ITEM 1. BUSINESS
Principal Services Rendered - ---------------------------
Computer Data Systems, Inc. (the "Corporation"), was incorporated in the State of Maryland in 1968. The Corporation provides information technology services and products including system integration, software engineering/re- engineering, development and maintenance, data base support, data center management and processing services, and telecommunications engineering. The Corporation's products include CASE tools as well as financial and accounting, debt management, loan and mortgage processing, and biometric identification systems. The Corporation's 3,200 employees serve a wide array of government and private industry customers with information technology expertise, systems, and products. The Corporation provides information technology solutions on more than 100 current contracts from 23 office locations.
The Corporation's operations are concentrated in two business segments. In 1996, the Corporation reorganized these business segments into two unincorporated operating companies, CDSI Information Technology Solutions Company (CDSI ITS) and CDSI Business Applications Solutions Company (CDSI BAS). Information with respect to such business segments may be found in Note 9 to the Corporation's Consolidated Financial Statements.
Of these business segments, the larger CDSI ITS (formerly Professional Services Group) primarily markets its expertise in software programming and network engineering to those federal government agencies that demand highly technical information technology solutions. CDSI ITS applies proven information technology to design, implement, and operate data center facilities, networks, imaging systems, interactive databases, automated biometric identification tools, and information management and reporting systems.
CDSI BAS (formerly Data Processing Support Services Group) provides financial systems and services to include debt collection, pension trust fund support, loan processing, cash management, mortgage servicing, and fulfillment systems and services. In addition, CDSI BAS markets the Corporation's proprietary software packages and CASE re-engineering tools. The suite of CASE tools enhances the development and maintenance of COBOL programs and increases operational reliability and maintainability. CDSI BAS also operates a modern data center, which services the information processing requirements, both mainframe and client-server, of numerous federal and commercial clients. Data center services include the full range of associated technical support: LAN administration, system and data security, data integrity, user training, office automation support, hotline support, and courier services.
Recent awards include new contracts with the Lockheed Martin Corporation, the Department of Transportation and the Federal Communications Commission and subcontract work for Systems Research and Applications Corporation. The Corporation also received two contracts for its i.e.FARS system with the Department of Education and the Export Import Bank of the United States. In addition, the Corporation was awarded a contract to continue to provide facilities management support with the General Services Administration Information Technology Service. The contract, covering over 900 current employees, is for one year with four one year options and has a total estimated value of $200 million through September 2001.
In March 1995, the Corporation's Argentine subsidiary along with the prime contractor NetStar S.A., was awarded a contract with the Banco Social de Cordoba to automate the state-owned Quiniela lottery. However, after successfully completing acceptance testing on the prototype and investing $11 million in hardware and software development in the contract, a decree was issued by the outgoing Governor of Cordoba on his last day in office effectively cancelling all work on the contract and reopening the bidding process from the initial receipt of proposals. In July 1996, the contract was reinstated. The Corporation is currently beginning the implementation schedule.
Most contracts are awarded on the basis of competitive bidding, and are generally structured as time-and-materials, cost-plus-fixed-fee, fixed- price, or unit-price contracts. Such contracts include specific objectives and performance periods ranging upwards of several years.
Under time-and-materials contracts, the Corporation receives a fixed hourly rate intended to cover salary costs attributable to work performed under the contract, including related expenses and a specified profit margin. Under cost-plus-fixed-fee contracts, the Corporation is reimbursed for allowable costs and is paid a negotiated fee. Under fixed-priced and unit-priced contracts, the Corporation bears the risk of increased or unexpected costs and benefits if its costs are lower than estimated. Key factors in the award of such contracts have been technical expertise, past performance, and pricing.
Market and Competition - ----------------------
A substantial number of companies offer information technology services and products that overlap and are competitive with those offered by the Corporation. These include: (1) companies that offer one or more information technology services as a main line of their business; (2) computer manufacturers who offer the same information technology services as adjunct technical support for their equipment or as separate functions; and (3) companies primarily engaged in other businesses that also outsource their information technology facilities, services and expertise.
The Corporation has many competitors in each of the areas in which it does business. Some of its competitors are large, diversified firms having substantially greater financial resources and larger technical staffs than the Corporation. The primary competitive factors in the market are technical qualifications, management performance, and price. Greater emphasis on value rather than simply price considerations has been noted in recent contract awards.
While the federal market for the Corporation's services is projected to grow 5-8% annually, increasing federal regulation, continuing competition for qualified technical personnel, and narrow profit margins are characteristic of this highly competitive industry. In recent years, the trend toward consolidation of existing contracts and an emphasis on fixed-price contracts has grown. Economic uncertainty and federal budget pressures continued to affect the marketplace in 1996.
Dependence on Government Contracts - ----------------------------------
The Corporation's business with the federal government is subject to various risks, including the reduction or modification of contracts due to changing government needs and requirements. The Corporation's contracts are not subject to renegotiation of profits. In the event of termination for convenience, the Corporation would be reimbursed for the costs of terminating the contract.
In fiscal year 1996, CDSI ITS sales to the General Services Administration were $93,249,900 (37%) and CDSI BAS sales to the Department of Education were $67,376,900 (27%). In fiscal year 1995, CDSI ITS sales to the General Services Administration and the Department of Energy were $89,117,600 (40%) and $46,160,400 (21%) respectively. CDSI BAS revenues from the Department of Education were $25,642,500 (12%) in fiscal year 1995. In fiscal year 1994, CDSI ITS sales to the General Services Administration and Department of Energy were $82,837,900 (40%) and $48,491,600 (24%), respectively.
Backlog - -------
As of June 30, 1996, the Corporation had a funded backlog of approximately $161,073,400 compared to $179,998,200 as of June 30, 1995. The Corporation expects that virtually all of the backlog will be fulfilled during the current fiscal year. Most contracts are subject to termination at the convenience of the government client.
