SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 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)
Nevada 95-2043126
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2100 East Grand Avenue
El Segundo, California 90245
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (310) 615-0311
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
160,465,545 shares of Common Stock, $1.00 par value, were outstanding on
October 29, 1999.
COMPUTER SCIENCES CORPORATION
Index to Form 10-Q
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income, Second Quarter and
Six Months Ended October 1, 1999 and October 2, 1998 ........... 3
Consolidated Condensed Balance Sheets,
October 1, 1999 and April 2, 1999 .............................. 4
Consolidated Condensed Statements of Cash Flows,
Six Months Ended October 1, 1999 and October 2, 1998 ........... 5
Notes to Consolidated Condensed Financial Statements .............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............ 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk .............................................. 16
PART II. OTHER INFORMATION
Item 4. Submission of matters to a Vote of Security-Holders .......... 17
Item 6. Exhibits and Reports on Form 8-K ............................. 18
2
PART I, ITEM 1. FINANCIAL STATEMENTS
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)
Second Quarter Ended Six Months Ended
---------------------- ----------------------
(In thousands except Oct. 1, Oct. 2, Oct. 1, Oct. 2,
per-share amounts) 1999 1998 1999 1998
---------- ---------- ---------- ----------
Revenues $2,126,100 $1,847,771 $4,189,480 $3,601,699
---------- ---------- ---------- ----------
Costs of services 1,676,501 1,451,204 3,312,138 2,833,254
Selling, general
and administrative 178,907 172,650 366,194 335,474
Depreciation and
amortization 125,999 105,337 240,628 209,439
Interest expense 13,956 11,575 27,239 23,476
Interest income (3,986) (2,542) (8,910) (5,926)
---------- ---------- ---------- ----------
Total costs and expenses 1,991,377 1,738,224 3,937,289 3,395,717
---------- ---------- ---------- ----------
Income before taxes 134,723 109,547 252,191 205,982
Taxes on income 45,100 36,500 84,300 68,600
---------- ---------- ---------- ----------
Net income $ 89,623 $ 73,047 $ 167,891 $ 137,382
========== ========== ========== ==========
Earnings per share
(note A):
Basic $ 0.56 $ 0.46 $ 1.05 $ 0.87
========== ========== ========== ==========
Diluted $ 0.55 $ 0.45 $ 1.03 $ 0.85
========== ========== ========== ==========
[FN]
See accompanying notes.
3
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
Oct. 1, April 2,
(In thousands) 1999 1999
----------- -----------
(unaudited)
ASSETS
Cash and cash equivalents $ 262,919 $ 602,593
Receivables 1,983,743 1,777,262
Prepaid expenses and other current assets 309,321 289,130
----------- -----------
Total current assets 2,555,983 2,668,985
----------- -----------
Goodwill 726,833 653,034
Software and other assets 685,476 598,815
Property and equipment, net of accumulated
depreciation and amortization of
$1,346,383 and $1,226,569 1,163,092 1,086,875
----------- -----------
Total assets $5,131,384 $5,007,709
=========== ===========
LIABILITIES
Short-term debt and current
maturities of long-term debt $ 243,642 $ 592,942
Accounts payable 316,259 374,978
Accrued payroll and related costs 435,795 386,788
Other accrued expenses 444,529 459,821
Deferred revenue 135,330 137,378
Income taxes payable 165,404 129,505
----------- -----------
Total current liabilities 1,740,959 2,081,412
----------- -----------
Long-term debt, net 667,413 397,860
----------- -----------
Other long-term liabilities 118,293 128,583
----------- -----------
STOCKHOLDERS' EQUITY (note B)
Common stock issued, par value $1.00 per share 160,571 159,510
Additional paid in capital 764,894 730,238
Earnings retained for use in business 1,746,016 1,578,125
Accumulated other comprehensive income (note D) (51,319) (53,235)
Less common stock in treasury (15,223) (14,413)
Unearned restricted stock and other (220) (371)
----------- -----------
Total stockholders' equity 2,604,719 2,399,854
----------- -----------
Total liabilities and stockholders' equity $5,131,384 $5,007,709
=========== ===========
[FN]
See accompanying notes.
