borrowings of $4,988 with a foreign bank as
of April 2, 1999. The interest rate on these borrowings was 3.95%.
At April 2, 1999, the Company had $374,981 of commercial paper outstanding.
The weighted average interest rate on the Company's commercial paper was 4.9%
and 5.5% at April 2, 1999 and April 3, 1998, respectively.
The Company's commercial paper is backed by a $490,000 multi-year committed
credit facility which expires on September 15, 1999. The classification of the
Company's outstanding commercial paper is determined by the expiration date of
this credit facility. In previous years, commercial paper outstanding at year-
end was classified as long-term debt because the facility had more than one
year before its expiration. At April 2, 1999, commercial paper was classified
as short-term debt. The Company intends to replace the credit facility prior
to expiration.
32
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 5--Debt (continued)
Long-term
<TABLE>
<CAPTION>
April 2, April 3,
1999 1998
-------- --------
<S> <C> <C>
Commercial paper........................................ $375,023
6.80% notes, due April 1999............................. $150,000 150,000
6.50% notes, due November 2001.......................... 150,000 150,000
6.25% notes, due March 2009............................. 200,000
Capitalized lease liabilities, at varying interest
rates, payable in monthly installments through fiscal
2002................................................... 11,425 21,603
Notes payable, at varying interest rates (from 3.5% to
6.0%) through fiscal 2005.............................. 52,956 61,239
-------- --------
Total long-term debt.................................... 564,381 757,865
Less current maturities................................. 166,521 21,811
-------- --------
$397,860 $736,054
======== ========
</TABLE>
During fiscal 1999 the Company issued $200,000 of 6.25% notes due in March
2009. Proceeds were used for general corporate purposes and, subsequent to
year end, to repay the $150,000 6.80% notes due April 1999.
Capitalized lease liabilities shown above represent amounts due under leases
for the use of computers and related equipment. Included in property and
equipment are related assets of $20,030 (1999) and $18,895 (1998), less
accumulated amortization of $9,892 and $5,378, 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 $1,189,000 of retained earnings was available for cash dividends
at April 2, 1999.
The carrying value of the Company's long-term debt is $564,381 at April 2,
1999, 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 $166,521 (2000), $24,539
(2001), $155,842 (2002), $3,672 (2003), $499 (2004) and $213,308 thereafter.
Note 6--Pension and Other Postretirement Benefit Plans
The Company and its subsidiaries have several pension and postretirement
healthcare and life insurance benefit plans, as described below.
A contributory, defined benefit pension plan is generally available to U.S.
employees. Certain non-U.S. employees are enrolled in defined benefit pension
plans in the country of domicile. In addition, the Company has a Supplemental
Executive Retirement Plan ("SERP"), which is a nonqualified, noncontributory
pension plan. The Company provides healthcare and life insurance retirement
benefits for certain U.S. employees, generally for those employed prior to
August 1992. Most non-U.S. employees are covered by government sponsored
programs at no direct cost to the Company other than related payroll taxes.
33
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 6--Pension and Other Postretirement Benefit Plans (continued)
Net periodic cost for U.S. and non-U.S. pension and other benefit plans
included the following components:
<TABLE>
<CAPTION>
Fiscal Year
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Pensions
Service cost................................. $ 68,199 $ 54,629 $ 42,831
Interest cost................................ 63,050 50,469 36,553
Expected return on plan assets............... (71,438) (54,314) (39,630)
Amortization of transition obligation........ 482 280 (320)
Amortization of prior service costs.......... 2,829 2,830 1,703
Recognized actuarial loss.................... 1,326 965 999
-------- -------- --------
Net periodic pension cost.................... $ 64,448 $ 54,859 $ 42,136
======== ======== ========
Other Postretirement Benefits
Service cost................................. $ 819 $ 662 $ 865
Interest cost................................ 3,384 3,044 3,031
Expected return on plan assets............... (1,698) (944) (590)
Amortization of transition obligation........ 1,633 1,633 1,633
Amortization of prior service cost........... 490 490 36
Recognized actuarial gain.................... (292) (389) (44)
-------- -------- --------
Net provision for postretirement benefits.... $ 4,336 $ 4,496 $ 4,931
======== ======== ========
</TABLE>
34
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 6--Pension and Other Postretirement Benefit Plans (continued)
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the fiscal years ended April
2, 1999 and April 3, 1998, and a statement of the funded status at April 2,
1999 and April 3, 1998:
<TABLE>
<CAPTION>
Other
Postretirement
Pensions Benefits
-------------------- ------------------
1999 1998 1999 1998
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year............................... $ 912,984 $655,536 $ 47,826 $ 36,929
Service cost........................ 68,199 54,629 819 662
Interest cost....................... 63,050 50,469 3,384 3,044
Plan participants' contributions.... 30,119 34,301 943 962
Amendments.......................... 13,476 71,133 4,742
Actuarial loss (gain)............... 65,012 73,652 (5,815) 4,254
Benefits paid....................... (36,212) (27,807) (2,632) (2,767)
Foreign currency exchange rate
changes............................ (8,034) 1,071
---------- -------- -------- --------
Benefit obligation at end of year... $1,108,594 $912,984 $ 44,525 $ 47,826
========== ======== ======== ========
Change in plan assets:
Fair value of plan assets at
beginning of year.................. $ 902,162 $731,495 $ 19,934 $ 12,586
Actual return on plan assets........ 122,743 66,650 3,830 3,543
Employer contributions.............. 65,539 35,455 5,654 5,987
Plan participants' contributions.... 30,119 34,301 943 962
Asset transfers..................... 14,086 66,694
Benefits paid....................... (36,212) (27,807) (2,632) (2,767)
Foreign currency exchange rate
changes............................ 7 (4,626)
---------- -------- -------- --------
Fair value of plan assets at end of
year............................... $1,098,444 $902,162 $ 27,729 $ 20,311
========== ======== ======== ========
Reconciliation of funded status to
net amount recorded:
Funded status....................... $ (10,150) $(10,822) $(16,796) $(27,515)
Unrecognized actuarial loss (gain).. (49,644) (54,547) (15,672) (7,481)
Unrecognized transition obligation.. 5,314 5,245 22,093 23,726
Unrecognized prior service cost..... 20,637 22,826 4,712 4,900
Contribution in fourth fiscal
quarter............................ 2,500 2,560
---------- -------- -------- --------
Net amount recorded................. $ (31,343) $(34,738) $ (5,663) $ (6,370)
========== ======== ======== ========
</TABLE>
Plan assets include equity and fixed income securities and short-term
investments. Pension plan assets also include real estate investments and
insurance contracts.
35
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 6--Pension and Other Postretirement Benefit Plans (continued)
The following table provides the amounts recorded in the Company's
consolidated balance sheets:
<TABLE>
<CAPTION>
Other
Postretirement
Pensions Benefits
------------------ ----------------
April 2, April 3, April April
1999 1998 2, 1999 3, 1998
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Prepaid benefit cost................ $ 14,074 $ 10,289
Accrued benefit liability........... (54,279) (53,802) $(5,663) $(6,370)
Intangible asset.................... 2,301 3,266
Accumulated other comprehensive
income............................. 6,561 5,509
-------- -------- ------- -------
Net amount recorded................. $(31,343) $(34,738) $(5,663) $(6,370)
======== ======== ======= =======
</TABLE>
The following table lists selected information for the pension plans with
accumulated benefit obligations in excess of plan assets as of April 2, 1999
and April 3, 1998. The fair value of plan assets shown for fiscal 1998
represents two plans which became fully funded in fiscal 1999. The reported
amounts for fiscal 1999 consist only of plans with no assets.
<TABLE>
<CAPTION>
April April
2, 1999 3, 1998
------- -------
<S> <C> <C>
Projected benefit obligation.............................. $39,139 $92,594
Accumulated benefit obligation............................ 35,054 84,741
Fair value of plan assets................................. 0 53,826
</TABLE>
Weighted average assumptions used in the accounting for the Company's plans
were:
<TABLE>
<CAPTION>
Fiscal Year
----------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount or settlement rates............................. 6.7% 7.1% 7.6%
Rates of increase in compensation levels................. 5.0 5.2 5.7
Expected long-term rates of return on assets............. 8.1 8.3 8.6
</TABLE>
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 2, 1999, plan assets included 5,878,348 shares of the
Company's common stock. During fiscal 1999, 1998 and 1997, the Company
contributed $41,367, $35,216 and $29,772, respectively.
The assumed healthcare cost trend rate used in measuring the expected
benefit obligation was 7.5% for fiscal 1999, declining to 5.0% for 2004 and
subsequent years. A one-percentage point change in the assumed healthcare cost
trend rate would have the following effects:
<TABLE>
<CAPTION>
One Percentage
Point
-----------------
Increase Decrease
-------- --------
<S> <C> <C>
Effect on accumulated postretirement benefit obligation
as of April 2, 1999..................................... $5,835 $(3,522)
Effect on net periodic postretirement benefit cost for
fiscal 1999............................................. $ 643 $ (356)
</TABLE>
36
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
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 $180,783 (1999), $162,795
(1998) and $162,777 (1997).
Minimum fixed rentals required for the next five years and thereafter under
operating leases in effect at April 2, 1999 are as follows:
<TABLE>
<CAPTION>
Fiscal Year Real Estate Equipment
----------- ----------- ---------
<S> <C> <C>
2000................................................. $102,718 $ 57,174
2001................................................. 90,325 22,818
2002................................................. 76,672 10,408
2003................................................. 58,477 5,761
2004................................................. 46,332 2,486
Thereafter........................................... 101,128 3,094
-------- --------
$475,652 $101,741
======== ========
</TABLE>
DST Systems, Inc., a shareholder of the Company, provides data processing
and consulting services and licenses certain software products to the Company.
During the three fiscal years ended April 2, 1999, the Company incurred
aggregate expenses of $27,065, $27,271 and $22,788, respectively, related
thereto, which are included in costs of services.
Contingencies
The primary financial instruments which potentially subject the Company to
concentrations of credit risk are 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. 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 consolidated financial statements.
Note 8--Stock Incentive Plans
Stock Options. The Company has eight 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. At
April 2, 1999, April 3, 1998 and March 28, 1997, 9,897,768, 1,938,838 and
4,588,930 shares, respectively, of CSC common stock were available for the
grant to employees of future stock options, restricted stock or other stock-
based incentives.
37
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 8--Stock Incentive Plans (continued)
Information concerning stock options granted under stock incentive plans is
as follows:
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
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................ 11,846,858 $25.48 13,157,762 $20.23 13,972,880 $15.45
Granted................. 2,095,750 54.80 3,285,950 35.36 3,148,736 34.74
Exercised............... (2,185,600) 21.51 (3,820,152) 15.20 (2,918,180) 12.77
Canceled................ (1,075,592) 32.26 (776,702) 28.83 (1,045,674) 20.90
---------- ---------- ----------
Outstanding, end of
year................... 10,681,416 31.35 11,846,858 25.48 13,157,762 20.23
========== ========== ==========
Exercisable, end of
year................... 4,360,449 $19.47 4,261,089 $16.21 5,412,886 $13.79
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
April 2, 1999
-----------------------------------------------------
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Option Exercise Number Exercise Contractual Number Exercise
Price Outstanding Price Life Exercisable Price
- ------------------------ ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .17-$19.00............ 2,752,600 $11.79 3.6 2,530,645 $11.42
19.63-33.94............ 3,623,810 29.71 7.2 1,135,272 26.95
34.00-53.13............ 3,850,006 43.40 8.2 694,532 36.60
53.25-72.94............ 455,000 60.81 9.5 None N/A
</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 $300, $377 and $442 for fiscal 1999, 1998
and 1997, 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. 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 2, 1999, April 3, 1998 and March 28, 1997, 66,304, 165,302 and
296,482 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 $411, $645
and $742 during fiscal 1999, 1998 and 1997, respectively.
38
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 8--Stock Incentive Plans (continued)
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 2, 1999 and 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.
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 2, 1999 and 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 $109 for fiscal
1999.
Pro Forma Information. In accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation," the following pro forma net income and earnings per
share information is presented as if the Company 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
incentive awards is charged against income on a straight-line basis over the
vesting period.
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income.............. $341,157 $325,027 $260,369 $246,161 $192,413 $182,649
Basic earnings per
share.................. 2.16 2.05 1.68 1.59 1.27 1.20
Diluted earnings per
share.................. 2.11 2.01 1.64 1.55 1.23 1.17
</TABLE>
The weighted average fair values of stock awards granted during fiscal 1999,
1998 and 1997 were $19.12, $12.08 and $11.53, respectively. The fair value of
each stock award was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 1999, 1998 and 1997, respectively: risk-free interest rates of
5.48%, 6.43% and 6.55%; expected volatility of 32%, 28% and 26%; and expected
lives of 5.96, 6.06 and 5.75 years.
39
<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 on April
13, 1998, to the holders of record of rights as of the close of business on
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.
40
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 10--Segment and Geographic Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during fiscal 1999. SFAS No. 131
establishes standards for reporting information about operating segments and
related disclosures about products and services, geographic areas and major
customers.
All of the Company's business involves operations which provide management
and information technology consulting, systems integration and outsourcing.
Although the Company presents estimates of revenue by business service and
geography, the Company's expenses and assets are not identified or accumulated
in this manner due to, among other reasons, cross-utilization of personnel and
assets across the Company. Based on SFAS No. 131 criteria, the Company's
reportable operating segments consist of the U.S. Federal Sector and the
Global Commercial Sector. The U.S. Federal Sector operates principally within
a regulatory environment subject to governmental contracting and accounting
requirements, including Federal Acquisition Regulations, Cost Accounting
Standards and audits by various U.S. Federal agencies. The U.S. Federal Sector
revenue reported below will not agree to U.S. Federal government revenue
presented elsewhere in the Annual Report due to overlapping activities between
segments. The Company utilizes uniform accounting policies across all of its
operating units (see Note 1). The table below presents financial information
for the three fiscal years ended April 2, 1999, for the two reportable
segments, and for financial items that cannot be allocated to either operating
segment:
<TABLE>
<CAPTION>
Global U.S.