Other Matters - -------------
The Corporation is not materially dependent upon any raw materials for its products and holds no material patents, licenses, or franchises. However, the Corporation offers for license its proprietary software products: Information Engineered Financial Accounting and Reporting System (i.e.FARS(TM)); Debt Management and Collection System (DMCS); Cash Management System (CMS); Automated Biometric Identification System (ABIDS(TM)); Executive Information Management System (Executive Touch(TM)) and a suite of re-engineering tools including SCAN/COBOL, SUPERSTRUCTURE(R), RETOOL(C), COBOL-METRICS, and SLEUTH.
The Corporation does not experience any seasonal variations in its levels of operations, and neither the Corporation nor its subsidiaries currently have any significant foreign operations.
ITEM 2.

ITEM 2. PROPERTIES
The Corporation owns its corporate headquarters building at One Curie Court, Rockville, Maryland. The 130,000 square foot facility is used by both business segments.
The Corporation is a partner in a general partnership which owns a 25,000 square foot office building in California, Maryland. The building has been leased to a tenant through September 1998.
In connection with certain professional services contracts, the Corporation leases general office space in the following locations: Huntsville and Montgomery, Alabama; Rosslyn, Virginia; Atlanta, Georgia; Fort Worth and San Antonio, Texas; Beavercreek, Ohio; Mt. Prospect, Illinois; Vicksburg, Mississippi; Pensacola, Florida; Kansas City, Kansas; St. Louis, Missouri; Denver, Aurora and Fort Collins, Colorado; Bedford, Indiana; New Orleans, Louisiana; Cambridge Massachusetts; Cary, North Carolina; and Midwest City, Oklahoma. The leases provide space ranging from 500 to 35,000 square feet and annual extension options concurrent with the Corporation's current contract performance periods.
In the opinion of management, the Corporation's current space is adequate for its operating needs.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Corporation is party to various legal proceedings arising in the normal course of its business. Management of the Corporation does not believe that the outcome of any of these proceedings will have a material adverse effect on the Corporation.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's common stock, par value $.10 per share ("Common Stock") is publicly traded on the Nasdaq Stock Market ("Nasdaq") and is quoted under the symbol "CDSI."
As of September 3, 1996, there were 678 record holders of Common Stock. The number of record holders was determined from the records of the Corporation's transfer agent and does not include beneficial owners of Common Stock whose shares are held in the names of various securities brokers, dealers and registered clearing agencies. The Corporation estimates that there are approximately 3,000 stockholders.
The following table sets forth the high and low sales prices on the Nasdaq for the Common Stock and dividends per share paid for fiscal years 1995 and 1996.
The Corporation has paid semi-annual dividends since 1976. The payment and amount of any future dividends will necessarily depend upon the existing conditions, including the Corporation's earnings, financial condition, working capital requirements, and other factors.
ITEM 6.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1996 Compared With 1995 - -----------------------
Revenues in fiscal year 1996 increased approximately 14% from 1995. The increase resulted primarily from the CDSI BAS (formerly Data Processing Support Services) Department of Education contract. CDSI BAS revenues grew 95% primarily as a result of $42 million growth in the Department of Education contract. The expiration of a large CDSI ITS (formerly Professional Services) contract during 1995 and the reduced scope on the Department of Energy contract partially offset the increase in revenues. In fiscal year 1996, CDSI ITS accounted for 65% of consolidated revenues and 60% of income from operations. CDSI BAS accounted for 35% of consolidated revenues and 40% of income from operations for the year.
Costs and expenses increased approximately 13%. Costs which contributed to the increase in expenses included a significant increase in subcontractor costs primarily related to our Department of Education contract, investments in software for the Corporation's internal systems, and continued emphasis on marketing initiatives.
Income from operations was $15,730,100 compared to $12,763,200 in the prior period. Operating margins increased to 6.3% from 5.7%. Margins increased principally as a result of higher volume levels on contracts in both segments. Concurrent with the higher revenue volumes, reductions in i.e.FARS proprietary development costs, proposal protest costs, and proposal costs related to the Argentina gaming contract aided the margin improvement.
Interest and other income, net decreased by $152,000 due to higher investment gains more than offset by increased interest expense arising from larger borrowing under the Corporation's line of credit for equipment commitments on the Argentina contract and accounts receivable growth.
The provision for income taxes increased due to higher operating income before income taxes.
Net income increased by $1,718,300 due to improved operating results.
1995 Compared With 1994 - -----------------------
Revenues in fiscal year 1995 increased approximately 7% from 1994. The increase resulted primarily from the Data Processing Support Services Group's Department of Education contract and growth on several contracts in the Professional Services Group. Data Processing Support Services Group revenues grew 70% primarily as a result of $14 million growth in the Department of Education contract. The expiration of two large Professional Services Group contracts during 1994 and the reduced contract scope resulting from the settlement of the Department of Energy contract protest partially offset the increase in revenues. In fiscal year 1995, Professional Services accounted for 80% of consolidated revenues and 89% of income from operations. Data Processing Support Services accounted for 20% of consolidated revenues and 11% of income from operations for the year.
Costs and expenses increased at approximately the same rate as the growth in revenues. Costs which contributed to the increase in expenses included corporate investments in software development, marketing initiatives, and continuing development of Centers of Expertise. Increases in expenses were mitigated by cost reduction efforts which included reduced interest expense resulting from the repayment of the note payable ($370,600) and operating efficiencies realized on the expanding contract base.
Income from operations was $12,763,200 compared to $12,216,800 in the prior period. Operating margins decreased to 5.7% from 5.9%. Lower margins in the initial phases of new contracts in the Data Processing Support Services Group and the corporate investments noted above contributed to the decline in operating margins.
Interest and other income, net increased by $129,600, principally due to a $115,000 gain on the unwinding of an interest rate swap associated with the note payable, prepaid in September 1994.
The provision for income taxes increased due to higher operating income before income taxes and an increase from 38.2% to 38.9% in federal and state tax rates.
Net income increased by $321,500 due to improved operating results.
1994 Compared With 1993 - -----------------------
Revenues in fiscal year 1994 increased approximately 14% from 1993. The increase resulted primarily from new contracts in the Professional Services and Data Processing Support Services Groups and increased funding on several major contracts in the Professional Services Group. The increase was tempered by the loss of the General Services Administration Eastern Zone contract ($12 million annual revenues), which expired in March 1994. Data Processing Support Services Group revenues grew 45% as the new Department of Education contract more than offset reduced licensing and mainframe processing services. In fiscal year 1994, Professional Services accounted for 87% of consolidated revenues and 85% of income from operations. Data Processing Support Services accounted for 13% of consolidated revenues and 15% of income from operations for the year.