4
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended
-----------------------
(In thousands, increase (decrease) Oct. 1, Oct. 2,
in cash and cash equivalents) 1999 1998
---------- ----------
Cash flows from operating activities:
Net income $ 167,891 $ 137,382
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 240,628 209,439
Provision for losses on accounts receivable 2,949 4,955
Changes in assets and liabilities, net of
effects of acquisitions:
Increase in assets (154,048) (214,357)
(Decrease)increase in liabilities (59,422) 47,390
---------- ----------
Net cash provided by operating activities 197,998 184,809
---------- ----------
Investing activities:
Purchases of property and equipment (218,675) (192,552)
Acquisitions, net of cash acquired (94,152) (25,811)
Dispositions 37,947
Outsourcing contracts (106,826) (33,086)
Software (35,908) (35,201)
Other investing cash flows 11,210 649
---------- ----------
Net cash used in investing activities (444,351) (248,054)
---------- ----------
Financing activities:
Borrowings(repayments) under commercial paper, net 16,444 (887)
Borrowings under lines of credit, net 31,105 3,466
Principal payments on long-term debt (166,372) (9,481)
Proceeds from stock option transactions 22,890 31,492
Other financing cash flows 2,767 1,277
---------- ----------
Net cash (used in) provided by financing activities (93,166) 25,867
---------- ----------
Effect of exchange rate changes on cash
and cash equivalents (155) 4,750
---------- ----------
Net decrease in cash and cash equivalents (339,674) (32,628)
Cash and cash equivalents at beginning of year 602,593 274,688
---------- ----------
Cash and cash equivalents at end of period $ 262,919 $ 242,060
========== ==========
[FN]
See accompanying notes.
5
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
(A) Basic and diluted earnings per share are calculated as follows (in
thousands except per share amounts):
Second Quarter Ended
--------------------------------
Oct. 1, 1999 Oct. 2, 1998
------------ ------------
Net income for basic and diluted EPS $ 89,623 $ 73,047
======== ========
Common share information:
Average common shares outstanding
for basic EPS 160,019 158,031
Dilutive effect of stock options 3,293 3,987
-------- --------
163,312 162,018
======== ========
Basic EPS $ 0.56 $ 0.46
Diluted EPS 0.55 0.45
Six Months Ended
--------------------------------
Oct. 1, 1999 Oct. 2, 1998
------------ ------------
Net income for basic and diluted EPS $167,891 $137,382
======== ========
Common share information:
Average common shares outstanding
for basic EPS 159,704 157,679
Dilutive effect of stock options 3,291 3,933
-------- --------
162,995 161,612
======== ========
Basic EPS $ 1.05 $ 0.87
Diluted EPS 1.03 0.85
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 128, the computation of diluted EPS did not include stock options
which were antidilutive, as their exercise price was greater than the
average market price of the common stock of Computer Sciences Corporation
("CSC" or the "Company") during the year. The number of such options was
202,857 and 47,918 at October 1, 1999 and October 2, 1998, respectively.
(B) No dividends were paid during the periods presented. At October 1, 1999
and April 2, 1999, there were 160,571,439 and 159,510,065 shares,
respectively, of $1.00 par value common stock issued, and 382,442 and
369,607 shares, respectively, of treasury stock.
6
(C) Cash payments for interest on indebtedness were $30.8 million and $22.3
million for the six months ended October 1, 1999 and October 2, 1998,
respectively. Cash payments (refunds) for taxes on income were $28.6
million and $(54.7) million for the six months ended October 1, 1999
and October 2, 1998, respectively.