Commercial Federal
Sector Sector Corporate Total
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
1999
Revenues....................... $5,824,427 $1,835,017 $ 521 $7,659,965
Earnings (loss) before interest
and taxes..................... 452,751 109,157 (16,643) 545,265
Depreciation and amortization.. 411,697 25,132 8,206 445,035
Assets......................... 3,877,832 665,894 463,983 5,007,709
Capital expenditures for long-
lived assets.................. 559,080 17,343 21,414 597,837
1998
Revenues....................... $4,934,269 $1,666,448 $ 121 $6,600,838
Earnings (loss) before interest
and taxes..................... 392,120 93,734 (23,796) 462,058
Depreciation and amortization.. 355,639 25,629 5,586 386,854
Assets......................... 3,096,610 586,801 363,384 4,046,795
Capital expenditures for long-
lived assets.................. 488,444 19,644 51,254 559,342
1997
Revenues....................... $3,929,959 $1,685,903 $ 186 $5,616,048
Earnings (loss) before interest
and taxes..................... 281,483 104,965 (1,933) 384,515
Depreciation and amortization.. 305,643 24,417 3,187 333,247
Assets......................... 2,802,993 513,531 176,563 3,493,087
Capital expenditures for long-
lived assets.................. 459,651 17,547 24,971 502,169
</TABLE>
A reconciliation of earnings before interest and taxes to income before
taxes is as follows:
<TABLE>
<CAPTION>
Fiscal Year
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Earnings before interest and taxes........... $545,265 $462,058 $384,515
Interest expense............................. (48,496) (50,951) (40,268)
Interest income.............................. 14,588 8,855 7,995
Special charges.............................. (229,093) (48,929)
-------- -------- --------
Total...................................... $511,357 $190,869 $303,313
======== ======== ========
</TABLE>
41
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 10--Segment and Geographic Information (continued)
Enterprise-wide information is provided in accordance with SFAS No. 131.
Revenue by country is based on the location of the selling business unit.
Property and equipment information is based on the physical location of the
asset. Geographic revenue and property and equipment, net for the three years
ended April 2, 1999 is as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
Property Property Property
and and and
Equipment, Equipment, Equipment,
Revenues Net Revenues Net Revenues Net
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States........... $4,893,730 $ 722,859 $4,406,236 $691,472 $3,795,361 $648,730
Europe:
United Kingdom........ 1,134,923 130,577 929,717 136,062 749,203 140,982
Other Europe.......... 1,115,174 110,139 841,238 87,046 725,730 62,812
Other International..... 516,138 123,300 423,647 42,613 345,754 35,545
---------- ---------- ---------- -------- ---------- --------
Total................. $7,659,965 $1,086,875 $6,600,838 $957,193 $5,616,048 $888,069
========== ========== ========== ======== ========== ========
</TABLE>
The Company derives a significant portion of its revenues from departments
and agencies of the United States government. U.S. Federal government revenue
accounted for 23%, 25% and 29% of the Company's revenue for fiscal 1999, 1998
and 1997, respectively. At April 2, 1999, approximately 28% of the Company's
accounts receivable were due from the federal government. No single commercial
customer exceeded 10% of the Company's revenue during fiscal 1999, 1998 and
1997, respectively.
Note 11--Agreement 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 purchased 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 acquired 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
completed during May 1998.
Since July 31, 1998, the exercise price of the Credit Reporting Put Option
has been equal to the appraised value of the credit reporting business.
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
42
<PAGE>
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share amounts)
Note 11--Agreement with Equifax (continued)
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 thereafter to require the
Company to sell to it the credit reporting business at the Credit Reporting
Put Option exercise price.
The Company's rights under the Operating Agreement, including its right to
exercise the Credit Reporting Put Option, remain exercisable by the Company
through its affiliates.
43
<PAGE>
COMPUTER SCIENCES CORPORATION
Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Fiscal 1999
-------------------------------------------
lst 2nd 3rd 4th
In thousands except per-share Quarter Quarter Quarter Quarter
amounts ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues.......................... $1,753,928 $1,847,771 $1,927,888 $2,130,378
Income before taxes............... 96,435 109,547 130,418 174,957
Net income........................ 64,335 73,047 87,018 116,757
Net earnings per share:
Basic........................... 0.41 0.46 0.55 0.73
Diluted......................... 0.40 0.45 0.54 0.72
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1998
--------------------------------------------
lst 2nd 3rd 4th
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues........................... $1,488,750 $1,578,824 $1,664,092 $1,869,172
Income (loss) 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
</TABLE>
A discussion of "special items" for fiscal 1998 is included in Note 2 to the
consolidated financial statements.
44
<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 1999 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after April 2, 1999. 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."
45
<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 51.
(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 (j)
3.3 Amendment to Restated Articles of Incorporation, effective July
31, 1996 (m)
3.4 Certificate of Amendment of Certificate of Designations of
Series A Junior Participating Preferred Stock, effective August
1, 1996 (o)
3.5 Bylaws, amended and restated effective May 4, 1998 (g)
10.1 1978 Stock Option Plan, amended and restated effective March 31,
1988* (n)
10.2 1980 Stock Option Plan, amended and restated effective March 31,
1988* (n)
10.3 1984 Stock Option Plan, amended and restated effective March 31,
1988* (n)
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* (h)
10.7 1992 Stock Incentive Plan, amended and restated effective August
9, 1993* (n)
10.8 Schedule to the 1992 Stock Incentive Plan for United Kingdom
personnel* (q)
10.9 1995 Stock Incentive Plan* (k)
10.10 1998 Stock Incentive Plan* (v)
10.11 Form of Stock Option Agreement* (u)
10.12 Form of Restricted Stock Agreement* (u)
10.13 Annual Management Incentive Plan, effective April 2, 1983* (a)
10.14 Supplemental Executive Retirement Plan, amended and restated
effective February 27, 1998* (u)
10.15 Deferred Compensation Plan, amended and restated effective
February 2, 1998* (s)
10.16 Severance Plan for Senior Management and Key Employees, amended
and restated effective February 18, 1998. (t)
10.17 Severance Agreement with Van B. Honeycutt, effective February 2,
1998. (s)
10.18 Employee Agreement with Van B. Honeycutt, effective May 1, 1999.
10.19 Form of Indemnification Agreement for Officers (e)
10.20 Form of Indemnification Agreement for Directors (d)
10.21 1997 Nonemployee Director Stock Incentive Plan (r)
10.22 Form of Restricted Stock Unit Agreement (g)
10.23 1990 Nonemployee Director Retirement Plan, amended and restated
effective February 2, 1998 (s)
10.24 Information Technology Services Agreements with General Dynamics
Corporation, dated as of November 4, 1991 (i)
10.25 Rights Agreement dated February 18, 1998 (t)
10.26 $350 million Credit Agreement dated as of September 6, 1995 (k)
10.27 First Amendment to $350 million Credit Agreement dated September
23, 1996 (p)
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, 1998
99.2 Annual Report on Form 11-K for the Hourly Savings Plan of CSC
Outsourcing, Inc. for the fiscal year ended December 31, 1998
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,
1998
</TABLE>
- --------
* Management contract or compensatory plan or agreement
46
<PAGE>
Notes to Exhibit Index:
(a)-(g) 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 (e) March 31, 1995
(b) April 1, 1988 (f) March 28, 1997
(c) March 31, 1989 (g) April 3, 1998
(d) April 3, 1992
</TABLE>
(h) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8 filed on August 15, 1990.
(i) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated November 4, 1991.
(j) Incorporated herein by reference to the Registrant's Proxy Statement
for its August 10, 1992 Annual Meeting of Stockholders.
(k) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on November 13, 1995.
(l) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated April 28, 1996.
(m) Incorporated herein by reference to the Registrant's Proxy Statement
for its July 31, 1996 Annual Meeting of Stockholders.
(n) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on August 12, 1996.
(o) Incorporated herein by reference to the Registrant's Current Report of
Form 8-K dated August 1, 1996.
(p) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on November 12, 1996.
(q) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on February 10, 1997.
(r) Incorporated herein by reference to the Registrant's Proxy Statement
for its August 11, 1997 Annual Meeting of Stockholders.
(s) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on February 9, 1998.
(t) Incorporated herein by reference to the Registrant's
Solicitation/Recommendation Statement on Schedule 14D-9 filed on
February 26, 1998.
(u) Incorporated herein by reference to Amendment No. 2 to the Registrant's
Solicitation/Recommendation Statement on Schedule 14D-9 filed on March
2, 1998.
(v) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on August 14, 1998
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of fiscal
1999.
47
<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: July 7, 1999
By: /s/ Scott M. Delanty
----------------------------
Scott M. Delanty,
Vice President and Controller
48
<PAGE>
COMPUTER SCIENCES CORPORATION AND SUBSIDIARIES
SCHEDULE VIII, Valuation and Qualifying Accounts
Three Years Ended April 2, 1999
<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 2, 1999
Allowance for doubtful
receivables............ $75,373 $ 8,818 $4,032 $ 7,616 $80,607
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
</TABLE>
- --------
(1) Includes balances from acquisitions, changes in balances due to foreign
currency exchange rates and recovery of prior-year charges.
49
<PAGE>
INDEX TO EXHIBIT
<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 (j)
3.3 Amendment to Restated Articles of Incorporation, effective July
31, 1996 (m)
3.4 Certificate of Amendment of Certificate of Designations of
Series A Junior Participating Preferred Stock, effective August
1, 1996 (o)
3.5 Bylaws, amended and restated effective May 4, 1998 (g)
10.1 1978 Stock Option Plan, amended and restated effective March 31,
1988* (n)
10.2 1980 Stock Option Plan, amended and restated effective March 31,
1988* (n)
10.3 1984 Stock Option Plan, amended and restated effective March 31,
1988* (n)
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* (h)
10.7 1992 Stock Incentive Plan, amended and restated effective August
9, 1993* (n)
10.8 Schedule to the 1992 Stock Incentive Plan for United Kingdom
personnel* (q)
10.9 1995 Stock Incentive Plan* (k)
10.10 1998 Stock Incentive Plan* (v)
10.11 Form of Stock Option Agreement* (u)
10.12 Form of Restricted Stock Agreement* (u)
10.13 Annual Management Incentive Plan, effective April 2, 1983* (a)
10.14 Supplemental Executive Retirement Plan, amended and restated
effective February 27, 1998* (u)
10.15 Deferred Compensation Plan, amended and restated effective
February 2, 1998* (s)
10.16 Severance Plan for Senior Management and Key Employees, amended
and restated effective February 18, 1998. (t)
10.17 Severance Agreement with Van B. Honeycutt, effective February 2,
1998. (s)
10.18 Employee Agreement with Van B. Honeycutt, effective May 1, 1999.
10.19 Form of Indemnification Agreement for Officers (e)
10.20 Form of Indemnification Agreement for Directors (d)
10.21 1997 Nonemployee Director Stock Incentive Plan (r)
10.22 Form of Restricted Stock Unit Agreement (g)
10.23 1990 Nonemployee Director Retirement Plan, amended and restated
effective February 2, 1998 (s)
10.24 Information Technology Services Agreements with General Dynamics
Corporation, dated as of November 4, 1991 (i)
10.25 Rights Agreement dated February 18, 1998 (t)
10.26 $350 million Credit Agreement dated as of September 6, 1995 (k)
10.27 First Amendment to $350 million Credit Agreement dated September
23, 1996 (p)
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, 1998
99.2 Annual Report on Form 11-K for the Hourly Savings Plan of CSC
Outsourcing, Inc. for the fiscal year ended December 31, 1998
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,
1998
</TABLE>
- --------
* Management contract or compensatory plan or agreement
50
<PAGE>
Notes to Exhibit Index:
(a)-(g) 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 (e) March 31, 1995
(b) April 1, 1988 (f) March 28, 1997
(c) March 31, 1989 (g) April 3, 1998
(d) April 3, 1992
</TABLE>
(h) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8 filed on August 15, 1990.
(i) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated November 4, 1991.
(j) Incorporated herein by reference to the Registrant's Proxy Statement
for its August 10, 1992 Annual Meeting of Stockholders.
(k) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on November 13, 1995.
(l) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated April 28, 1996.
(m) Incorporated herein by reference to the Registrant's Proxy Statement
for its July 31, 1996 Annual Meeting of Stockholders.
(n) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on August 12, 1996.
(o) Incorporated herein by reference to the Registrant's Current Report of
Form 8-K dated August 1, 1996.
(p) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on November 12, 1996.
(q) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on February 10, 1997.
(r) Incorporated herein by reference to the Registrant's Proxy Statement
for its August 11, 1997 Annual Meeting of Stockholders.
(s) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on February 9, 1998.
(t) Incorporated herein by reference to the Registrant's
Solicitation/Recommendation Statement on Schedule 14D-9 filed on
February 26, 1998.
(u) Incorporated herein by reference to Amendment No. 2 to the Registrant's
Solicitation/Recommendation Statement on Schedule 14D-9 filed on March
2, 1998.
(v) Incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q filed on August 14, 1998
51
<PAGE>
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of May, 1999 (the
"Effective Date"), by and between Computer Sciences Corporation, a Nevada
corporation (the "Company"), and Van B. Honeycutt ("Executive").
W I T N E S S E T H:
-------------------
WHEREAS, Executive, since December 28, 1987, has served as an officer of
the Company, most recently as the Company's Chairman of the Board of Directors
("Chairman"), President and Chief Executive Officer; and
WHEREAS, the Company desires to obtain the benefit of continued services by
Executive as Chairman, President and Chief Executive Officer, and Executive
desires to continue to render services to the Company; and
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the Company's best interest and that of its stockholders to
recognize the substantial contribution that Executive has made and is expected
to continue to make to the Company's business and to retain his services in the
future; and
WHEREAS, Executive and the Company deem it to be in their respective best
interests to enter into an agreement providing for the Company's continued
employment of Executive pursuant to terms herein stated, which terms include
provisions for compensation and benefits to be paid or otherwise provided by the
Company to Executive or his designated beneficiaries;
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein, it is hereby agreed as follows:
<PAGE>
1. Term of Employment; Duties.
--------------------------
(a) As used herein, the phrase "Term of Employment" shall mean the
period commencing on the Effective Date and ending on the earliest to occur of
the fourth anniversary of the Effective Date or the date of termination of the
Executive's employment in accordance with any one of Sections 6(a) through 6(e)
below; provided, however, that the Term of Employment shall be automatically
-------- -------
extended without further action of either party for one additional four-year
period (the "Single Automatic Extension") unless written notice of either
party's intention not to extend has been given to the other party hereto at
least 60 days prior to the expiration of the effective Term of Employment;
provided further that the Term of Employment may be extended after the Single
- -------- -------
Automatic Extension, by action of the Company's Board of Directors approving the
terms and conditions of an offer of any such extension and giving written notice
to Executive of such offer at least 60 days prior to the expiration of the then
effective Term of Employment, followed by Executive's acceptance of such offer
within such time as may be provided by the Board as a condition of such offer.
(b) The Company hereby agrees to employ Executive as its Chairman and
Chief Executive Officer for the Term of Employment, and Executive agrees to
serve in these capacities with the duties and responsibilities customary to such
positions in a company of the size and nature of the Company, to use his best
efforts to protect, encourage and promote the interests of his Company, and to
perform such other duties consistent with the offices held by Executive as may
be reasonably assigned to him from time to time by the Board. During the Term
of Employment, Executive shall report solely and directly to the Board.
<PAGE>
(c) Executive shall devote substantially all of his business time and
attention to his duties on the Company's behalf except for sick leave, vacations
and approved leaves of absence; provided, however, that nothing shall preclude
Executive from (i) managing his personal investments and affairs and (ii)
participating in civic and nonprofit activities provided that, in either case,
such activities do not materially interfere with or adversely affect the
performance of his duties under this Agreement and (iii) participating as a
member of the board of directors of such other companies as he may be invited
and elected to serve with the consent of the Board of the Company, which consent
shall not be unreasonably withheld.