Costs and expenses increased approximately 12%, a lower rate than the increase in revenues. This resulted from operating efficiencies realized as the Corporation's business base expanded, higher margins on new contracts replacing previous contracts, and a $732,100 savings in interest expense charged to other general and administrative expenses due to the April 1993 refinancing of the headquarters building mortgage. The positive effects were offset in part by increased bid and proposal expenses, legal costs associated with the Department of Energy bid protest, and software development costs of $600,000.
Income from operations was $12,216,800 compared to $8,712,700 in the prior period. Operating margins improved to 5.9% from 4.8%. The improvement is attributable to higher margins on new contracts and operating efficiencies.
Interest and other income, net increased by $219,400 due to higher available investment balances, reduced line of credit borrowings, and investment gains.
The provision for income taxes increased due to higher operating income and higher federal and state tax rates.
Net income increased by $2,222,000 due to the improved operating results.
Liquidity - ---------
The Corporation's working capital increased by $3,952,900 to $29,966,700 at June 30, 1996. The increase was attributable to net income retained after dividends paid of $633,000 offset by capital expenditures of approximately $9.7 million including $4.7 million for the Argentina contract. As the Corporation bids larger, more complex contracts in both the government and commercial markets, capital expenditures may be required that are not directly reimbursable. Such commitments and other working capital requirements are expected to be met with internally generated funds. In addition, the Corporation has $22 million available its bank line of credit facilities.
Increased win rates on contract proposals are an integral part of the Corporation's long-term growth. The Corporation is continuing to invest in its business development, marketing, and proposal resources.
Capital Resources - -----------------
Capital expenditures in fiscal year 1996 were approximately $9,700,000 for data processing equipment and software and were funded internally. Capital expenditures in fiscal year 1997 are expected to approximate $4,000,000 and are anticipated to be funded from internally generated working capital and existing credit facilities. However, in the event the Corporation engages in any merger or acquisition activities, the additional capital that may be required will be funded from external sources.
Impact of Recently Issued Accounting Standards - ----------------------------------------------
In March 1995, the FASB issued Statement No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assests that are expected to be disposed of. The Corporation will adopt Statement 121 in the first quarter of Fiscal Year 1997 and, based on current circumstances, does not believe the effect of adoption will be material.
Effects of Inflation - --------------------
The majority of the Corporation's contracts provide for annual adjustments on prices. Increases in revenues are primarily the result of increased levels of service and product sales rather than price increases.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page
Report of Independent Auditors
Consolidated Statements of Operations for the years ended June 30, 1996, 1995 and 1994
Consolidated Balance Sheets as of June 30, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity for the years ended June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements for the years ended June 30, 1996, 1995 and 1994
Report of Independent Auditors
To the Board of Directors and Stockholders of Computer Data Systems, Inc.
We have audited the accompanying consolidated balance sheets of Computer Data Systems, Inc. and subsidiaries, as of June 30, 1996 and 1995 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the Corporation'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 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, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Computer Data Systems, Inc. and subsidiaries at June 30, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Washington, D.C. July 26, 1996
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996, 1995, and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include the accounts of Computer Data Systems, Inc. and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Revenue Recognition. Revenues on time and material contracts are recorded at the contractual rates as the labor hours and direct expenses are incurred. Revenues on cost-type contracts are recorded as reimbursable costs are incurred. Revenues on fixed-price contracts are recorded on the percentage of completion basis, determined by the ratio of total incurred costs to anticipated total costs of the project. Revenues on unit-price contracts are recorded at contractual selling prices of work completed and accepted by the customer. Contract award fees are recorded based on estimated current performance levels and historical experience. Revenues on equipment and software sales are recorded when the units are delivered and installed. Immediate recognition is made of any anticipated losses.
Depreciation and Amortization. Furniture, computer equipment and software, and leasehold improvements are recorded at cost and are depreciated over their estimated useful lives on the straight-line basis. Building and improvements are depreciated over a useful life of forty years. The useful lives of furniture and equipment range from five to ten years.
Investments. Deferred annuity contracts included in long-term investments are carried at cost plus accrued interest, which approximates fair market value.
Income Taxes. The Corporation computes deferred income taxes under the liability method. Deferred taxes are based on timing differences between financial statement and income tax purposes, using the enacted tax rates in effect during the years in which the differences are expected to reverse. Net Income Per Common Share. Net income per share of common stock is based on the weighted average number of common and common stock equivalent shares outstanding during each year. Common stock equivalent shares include the number of shares issuable upon exercise of outstanding stock options, reduced by the number of shares that could have been repurchased with the proceeds of such options.
Statements of Cash Flows. For purposes of the statements of cash flows, the Corporation considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Reclassifications. Certain reclassifications have been made to prior year amounts to conform to current year classifications. Stock Based Compensation. During 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." While SFAS No. 123 established financial accounting and reporting standards for stock-based employee compensation plans using a fair value method of accounting, it allows companies to continue to measure compensation costs for those plans using the intrinsic value method of accounting prescribed in Accounting Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees." As permitted by SFAS No. 123, the Corporation will not change its method of accounting for stock options but will provide the additional required disclosures beginning in fiscal 1997.
Use of Estimates. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions, in particular estimates of anticpated contract costs and revenues utilized in the earnings recognition process, that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates.
2. ACCOUNTS RECEIVABLE Trade accounts receivable contain no allowance for doubtful accounts. The components of trade accounts receivable are as follows:
To the extent not billable at June 30, 1996 and 1995, unbilled costs and accrued profits above are billable upon delivery or acceptance of services, upon receipt of contract funding, or upon contract completion. Of the above unbilled costs and accrued profits at June 30, 1996, approximately $1,562,800 are not expected to be billed and collected within one year.