(D) The components of comprehensive income, net of tax, are as follows
(in thousands):
Second Quarter Ended
--------------------------------
Oct. 1, 1999 Oct. 2, 1998
------------ ------------
Net income $ 89,623 $ 73,047
Foreign currency translation
adjustment 11,419 29,697
--------- ---------
Comprehensive income $101,042 $102,744
========= =========
Six Months Ended
--------------------------------
Oct. 1, 1999 Oct. 2, 1998
------------ ------------
Net income $167,891 $137,382
Foreign currency translation
adjustment 1,916 20,595
--------- ---------
Comprehensive income $169,807 $157,977
========= =========
Accumulated other comprehensive income presented on the accompanying
consolidated condensed balance sheets consists of the accumulated
foreign currency translation adjustment and the minimum pension liability
adjustment.
(E) CSC's business involves operations which provide management and
information technology consulting, systems integration and outsourcing.
Based on the criteria of SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," CSC has two reportable segments: 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 revenues reported below
will vary from U.S. Federal government revenue presented elsewhere in
this report due to overlapping activities between segments. Information
on reportable segments is as follows (in thousands):
7
Global U.S.
Commercial Federal
Sector Sector Corporate Total
---------- -------- --------- ----------
Second Quarter Ended
October 1,1999
Revenues $1,650,203 $475,160 $ 737 $2,126,100
Earnings (loss) before
interest and taxes 118,756 27,068 (1,131) 144,693
Second Quarter Ended
October 2,1998
Revenues $1,391,290 $456,437 $ 44 $1,847,771
Earnings (loss) before
interest and taxes 96,568 25,922 (3,910) 118,580
Global U.S.
Commercial Federal
Sector Sector Corporate Total
---------- -------- --------- ----------
Six Months Ended
October 1,1999
Revenues $3,237,015 $951,646 $ 819 $4,189,480
Earnings (loss) before
interest and taxes 220,244 55,325 (5,049) 270,520
Six Months Ended
October 2,1998
Revenues $2,685,495 $916,118 $ 86 $3,601,699
Earnings (loss) before
interest and taxes 176,160 52,316 (4,944) 223,532
8
(F) CSC adopted the American Institute of Certified Public Accountants
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" as of the first quarter
of fiscal 2000. This statement requires the capitalization of internal
use computer software costs provided that certain criteria are met. These
capitalized software costs are amortized on a straight-line basis over
the useful life of the software. The adoption of SOP 98-1 had no material
impact on the Company's consolidated financial position, results of
operations or cash flows.
(G) 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 June 1999, the FASB issued SFAS No. 137, which
amends SFAS No. 133 by deferring 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.
(H) The financial information reported, which is not necessarily indicative
of the results for a full year, is unaudited but includes all adjustments
which the Company considers necessary for a fair presentation. All such
adjustments are normal recurring adjustments.
(I) On September 19, 1999, the Company and its wholly owned subsidiary, Nevada
Acquisition Corporation, entered into an Agreement and Plan of Merger with
Nichols Research Corporation ("Nichols"). The Agreement provides for the
acquisition of Nichols by the Company through the merger of Nevada
Acquisition Corporation with and into Nichols. Nichols is a leading
information technology services company primarily focusing on the U.S.
federal market, with services also provided to the healthcare and
consulting and systems integration markets. The merger will be accounted
for as a pooling of interests. Completion of the merger is subject to
approval by the shareholders of Nichols. A special meeting of Nichols'
shareholders will be held on November 16, 1999 to vote on the merger.
9
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Second Quarter and First Six Months of Fiscal 2000 versus
Second Quarter and First Six Months of Fiscal 1999
Revenues
During the second quarter ended October 1, 1999, the Company's total revenue
increased 15.1%, or $278.3 million, over the same period last year.
Global commercial sector revenues grew 18.6%, or $258.9 million over the same
quarter of last year.
U.S. Commercial revenue grew 14.9% or $109.2 million during the second quarter
of fiscal 2000 over the same period last year. Over two-thirds of the growth
was generated from information technology outsourcing contracts. The balance
was due to demand for services related to enterprise-wide solutions,
e-business, supply chain and systems integration, and growth within the
Company's healthcare vertical markets.