2. Compensation.
------------
(a) Base Salary. The Company agrees to pay to Executive as a minimum
-----------
salary during the Term of Employment the sum of $1,040,000 per year ("Base
Salary") subject to increase as provided herein, payable in twenty-six biweekly
installments in accordance with the normal payroll procedure of the Company.
Such Base Salary shall be subject to annual review by the Board and may be
adjusted at or above such minimum by the Board from time to time.
(b) Annual Incentive Awards. Executive shall participate in the
-----------------------
Company's Annual Management Incentive Plan, and any successor plan, on terms and
conditions that are appropriate to his positions and responsibilities at the
Company and are no less favorable than those applying to other senior executive
officers of the Company. Any annual incentive paid to Executive shall be in
addition to the Base Salary and to any and all other benefits to which Executive
is entitled as provided in this Agreement. Payment of annual incentive awards
shall be made at the same time that other senior executive officers of the
Company receive their incentive awards.
<PAGE>
(c) Long-Term Incentive Programs. Executive shall participate in the
----------------------------
stock option plans and other long-term incentive compensation plans available to
other senior executive officers of the Company from time to time on terms and
conditions that are appropriate to his positions and responsibilities at the
Company and are no less favorable than those applying to such other senior
executive officers.
3. Employee Benefit Programs. During the Term of Employment, Executive
-------------------------
shall be entitled to participate in all employee pension and welfare benefit
plans made available to the Company's executive officers, as such plans may be
in effect from time to time and on terms and conditions that are no less
favorable than those applying to other senior executive officers, including,
without limitation, pension, profit sharing, savings and other retirement plans
or programs, medical, dental, hospitalization, short-term and long-term
disability and life insurance plans, accidental death and dismemberment
protection, travel accident insurance, and any welfare benefit plans for senior
executive officers that may be sponsored by the Company from time to time,
including any retirement or welfare plans that supplement the above-listed types
of plans, whether funded or unfunded. Executive shall, in all events, be
entitled during the Term of Employment to term life insurance which, together
with other life insurance under the Company's term life insurance program, shall
provide face amount coverage which shall be no less than $750,000.
<PAGE>
4. Supplemental Pension Benefit.
-----------------------------
Notwithstanding Section 3 hereof, Executive shall be entitled to
participate in the Company's Supplemental Executive Retirement Plan, amended and
restated as of February 27, 1998, or such successor or amended SERP as shall be
adopted from time to time (collectively, the "SERP") on terms and conditions
that are no less favorable than those applying to other senior executive
officers of the Company; provided, that the following additional provisions
--------
shall apply to Executive's right to benefits under the SERP: (i) Executive's
right to benefits as provided in Article IV(a) and IV(b) of the SERP shall at
all times be fully vested and nonforefeitable regardless of the age at which
Executive's Separation from Service occurs if the cause of his Separation from
Service is either termination by the Company without Cause or termination by the
Executive for Good Reason (both as described in Section 6(d) hereof); (ii)
notwithstanding any provision of the SERP (including any provision of Articles
III, VIII, IX and XV of the SERP) to the contrary, Executive may not be removed
as a participant thereunder at any time and the SERP may not be amended,
modified, suspended or terminated as to Executive without Executive's express
written consent; and (iii) if Executive's Separation from Services occurs prior
to his attaining age sixty-two (62) by reason of Executive's termination of
employment by the Company without Cause or by Executive for Good Reason,
Executive shall be entitled to receive commencing immediately upon such
Separation from Service benefits thereunder in accordance with Section IV(b) and
Articles V, VI and VII, as applicable, without the requirement of any approval
by the Chief Executive Officer or any other persons(s) and such benefits shall
be calculated as if on the date of such Separation from Service, Executive had
attained an age equal to the lesser of sixty-two (62) or his actual age plus
three (3).
<PAGE>
5. Perquisites, Vacations and Reimbursement of Expenses. During the Term
----------------------------------------------------
of Employment:
(a) The Company shall furnish Executive with, and Executive shall be
allowed full use of, office facilities, automobiles, secretarial and clerical
assistance and other Company property and services commensurate with his
position and of at least comparable quality, nature and extent to those made
available to other senior executive officers of the Company from time to time;
(b) Executive shall be allowed vacations and leaves of absence with
pay on a basis no less favorable than that applying to other senior executive
officers of the Company; and
(c) The Company shall reimburse Executive for all monies which he has
expended for purposes of the Company's business, such reimbursements to be
effected in accordance with normal Company reimbursement procedures from time to
time in effect. The Company shall also promptly pay all adequately documented
reasonable costs and expenses (including reasonable legal fees) incurred on
Executive's behalf in connection with entering into this Agreement.
(d) The Company shall in all events continue to provide use of the
Company's aircraft at the Company's expense for Executive's business use, it
being recognized that some of Executive's travel by the Company's aircraft may
be required for security purposes and, as such, shall constitute business use of
the aircraft. In addition, the Company shall reimburse Executive for travel
expenses incurred by Executive's spouse in accompanying Executive on Company
business, on an occasional basis.
<PAGE>
(e) It is the intention of the Company that Executive shall be kept
whole with respect to reimbursements or other benefits under Section 5(a), (b),
and (d) after taking into account taxes, if any, on such amounts, but, except
with respect to payments to cover the occasional travel of Executive's spouse
accompanying him on business trips, this sentence shall not apply to any such
benefits described in this Section 5 that are for personal rather than business
use.
6. Termination of Employment.
-------------------------
The rights and obligations of Executive and the Company in the event
of Executive's employment termination following a change of control, as defined
in the Company's Severance Plan for Senior Management and Key Employees, adopted
as of February 2, 1998 and amended February 18, 1998, or amended or successor
plan then in effect (the "Severance Plan") shall be governed exclusively by the
Severance Plan. No further payment or benefit shall be made or granted under
this Agreement in such event.
(a) Termination Due to Death. In the event that Executive's
------------------------
employment is terminated due to his death, the Company's payment obligations
under this Agreement shall terminate, except that Executive's estate or his
beneficiaries, as the case may be, shall be entitled to the following:
(1) Base Salary through the end of the month in which death
occurs;
(2) a pro rata annual incentive award for the year in which
Executive's death occurs, based on the maximum award opportunity for such year,
payable in a single installment promptly following Executive's death; and
<PAGE>
(3) full vesting of any outstanding long-term incentive awards, stock
options and restricted stock, granted to Executive under any long-term plan or
plans of the Company in which Executive has participated.
(b) Termination due to Disability.
-----------------------------
(1) If, as a result of Executive's incapacity due to physical or
mental illness, accident or other incapacity (as determined by the Board in good
faith, after consideration of such medical opinion and advice as may be
available to the Board from medical doctors selected by Executive or by the
Board or both separately or jointly), Executive shall have been absent from his
duties with the Company on a full-time basis for six consecutive months and,
within 30 days after written Notice of Termination thereafter given by the
Company, Executive shall not have returned to the full-time performance of
Executive's duties, the Company or Executive may terminate Executive's
employment for "Disability."
(2) In the event that Executive's employment is terminated due to
Disability, he shall be entitled to the following benefits:
(i) disability benefits in accordance with the long-term
disability ("LTD") program then in effect for senior executive
officers of the Company;
(ii) a pro rata annual incentive award for the year in which
Executive's termination occurs, based on the maximum award opportunity
for such year, payable in a single installment promptly following
Executive's termination;
<PAGE>
(iii) full vesting of any outstanding long-term incentive
awards, stock options and restricted stock, granted to Executive under
any long-term incentive plan or plans of the Company in which
Executive has participated.
(c) Termination by the Company for Cause.
------------------------------------
(1) The Company shall have the right to terminate Executive's
employment at any time for Cause in accordance with this Section 6(c).
(2) For purposes of this Agreement, "Cause" shall mean:
(i) fraud, misappropriation, embezzlement or other act of
material misconduct against the Company or any of its affiliates;
(ii) conviction of a felony involving a crime of moral
turpitude;
(iii) willful and knowing violation of any rules or
regulations of any governmental or regulatory body material to the
business of the Company; or
(iv) substantial and willful failure to render services in
accordance with the terms of this Agreement (other than as a result of
illness, accident, or other physical or mental incapacity), provided
that (A) a demand for performance of services has been delivered to
Executive in writing by or on behalf of the Board of Directors of the
Company at least 60 days prior to termination identifying the manner
in which such Board of Directors believes that Executive has failed to
perform and (B) Executive has thereafter failed to remedy such failure
to perform.
<PAGE>
(3) No termination of Executive's employment by the Company for Cause
shall be effective unless the provisions of this Section 6(c)(3) shall have been
complied with. Executive shall be given written notice by the Board of the
intention to terminate him for Cause, such notice (i) to state in detail the
particular circumstances that constitute the grounds on which the proposed
termination for Cause is based and (ii) to be given no later than 60 days after
the Board first learns of such circumstances. Executive shall have 15 days
after receiving such notice in which to cure such grounds, to the extent such
cure is possible. If he fails to cure such grounds, Executive shall then be
entitled to a hearing before the Board. Such hearing shall be held within 20
days of his receiving such notice, provided that he requests such hearing within
15 days of receiving such notice. If, within five days following such hearing,
the Board gives written notice to Executive confirming that, in the judgment of
at least two-thirds of the members of the Board, Cause for terminating his
employment on the basis set forth in the original notice exists, his employment
with the Company shall thereupon be terminated for Cause.
(4) In the event the Company terminates Executive's employment
for Cause, he shall be entitled to the following:
(i) Base Salary through the date of termination;
(ii) all vested stock options shall remain exercisable for at
least 90 days except as otherwise expressly required by the applicable
shareholder-approved stock incentive plan and all unvested stock
options shall be forfeited; and
<PAGE>
(iii) all restricted stock as to which restrictions have not
lapsed shall be forfeited, notwithstanding any contrary provisions in
any restricted stock grant.
(d) Termination Without Cause or for Good Reason.
--------------------------------------------
(1) In the event Executive's employment is terminated by the
Company without Cause or other than due to death or Disability ("Without
Cause"), or in the event Executive terminates his employment for Good Reason,
Executive shall be entitled to receive the following:
(i) Base Salary through the date of termination;
(ii) a lump sum severance payment in an amount equal to the
lesser of three (3) or the number of years (including fractions
thereof) by which the termination precedes Executive's 62nd birthday
times his Base Salary, as in effect immediately prior to the delivery
of notice of termination, plus the lesser of three (3) or the number
of years (including fractions thereof) by which the termination
precedes Executive's 62nd birthday times Executive's average annual
cash incentive compensation bonus over the three most recent fiscal
years preceding the year in which the date of termination occurs for
which such a bonus was paid or deferred or for which the amount of
such a bonus, if any, was determined, payable in a single installment
promptly following Executive's termination;
<PAGE>
(iii) a pro rata annual incentive award for the year in
which termination occurs, based on his target award for such year,
payable in a single installment promptly following Executive's
termination;
(iv) continuation of coverage by the benefits provided in
Section 3 above, including, without limitation, all medical and
hospitalization (including dependent coverage), life, accident and
disability protection, maintained for Executive's benefit immediately
prior to the date of Executive's termination, for a period thereafter
equal to the lesser of three (3) years or the number of years
(including fractions thereof) by which the termination precedes
Executive's 62nd birthday (followed by an 18-month period of COBRA
continuation), provided that if Executive is ineligible under the
terms of such benefit plans or programs to be covered, the Company
shall provide Executive with substantially equivalent coverage through
other sources or will provide Executive with a lump sum payment in
such amount that after all taxes on that amount shall be equal to the
cost to Executive of providing himself such benefit coverage, and
(v) full vesting of any outstanding long-term incentive
awards, and, with respect to any stock options and restricted stock
grants, full vesting of any options or shares which would have vested
within the three (3) year period following the date of employment
termination if Executive had continued to be employed during such
period, and, with respect to stock options, extension of the term
during which each option maybe exercised by a period equal to three
years
<PAGE>
from the employment termination date, but not beyond the maximum
permitted term of the option.
(2) For purpose of this Agreement, Good Reason shall mean the
occurrence of any of the following subsequent to the date of this Agreement
without Executive's express written consent:
(i) the failure to elect or reelect Executive to the
positions of Chairman and Chief Executive Officer described in Section
1; the removal of him from either such position; or any material
diminution in his duties or responsibilities in such positions (other
than in connection with a termination of Executive's employment in
accordance with Sections 6(a)-(c) above or 6(e) below);
(ii) the assignment to Executive of duties that are
materially inconsistent with, or that materially impair his ability to
perform, the duties customarily assigned to a Chairman and Chief
Executive Officer of a corporation of the size and nature of the
Company; or a change in the reporting structure so that Executive
reports to someone other than the Board or is subject to the direct or
indirect authority or control of a person or entity other than the
Board;
(iii) the Company awards Executive an annual bonus in
respect of any year that is less than 100% of the amount awarded him
in respect of any prior year unless due to reduced performance by the
Company or by Executive, applying reasonably equivalent standards with
respect to both years;
<PAGE>
(iv) the Company fails to comply with the provisions hereof
governing compensation and benefits to Executive or otherwise
materially breaches any provision of this Agreement or any other
agreement with Executive and fails to cure the same within 15 days
following receipt of written notification from Executive specifying
such failure to comply or material breach;
(v) conduct by the Company occurs that would cause
Executive to commit fraudulent acts or would expose Executive to
criminal liability;
(vi) the Company's principal office or Executive's own
office as assigned to him by the Company is moved to a location more
than 35 miles from El Segundo, California or Executive's own office as
assigned to him by the Company is moved to a location outside of the
Company's principal office; or
(vii) the Company fails to obtain the assumption in writing
of its obligation to perform this Agreement by any successor to all or
substantially all of the business or assets of the Company within 15
days after the occurrence of the transaction resulting in such
succession.
(3) For purposes of this Agreement, a determination by the Company not
to renew this Agreement for the Single Automatic Extension described in the
first proviso to Section 1(a) shall be deemed a termination Without Cause unless
the Company establishes that such determination was based on a ground or grounds
that would justify a termination for Cause as defined in Section 6(c)(2) hereof,
such determination to be made without regard to Section 6(c)(3) hereof.
<PAGE>
(e) Voluntary Termination. Executive shall have the right to
---------------------
terminate his employment with the Company at any time. A voluntary termination
shall mean a termination of employment by Executive on his own initiative, other
than a termination due to death or Disability or for Good Reason, and shall have
the same consequences as provided in Section 6(c)(4) for a termination for
Cause.
(f) Other Termination Benefits. In the case of any of the foregoing
--------------------------
terminations, Executive or his estate shall also be entitled to the following,
to the extent not otherwise payable under this Agreement:
(1) the balance of any incentive awards, including awards due for
performance periods which have been completed, which have been earned but
have not yet been paid;
(2) any amounts due under Sections 2(a), 3, 4 and 5;
(3) a lump sum payment in respect of accrued but unused vacation
days at his Base Salary rate in effect on the date of termination; and
(4) other or additional benefits, if any, in accordance with
applicable plans of the Company.