3. LAND, BUILDING, AND EQUIPMENT
4. OTHER ASSETS The Corporation maintains a program to provide senior executives with additional life insurance coverage, supplementing the coverage available under the Corporation's group insurance plan. Under the program, officers participate with the Corporation in the payment of premiums. The Corporation has an interest in such policies to the extent of its accumulated premium payments.
5. LINE OF CREDIT The Corporation has an $8 million, three-year revolving credit and a $14 million demand facility. Interest rates on these unsecured facilities are at LIBOR plus 110-120 basis points. Interest expense on the Corporation's line of credit facilities was $185,400, $1,600, and $3,200 in 1996, 1995, and 1994 respectively. Such interest expense is included in the interest and other income, net.
6. STOCK OPTIONS The Corporation has granted incentive and non-qualified stock options to certain employees and non-employee directors under the 1982 plan, which expired in 1992. The employee options are exercisable in cumulative annual installments after one year and before the end of the fourth year from date of grant. The non-employee director options become exercisable in annual installments over a five-year period. At June 30, 1996, there are no options available to purchase shares.
The following table summarizes the changes in the number of common shares under the 1982 option plan during fiscal years 1996, 1995, and 1994.
In November 1991, the stockholders approved a long-term incentive plan that provides for the granting of incentive awards to various employees and officers of the Corporation. The plan also provides for the annual grant of non- qualified options for 1,500 shares to each of the non-employee directors. The employee options are exercisable in cumulative annual installments after one year and before the end of the fifth year. The non-employee directors' options are fully exercisable one year after grant and before the end of the fifth year. At June 30, 1996, options to purchase 166,017 shares are exercisable. The following table summarizes the changes in the number of common shares under the 1991 option plan during fiscal years 1996, 1995, and 1994.
Proceeds from the exercise of options are credited to the capital accounts in the year the options are exercised. The Corporation received 28,564, 14,077, and 41,676 shares in payment for the exercise of 104,168, 31,200, and 61,200 shares under option during the years ended June 30, 1996, 1995, and 1994, respectively.
7. EMPLOYEE INCENTIVE PLANS The Corporation has incentive compensation plans for officers and certain key employees. The incentive compensation plans' formulas are reviewed and approved annually by the Board of Directors. Operations were charged $2,742,200, $2,546,600, and $2,496,600 to fund the incentive compensation plans for the years ended June 30, 1996, 1995, and 1994, respectively. Under the terms of the incentive compensation plans, officers may elect to defer payment of all or a portion of the amount awarded under the plan until retirement or termination of employment with the Corporation. The deferred amounts earn interest, compounded quarterly at the greater of the current 13-week Treasury bill rate effective the beginning of each quarter, or 7%.
The Corporation has defined contribution retirement plans for eligible employees. Contributions to the plans are discretionary as determined by the Board of Directors. Operations were charged $2,079,300, $1,974,500 and $2,083,300 to fund the plans in 1996, 1995, and 1994, respectively. Under terms of the plans, contributions for the benefit of certain long-term employees are made to a non-qualified supplemental deferred retirement account.
8. PROVISION FOR INCOME TAXES The income tax provision is summarized as follows:
The difference between the tax provision and the amount computed by applying the federal statutory income tax rate to income before income taxes is as follows:
Deferred tax assets and liabilities on the balance sheets reflect the net tax effect of temporary differences between carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. The Corporation believes a valuation allowance is not required.
The components of the Corporation's deferred tax assets and liabilities at June 30, 1996 and 1995 are as follows:
9. BUSINESS SEGMENT INFORMATION The Corporation operates in two business segments: CDSI ITS (formerly Professional Services) and CDSI BAS (formerly Data Processing Support Services). CDSI ITS encompass consulting, systems development, and programming. CDSI BAS includes a variety of activities primarily concerned with the processing of data for customers who require computer-based support services and equipment and software sales. Services range from the complete processing and preparation of reports from data supplied by customers, including related programming support, to individual specialized services such as data entry.
Financial information by business segment for the years ended June 30 is summarized as follows:
For the years ended June 30, 1996, 1995, and 1994, substantially all CDSI ITS revenues and 93%, 89%, and 81%, respectively, of CDSI BAS revenues were derived from federal government agencies. CDSI ITS revenues from one government agency under various contracts were $93,249,900 in 1996. CDSI BAS revenues from one government agency were $67,376,900 in 1996. CDSI ITS revenues from two government agencies under various contracts were $89,117,600 and $46,460,400 in 1995. CDSI BAS revenues from one government agency were $25,642,500 in 1995. CDSI ITS revenue from two government agencies under various contracts were $82,837,900 and $48,491,600 in 1994. No other customers account for 10% or more of total revenues. Intersegment revenues represent primarily unit price costs billed for general corporate purposes.
10. COMMITMENTS AND CONTINGENCIES The Corporation leases office and warehouse space and equipment under agreements that provide for minimum aggregate rentals through 1999 as follows:
Fiscal Year Minimum Aggregate Rentals ----------- ------------------------- 1997 $ 690,800 1998 214,900 1999 6,100
In addition, the office space leases provide for escalation and pass-through of increases in operating expenses and renewal options.
Government contracts are subject to review and audit by various governmental authorities in the normal course of the Corporation's business. Cost audits have been completed through fiscal 1993. In management's opinion, any such reviews and the results of cost audits for subsequent fiscal years will not have a material effect on the Corporation's financial position or results of operations.
The Corporation is a party to various legal proceedings arising in the normal course of business. Management believes that the outcome of these proceedings will not have a material adverse effect on the Corporation.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information called for by this Item is set forth under the captions "Item 1: Election of Directors," "Executive Officers," and "Other Matters" in the Corporation's definitive proxy statement filed pursuant to Regulation 14A, which information is hereby incorporated by reference and made a part hereof.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Information called for by this Item is set forth under the captions "Compensation of Directors," "Summary Compensation Table," "Options Grants in Last Fiscal Year," "Aggregate Option Exercises in Last Fiscal Year and Year-End Option Values," and "Five-Year Stockholder Return Comparison" in the Corporation's definitive proxy statement filed pursuant to Regulation 14A, which information is hereby incorporated by reference and made a part hereof.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT
Information called for by this Item is set forth under the captions "Information With Respect to Certain Stockholders" and "Securities Ownership of Directors and Executive Officers" in the Corporation's definitive proxy statement filed pursuant to Regulation 14A, which information is hereby incorporated by reference and made a part hereof.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements
Data submitted herewith under Item 8:
Consolidated Statements of Operations for the years ended June 30, 1996, 1995 and 1994
Consolidated Balance Sheets as of June 30, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity for the years ended June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements for the years ended June 30, 1996, 1995 and 1994
Schedules otherwise required to be listed under Item 14(d) are inapplicable and therefore have been omitted.