European revenues grew $78.9 million or 14.5% during the second quarter.
The growth was provided principally from increases in outsourcing activities,
additional demand for consulting and systems integration activities and
revenue generated by acquisitions made last year in France, Italy and the
Netherlands. Revenue growth was negatively impacted by nearly 3% due to the
effect of European currency fluctuations.
Other international revenue for the second quarter grew 60.4% to $187.7
million. The increase was the result of last year's fourth quarter
acquisition of Singapore-based CSA Holdings, Ltd. and further expansion of
CSC's Australia operations.
U.S. Federal sector revenue increased 4.1% or $18.8 million during the second
quarter. Revenue gains generated from civil agencies were partially offset by
reductions in services performed on several NASA and Department of Defense
contracts.
For the first half of fiscal 2000, the Company's total revenue increased 16.3%
or $587.8 million and the Company announced a total of $5.3 billion in new
Global Commercial and Federal business awards. The Company's continued growth
has created a broad global revenue base across numerous customers, industries,
geographic regions and service regions.
10
Costs and Expenses
The Company's costs and expenses as a percentage of revenue are as follows
(dollars in millions):
Dollar Amount Percentage of Revenue
-------------- --------------------------------
Second Quarter Second Quarter First Six Months
-------------- -------------- ----------------
Fiscal Fiscal Fiscal
-------------- -------------- ----------------
2000 1999 2000 1999 2000 1999
------ ------ ------ ------ ------ ------
Costs of services $1,676 $1,451 78.9% 78.5% 79.1% 78.7%
Selling, general & admin. 179 173 8.4 9.4 8.7 9.3
Depreciation and amort. 126 105 5.9 5.7 5.7 5.8
Interest expense, net 10 9 0.5 0.5 0.5 0.5
------ ------ ------ ------ ------ ------
Total $1,991 $1,738 93.7% 94.1% 94.0% 94.3%
====== ====== ====== ====== ====== ======
Comparing both the second quarter and first six months of fiscal 2000 and
fiscal 1999, total costs and expenses improved as a percentage of revenue.
Lower costs in selling, general and administrative expenses were partially
offset by increases in cost of services.
Lower selling, general and administrative expenses as a percentage of revenue
were substantially related to lower costs recorded in the Company's Federal
Sector as well as a lower percentage of costs in European operations and
vertical markets. The lower costs in the Federal Sector are attributable to
efficiencies realized as a result of last year's reorganization within the
Federal Sector and significant bid and proposal expenses incurred during last
year's second quarter. The increase in costs of services as a percentage of
revenue was primarily due to the operations of Singapore-based CSA Holdings,
Ltd which typically has a higher rate of costs of services in comparison with
the rest of the Company's operations.
Income Before Taxes
Due to the Company's revenue growth and improvements in operating performance,
income before taxes increased $25.2 million to $134.7 million, up 23% over the
same quarter last year. The resulting margin was 6.3% compared to 5.9% for
last year's second quarter and was 6.0% versus 5.7% for the six months of
fiscal 2000 and fiscal 1999, respectively.
11
Net Income
Net income was up $16.6 million to $89.6 million for the second quarter of
fiscal 2000, up 22.7% over last year's second quarter. This year's second
quarter diluted earnings per share of 55 cents increased 22.2% over last
year's second quarter diluted earnings per share of 45 cents. On a year to
date basis, diluted earnings per share were $1.03, up 18 cents, or 21.2% over
the same period last year.
Cash Flows
Cash provided by operating activities was $198 million for the six months
ended October 1, 1999, compared with $184.8 million during the same period
last year. The increase of $13.2 million resulted from an increase in
earnings and non-cash depreciation and amortization expenses partially offset
by changes in working capital.
The Company's cash expenditures for investing activities totaled $444.4
million for the most recent six months versus $248.1 million during the same
period of last year. The increase principally relates to purchases of
outsourcing assets, property and equipment and acquisitions made in Italy,
Austria and the United States.