(g) Base Salary for Severance Benefit Determinations. Anything in
------------------------------------------------
this Section 6 to the contrary notwithstanding, if, prior to a termination under
this Section 6, the Company has reduced Executive's Base Salary, then Base
Salary for purposes of determining severance benefits shall mean the highest
Base Salary as in effect during the Term of Employment prior to any such
reduction.
<PAGE>
7. Indemnification and Insurance.
-----------------------------
(a) In any situation where under applicable law the Company has the
power to indemnify (or advance expenses to) Executive in respect of any
judgments, fines, settlements, loss, cost or expense (including attorneys' fees)
of any nature related to or arising out of Executive's activities as an agent,
employee, officer or director of the Company or in any other capacity on behalf
of or at the request of the Company, the Company agrees that it shall, promptly
on written request, indemnify (and advance expenses to) Executive to the fullest
extent permitted by applicable law, including but not limited to making such
findings and determinations and taking any and all such actions as the Company
may, under applicable law, be permitted to have the discretion to take so as to
effectuate such indemnification or advancement. Such agreement by the Company
shall not be deemed to impair any other obligation of the Company respecting
indemnification of Executive otherwise arising out of this or any other
agreement or promise of the Company or under any statute.
(b) Without limiting the generality of Section 7(a) above but subject
to Section 14 below, including without limitation Section 14(b), the Company
shall pay any and all reasonable fees and expenses incurred by Executive in
seeking to obtain or enforce any rights or benefits provided by this Agreement,
including all reasonable attorneys' and experts' fees and expenses, accountants'
fees and expenses, and court costs (if any) incurred by Executive in pursuing a
claim for payment of compensation or benefits or other right or entitlement
under this Agreement provided that Executive is successful as to at least part
of the disputed claim by reason of litigation, arbitration or settlement.
<PAGE>
(c) The Company further agrees to furnish Executive for the remainder
of his life (without reference to whether the Term of Employment continues in
effect) or for six (6) years after the expiration of the Term of Employment,
whichever is later, with Directors' and Officers' liability insurance insuring
Executive against insurable events which occur during the Term of Employment,
such insurance to have policy limits and otherwise to be in substantially the
same form and to contain substantially the same terms, conditions and exceptions
as the liability insurance policies provided for officers and directors of the
Company in force from time to time.
8. No Mitigation; No Offset. In the event of a termination of Executive's
------------------------
employment for any reason, Executive shall not be required to seek other
employment or to mitigate any of the Company's obligations under this Agreement,
and no amount payable under Section 6 shall be reduced (i) by any claim the
Company may assert against Executive or (ii) by any compensation or benefits
earned by Executive as a result of employment by another employer, self-
employment or from any other source after such termination of employment with
the Company. Notwithstanding any other provision of this Agreement, any sum or
sums paid under this Agreement shall be reduced and offset by any sums paid to
Executive under the Severance Plan.
9. Designated Beneficiary. In the event of the death of Executive while
----------------------
in the employ of the Company, or at any time thereafter during which amounts
remain payable to Executive under Section 6 above, such payments shall
thereafter be made to such person or persons as Executive may specifically
designate (successively or contingently) to receive payments under this
Agreement following Executive's death by filing a written beneficiary
designation with the Company during Executive's lifetime. Such beneficiary
designation shall be
<PAGE>
in such form as may be reasonably prescribed by the Company and may be amended
from time to time or may be revoked by Executive pursuant to written instruments
filed with the Company during his lifetime. Beneficiaries by Executive may be
any natural or legal person or persons, including a fiduciary, such as a trustee
of a trust, or the legal representative of an estate. Unless otherwise provided
by the beneficiary designation filed by Executive, if all of the persons so
designated die before Executive on the occurrence of a contingency not
contemplated in such beneficiary designation, or if Executive shall have failed
to provide such beneficiary designation, then the amount payable under this
Agreement shall be paid to Executive's estate.
10. Ethics. During the Term of Employment, Executive shall be subject to
------
the Company's Code of Ethics and Standards of Conduct (the "Policies"), which is
attached to this Agreement as Appendix A. If for any reason an arbitrator,
subject to judicial review as provided by law, or a court should determine that
any provision of the Policies is unreasonable in scope or otherwise
unenforceable, such provision shall be deemed modified and fully enforceable as
so modified to the extent the arbitrator and any reviewing court determines what
would be reasonable and enforceable under the circumstances.
11. Inventions
----------
(a) All inventions, discoveries, developments and improvements
conceived or made by Executive, alone or with others, prior to Executive's
employment by the Company, or during Executive's employment by the Company prior
to the date of this Agreement but which Executive believes that he owns, are
listed and described on Appendix B to this Agreement. To the best of
Executive's knowledge this list is complete (or if no items are so listed,
Executive has nothing to so disclose). Executive understands that his failure
to list any item will require that he demonstrate through clear, tangible and
convincing evidence that he or his assigns own an item
<PAGE>
which the Company believes it owns. If it is determined that Executive owns any
unlisted item, and the Company has expended monies to develop it, the Company
shall be entitled to the use of same without royalty payments to Executive or
his assigns.
(b) Executive will promptly and fully inform the Company of all
inventions, discoveries, developments and improvements that he may conceive,
discover, develop or make during his employment, whether made solely or jointly
with others, whether or not patentable, and whether or not such conception,
discovery or making involves the use of the Company's time, facilities,
equipment or personnel (collectively, "Inventions"). Executive acknowledges and
agrees that all such Inventions relating to any work he performs for the Company
or any business in which the Company is or intends to be engaged are "works for
hire" under applicable law and shall belong to the Company. Executive further
agrees to assign, and does hereby assign, to the Company all right, title and
interest in and to any and all such Inventions and agrees to execute all
documents deemed necessary or desirable by the Company in connection therewith,
including patent and/or copyright assignments, and to cooperate both during and
after his employment with the Company, at the Company's expense, in all further
actions deemed necessary or desirable to confirm, register, protect or enforce
the Company's right therein. The Company and Executive acknowledges that the
foregoing assignment does not include any invention unrelated to the Company's
business or research which meets the requirements of Section 2870 of the
California Labor Code, or any successor provision thereto.
12. Confidential Information and Trade Secrets
------------------------------------------
(a) Executive acknowledges that the term "Confidential Information" as
used in this Agreement means all items, materials and information (whether or
not reduced to writing and whether or not patentable or copyrightable) which
belong to the Company or which the
<PAGE>
Company's suppliers or customers or clients have communicated to the Company in
the course of the Company's business, and which reflect, consist of or refer to:
(1) information technology; methods and processes; designs and
formulations; the content or composition of goods or services; techniques;
business strategies or operations; formulas; compilations of data or reports;
plans; tools or equipment; inventions; know-how; technical disclosures, patent
applications, blueprints or specifications; financial, marketing, sales,
personnel or salary information; forms, legal documents or memoranda; software,
computer programs or databases; any documents prepared by or on behalf of the
Company or Company suppliers, customers or clients;
(2) information compiled, collected or developed by the Company
reflecting the identities of those customers and clients of the Company which
are not generally known outside the Company or whose relationship with the
Company as a customer or client is not generally known outside the Company;
characteristics of any customers or clients of the Company or of customer or
client representatives, including without limitation product or service
preferences or requirements, cost or price information for goods or services
offered or sold, credit terms or credit performance, actual or likely order
cycles, the nature of goods delivered or services performed, or research or
development plans or activities;
(3) information compiled, collected, or developed by the Company
reflecting identities of any suppliers of the Company which are not generally
known outside the Company or whose relationship with the Company as a supplier
is not generally known outside the Company; characteristics of any supplier of
the Company, or supplier representatives, including without limitation cost or
price information for goods or services offered or purchased,
<PAGE>
audit terms, the nature of goods delivered or service performed, product or
service quality and reliability, delivery terms, or research or development
plans or activities;
(4) prices, fees, discounts, selling techniques or distribution
methods used by the Company; or
(5) any other confidential or proprietary information obtained
directly or indirectly while employed by the Company.
(b) Executive acknowledges that the term "Trade Secret" as used in
this Agreement means the whole or any portion or phrase of any scientific or
technical or business information, including, but not limited to, any design,
process, procedure or system, formula, improvement, or invention that (i)
derives independent economic value, actual or potential, from not being
generally known to the public or to other persons who can obtain economic value
from its disclosure or use, and (ii) is the subject of the Company's reasonable
efforts to maintain its secrecy. In addition to information belonging to the
Company, information furnished to the Company by other parties can be a Trade
Secret.
(c) The term "Confidential Information" includes information which may
also be a Trade Secret, but does not include anything described above which is
now generally known by parties other than the Company, its affiliates and
employees, or becomes generally known, through no breach of this Section 12 on
the part of Executive.
(d) Executive acknowledges that Confidential Information is and
remains confidential regardless of whether or not any Company report or form or
other document contains any statement regarding confidentiality.
<PAGE>
(e) Executive agrees to hold all Confidential Information in
confidence and to not use directly or indirectly, for Executive's own benefit or
the benefit of any other party, corporate or otherwise, or publish or cause to
be published or otherwise disclose to anyone other than the Company or its
designee, any Confidential Information or Trade Secrets except as compelled by
law and except as required to conduct the Company's business.
(f) Executive will, upon demand, and without demand immediately upon
the termination of Executive's employment, surrender to the Company any and all
documents, including without limitation computer memory, reports and forms
containing Confidential Information and any and all other business records,
prototypes and materials which Executive may have created or received from the
Company during Executive's employment, or which pertain to the Company's
business, and all copies thereof, which are in Executive's possession or control
at the time of the demand or the termination of Executive's employment, however
made or obtained.
13. No Solicitation. During Executive's employment, and for a period of
---------------
two years immediately following Executive's employment termination (voluntary or
otherwise), Executive agrees to honor the following representations: (a)
Executive shall not induce, or aid others to induce, any Company employee to
terminate his or her employment or do anything which violates any oral or
written employment agreement he or she may have with the Company, (b) in
recognition of the status of information regarding compensation and other
personnel information of Company employees as Confidential Information,
Executive shall not solicit or aid others to solicit Company employees for, or
offer to them, competitive employment, and (c) Executive agrees not to interfere
with the business of the Company in any manner including, without
<PAGE>
limitation, inducing any consultant or independent contractor or customer or
client of the Company to sever or diminish that person's or entity's
relationship with the Company.
14. Arbitration.
-----------
(a) In the event of any dispute between the parties concerning the
validity, interpretation, enforcement or breach of this Agreement or in any way
related to Executive's Employee's employment or any termination of such
employment (including any claims involving any officers, managers, directors,
employees, shareholders or agents of the Company) excepting only any rights the
parties may have to seek injunctive relief, the dispute shall be resolved by
final and binding arbitration administered by JAMS/Endispute in Los Angeles,
California in accordance with the then existing JAMS/Endispute Arbitration Rules
and Procedures for Employment Disputes. Resolution by arbitration, either in
lieu of or after exhausting the procedures of Section 7 of the Severance Plan,
shall be at the election of Executive with respect to any claim to which Section
7 of the Severance Plan shall apply. In the event of such an arbitration
proceeding, the parties shall select a mutually acceptable neutral arbitrator
from among the JAMS/Endispute panel of arbitrators. In the event the parties
cannot agree on an arbitrator, the Administrator of JAMS/Endispute shall appoint
an arbitrator. Neither party nor the arbitrator shall disclose the existence,
content, or results of any arbitration hereunder without the prior written
consent of all parties, except as may be compelled by court order. Except as
provided herein, the Federal Arbitration Act shall govern the interpretation and
enforcement of such arbitration and all proceedings. The arbitrator shall apply
the substantive law (and the law of remedies, if applicable) of the state of
California, or Federal law, or both, as applicable and the arbitrator is without
jurisdiction to apply any different substantive law. The arbitrator shall have
the authority to entertain a motion to dismiss and/or a motion for summary
judgment by any
<PAGE>
party and shall apply the standards governing such motions under the Federal
Rules of Civil Procedure. The arbitrator shall render an award and a written,
reasoned opinion in support thereof. Judgment upon the award may be entered in
any court having jurisdiction thereof. The parties intend this arbitration
provision to be valid, enforceable, irrevocable and construed as broadly as
possible. Pending the resolution of any dispute between the parties, the Company
shall continue prompt payment of all amounts due to Executive under this
Agreement and prompt provision of all benefits to which Executive is otherwise
entitled.
(b) Costs of arbitration shall be borne by the Company. Reasonable
attorney fees and costs and the reasonable fees and costs of any experts
incurred by Executive shall be borne and paid by the Company if Executive
prevails on any portion of his claims. Such fees and costs incurred by
Executive shall be paid by the Company in advance of the final disposition of
such claims, as such fees are incurred, upon receipt of an undertaking by
Executive to repay such amounts net of any income taxes paid or payable by
Executive with respect to such amounts, if it is ultimately determined that he
did not prevail on any portion of his claims.
(c) Notwithstanding the foregoing provisions of this Section 14,
Executive and the Company agree that Executive or the Company may seek and
obtain otherwise available injunctive relief in Court for any violation of
obligations concerning confidential information or trade secrets that cannot
adequately be remedied at law or in arbitration.
(d) If the Company terminates Executive's employment hereunder or
Executive terminates his employment alleging that such termination is for Good
Reason, and if there is a dispute as to whether Executive is entitled to receive
any payments and benefits provided under this Agreement, including the severance
and other benefits set forth in Section
<PAGE>
6(d)(1), during the period of the dispute the Company shall continue to pay
Executive his Base Salary and continue to provide Executive and his family with
the benefits provided in Section 3, provided, however, that if the dispute is
resolved against Executive, Executive agrees that he will promptly refund to the
Company all payments he receives hereunder which he would not otherwise have
been entitled to receive, plus interest at the rate provided in Section 1274(d)
of the Code, compounded quarterly. If the dispute is resolved in Executive's
favor, promptly after resolution of the dispute the Company shall pay Executive
the sum that was withheld during the period of the dispute plus interest at the
rate provided in Section 1274(d) of the Code compounded quarterly.
15. Notices. For purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, or delivered by
private courier, as follows: if to the Company -- Computer Sciences
Corporation, 2100 East Grand Avenue, El Segundo, California 90245 Attention:
Vice President, General Counsel and Secretary; and if to Executive at the
address specified at the end of this Agreement. Notice may also be given at
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
16. Miscellaneous. This Agreement shall also be subject to the following
-------------
miscellaneous provisions:
(a) The Company represents and warrants to Executive that it has the
authorization, power and right to deliver, execute and fully perform its
obligations under this Agreement in accordance with its terms.
<PAGE>
(b) This Agreement and the Severance Plan contain a complete statement
of all the agreements between the parties with respect to Executive's employment
by the Company, supersede all prior and existing negotiations and agreements
between them concerning the subject matter thereof and can only be changed or
modified pursuant to a written instrument duly executed by each of the parties
hereto and stating an intention to change or modify this Agreement or the
Severance Plan, as the case may be. No waiver by either party of any breach by
the other party of any condition or provision contained in this Agreement or the
Severance Plan to be performed by such other party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or any prior or
subsequent time. Any waiver must be in writing and signed by Executive or an
authorized officer of the Company, as the case may be.