(b) Reports on Form 8-K
On April 11, 1996, the Corporation filed a current Report on Form 8- K pursuant to the Item 5 thereof, reporting that Peter A. Bracken would join the Corporation as President and Chief Executive Officer effective May 13, 1996.
On June 14, 1996, the Corporation field a current Report on Form 8-K pursuant to Item 5 thereof, reporting (i) a reorganization of the Corporation's businesses into two unincorporated divisions (CDSI Information Technology Solutions Company and CDSI Business Applications Solutions Company); and (ii) the reaward of the Corporation's contract with the General Services Administration Southeast Sunbelt and Great Lakes Regions.
(c) Exhibits
3.1 Restated Articles of Incorporation of the Corporation, as amended, included as an exhibit to the Corporation's Form 10-Q Quarterly Report for the three months ended December 31, 1988 filed February 14, 1989 are incorporated herein by reference.
3.2 By-laws of the Corporation, as amended, included as an exhibit to the Corporation's Form 10-K Annual Report for the fiscal year ended June 30, 1988 filed September 14, 1988 are incorporated herein by reference.
10.1 Certificate of Limited Partnership and Limited Partnership Agreement - M/GA Fields Roads Limited Partnership included as an exhibit on Form 8 to Form 10-K filed March 1, 1989 are incorporated herein by reference.
10.2 1982 Incentive Stock Option Plan, as amended and restated, which appears as Exhibit A to the Prospectus in Registration Statement No. 33-27300 is incorporated herein by reference.
10.3 1991 Long-Term Incentive Plan, as amended and restated as of July 12, 1994, included as an exhibit to the Corporation's Form 10-K Annual Report for the fiscal year ended June 30, 1994, filed September 28, 1994, is incorporated herein by reference.
10.4 Incentive Compensation Plan, restated as of July 1, 1994, included as an exhibit to the Corporation's Form 10-K Annual Report for the fiscal year ended June 30, 1994, filed September 28, 1994, is incorporated herein by reference.
10.5 U.S. Department of Education Contract No. PM94017001 (portions of which are subject to an Order for Confidential Treatment pursuant to Rule 24b-2) included as an exhibit to the Form 10-Q/A filed August 24, 1994 is incorporated herein by reference.
*10.6 Letter agreement dated April 9, 1996 between the Corporation and Gordon S. Glenn.
*11 Statement re: Computation of Per Share Earnings.
*13 1996 Definitive Proxy Materials of the Corporation (portions of which are incorporated herein by reference).
*21 Significant Subsidiaries of the Corporation.
*23 Consent of Ernst & Young LLP, Independent Auditors.
*27 Financial Data Schedule.
___________________
* = Filed herewith.
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, in Rockville, Maryland on September 27, 1996.
Computer Data Systems, Inc.
By /s/ Peter A. Bracken -------------------- Peter A. Bracken President and Chief Executive Officer (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
EXHIBIT INDEX
Page Number
10.6 Letter Agreement dated April 9, 1996 between the Corporation and Gordon S. Glenn.
11 Statement re: Computation of Per Share Earnings.
13 1996 Definitive Proxy Materials of the Corporation (portions of which are incorporated by reference).
21 Significant Subsidiaries of the Corporation.
23 Consent of Ernst & Young LLP, Independent Auditors.
27 Financial Data Schedule.


Item 1. Business
General Description of Partnership
Swift Energy Pension Partners 1995-B, Ltd., a Texas limited partnership (the "Partnership" or the "Registrant"), is a partnership formed under a public serial limited partnership offering denominated Swift Depositary Interests I (Registration Statement No. 33-37983 on Form S-1, originally declared effective March 19, 1991, and amended effective May 1, 1992, April 1, 1993, April 19, 1994 and May 9, 1995 [the "Registration Statement"]). The Partnership was formed effective December 14, 1995 under a Limited Partnership Agreement dated December 14, 1995. The initial 272 investors made capital contributions of $2,866,912. Investors in the Partnership hold Swift Depositary Interests ("SDIs") representing beneficial ownership interests in the Partnership.
The Partnership is principally engaged in the business of acquiring nonoperating interests (i.e., net profits interests, royalty interests and overriding royalty interests) in proven oil and gas properties within the continental United States. The Partnership does not acquire working interests in or operate oil and gas properties, and does not engage in drilling activities. At December 31, 1996, the Partnership had expended or committed to expend 74% of the Interest Holders' commitments in the acquisition and development of nonoperating interests in producing properties, which properties are described under Item 2, "Nonoperating Interests in Properties," below. The Partnership's income is derived almost entirely from its nonoperating interests and the disposition thereof.
The Partnership's business and affairs are conducted by its Managing General Partner, Swift Energy Company, a Texas corporation ("Swift"). The Partnership's Special General Partner, VJM Corporation, a California corporation ("VJM"), consults with and advises Swift as to certain financial matters.
The general manner in which the Partnership acquires nonoperating interests and otherwise conducts its business is described in detail in the Registration Statement under "Proposed Activities of the Partnerships," which is incorporated herein by reference. The following is intended only as a summary of the Partnership's manner of doing business and specific activities to date.
Manner of Acquiring Nonoperating Interests in Properties; Net Profits and Overriding Royalty Interest Agreement
The nonoperating interests owned by the Registrant have typically been acquired pursuant to a Net Profits and Overriding Royalty Interest Agreement dated December 14, 1995 (the "NP/OR Agreement") between the Registrant and Swift Energy Operating Partners 1995-B, Ltd. (the "Operating Partnership"). The Operating Partnership is a Texas limited partnership that is also managed by Swift and VJM. The Operating Partnership was formed to acquire and develop producing oil and gas properties.