Cash used for financing activities was $93.2 million for the most recent six
months versus cash provided by financing activities of $25.9 million for the
same period last year. The change is due to repayment of the Company's $150
million 6.80% notes due April 1999 offset in part by other financing
activities.
Financial Condition
During the first six months of fiscal 2000, the Company's capital outlays
included $419.7 million of business investments in the form of fixed asset
purchases, acquisitions and outsourcing contracts. These investments as well
as the repayment of the Company's $150 million 6.80% notes due April 1999 were
funded from operating cash flows, additional borrowings and existing cash
balances, which decreased from $602.6 million to $262.9 million. The
Company's debt-to-total capitalization ratio improved to 25.9% at October 1,
1999 from 29.2% at fiscal 1999 year end, principally due to the previously
mentioned debt repayment.
During the second quarter of fiscal 2000, the Company entered into a $500
million credit facility that replaced the previous $490 million credit
facility that was scheduled to expire September 15, 1999. The Company's
commercial paper is backed by the credit facility. The credit facility is
comprised of both a $250 million short-term and a $250 million long-term
component. At October 1, 1999, commercial paper consisted of $141.3 million
classified as short-term debt and $250 million classified as long-term debt.
The Company has an option to require a subsidiary of Equifax Inc. to purchase
the Company's credit reporting business as further described in Note 11 of the
Company's Annual Report on Form 10-K for fiscal 1999. The exercise price of
this put option is equal to the appraised value of the business.
12
It is management's opinion that the Company will be able to meet its liquidity
and cash needs for the foreseeable future through a combination of cash flows
from operating activities, cash balances, unused borrowing capacity and other
financing activities, including the issuance of debt and/or equity securities,
and/or the exercise of the put option described above.
New Accounting Pronouncements
The Company has adopted the American Institute of Certified Public Accountants
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" as of the first quarter of
fiscal 2000. This statement requires the capitalization of internal use
computer software costs provided that certain criteria are met. These
capitalized software costs are amortized on a straight-line basis over the
useful life of the software. The adoption of SOP 98-1 had no material impact
on the Company's consolidated financial position, results of operations or
cash flows.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 June 1999, the FASB issued
SFAS No. 137, which amends SFAS No. 133 by deferring 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.
Year 2000 Readiness Disclosure
Since its inception, CSC has dealt with 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.
The Company has established a two-phase Year 2000 program to ensure that its
proprietary products, computer systems and facilities are Year 2000 ready.
The initial phase, which included planning, inventory and assessment, has been
completed with respect to CSC and all subsidiaries existing as of August 31,
1999. The final phase, which consists of correction, testing, deployment and
acceptance, was substantially completed by October 1, 1999. The very small
percentage of final phase activities not completed by October 1, 1999, is
primarily related to certain clients which have not yet upgraded applications
for which they are responsible, thereby delaying their migration to a Year
2000 ready system, and client approvals of joint Year 2000 contingency plans.
13
Since September 1, 1999, CSC has acquired several information technology
companies. The existing Year 2000 readiness programs of the acquired
companies have been integrated into CSC's program and subjected to the same
progress monitoring and control procedures. All critical Year 2000
remediation tasks for these newly-acquired business operations are expected to
be substantially completed by December 15, 1999.
CSC's Year 2000 program is directed by its Year 2000 Assurance Office, which
monitors progress and coordinates the Company's Year 2000 activities. The
Year 2000 Assurance Office reports directly to the Chairman, President, and
Chief Executive Officer.
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, systems and
infrastructure Year 2000 ready, as well as estimates for contingency planning
and monitoring, including the cost of Company personnel diverted to internal
Year 2000 assignments, will total approximately $49 million, of which $39
million had been incurred as of the end of the second quarter of fiscal 2000.
In addition, the Company currently estimates that related capital expenditures
for fiscal 1999 and 2000 will be approximately $13 million, of which $10
million had been incurred as of the end of the second quarter of fiscal 2000.