(c) If any provision of this Agreement or any portion thereof is
declared invalid, illegal or incapable of being enforced by any arbitrator or
court of competent jurisdiction, the remainder of such provisions and all of the
remaining provisions of this Agreement shall continue in full force and effect.
(d) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of California except to the extent governed
by Federal law, and shall be construed according to its fair meaning and not for
or against any party.
(e) All compensation payable hereunder shall be subject to such
withholding taxes as may be required by law.
(f) This Agreement shall be binding upon and inure to the benefit of
the successors and assigns, of the Company. No rights or obligations of the
Company under this Agreement may be assigned or transferred by the Company
except that such rights or obligations
<PAGE>
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company, provided that the assignee or
transferee is the successor to all or substantially all of the assets of the
Company and such assignee or transferee assumes the liabilities, obligations and
duties of the Company, as contained in this Agreement, either contractually or
as a matter of law. The Company further agrees that, in the event of a sale of
assets or liquidation as described in the preceding sentence, it shall take
whatever action it legally can in order to cause such assignee or transferee to
expressly assume the liabilities, obligations and duties of the Company
hereunder. Except as expressly provided herein, Executive may not sell,
transfer, assign, or pledge any of his rights or obligations pursuant to this
Agreement.
(g) Any rights of Executive hereunder shall be in addition to any
rights Executive may otherwise have under written benefit plans or agreements of
the Company to which he is a party or in which he is a participant, including,
but not limited to, any Company sponsored written employee benefit plans, stock
option plans, grants and agreements. Provisions of this Agreement shall not in
any way abrogate Executive's rights under such other plans and agreements.
(h) The respective rights and obligations of the parties hereunder
shall survive any termination of Executive's employment to the extent necessary
to the intended preservation of such rights and obligations.
(i) The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
<PAGE>
(j) This Agreement may be executed in two or more counterparts each of
which shall be legally binding and enforceable.
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
VAN B. HONEYCUTT COMPUTER SCIENCES CORPORATION
/s/ Van B. Honeycutt By: /s/ Hayward D. Fisk
- --------------------------- ----------------------------
Its: Vice President
<PAGE>
COMPUTER SCIENCES CORPORATION
EXHIBIT 21, Significant Active Subsidiaries and Affiliates
As of April 2, 1999
<TABLE>
<CAPTION>
Jurisdiction of
Name Organization
- ---- ---------------
<S> <C>
Aerospace Center Support (Partnership) Tennessee
Alliance-One Services, Inc. Delaware
Autec Range Services (Partnership) Florida
Automated Systems (HK) Limited Hong Kong
Automated Systems Holdings Limited Bermuda
Calva Realty Corporation Nevada
Capsco Pty. Limited Australia
Century Corporation Nevada
Computer Sciences Canada Inc. Canada
Computer Sciences Corporation Administration Services (Pty)
Limited South Africa
Computer Sciences Corporation Continuum--Informatica, Lda Portugal
Computer Sciences Corporation Services (Pty) Limited South Africa
Computer Sciences Gestion S.A. France
Computer Sciences International A/S Norway
Computer Sciences Raytheon (Partnership) Florida
Computer Systems Advisers (M) Bhd Malaysia
Continuum (Deutschland) GmbH Germany
Continuum Direct Limited United Kingdom
Continuum France SARL France
Continuum SICS S.A. Belgium
Credit Bureau of Tulsa, Inc. Oklahoma
CSA Automated Private Limited Singapore
CSA Holdings Ltd Singapore
CSA Private Limited Singapore
CSC Accounts Management, Inc. Texas
CSC Accounts Resolution, Inc. Nevada
CSC Asset Management Inc. Nevada
CSC Australia Pty. Limited Australia
CSC Computer Management A/S Denmark
CSC Computer Sciences B.V. Netherlands
CSC Computer Sciences Corporation Ireland Limited Ireland
CSC Computer Sciences Iberica, S.A. Spain
CSC Computer Sciences Italia S.p.A. Italy
CSC Computer Sciences Limited United Kingdom
CSC Computer Sciences N.V./S.A. Belgium
CSC Computer Sciences Pte Limited Singapore
CSC Computer Sciences S.A. France
CSC Computer Sciences S.A. Luxembourg
CSC Computer Sciences s.r.o. Czech Republic
CSC Computer Sciences SARL Switzerland
CSC Computer Sciences Sdn Bhd Malaysia
CSC Computer Sciences Services Management GmbH Germany
CSC Computer Sciences spol. s.r.o. Slovakia
CSC Computer Sciences VOF/SNC (Partnership) Belgium
CSC Consulting B.V. Netherlands
CSC Consulting, Inc. Massachusetts
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of
Name Organization
- ---- ---------------
<S> <C>
CSC Corporation Limited United Kingdom
CSC Credit Services, Inc. Texas
CSC Danmark A/S Denmark
CSC Domestic Enterprises, Inc. Nevada
CSC Enterprises (Partnership) Delaware
CSC Enterprises, Inc. Nevada
CSC Financial Services Canada Inc. Canada
CSC Financial Services GmbH Germany
CSC Financial Services Group (Hong Kong) Limited Hong Kong
CSC Financial Services Group Pty. Limited Australia
CSC Financial Services Limited United Kingdom
CSC Financial Services S.A. France
CSC Foreign Sales Corporation Barbados
CSC Geographic Technologies Inc. Nevada
CSC Healthcare Inc. California
CSC Holdings Inc. Nevada
CSC Infogerance S.A. France
CSC Information Systems A/S Denmark
CSC International Consulting AB Sweden
CSC International Systems Management Inc. Nevada
CSC Investment Services Management Limited United Kingdom
CSC Japan, Ltd. Delaware
CSC Kobra Beheer B.V. Netherlands
CSC Logic, Inc. Texas
CSC New Zealand Limited New Zealand
CSC Outsourcing Inc. Nevada
CSC Peat Marwick S.A. France
CSC Pergamon GmbH Germany
CSC Ploenzke (Austria) GmbH Austria
CSC Ploenzke (Schweiz) AG Switzerland
CSC Ploenzke AG Germany
CSC Ploenzke Akademie GmbH Germany
CSC Ploenzke IT--Services GmbH Germany
CSC Ploenzke, S.A. Spain
CSC PMF S.A. France
CSC PM Services SARL France
CSC Professional Services Group, Inc. Maryland
CSC Services Management B.V. Netherlands
CSC Services No. 1 Limited United Kingdom
Experteam S.A./N.V. Belgium
Informatica S.p.A. Italy
Kalchas Limited United Kingdom
Key Choice Insurance Marketing Limited United Kingdom
Paxus Australia Pty. Limited Australia
Paxus Broker Services Pty. Ltd. Australia
Paxus Corporation Limited New Zealand
Paxus Financial R&D Pty. Limited Australia
PT. CSC Computer Services Indonesia
Sys-Aid Beheer B.V. Netherlands
Sys-Aid Deutschland GmbH Germany
</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, 333-33327, 333-75383 and 333-77599 of Computer Sciences Corporation on
Forms S-8 of our report dated May 26, 1999, appearing in this Annual Report on
Form 10-K of Computer Sciences Corporation for the year ended April 2, 1999.
DELOITTE & TOUCHE LLP
Los Angeles, California
June 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-02-1999
<PERIOD-START> APR-04-1998
<PERIOD-END> APR-02-1999
<CASH> 602,593
<SECURITIES> 0
<RECEIVABLES> 1,857,869
<ALLOWANCES> 80,607
<INVENTORY> 0
<CURRENT-ASSETS> 2,668,985
<PP&E> 2,313,444
<DEPRECIATION> 1,226,569
<TOTAL-ASSETS> 5,007,709
<CURRENT-LIABILITIES> 2,081,412
<BONDS> 397,860
0
0
<COMMON> 159,510
<OTHER-SE> 2,240,344
<TOTAL-LIABILITY-AND-EQUITY> 5,007,709
<SALES> 0
<TOTAL-REVENUES> 7,659,965
<CGS> 0
<TOTAL-COSTS> 5,965,019
<OTHER-EXPENSES> 445,035
<LOSS-PROVISION> 8,818
<INTEREST-EXPENSE> 33,908
<INCOME-PRETAX> 511,357
<INCOME-TAX> 170,200
<INCOME-CONTINUING> 341,157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 341,157
<EPS-BASIC> 2.16
<EPS-DILUTED> 2.11
</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, 1998
[ ] 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
-----------------
Description Page
- ----------- ----
(a) Financial Statements:
Independent Auditors' Report ........................................ 3
Statements of Net Assets Available for Benefits
As of December 31, 1998 and 1997 .................................... 4
Statements of Changes in Net Assets Available for Benefits
For the Years Ended December 31, 1998 and 1997 ...................... 5
Notes to Financial Statements ....................................... 6
(b) Exhibit:
Independent Auditors' Consent ....................................... E-1
(c) Supplemental Schedules:
Schedule of Assets Held for Investment Purposes ..................... S-1
Schedule of Reportable Transactions ................................. S-2
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Employee Retirement Plan Committee
Computer Sciences Corporation
El Segundo, California
We have audited the accompanying statements of net assets available for benefits
of the Computer Sciences Corporation Matched Asset Plan (the "Plan") as of
December 31, 1998 and 1997, 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, 1998 and 1997, 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 11, 1999
3
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
STATEMENTS OF NET ASSETS
AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
December 31
-----------------------------
1998 1997
-------------- ------------
<S> <C> <C>
ASSETS
Investments (Notes 2, 5, 9 and 10):
Short-term investments $ 10,297,485 $ 14,812,841
Long-term investments--at fair value:
Interest in registered investment companies
Brinson U.S. Balanced Fund 71,679,904 84,332,245
Mellon Enhanced Asset Fund 77,207,126 40,159,408
Brinson U.S. Equity Fund 263,161,997 249,786,910
Mellon Stock Index Funds 179,469,818 110,042,765
CSC Company stock 380,378,825 238,770,004
Employee loans (Note 6) 21,042,106 20,422,664
Plan interest in Master Trust 174,961,001 142,956,868
Guaranteed investment contracts
-at contract value 15,231,349
Cash 508,529
-------------- ------------
Total investments 1,178,706,791 916,515,054
Receivables:
Employer contribution 293,000 452,287
Participants' contribution 1,565,285 3,900,688
Accrued income 16,760 15,259
Unsettled Trades 864,521
-------------- ------------
Total Receivables 2,739,566 4,368,234
-------------- ------------
Total Assets 1,181,446,357 920,883,288
-------------- ------------
LIABILITIES
Accounts Payable 1,914,407 1,482,254
Accrued Expenses 693,068 325,925
Unsettled Trade Payables 2,791,900
--------------
Total Liabilities 5,399,375 1,808,179
-------------- ------------
NET ASSETS AVAILABLE FOR BENEFITS $1,176,046,982 $919,075,109
============== ============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
COMPUTECR SCIENCES CORPORATION
MATCHED ASSET PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------
1998 1997
-------------- ------------
<S> <C> <C>
ADDITIONS
Investment Income:
Net appreciation in fair value of
investments (Note 9) $ 190,408,299 $ 65,905,291
Interest 927,110 3,031,996
Dividends 19,529,963 15,217,887
Plan interest in Master Trust investment
income 11,827,691 7,283,958
-------------- ------------
222,693,063 91,439,132
Less Investment Management Fees (1,454,871) (972,982)
-------------- ------------
221,238,192 90,466,150
Contributions:
Employee 98,450,484 88,006,055
Employer 16,139,568 14,800,519
Employee Rollovers 9,782,838 18,922,266
Transfers From Other Plans (Note 8) 13,861,524 23,324,149
-------------- ------------
138,234,414 145,052,989
-------------- ------------
Total Additions 359,472,606 235,519,139
-------------- ------------
DEDUCTIONS
Distributions to Participants
(Notes 1 and 7) 102,500,733 70,914,853
-------------- ------------
Total Deductions 102,500,733 70,914,853
-------------- ------------
Net Increase 256,971,873 164,604,286
Net Assets Available for Benefits at
Beginning of Year 919,075,109 754,470,823
-------------- ------------
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $1,176,046,982 $919,075,109
============== ============
</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, 1998
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 25,005 and 18,755 participating employees at December
31, 1998 and 1997, respectively.
6
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1998
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 $10,000 and $9,500 for 1998 and 1997, respectively. Any
compensation deferral in excess of $10,000 and $9,500 in 1998 and 1997,
respectively, 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 three 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; 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;
and the third group to whom under the terms of their contract agreement the
Company will contribute an amount equal to 50% of the first 6% 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.
7
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1998
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
- ----------------------------------------------
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 1998 and 1997
amounted to $2,186,594 and $1,410,024, 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 1998 and 1997 were $101,578,143
and $70,097,198, 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 1998 and 1997
totaled $922,590 and $817,655, respectively.
8
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1998
In order for the Plan to meet the nondiscrimination tests, the Committee has
caused the compensation deferral percentage for certain highly compensated
employees to be reduced, which has also resulted in the return of excess
compensation deferrals.
Note 2 Summary of Significant Accounting Policies
------------------------------------------
The accounting and reporting policies followed in preparation of the financial
statements of the Plan of the Company conform with generally accepted accounting
principles. The following is a summary of the significant policies.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Assets of the Plan
- ------------------
The assets of the Plan are held in a trust with five sub-accounts representing
the investment options. The investment income in the respective sub-accounts is
allocated to the participants. Contributions to, and payments from, the Plan
are specifically identified to the applicable sub-accounts within the trust.
Security Transactions
- ---------------------
Security transactions are accounted for on a trade-date basis. Dividend income
is recorded on the ex-dividend date. Interest income is accounted for on the
accrual basis.
In general, participants in the 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
9
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1998
last reported bid prices on that date. Investments in short-term investments
are stated at cost which approximates fair value.
Valuation of Guaranteed Investment Contracts
- --------------------------------------------
At December 31, 1997, the Plan held 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. No guaranteed investment contracts
were held by the plan at December 31, 1998.
Based on the treasury yield curve for similar types of investments, the fair
value of the guaranteed investment contracts at December 31, 1997 was
approximately $15,294,818. The average yield and average crediting interest
rate was approximately 6.79% for 1997. 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 $10,000 and $9,500 for the 1998
and 1997 taxable years of the participant, respectively.
10
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1998
(iii) On distribution of a participant's vested interest in the Plan, the
participant generally is subject to federal income taxation, except that: (1)
tax on "net unrealized appreciation" on any Company stock distributed as a part
of a "lump sum distribution" generally is deferred until the participant
disposes of such stock, and (2) tax may be deferred to the extent the
participant is eligible for and complies with certain rules permitting the
"rollover" of a qualifying distribution to another retirement plan, or
individual retirement account.