Under the NP/OR Agreement, the Registrant and the Operating Partnership have, in effect, combined their funds to acquire producing properties. Using funds committed to the NP/OR Agreement by both partnerships, the Operating Partnership acquires producing properties, then promptly conveys nonoperating interests therein to the Registrant. The Operating Partnership retains a working interest in each such property, and is responsible for the production of oil and gas therefrom. For the sake of legal and administrative convenience, producing properties are usually acquired from the third party sellers by Swift, which then conveys a working interest in each such property to the Operating Partnership. The Registrant initially committed $2,866,912 and the Operating Partnership initially committed $2,500,000 for acquisitions under the NP/OR Agreement. The Operating Partnership is obligated under the NP/OR Agreement to convey to the Registrant a 53% fixed net profits interest and a variable overriding royalty interest in specified depths of all producing properties acquired under the NP/OR Agreement.
Under the NP/OR Agreement, the Operating Partnership is required to convey to the Registrant, and the Registrant is required to purchase, nonoperating interests in all producing properties acquired by the Operating Partnership, except that:
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD.
1. properties anticipated to require significant development operations and nonoperating interests offered to the Operating Partnership by third parties may be purchased by the Operating Partnership outside the NP/OR Agreement, without participation by the Registrant;
2. during a specified one-year period, the Registrant is entitled to reduce the amount originally committed by it to purchases under the NP/OR Agreement and to redirect such funds to the purchase of nonoperating interests from sources other than the Operating Partnership; and
3. the Registrant's funds will be released from the NP/OR Agreement if they are not completely spent by the Operating Partnership within a specified period, or if there is a prior withdrawal of funds by the Operating Partnership to purchase properties anticipated to require significant development.
Purchases of nonoperating interests by the Registrant using withdrawn or released funds may be made from the Managing General Partner and its affiliates, other partnerships affiliated with the Operating Partnership (possibly through the Registrant's entry into a new NP/OR Agreement), or from unaffiliated third parties.
In accordance with its obligations under the NP/OR Agreement, as of December 31, 1996 the Operating Partnership had conveyed to the Registrant a 53% net profits interest burdening certain depths of all producing properties acquired by the Operating Partnership thereunder. Typically, a net profits interest in an oil and gas property entitles the owner to a specified percentage share of the gross proceeds generated by the burdened property, net of operating costs. The net profits interest conveyed to the Registrant under the NP/OR Agreement differs from the typical net profits interest in that it is calculated over the entire group of producing properties conveyed under the NP/OR Agreement; i.e., all operating costs attributable to the burdened depths of such properties are aggregated, and the total is then subtracted from the total of all gross proceeds attributable to such depths in order to calculate the net profits to which the Registrant is entitled. The net profits interest conveyed to the Registrant burdens only those depths of each subject property which were evaluated to contain proved reserves at the date of acquisition, to the extent such depths underlie specified surface acreage.
The Operating Partnership has also conveyed to the Registrant under the NP/OR Agreement an overriding royalty interest in each property acquired thereunder. An overriding royalty interest is a fractional interest in the gross production (or the gross proceeds therefrom) of oil and gas from a property, free of any exploration, development, operation or maintenance expenses. Under the NP/OR Agreement, the overriding royalty interest burdens the portions of each producing property that were evaluated at the date of acquisition not to contain proved reserves.
Competition, Markets and Regulations
Competition
The oil and gas industry is highly competitive in all its phases. The Partnership encounters strong competition from many other oil and gas producers, many of which possess substantial financial resources, in acquiring economically desirable Producing Properties.
Markets
The amounts of and price obtainable for oil and gas production from Partnership Properties will be affected by market factors beyond the control of the Partnership. Such factors include the extent of domestic production, the level of imports of foreign oil and gas, the general level of market demand on a regional, national and worldwide basis, domestic and foreign economic conditions that determine levels of industrial production, political events in foreign oil-producing regions, and variations in governmental regulations and tax laws and the imposition of new governmental requirements upon the oil and gas industry. There can be no assurance that oil and gas prices will not decrease in the future, thereby decreasing net Revenues from Partnership Properties.
From time to time, there may exist a surplus of natural gas or oil supplies, the effect of which may be to reduce the amount of hydrocarbons that the Partnerships may produce and sell while such oversupply exists. In recent years, initial steps have been taken to provide additional gas transportation lines from Canada to the United States. If additional Canadian gas is brought to the United States market, it could create downward pressure on United States gas prices.
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Regulations
Environmental Regulation
The federal government and various state and local governments have adopted laws and regulations regarding the control of contamination of the environment. These laws and regulations may require the acquisition of a permit by Operators before drilling commences, prohibit drilling activities on certain lands lying within wilderness areas or where pollution arises and impose substantial liabilities for pollution resulting from operations, particularly operations near or in onshore and offshore waters or on submerged lands. These laws and regulations may also increase the costs of routine drilling and operation of wells. Because these laws and regulations change frequently, the costs to the Partnership of compliance with existing and future environmental regulations cannot be predicted. However, the Managing Partner does not believe that the Partnership is affected in a significantly different manner by these regulations than are its competitors in the oil and gas industry.
Federal Regulation of Natural Gas
The transportation and sale of natural gas in interstate commerce is heavily regulated by agencies of the federal government. The following discussion is intended only as a summary of the principal statutes, regulations and orders that may affect the production and sale of natural gas from Partnership Properties. This summary should not be relied upon as a complete review of applicable natural gas regulatory provisions.
FERC Orders
Several major regulatory changes have been implemented by the Federal Energy Regulatory Commission ("FERC") from 1985 to the present that affect the economics of natural gas production, transportation and sales. In addition, the FERC continues to promulgate revisions to various aspects of the rules and regulations affecting those segments of the natural gas industry that remain subject to the FERC's jurisdiction. In April 1992, the FERC issued Order No. 636 pertaining to pipeline restructuring. This rule requires interstate pipelines to unbundle transportation and sales services by separately stating the price of each service and by providing customers only the particular service desired, without regard to the source for purchase of the gas. The rule also requires pipelines to (i) provide nondiscriminatory "no-notice" service allowing firm commitment shippers to receive delivery of gas on demand up to certain limits without penalties, (ii) establish a basis for release and reallocation of firm upstream pipeline capacity and (iii) provide non-discriminatory access to capacity by firm transportation shippers on a downstream pipeline. The rule requires interstate pipelines to use a straight fixed variable rate design. The rule imposes these same requirements upon storage facilities.