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 the second quarter of fiscal 2000, (a) the Company had
completed approximately 92% of all 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 remediation
and testing of approximately 99.8% of all 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. The
Company has identified and replaced any such suppliers that are not or will
not be Year 2000 ready with the exception of minor activities in the Asia
operations and a newly acquired operation in South Africa, both of which will
be completed in December. 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 the second quarter of fiscal 2000,
over 97% 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 and, as appropriate, replacement of the
remaining 3% should be completed by December 1, 1999.
14
In the opinion of the Company's management, the most reasonably likely worst
case scenario includes the possibility that the Company's 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 Year 2000 transition, contingency and crisis
management plans. These plans include the use of exercises and drills with
various relevant scenarios. The plans will be updated in December of 1999
following the conclusion of the second round of exercises and drills in each
business unit to reflect lessons learned. The Company has also established
the infrastructure for a Year 2000 corporate command center and business unit
Year 2000 crisis management centers that will be fully operable beginning
December 1, 1999. The corporate command center will be linked to each
business unit's Year 2000 crisis management center, which in turn will be
connected to internal and client-support help desks.
The discussion above contains forward-looking statements which should be read
in conjunction with the following section.
Forward-Looking Statements
All statements contained in this quarterly 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.
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) competitive pressures;
(ii) the Company's ability to attract and retain key personnel; (iii) changes
in the demand for information technology outsourcing and business process
outsourcing; (iv) changes in the financial condition of the Company's major
commercial customers; (v) changes in U.S. federal government spending levels
for information technology services; (vi) the Company's ability to consummate
strategic acquisitions and alliances; (vii) the future profitability of the
Company's customer contracts; (viii) the Company's ability to continue to
develop and expand its service offerings to address emerging business demand
and technological trends; (ix) general economic conditions in countries in
which the Company does business; and (x) the ability of the Company, its
customers and suppliers to become Year 2000 ready.
15
PART I, ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company's market-risk associated with interest rates
and foreign currencies as of April 2, 1999, see "Quantitative and Qualitative
Disclosures about Market Risk" in the Part II, Item 7A, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," of
the Company's Annual Report on Form 10-K for the fiscal year then ended. For
the six months ended October 1, 1999, there has been no significant change in
related market risk factors.
16
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security-Holders.
a. The Company held its Annual Meeting of Stockholders on August 9, 1999.
b. Proxies for the Annual Meeting were solicited pursuant to Regulation 14
under the Securities Exchange Act of 1934; there were no solicitation in
opposition to management's nominees for director as listed in the Proxy
Statement; and all such nominees were elected.
The directors elected were Irving W. Bailey, II, Stephen L. Baum, Van B.
Honeycutt, William R. Hoover, Leon J. Level, Thomas A. McDonnell, F. Warren
McFarlan, James R. Mellor and William P. Rutledge.
With respect to each nominee, the results of the vote were as follows:
Name Votes For Withheld
---- ------------- ------------
Irving W. Bailey, II 136,649,393 638,089
Stephen L. Baum 136,605,272 682,210
Van B. Honeycutt 136,645,317 642,165
William R. Hoover 136,644,424 643,058
Leon J. Level 136,646,531 640,951
Thomas A. McDonnell 136,610,590 676,892
F. Warren McFarlan 136,650,253 637,229
James R. Mellor 136,454,814 832,668
William P. Rutledge 136,642,702 644,780
17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Restated Articles of Incorporation, effective
October 31, 1988 (c)