Note 4 Reconciliation of Financial Statements to Form 5500
-----------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net assets available for benefits
per the financial statements $1,176,046,982 $919,075,109
Amounts allocated to withdrawing
participants (8,055,721) (11,552,858)
-------------- --------------
Net assets available for benefits
per Form 5500 $1,167,991,261 $907,522,251
============== =============
</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, 1998
-----------------
<S> <C>
Benefits paid to participants per the
financial statements $102,500,733
Add: Amounts allocated to withdrawing
participants at December 31, 1998 8,055,721
Less: Amounts allocated to withdrawing
participants at December 31, 1997 (11,552,858)
--------------
Benefits paid to participants per the Form 5500 $ 99,003,596
==============
</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, 1998 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, 1998
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
- ---------------------
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, 1998 and 1997, the
Plan's interest in the net assets of the Master Trust was approximately 89% for
both years. 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, 1998
The following table represents the fair value of investments for the Master
Trust.
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Investments at fair value:
Corporate bonds $118,380,288 $105,242,979
U.S. government securities 57,684,732 46,459,080
Other bonds 16,164,613 6,446,213
Short-term investments 3,777,721 1,371,261
Accrued income 966,721 1,198,486
------------ ------------
$196,974,075 $160,718,019
============ ============
</TABLE>
Investment income for the Master Trust is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Investment income:
Net appreciation (depreciation) in
fair value of investments $ 1,731,522 $ 450,257
Interest:
Corporate bonds 6,710,396 4,037,722
U.S. government securities 3,786,462 3,243,205
Other bonds 691,664 366,303
Short-term investments 365,214 485,226
------------ ------------
13,285,258 8,582,713
Less investment management fees (227,349) (208,306)
------------ ------------
$ 13,057,909 $ 8,374,407
============ ============
</TABLE>
The Balanced Fund
- -----------------
The Balanced Fund is co-managed by Mellon Capital Management (51% as of December
31, 1998) and Brinson Partners, Inc. (49% as of December 31, 1998). The
Balanced Fund is invested in an actively managed combination of U.S. equity
securities, U.S. fixed income securities 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, 1998
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, 1998
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.
Note 7 Benefits Payable
----------------
As of December 31, 1998 and 1997, net assets available for benefits included
benefits of $8,055,721 and $11,552,858 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, 1998, the Plan had several transfers
from other plans. The asset values of these transfers were as follows:
$7,380,010 in 1998 from APM; $2,816,617 in 1998 from BDM; $1,736,677 in 1998
from Security Life; $776,503 in 1998 from Heller; $637,478 and $15,612,395 in
1998 and 1997, respectively from Dupont Conoco; $224,931 in 1998 from Liberty;
$206,213 in 1998 from Statistica; $75,615 and $8,168,573 in 1998 and 1997,
respectively from CNA Employees' Saving Plan; $66,426 in 1998 from Electronic
Data Systems; $53,500 in 1998 from Volpe; $5,079 and $128,350 in 1998 and 1997,
respectively from Credit Services; $2,394,153 in 1997 from Bath Iron Works
Corporation Tax Deferred Savings Plan; $1,371,171 in 1997 from Planmetrics, Inc.
Savings and Profit Sharing Plan; and $355,773 in 1997 from SunBeam-Oster
Company, Inc. 401(K) Savings and Profit Sharing Plan.
The Plan also had several transfers to other plans in 1998 and 1997 as a result
of spin-offs. The asset values of these transfers were as follows: $80,399 in
1998 to Faxnet; $33,046 in 1998 to ITDS; $3,343 and $740,644 in 1998 and 1997,
respectively to Artemis Holding; $737 in 1998 to
15
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1998
Planmetrics, Inc. Savings and Profit Sharing Plan; $3,270,348 in 1997 to Mutual
of New York; $609,053 in 1997 to ST Research; and $86,221 in 1997 to CTI.
16
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1998
Note 9 Statements of Net Assets Available for Benefits by Fund
-------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------------------------------------------------------------
Fixed Active Stock Company Employee
Income Balanced Equity Index Stock Loans Total
------------ ------------ ------------ ------------ ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments
Short-term investments $ 419,934 $ 1,305,353 $ 3,204,113 $ 1,921,866 $ 3,446,219 $ 10,297,485
Long-term investments
At fair value
Interest in registered
investment companies: 148,887,030 263,161,997 179,469,818 591,518,845
CSC Company stock 380,378,825 380,378,825
Employee loans $21,042,106 21,042,106
Plan interest in
Master Trust 174,961,001 174,961,001
Guaranteed investment
contracts--at
contract value -
Receivables
Employer contribution 1,000 1,000 1,000 290,000 293,000
Participants' contribution 163,697 232,000 482,000 424,000 263,045 543 1,565,285
Accrued Income 2,540 1,222 5,074 2,843 5,081 16,760
Plan to plan transfers -
Interfund Transfers 621,209 (82,682) (1,048,277) (420,511) 930,261 -
Unsettled Trades 322,520 542,001 864,521
Cash 508,529 508,529
------------ ------------ ------------ ------------ ------------- ----------- --------------
Total Assets 176,169,381 151,173,972 266,347,908 181,399,016 385,313,431 21,042,649 1,181,446,357
Liabilities
Accounts Payable 68,028 82,191 104,103 104,440 762,078 793,567 1,914,407
Accrued Expenses 156,741 177,790 315,243 42,800 494 693,068
Unsettled Trades 829,539 542,001 1,420,360 2,791,900
------------ ------------ ------------ ------------ ------------- ----------- --------------
Total Liabilities 224,769 1,089,520 961,347 147,240 2,182,932 793,567 5,399,375
------------ ------------ ------------ ------------ ------------- ----------- --------------
Net Assets Available
for Benefits $175,944,612 $150,084,452 $265,386,561 $181,251,776 $383,130,499 $20,249,082 $1,176,046,982
============ ============ ============ ============ ============= =========== ==============
</TABLE>
17
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1998
Note 9 Statements of Net Assets Available for Benefits by Fund
-------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------------------------------------------------
Fixed Active Stock Company Employee
Income Balanced Equity Index Stock Loans Total
------------ ------------ ------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments
Short-term investments $ 6,176,886 $ 7,192,178 $ 885,362 $ 460,515 $ 97,900 $ 14,812,841
Long-term investments
At fair value
Interest in registered
investment companies: 124,491,653 249,786,910 110,042,765 484,321,328
CSC Company stock 238,770,004 238,770,004
Employee loans $ 20,422,664 20,422,664
Plan interest in
Master Trust 142,956,868 142,956,868
Guaranteed investment
contracts--at
contract value 15,231,349 15,231,349
Receivables -
Employer contribution 3,649 2,568 6,006 3,887 436,177 452,287
Participants' contribution 619,957 500,627 1,155,151 779,456 845,624 (127) 3,900,688
Accrued Income 3,207 2,140 5,575 2,125 2,212 15,259
Plan to plan transfers -
Interfund Transfers 480,752 (43,101) (240,573) 2,237,379 (2,434,457) -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total Assets 165,472,668 132,146,065 251,598,431 113,526,127 237,717,460 20,422,537 920,883,288
Liabilities
Accounts Payable 324,067 74,935 155,307 136,793 809,105 (17,953) 1,482,254
Accrued Expenses 70,786 80,935 154,190 19,265 749 325,925
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total Liabilities 394,853 155,870 309,497 156,058 809,854 (17,953) 1,808,179
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net Assets Available
for Benefits $165,077,815 $131,990,195 $251,288,934 $113,370,069 $236,907,606 $ 20,440,490 $919,075,109
============ ============ ============ ============ ============ ============ ============
</TABLE>
18
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1998
Note 9 Statements of Changes in Net Assets Available for Benefits by Fund
------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Fixed Active Stock Company Employee
Income Balanced Equity Index Stock Loans Total
------------ ------------ ------------ ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to Net Assets
Attributable to:
Investment Income
Net Appreciation in
Fair Value of
Investments $ 11,917,119 $ 20,288,161 $ 28,706,995 $129,496,024 $ 190,408,299
Interest $ 418,548 300,456 82,123 62,848 63,135 927,110
Dividend 6,675,426 4,715,321 8,139,216 19,529,963
Plan interest in Master
Trust Investment
Income 11,827,691 11,827,691
Investment Mgmt/Admin.
Fees (330,895) (357,012) (644,731) (116,952) (5,281) (1,454,871)
------------ ------------ ------------ ------------ ------------ ----------- --------------
11,915,344 18,535,989 24,440,874 36,792,107 129,553,878 221,238,192
------------ ------------ ------------ ------------ ------------ ----------- --------------
Contributions:
Employee 14,938,449 14,327,240 31,052,917 25,066,123 21,319,413 $ (8,253,658) 98,450,484
Employer 81,177 56,332 135,876 90,174 15,776,009 16,139,568
Employee Rollovers 1,139,099 1,339,920 2,497,846 3,242,117 1,563,856 9,782,838
Transfers From
Other Plans 5,624,438 948,568 2,467,909 3,691,630 846,182 282,797 13,861,524
Interfund Transfers 317,725 (2,267,708) (18,821,620) 12,699,474 8,072,129 -
------------ ------------ ------------ ------------ ------------ ----------- --------------
22,100,888 14,404,352 17,332,928 44,789,518 47,577,589 (7,970,861) 138,234,414
------------ ------------ ------------ ------------ ------------ ----------- --------------
TOTAL ADDITIONS 34,016,232 32,940,341 41,773,802 81,581,625 177,131,467 (7,970,861) 359,472,606
------------ ------------ ------------ ------------ ------------ ----------- --------------
Deductions to Net Assets
Attributable to:
Distributions to
Participants 23,149,435 14,846,084 27,676,175 13,699,918 30,908,574 (7,779,453) 102,500,733
------------ ------------ ------------ ------------ ------------ ----------- --------------
TOTAL DEDUCTIONS 23,149,435 14,846,084 27,676,175 13,699,918 30,908,574 (7,779,453) 102,500,733
------------ ------------ ------------ ------------ ------------ ----------- --------------
NET INCREASE 10,866,797 18,094,257 14,097,627 67,881,707 146,222,893 (191,408) 256,971,873
------------ ------------ ------------ ------------ ------------ ----------- --------------
Net Assets Available
for Benefits:
Beginning of Year 165,077,815 131,990,195 251,288,934 113,370,069 236,907,606 20,440,490 919,075,109
------------ ------------ ------------ ------------ ------------ ----------- --------------
End of Year $175,944,612 $150,084,452 $265,386,561 $181,251,776 $383,130,499 $20,249,082 $1,176,046,982
============ ============ ============ ============ ============ =========== ==============
</TABLE>
19
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1998
Note 9 Statements of Changes in Net Assets Available for Benefits by Fund
------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Active Stock Company Employee
Income Balanced Equity Index Stock Loans Total
------------ ----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <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 $ 18,326,612 $ 5,472,069 $ 65,905,291
Interest 2,838,297 34,120 75,383 41,929 42,267 3,031,996
Dividend 6,101,150 4,585,948 4,530,789 15,217,887
Plan interest in Master
Trust investment income 7,283,958 7,283,958
Investment Management Fees (70,280) (303,570) (551,674) (43,349) (4,109) (972,982)
------------ ----------- ----------- ----------- ----------- ---------- -----------
10,258,052 16,644,440 35,197,450 22,855,981 5,510,227 90,466,150
------------ ----------- ----------- ----------- ----------- ---------- ------------
Contributions
Employee 15,787,189 13,765,687 29,150,336 15,921,012 20,266,502 (6,884,671) 88,006,055
Employer 104,254 72,544 183,292 96,929 14,343,500 14,800,519
Employee Rollovers 3,337,470 2,596,418 6,213,624 3,969,856 2,804,898 18,922,266
Transfers From Other Plans 13,215,479 1,247,156 3,005,062 3,283,548 (165,934) 2,738,838
Interfund Transfers (11,683,241) (1,195,825) 3,818,292 15,708,532 (6,647,758)
------------ ----------- ----------- ----------- ----------- ---------- -----------
20,761,151 16,485,980 42,370,606 38,979,877 30,601,208 (4,145,833)
145,052,989
TOTAL ADDITIONS 31,019,203 33,130,420 77,568,056 61,835,858 36,111,435 (4,145,833) 235,519,139
------------ ----------- ----------- ----------- ----------- ---------- -----------
Deductions to Net Assets
Attributable to:
Distributions to
Participants 19,506,618 10,772,788 20,503,101 8,132,543 20,265,818 (8,266,015) 70,914,853
------------ ----------- ----------- ----------- ----------- ---------- -----------
TOTAL DEDUCTIONS 19,506,618 10,772,788 20,503,101 8,132,543 20,265,818 (8,266,015) 70,914,853
------------ ----------- ----------- ----------- ----------- ---------- -----------
NET INCREASE 11,512,585 22,357,632 57,064,955 53,703,315 15,845,617 4,120,182 164,604,286
------------ ----------- ----------- ----------- ----------- ---------- -----------
Net Assets Available for
Benefits:
Beginning of Year 153,565,230 109,632,563 194,223,979 59,666,754 221,061,989 16,320,308 754,470,823
------------ ------------ ------------ ------------ ------------ ---------- ------------
End of Year $165,077,815 $131,990,195 $251,288,934 $113,370,069 $236,907,606 $20,440,490 $919,075,109
</TABLE>
20
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1998
Note 10 Investments 1998
----------------
<TABLE>
<CAPTION>
Principal
Amount or Fair Value or
Shares Cost Contract Value
---------------- ------------ --------------
<S> <C> <C> <C>
Fixed Income Fund
Interest in Master Trust* sh. 282,086,762 $174,339,624 $ 174,961,001
BNY Collective Short-Term
Invst. Fund sh. 419,934 419,934 419,934
Balanced Fund
Brinson Partners Inc.:
U.S. Bond Fund* sh. 377,098 47,231,044 49,321,216
U.S. Stock Equity Fund sh. 54,362 13,335,155 22,358,688
Mellon Bank Enhanced
Asset Fund* sh. 718,239 72,377,700 77,207,126
BNY Collective Short-Term
Invst. Fund sh. 1,305,353 1,305,353 1,305,353
Cash $ 508,529 508,529 508,529
Active Equity Fund
Brinson Partners Inc.:
U.S. Equity Portfolio* sh. 686,993 156,058,114 263,161,997
U.S. Cash Management Fund sh. 2 2 2
BNY Collective Short-Term
Invst. Fund sh. 3,204,111 3,204,111 3,204,111
Stock Index Fund
Mellon Capital:
Mellon Capital Mgmt.