FERC Order No. 500 affects the transportation and marketability of natural gas. Traditionally, natural gas has been sold by producers to pipeline companies, which then resold the gas to end-users. FERC Order No. 500 alters this market structure by requiring interstate pipelines that transport gas for others to provide transportation service to producers, distributors and all other shippers of natural gas on a nondiscriminatory, "first-come, first-served" basis ("open access transportation"), so that producers and other shippers can
It is not anticipated that the marketability of and price obtainable for natural gas production from Partnership Properties will be significantly affected by FERC Order No. 500. Gas produced from Partnership Properties normally will be sold to intermediaries who have entered into transportation arrangements with pipeline companies. These intermediaries will accumulate gas purchased from a number of producers and sell the gas to end-users through open access pipeline transportation.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD.
State Regulations
Production of any oil and gas from Partnership Properties will be affected to some degree by state regulations. Many states in which the Partnership will operate have statutory provisions regulating the production and sale of oil and gas, including provisions regarding deliverability. Such statutes, and the regulations promulgated in connection therewith, are generally intended to prevent waste of oil and gas and to protect correlative rights to produce oil and gas between owners of a common reservoir. Certain state regulatory authorities also regulate the amount of oil and gas produced by assigning allowable rates of production to each well or proration unit.
Federal Leases
Some of the Partnership's properties are located on federal oil and gas leases administered by various federal agencies, including the Bureau of Land Management. Various regulations and orders affect the terms of leases, exploration and development plans, methods of operation and related matters.
Employees
The Partnership has no employees. Swift, however, has a staff of geologists, geophysicists, petroleum engineers, landmen, and accounting personnel who administer the operations of Swift and the Partnership. As of December 31, 1996, Swift had 191 employees. Swift's administrative and overhead expenses attributable to the Partnership's operations are borne by the Partnership.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD.
Item 2.

Item 2. Nonoperating Interests in Properties
As of December 31, 1996, the Partnership has acquired nonoperating interests in producing oil and gas properties which are generally described below.
Principal Oil and Gas Producing Properties
The most valuable fields in the Partnership, based upon year-end engineering estimates of discounted future net revenues using constant pricing and costs, are described below.
1. The Giddings Field is in Fayette County, Texas (Nuevo Chalk acquisition) This field accounts for 53% of the Partnership's value.
2. The Cheniere Cadeville Field is in Quachita parish, Louisiana (BHP acquisition). This field represents 47% of the Partnership's value.
The remaining value in the Partnership is attributable to numerous properties none of which equals or exceeds 15 percent of the total Partnership value.
Title to Properties
Title to substantially all significant producing properties in which the Partnership owns nonoperating interests has been examined. In addition to the nonoperating interests owned by the Partnership, the properties are subject to royalty, overriding royalty and other interests customary in the industry. The Managing General Partner does not believe any of these burdens materially detract from the value of the properties or will materially detract from the value of the properties or materially interfere with their use in the operation of the business of the Partnership.
Production and Sales Price
The following table summarizes the sales volumes of the Partnership's net oil and gas production expressed in MCFs. Equivalent MCFs are obtained by converting oil to gas on the basis of their relative energy content; one barrel equals 6,000 cubic feet of gas.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD.
Net Proved Oil and Gas Reserves
Presented below are the estimates of the Partnership's proved reserves as of December 31, 1996. All of the Partnership's proved reserves are located in the United States.
Revisions of previous quantity estimates are related to upward or downward variations based on current engineering information for production rates, volumetrics and reservoir pressure. Additionally, changes in quantity estimates are the result of the increase or decrease in crude oil and natural gas prices at each year end which have the effect of adding or reducing proved reserves on marginal properties due to economic limitations.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD.
The following table summarizes by acquisition the Registrant's reserves and gross and net interests in producing oil and gas wells as of December 31, 1996:
There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production, timing and plan of development. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way, and estimates of other engineers might differ from those above, audited by H. J. Gruy and Associates, Inc., an independent petroleum consulting firm. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate, and, as a general rule, reserve estimates based upon volumetric analysis are inherently less reliable than those based on lengthy production history. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered.
In estimating the oil and natural gas reserves, the Registrant, in accordance with criteria prescribed by the Securities and Exchange Commission, has used prices received as of December 31, 1996 without escalation, except in those instances where fixed and determinable gas price escalations are covered by contracts, limited to the price the Partnership reasonably expects to receive. The Registrant does not believe that any favorable or adverse event causing a significant change in the estimated quantity of proved reserves has occurred between December 31, 1996 and the date of this report.
Future prices received for the sale of the Partnership's products may be higher or lower than the prices used in the evaluation described above; the operating costs relating to such production may also increase or decrease from existing levels. The estimates presented above are in accordance with rules adopted by the Securities and Exchange Commission.
Item 3.

Item 3. Legal Proceedings
The Partnership is not aware of any material pending legal proceedings to which it is a party or of which any of its property is the subject.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Interest Holders during the fourth quarter of the fiscal year covered by this report.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD.
PART II
Item 5.

Item 5. Market Price of and Distributions on the Registrant's SDIs and Related Interest Holder Matters
Market Information
SDIs in the Partnership were initially sold at a price of $1 per SDI. SDIs are not traded on any exchange and there is no established public trading market for the SDIs. Swift is aware of negotiated transfers of SDIs between unrelated parties; however, these transfers have been limited and sporadic. Due to the nature of these transactions, Swift has no verifiable information regarding prices at which SDIs have been transferred.
Holders
As of December 31, 1996, there were 272 Interest Holders holding SDIs in the Partnership.