3.2 Amendment to Restated Articles of Incorporation,
effective August 10, 1992 (i)
3.3 Amendment to Restated Articles of Incorporation,
effective July 31, 1996 (k)
3.4 Certificate of Amendment of Certificate of Designations
of Series A Junior Participating Preferred Stock,
effective August 1, 1996 (m)
3.5 Bylaws, amended and restated effective May 4, 1998 (f)
10.1 1978 Stock Option Plan, amended and restated
effective March 31, 1988* (l)
10.2 1980 Stock Option Plan, amended and restated
effective March 31, 1988* (l)
10.3 1984 Stock Option Plan, amended and restated
effective March 31, 1988* (l)
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* (o)
10.8 Schedule to the 1992 Stock Incentive Plan for
United Kingdom personnel* (n)
10.9 1995 Stock Incentive Plan* (j)
10.10 1998 Stock Incentive Plan* (s)
10.11 Form of Stock Option Agreement* (r)
10.12 Form of Restricted Stock Agreement* (r)
10.13 Annual Management Incentive Plan, effective April 2, 1983* (a)
10.14 Supplemental Executive Retirement Plan, amended and
restated effective February 27, 1998* (r)
10.15 Deferred Compensation Plan, amended and restated
effective February 2, 1998* (p)
10.16 Severance Plan for Senior Management and Key Employees,
amended and restated effective February 18, 1998 (q)
10.17 Severance Agreement with Van B. Honeycutt, effective
February 2, 1998* (p)
10.18 Employment Agreement with Van B. Honeycutt, effective
May 1, 1999* (g)
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 (o)
10.22 Form of Restricted Stock Unit Agreement (f)
10.23 1990 Nonemployee Director Retirement Plan, amended
and restated effective February 2, 1998 (p)
18
10.24 Rights Agreement dated February 18, 1998 (q)
10.25 $250 million Credit Agreement (Long Term Facility) dated
as of August 20, 1999
10.26 $250 million Credit Agreement (Short Term Facility) dated
as of August 20, 1999
27 Financial Data Schedule
28 Revenues by Market Sector
99.1 Annual Report on Form 11-K for the Matched Asset Plan of the
Registrant for the fiscal year ended December 31, 1998 (g)
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 (g)
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 (g)
19
Notes to Exhibit Index:
*Management contract or compensatory plan or agreement
(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:
(a) March 30, 1984 (e) March 31, 1995
(b) April 1, 1988 (f) April 3, 1998
(c) March 31, 1989 (g) April 2, 1999
(d) April 3, 1992
(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 Proxy
Statement for its August 10, 1992 Annual Meeting of Stockholders.
(j) Incorporated herein by reference to the Registrant's Quarterly
Report on Form 10-Q filed on November 13, 1995.
(k) Incorporated herein by reference to the Registrant's Proxy
Statement for its July 31, 1996 Annual Meeting of Stockholders.
(l) Incorporated herein by reference to the Registrant's Quarterly
Report on Form 10-Q filed on August 12, 1996.
(m) Incorporated herein by reference to the Registrant's Current
Report of Form 8-K dated August 1, 1996.
(n) Incorporated herein by reference to the Registrant's Quarterly
Report on Form 10-Q filed on February 10, 1997.
(o) Incorporated herein by reference to the Registrant's Proxy
Statement for its August 11, 1997 Annual Meeting of Stockholders.
(p) Incorporated herein by reference to the Registrant's Quarterly
Report on Form 10-Q filed on February 9, 1998.
(q) Incorporated herein by reference to the Registrant's
Registration Statement on Form 8-A filed on February 25, 1998
(r) Incorporated herein by reference to Amendment No. 2 to the
Registrant's Solicitation/Recommendation Statement on Schedule
14D-9 filed on March 2, 1998.
(s) 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 was one report on Form 8-K filed during the second quarter of fiscal
2000. On September 20, 1999, the Registrant filed a Current Report on
Form 8-K reporting that it had entered into an Agreement and Plan of Merger
with its wholly owned subsidiary, Nevada Acquisition Corporation, and Nichols
Research Corporation.
20
SIGNATURES
Pursuant to the requirements 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
Date: November 15, 1999 By: /s/ Scott M. Delanty
-----------------------------
Scott M. Delanty
Vice President and Controller
Chief Accounting Officer
21
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.25 $250 million Credit Agreement (Long Term Facility) dated as of
August 20, 1999
10.26 $250 million Credit Agreement (Short Term Facility) dated as of
August 20, 1999
27 Financial Data Schedule
28 Revenues by Market Sector
22