Stock Index Fund* sh. 451,193 118,174,427 178,136,929
Mellon EB Daily Opening
Stock Index Fund sh. 4,429 1,260,964 1,332,889
Mellon Temporary
Investment Fund sh. 71,688 71,688 71,688
BNY Collective Short-Term
Invst. Fund sh. 1,850,178 1,850,178 1,850,178
Company Stock Fund
Computer Sciences
Common Stock* sh. 5,920,293 119,007,404 380,378,825
BNY Collective Short-Term
Invst. Fund sh. 3,446,219 3,446,219 3,446,219
Employee Loan Fund
Participant Loans $ 21,042,106 $ 21,042,106 21,042,106
------------ -------------
$733,632,552 $1,178,706,791
============= ==============
Total Long-Term Investments $722,826,538 $1,167,900,777
Total Short-Term Investments 10,806,014 10,806,014
------------ --------------
$733,632,552 $1,178,706,791
============= ==============
</TABLE>
*represents investments greater than 5% of net assets
21
<PAGE>
COMPUTER SCIENCES CORPORATION
MATCHED ASSET PLAN
NOTES TO FINANCIAL STATEMENTS
For the two years ended December 31, 1998
Note 10 Investments 1997
----------------
<TABLE>
<CAPTION>
Principal
Amount or Fair Value 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
U.S. Stock Only Fund* sh. 113,806 25,472,338 40,159,408
U.S. Cash Management 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
U.S. Cash Management Fund sh. 2 2 2
BNY Collective Short-Term
Invst. Fund sh. 885,360 885,360 885,360
Stock Index Fund
Mellon Capital:
Mellon Capital Mgmt.
Stock Index Fund* sh. 350,600 76,226,631 107,371,946
Mellon EB Daily Opening
Stock Index Fund sh. 11,230 2,628,795 2,670,819
Mellon 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 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, 1999 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 11,
1999, appearing in this Annual Report on Form 11-K of the Computer Sciences
Corporation Matched Asset Plan for the year ended December 31, 1998.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
June 25, 1999
E-1
<PAGE>
1998
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 (d) Cost (e) Current Value
borrower, lessor maturity date, rate of interest,
or similar party collateral, par or maturity value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mellon Capital Management Corp. Mutual Fund - EB Daily Liquidity Enhanced $ 72,377,700 $ 77,207,126
Brinson Trust Company, Inc. Mutual Fund - U.S. Bond Fund 47,231,044 49,321,216
Brinson Trust Company, Inc. Mutual Fund - U.S. Stock Fund 13,335,155 22,358,688
Brinson Trust Company, Inc. Mutual Fund - U.S. Equity Portfolio 156,058,114 263,161,997
Mellon Capital Management Corp. Mutual Fund - Stock Index Fund 118,174,427 178,136,929
Mellon Capital Management Corp. Mutual Fund - EB Daily Opening Stock Index Fund 1,260,964 1,332,889
* Computer Sciences Corporation Common Stock 119,007,404 380,378,825
* Computer Sciences Corporation Employee Loan Fund (8.75%-10%) (1/25/13) 21,042,106 21,042,106
Brinson Trust Company, Inc. U.S. Cash Management Fund 2 2
Mellon Capital Management Corp. Mellon Temporary Investment Fund 71,688 71,688
* Bank of New York BNY Collective Short-Term Invst. Fund 10,225,795 10,225,795
Cash Cash 508,529 508,520
------------ --------------
Total Assets Held for Investment Purposes $559,292,928 $1,003,745,790
============ ==============
</TABLE>
*represents party in interest
S-1
<PAGE>
1998
Form 5500 Item 27(d)
Computer Sciences Corporation
EIN 95-2043126
Matched Asset Plan 001
SCHEDULE OF REPORTABLE TRANSACTIONS
-----------------------------------
Series Transactions in the Aggregate in Excess of 5%
- ----------------------------------------------------
<TABLE>
<CAPTION>
(h) Current Value
(a) Identity of (b) Description (c) Purchase (d) Selling (g) Cost of of Asset on (i) Net Gain
Party Involved of Asset Price Price Asset Transaction Date or (Loss)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Brinson Trust Mutual Fund -
Company U.S. Bond Fund
- Sales $49,094,329 $46,959,112 $49,094,329 $2,135,217
Mellon Capital Mutual Fund -
Management EB Liquidity
Enhanced
- Purchases $ 72,377,700 72,377,700 72,377,700
Mellon Capital Mutual Fund -
Management EB Enhanced Asset
Allocation Fund
- Purchases 55,431,826 55,431,826 55,431,826
- Sales 55,987,747 55,431,826 55,987,747 555,921
Bank of New York BNY Short - Term
Money Market Fund
- Purchases 296,193,238 296,193,238 296,193,238
- Sales 294,210,580 294,210,580 294,210,580
</TABLE>
<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, 1998
[_] 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, 1998 and 1997 .............................. 4
Statements of Changes in Net Assets Available for Benefits
For the Years Ended December 31, 1998 and 1997 ................ 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,
1998 and 1997, 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, 1998 and 1997, 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 11, 1999
Los Angeles, California
3
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
STATEMENTS OF NET ASSETS
AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
December 31
-----------------------
1998 1997
---------- ---------
<S> <C> <C>
ASSETS
Investments (Notes 2, 5, 8 and 9):
Short-term $ 14,587 $ 24,281
Long-term--at fair value
Mellon Capital Government Bond Fund 981,182 972,097
Brinson U.S. Equity Fund 1,591,617 1,502,152
CSC common stock 666,915 438,292
Employee loans (Note 6) 13,983 17,258
Interest in Master Trust 1,906,881 714,880
Guaranteed investment contracts
--at contract value 1,394,969
---------- ----------
Total investments 5,175,165 5,063,929
---------- ----------
Receivables:
Participants' Contributions 2,129 7,172
Employer Contributions 1,412
Other 10,683 1,573
---------- ----------
Total receivables 14,224 8,745
---------- ----------
Total assets 5,189,389 5,072,674
---------- ----------
LIABILITIES
Accrued expenses 3,641 1,323
Other 13,579 1,390
---------- ----------
Total Liabilities 17,220 2,713
---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $5,172,169 $5,069,961
========== ==========
</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
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
ADDITIONS
Investment Income:
Net appreciation in fair value of
Investments $ 378,557 $ 199,727
Interest 81,547 155,032
Dividends 64,841 107,411
Plan interest in Master Trust
investment income 89,229 19,303
---------- ----------
614,174 481,473
Investment Management Fees (6,856) (4,092)
---------- ----------
607,318 477,381
Contributions:
Employee 182,437 183,550
Employer 78,049 79,199
---------- ----------
260,486 262,749
---------- ----------
Total Additions 867,804 740,130
---------- ----------
DEDUCTIONS
Distributions to Participants
(Notes 1 and 7) 765,596 945,711
---------- ----------
Total Deductions 765,596 945,711
---------- ----------
Net Increase (Decrease) 102,208 (205,581)
Net assets available for benefits at
beginning of year 5,069,961 5,275,542
---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $5,172,169 $5,069,961
========== ==========
</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, 1998
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 137 and 121 participating employees at December 31,
1998 and 1997, respectively.
6
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
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 $10,000
for calendar year 1998, 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 $10,000 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, 1998
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 1998 and 1997 totaled
$765,596 and $945,711, 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 1998 and 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.
8
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
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 held 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, 1998 and 1997, was approximately
$0 and $1,407,371, respectively. The average yield and average crediting
interest rate was approximately 7.64% for 1997. 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, 1998
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 $10,000 and $9,500 for 1998 and
1997 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
--------------------------
1998 1997
---------- ------------
<S> <C> <C>
Net assets available for benefits
per the financial statements $5,172,169 $5,069,961
Amounts allocated to withdrawing
Participants (167,744) (29,969)
---------- ------------
Net assets available for benefits
per Form 5500 $5,004,425 $5,039,992
========== ============
</TABLE>
10
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
<S> <C>
Benefits paid to participants per the financial statements $765,596
Add: Amounts allocated to withdrawing participants at
December 31, 1998 167,744
Less: Amounts allocated to withdrawing participants at
December 31, 1997 (29,969)
--------
Benefits paid to participants per the Form 5500 $903,371
========
</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, 1998 but not yet paid as of that date.
Note 5 Investment Funds
----------------
Participant contributions - Subject to rules the bargaining units have adopted,
each participant has the right to designate one or more of the following
investment funds established by the Committee for the investment of his or her
compensation deferral contributions and after-tax contributions in percentages
determined by the bargaining units.
The Fixed Income Fund
- ---------------------
The 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, 1998 and 1997, the
Plan's interest in the net assets of the Master Trust was approximately 0.97%
and 0.44%, 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, 1998
The following table represents the fair value of investments for the Master
Trust.
<TABLE>
<CAPTION>
December 31
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Investments at fair value:
Corporate bonds $118,380,288 $105,242,979
U.S. government securities 57,684,732 46,459,080
Other bonds 16,164,613 6,446,213
Short-term investments 3,777,721 1,371,261
Accrued income 966,721 1,198,486
------------ ------------
$196,974,075 $160,718,019
</TABLE>
Investment income for the Master Trust is as follows:
<TABLE>
<CAPTION>
December 31
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Investment income:
Net appreciation (depreciation) in fair
value of Investments $ 1,731,522 $ 450,257
Interest:
Corporate bonds 6,710,396 4,037,722
U.S. government securities 3,786,462 3,243,205
Other bonds 691,664 366,303
Short-term investments 365,214 485,226
------------ ------------
13,285,258 8,582,713
Less investment management fees (227,349) (208,306)
------------ ------------
$ 13,057,909 $ 8,374,407
============ ============
</TABLE>
12
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
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.
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, 1998 and 1997, net assets available for benefits included
benefits of $167,744 and $29,969, respectively, due to participants who have
withdrawn from participation in the Plan.
13
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
Note 8 Investments 1998
----------------
<TABLE>
<CAPTION>
Principal
Amount or Fair Value or
Shares Cost Contract Value
---------------- ----------- --------------
<S> <C> <C> <C>
Fixed Income Fund
Interest in Master Trust* sh. 3,080,507 $1,188,504 $1,906,881
BNY Short-Term Money
Market Fund 1,610 1,610 1,610
Government Bond Fund
Mellon Capital:
Government Bond Fund* sh. 6,921 964,200 981,182
Temporary Investment Fund 73 73 73
BNY Short-Term Money
Market Fund 1,185 1,185 1,185
Active Equity Fund
Brinson Partners Inc.:
U.S. Equity Portfolio* sh. 4,155 830,813 1,591,617
U.S. Cash Management Fund 2 2 2
BNY Short-Term Money
Market Fund 7,335 7,335 7,335
Company Stock Fund
Computer Sciences
Common Stock* sh. 10,380 222,716 666,915
BNY Short-Term Money
Market Fund 4,382 4,382 4,382
Employee Loan Fund
Participant Loan $ 13,983 13,983 13,983
---------- ----------
$3,234,803 $5,175,165
========== ==========
Total Long-Term Investments $3,220,216 $5,160,578
Total Short-Term Investments 14,587 14,587
---------- ----------
$3,234,803 $5,175,165
========== ==========
</TABLE>
*represents investments greater than 5% of net assets
14
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
Note 8 Investments 1997
----------------
<TABLE>
<CAPTION>
Principal
Amount or Fair Value or
Shares Cost Contract 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 74,302 74,302
Interest in Master Trust sh. 1,173,484 124,382 120,628
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 Stort-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, 1998
Note 9 Statements of Net Assets Available for Benefits by Fund
-------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------------
Fixed Government Active Company Employee
Income Bond Equity Stock Loans Total
---------- ----------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments
Short-term investments $ 1,610 $ 1,258 $ 7,337 $ 4,382 $ 14,587
Long-term investments
At fair value
Interest in registered
investment companies 981,182 1,591,617 2,572,799
CSC Company stock 666,915 666,915
Employee loans $ 13,983 13,983
Interest in Master Trust 1,906,881 1,906,881
At contract value
Guaranteed investment contracts
Receivables
Participants' Contributions 529 300 800 500 2,129
Employer Contributions 698 53 485 176 1,412
Accrued Income 24 5 22 8 59
Interfund Transfers 317 (176) (283) 142 0
Other 7,352 3,272 10,624
---------- -------- ---------- -------- --------- ----------
Total Assets 1,910,059 989,974 1,603,250 672,123 13,983 5,189,389
Liabilities
Accrued Expenses 1,588 143 1,910 3,641
Forfeitures Payable 328 865 1,193
Other 7,352 3,272 1,097 665 12,386
---------- -------- ---------- -------- ---------- ----------
Total Liabilities 1,916 7,495 6,047 1,097 665 17,220
---------- -------- ---------- -------- ---------- ----------
Net Assets Available for Benefits $1,908,143 $982,479 $1,597,203 $671,026 $ 13,318 $5,172,169
========== ======== ========== ======== ========== ==========
</TABLE>
16
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
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 Loans 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, 1998
Note 9 Statements of Changes in Net Assets Available for Benefits by Fund
------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------------------------------------
Fixed Government Active Company Employee
Income Bond Equity Stock Loans Total
----------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Additions to Net Assets
Attributable to:
Investment Income:
Net Appreciation (Depreciation)
in Fair Value of Investments $ 3,497 $ 15,495 $ 127,499 $232,066 $ 378,557
Interest in Master Trust
Investment Income 89,229 89,229
Interest 52,289 92 29,075 91 81,547
Dividends 64,841 64,841
Investment Management Fees (2,610) (297) (3,949) (6,856)
---------- ---------- ---------- -------- ------- ---------
142,405 80,131 152,625 232,157 607,318
---------- -------- ---------- -------- ------- ---------
Contributions:
Employee 62,919 22,284 59,776 40,912 $(3,454) 182,437
Employer 27,186 9,954 25,742 15,167 78,049
Interfund Transfers 6,581 (1,404) (3,467) (1,710) -
---------- -------- ---------- -------- ------- ----------
96,686 30,834 82,051 54,369 (3,454) 260,486
---------- -------- ---------- -------- ------- ----------
TOTAL ADDITIONS 239,091 110,965 234,676 286,526 (3,454) 867,804
---------- -------- ---------- -------- ------- ----------
Deductions to Net Assets
Attributable to:
Distributions to Participants 464,705 101,909 143,295 55,687 765,596
---------- -------- ---------- -------- ------- ----------
TOTAL DEDUCTIONS 464,705 101,909 143,295 55,687 765,596
---------- -------- ---------- -------- ------- ----------
NET INCREASE (DECREASE) (225,614) 9,056 91,381 230,839 (3,454) 102,208
---------- -------- ---------- -------- ------- ----------
Net Assets Available for Benefits:
Beginning of Year 2,133,757 973,422 1,505,822 440,188 16,772 5,069,961
---------- -------- ---------- -------- ------- ----------
End of Year $1,908,143 $982,478 $1,597,203 $671,027 $13,318 $5,172,169
========== ======== ========== ======== ======= ==========
</TABLE>
18
<PAGE>
CSC OUTSOURCING INC. HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
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 Loans 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>
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, 1999 By: /S/ LEON J. LEVEL
-------------------------------------
Leon J. Level
Chairman,
Computer Sciences Corporation
Retirement Plans Committee
20
<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 11,
1999, appearing in this Annual Report on Form 11-K of the CSC Outsourcing Inc.
Hourly Savings Plan for the year ended December 31, 1998.
/S/ DELOITTE & TOUCHE LLP
Los Angeles, California
June 25, 1999
E-1
<PAGE>
1998
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, (c) Description of investment including (d) Cost (e) Current Value
borrower, lessor maturity date, rate of interest,
or similar party collateral, par or maturity value
-------------------------------- --------------------------------------- ---------- ------------------
<S> <C> <C> <C> <C>
Mellon Capital Management Corp. Mutual Fund - Government Bond Fund $ 964,200 $ 981,182
Brinson Trust Company, Inc. Mutual Fund - U.S. Equity Portfolio 830,813 1,591,617
* Computer Sciences Corporation Common Stock 222,716 666,915
* Computer Sciences Corporation Employee Loan Fund (9.25%, 3/29/02) 13,983 13,983
Brinson Trust Company, Inc. U.S. Cash Management Fund 2 2
Mellon Capital Management Corp. Mellon Bank Temporary Investment Fund 73 73
* Bank of New York BNY Short-Term Money Market Fund 14,512 14,512
--------------------------------------- ---------- ----------
Total Assets Held for Investment
Purposes $2,046,299 $3,268,284
========== ==========
</TABLE>
* represents party in interest
S-1
<PAGE>
1998
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
(a) Identity of (b) Description (c) Purchase (d) Selling (g) Cost of of Asset on (i) Net Gain
Party Involved of Asset Price Price Asset Transaction Date or (Loss)
- ------------------- --------------- ----------- ---------- ----------- -------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bank of New York Short-Term Money
Market Fund
- Purchase $ 264,669 $ 264,669 $ 264,669
- Purchase 1,271,087 1,271,087 1,271,087
- Sale $ 267,396 267,396 267,396 -
- Sale 1,284,449 1,284,449 1,284,449 -
Hartford Life Guaranteed
Insurance Co. Investment
Contract
- Sale 1,279,222 1,279,222 1,279,222 -
</TABLE>
S-2
<PAGE>
1998
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
(a) Identity of (b) Description (c) Purchase (d) Selling (g) Cost of of Asset on (i) Net Gain
Party Involved of Asset Price Price Asset Transaction Date or (Loss)
- ------------------- --------------- ---------------- ---------- ----------- -------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Bank of New York BNY Short-Term
Money Market
Fund
- Purchases $2,345,620 $2,345,620 $2,345,620
- Sales $2,355,344 2,355,344 2,355,344 -
Hartford Life Guaranteed
Insurance Co. Investment
Contract
- Purchases 47,022 47,022 47,022
- Sales 1,279,222 1,279,222 1,279,222 -
</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, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from __________ to __________
Commission file number: 1-4850
A. Full title of plan and the address of the plan, if different from that of
the issuer named below: CSC Outsourcing Inc. CUTW Hourly Savings Plan
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office: Computer Sciences Corporation
2100 East Grand Avenue
El Segundo, California 90245
<PAGE>
TABLE OF CONTENTS
Description Page
- ----------- ----
Statements of Net Assets Available for Benefits
As of December 31, 1998 and 1997 .................................... 3
Statements of Changes in Net Assets Available for Benefits
As of December 31, 1998 and 1997 .................................... 4
Notes to the Financial Statements ................................... 5
2
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
STATEMENTS OF NET ASSETS
AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
---------- --------
<S> <C> <C>
Assets
Investments (Note 2, 5, 8 and 9):
Short-term $ 8,094 $ 4,824
Long-term - at fair value:
Brinson U.S. Bond Fund 57,871 46,049
Brinson U.S. Stock Fund 25,748 21,912
Mellon Enhanced Asset Fund 7,151
Brinson U.S. Equity Fund 284,552 262,330
Mellon Stock Index Fund 117,654 62,609
CSC Company stock 676,231 370,740
Employee Loans (Note 6) 27,660 28,881
Plan interest in Master Trust 151,592 144,470
---------- --------
Total Investments 1,356,553 941,815
---------- --------
Receivables:
Employee Contributions 1,715 876
Employer Contributions 750 1,814
Other Receivables 966 7
---------- --------
Total Receivables 3,431 2,697
---------- --------
Total Assets 1,359,984 944,512
---------- --------
Liabilities
Accounts Payable 13,494 2,974
---------- --------
Total Liabilities 13,494 2,974
---------- --------
Net Assets Available for Benefits $1,346,490 $941,538
========== ========
</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,
1998 1997
------------- -------------
<S> <C> <C>
ADDITIONS
Investment Income:
Net appreciation in fair value of
investments (Note 9) $ 266,598 $ 64,395
Interest 563 400
Dividends 13,449 10,574
Plan interest in Master Trust
investment income 9,551 5,424
---------- --------
290,161 80,793
Less Investment Management Fees (1,191) (770)
---------- --------
288,970 80,023
Contributions:
Employee 107,697 91,718
Employer 49,488 45,963
---------- --------
157,185 137,681
---------- --------
Total Additions 446,155 217,704
DEDUCTIONS
Distributions to Participants
(Notes 1 and 7) 41,203
---------- --------
Total Deductions 41,203
---------- --------
Net Increase 404,952 217,704
---------- --------
Net Assets Available for Benefits:
Beginning of Year 941,538 723,834
---------- --------
End of Year $1,346,490 $941,538
========== ========
</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, 1998
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 65 and 54 participating employees at December 31, 1998
and 1997, respectively.
5
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
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 employee base earnings deferred and contributed to the Trust fund cannot
exceed $10,000 and $9,500 for calendar years 1998 and 1997, 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 $10,000 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. The amounts distributed during 1998 and 1997
totaled $3,161 and $0, respectively.
6
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
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. The withdrawals made in 1998 and 1997 totaled
$38,042 and $0, respectively.
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, 1998
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 $10,000 and $9,500 for 1998 and
1997, 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, 1998
Note 4 Reconciliation of Financial Statements to Form 5500
---------------------------------------------------
<TABLE>
<CAPTION>
December 31
----------------------
1998 1997
---------- --------
<S> <C> <C>
Net assets available for benefits per
the financial statements $1,346,490 $941,538
Amounts allocated to withdrawing
Participants (1,075) (4,237)
---------- --------
Net assets available for benefits per
Form 5500 $1,345,415 $937,301
========== ========
</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, 1998
-----------------
<S> <C>
Benefits paid to participants per the financial statements $41,203
Add: Amounts allocated to withdrawing participants
at December 31, 1998 1,075
Less: Amounts allocated to withdrawing participants at
December 31, 1997 (4,237)
-------
Benefits paid to participants per the Form 5500 $38,041
=======
</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, 1998 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.
9
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
The Fixed Income Fund
- ---------------------
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, 1998 and 1997, the
Plan's interest in the net assets of the Master Trust was approximately .08% and
.09%, 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
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Investments at fair value:
Corporate bonds $118,380,288 $105,242,979
U.S. government securities 57,684,732 46,459,080
Other bonds 16,164,613 6,446,213
Short-term investments 3,777,721 1,371,261
Accrued income 966,721 1,198,486
------------ ------------
$196,974,075 $160,718,019
============ ============
</TABLE>
Investment income for the Master Trust is as follows:
<TABLE>
<CAPTION>
December 31
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Investment income:
Net appreciation (depreciation)
in fair value of investments $ 1,731,522 $ 450,257
Interest:
Corporate bonds 6,710,396 4,037,722
U.S. government securities 3,786,462 3,243,205
Other bonds 691,664 366,303
Short-term investments 365,214 485,226
------------ ------------
13,285,258 8,582,713
Less investment management fees (227,349) (208,306)
------------ ------------
$ 13,057,909 $ 8,374,407
============ ============
</TABLE>
10
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
The Balanced Fund
- -----------------
The Balanced Fund is co-managed by Brinson Partners, Inc. (approximately 89% as
of December 31, 1998) and Mellon Capital Management (approximately 11% as of
December 31, 1998). The Balanced Fund is invested in an actively managed
combination of U.S. equity securities, U.S. fixed income securities 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 fund will depend upon the
performance of Computer Sciences Corporation stock. The Trustee may purchase
Computer Sciences Corporation stock on national securities exchanges or
elsewhere.
11
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
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 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.
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, 1998 and 1997, $27,660 and
$28,881 of loans were outstanding, respectively.
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, 1998 and 1997, net assets available for benefits included
benefits of $1,075 and $4,237 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, 1998
Note 8 Investments 1998
----------------
<TABLE>
<CAPTION>
Shares/Units Cost Fair Value
-------------- ---------- ----------
<S> <C> <C> <C>
Fixed Income Fund
Plan Interest in Master Trust sh. 44,409 $ 152,183 $ 151,592
BNY Short-Term Money Market Fund sh. 905 905 905
Balanced Fund
Brinson Trust Company Inc.
U.S. Bond Fund sh. 442 55,654 57,871
U.S. Stock Fund sh. 63 16,041 25,748
Mellon EB Enhanced Asset Allocation sh. 21 6,566 7,151
Mellon Temporary Investment Fund sh. 174 174 174
BNY Short-Term Money Market Fund sh. 2,355 2,355 2,355
Active Equity Fund
Brinson Trust Company, Inc.
U.S. Equity Portfolio sh. 743 198,141 284,552
BNY Short-Term Money Market Fund sh 62 62 62
Stock Index Fund
Mellon EB Stock Index Fund sh. 298 80,064 117,654
Mellon Temporary Investment Fund sh. 417 417 417
BNY Short-Term Money Market Fund sh 21 21 21
Company Stock Fund
Computer Sciences Common Stock sh. 10,525 419,017 676,231
BNY Short-Term Money Market Fund sh. 4,160 4,160 4,160
CSC Employee Loan Fund
Participant Loans $ 27,660 27,660 27,660
---------- ----------
$ 963,420 $1,356,553
========== ==========
Total Long-Term Investments $ 955,326 $1,348,459
Total Short-Term Investments 8,094 8,094
---------- ----------
$ 963,420 $1,356,553
========== ==========
</TABLE>
13
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
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 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 $ 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>
14
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
Note 9 Statements of Net Assets Available for Benefits by Fund
-------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------------
Fixed Balanced Active Stock Company Loan
Income Fund Equity Index Stock Fund Total
-------- ------- -------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Short-term Investments $ 905 $ 2,529 $ 62 $ 438 $ 4,160 $ 8,094
Long-term Investments:
Interest in registered
investment Companies 90,770 284,552 117,654 492,976
CSC Company stock 676,231 676,231
Employee Loans $ 27,660 27,660
Plan Interest in
Master Trust 151,592 151,592
Employee Contributions
Receivable 240 163 230 265 817 1,715
Employer Contribution
Receivable 750 750
Other Receivables 2 371 585 1 7 966
Interfund Transfers (2,613) 486 1,438 1,922 (1,233) 0
-------- ------- -------- -------- --------- -------- ----------
Total Assets 150,126 94,319 286,867 120,280 680,732 27,660 1,359,984
Liabilities
Accounts Payable 133 1,980 923 24 4,130 6,304 13,494
-------- ------- -------- -------- --------- -------- ----------
Total Liabilities 133 1,980 923 24 4,130 6,304 13,494
-------- ------- -------- -------- --------- -------- ----------
Net Assets Available
for Benefits $149,993 $92,339 $285,944 $120,256 $ 676,602 $ 21,356 $1,346,490
======== ======= ======== ======== ========= ======== ==========
</TABLE>
15
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
Note 9 Statements of Net Assets Available for Benefits by Fund
-------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------------------
Fixed Balanced Active Stock Company Loan
Income Fund Equity Index 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
Other Receivables 1 3 3 7
Interfund Transfers 41 (321) (704) 117 867 0
-------- ------- -------- -------- --------- -------- ----------
Total Assets 145,591 72,517 262,340 63,512 371,671 28,881 944,512
Liabilities
Accounts Payable 43 42 160 9 2,720 2,974
-------- ------- -------- -------- --------- -------- ----------
Total Liabilities 43 42 160 9 2,720 2,974
-------- ------- -------- -------- --------- -------- ----------
Net Assets Available
for Benefits $145,548 $72,475 $262,180 $ 63,503 $ 371,671 $ 26,161 $ 941,538
======== ======= ======== ======== ========= ======== ==========
</TABLE>
16
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
Note 9 Statements of Changes in Net Assets Available for Benefits by Fund
------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------------
Fixed Balanced Active Stock Company Loan
Income Fund Equity Index 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 $ 431 $ 5,056 $ 21,044 $ 19,627 $ 220,440 $ 266,598
Interest 29 326 30 42 136 563
Dividends 3,796 5,067 4,586 13,449
Plan Interest in Master
Trust Investment Income 9,551 9,551
Investment Management
Fees (263) (195) (678) (55) (1,191)
-------- ------- -------- -------- --------- -------- ----------
9,748 8,983 25,463 24,200 220,576 288,970
-------- ------- -------- -------- --------- -------- ----------
Contributions:
Employee 24,230 10,533 15,162 11,865 58,389 $(12,482) 107,697
Employer 49,488 49,488
Interfund Transfers (23,985) 539 (10,262) 23,526 10,182 0
-------- ------- -------- -------- --------- -------- ----------
245 11,072 4,900 35,391 118,059 (12,482) 157,185
-------- ------- -------- -------- --------- -------- ----------
Total Additions 9,993 20,055 30,363 59,591 338,635 (12,482) 446,155
-------- ------- -------- -------- --------- -------- ----------
Deductions to Net Assets
Attributable to:
Distributions to
Participants 5,548 191 6,599 2,838 33,704 (7,677) 41,203
-------- ------- -------- -------- --------- -------- ----------
Total Deductions 5,548 191 6,599 2,838 33,704 (7,677) 41,203
-------- ------- -------- -------- --------- -------- ----------
Net Increase 4,445 19,864 23,764 56,753 304,931 (4,805) 404,952
-------- ------- -------- -------- --------- -------- ----------
Net Assets Available for
Benefits:
Beginning of Year 145,548 72,475 262,180 65,503 371,671 26,161 941,538
-------- ------- -------- -------- --------- -------- ----------
End of Year $149,993 $92,339 $285,944 $120,256 $676,602 $ 21,356 $1,346,490
</TABLE>
17
<PAGE>
CSC OUTSOURCING INC. CUTW HOURLY SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
Note 9 Statements of Changes in Net Assets Available for Benefits by Fund
------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------------------
Fixed Balanced Active Stock Company Loan
Income Fund Equity Index 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 2,592 1,479 3,273 1,798 10,557 (19,700) 0
-------- ------- -------- -------- --------- -------- ----------
Total Deductions 2,592 1,479 3,273 1,798 10,557 (19,700) 0
-------- ------- -------- -------- --------- -------- ----------
Net Increase 71,739 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 40,808 325,761 16,603 723,834
-------- ------- -------- -------- --------- -------- ----------
End of Year $145,548 $72,475 $262,180 $ 63,503 $ 371,671 $ 26,161 $ 941,538
======== ======= ======== ======== ========= ======== ==========
</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, 1999 By: /S/ LEON J. LEVEL
-----------------------------------------
Leon J. Level
Chairman,
Computer Sciences Corporation
Retirement Plans Committee
19