Distributions
The Partnership generally makes distributions to Interest Holders on a quarterly basis, subject to the restrictions set forth in the Limited Partnership Agreement. Because the Partnership was formed late in 1995, no distributions were made during the fiscal year ending December 31, 1995. The Partnerhsip distributed a total of $107,400 during the year ended December 31, 1996 to the holders of its SDIs. Cash distributions constitute net proceeds from sale of oil and gas production after payment of lease operating expenses and other partnership expenses. Some or all of such amounts or any proceeds from the sale of partnership properties could be deemed to constitute a return of investors' capital.
Oil and gas investments involve a high risk of loss, and no assurance can be given that any particular level of distributions to holders of SDIs can be achieved or maintained. Although it is anticipated that quarterly distributions will continue to be made through 1997, the Partnership's ability to make distributions could be diminished by any event adversely affecting the oil and gas properties in which the Partnership owns interests or the amount of revenues received by the Partnership therefrom.
The Partnership's Limited Partnership Agreement contains various provisions which might serve to delay, defer or prevent a change in control of the Partnership, such as the requirement of a vote of Limited Partners in order to sell all or substantially all of the Partnership's properties or the requirement of consent by the Managing General Partner to transfers of limited partnership interests and provisions prohibiting the transfer of Limited Partnership Units in any fiscal year in excess of a limit which has been established in order to comply with certain federal income tax regulations.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD.
Item 6.

Item 6. Selected Financial Data
The following selected financial data, prepared in accordance with generally accepted accounting principles for the year ended December 31, 1996 and the period from inception (December 14, 1995) through December 31, 1995, should be read in conjunction with the financial statements included in Item 8:

Item 8. Financial Statements and Supplementary Data
See Part IV, Item 14(a) for index to financial statements.
Item 9.

Item 9. Disagreements on Accounting and Financial Disclosure
None.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
As a limited partnership, the Registrant has no directors or executive officers. The business and affairs of the Registrant are managed by Swift as Managing General Partner. Set forth below is certain information as of March 17, 1997, regarding the directors and executive officers of Swift.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD.
From time to time, Swift as Managing General Partner of the Partnership purchases Units in the Partnership from investors who offer the Units pursuant to their right of presentment, which purchases are made pursuant to terms set out in the Partnership's original Limited Partnership Agreement. Due to the frequency and large number of these transactions, Swift reports these transactions under Section 16 of the Securities Exchange Act of 1934 on an annual rather than a monthly basis. In some cases such annual reporting may constitute a late filing of the required Section 16 reports under the applicable Section 16 rules.
Item 11.

Item 11. Executive Compensation
As noted in Item 10, "Directors and Executive Officers of the Registrant," above, the Partnership has no executive officers. The executive officers of Swift and VJM are not compensated by the Partnership.
Certain fees and allowances contemplated by the Limited Partnership Agreement were paid by the Partnership to Swift and VJM. See Note (4) in Notes To Financial Statements (Related-Party Transactions) for further discussion.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
No single Interest Holder is known to the Partnership to be the beneficial owner of more than five percent of the Partnership's SDIs.
Swift and VJM are not aware of any arrangement, the operation of which may at a subsequent date result in a change in control of the Partnership.
Item 13.

Item 13. Certain Relationships and Related Transactions
As noted in Item 10, "Directors and Executive Officers of the Registrant," above, the Partnership has no executive officers or directors, and thus has not engaged in any transactions in which any such person had an interest. The Partnership is permitted to engage in certain transactions with Swift as Managing General Partner and VJM as Special General Partner, subject to extensive guidelines and restrictions are described in the "Conflicts of Interest" section of the Prospectus contained in the Registration Statement, which is incorporated herein by reference.
Summarized below are the principal transactions that have occurred between the Partnership, on one hand, and Swift, VJM and their affiliates, on the other.
Certain Transactions with General Partners
1. As described in Item 1, "Business," above, the Partnership entered into an NP/OR Agreement with the Operating Partnership, which is also managed by Swift and VJM. Pursuant to such NP/OR Agreement, the Operating Partnership acquired the oil and gas properties described under Item 2 above and conveyed nonoperating interests therein to the Partnership.
2. Swift acts as operator for many of the wells in which the Partnership has nonoperating interests and has received compensation for such activities in accordance with standard industry operating agreements.
3. The Partnership paid to Swift and VJM certain fees as contemplated by the Limited Partnership Agreement. See Note (4) in Notes To Financial Statements (Related-Party Transactions) for further discussion.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD.
PART IV
a(2) FINANCIAL STATEMENT SCHEDULES
All schedules required by the SEC are either inapplicable or the required information is included in the Financial Statements, the Notes thereto, or in other information included elsewhere in this report.
a(3) EXHIBITS
3.1 Limited Partnership Agreement of Swift Energy Pension Partners 1995-B, Ltd., dated December 14, 1995. (Form 10-K for year ended December 31, 1995, Exhibit 3.1).
3.2 Certificate of Limited Partnership of Swift Energy Pension Partners 1995-B, Ltd., as December 14 1995, with the Texas Secretary of State. (Form 10-K for year ended December 31, 1995, Exhibit 3.2).
10.1 Net Profits and Overriding Royalty Interest Agreement between Swift Energy Pension Partners 1995-B, Ltd., and Swift Energy Operating Partners 1995-B, Ltd., dated December 14, 1995.
99.1 A copy of the following section of the Prospectus dated May 9, 1995, contained in Post-Effective Amendment No. 4 to Registration Statement No. 33-37983 on Form S-1 for Swift Energy Depositary Interests I, as filed on May 9, 1995, which have been incorporated herein by reference: "Proposed Activities" (pp 25 - 34) and "Conflicts of Interests" (pp 92 - 96). (Form 10-K for year ended December 31, 1995, Exhibit 28.1).
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD.
b(1) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended December 31, 1996
Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
No annual report to security holders covering the Partnership's 1996 fiscal year, or proxy statement, form of proxy or other proxy soliciting material has been sent to Interest Holders of the Partnership.
IV-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Swift Energy Pension Partners 1995-B, Ltd.:
We have audited the accompanying balance sheets of Swift Energy Pension Partners 1995-B, Ltd., (a Texas limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' capital and cash flows for the year ended December 31,1996 and the period from inception (December 14, 1995) through December 31, 1995. These financial statements are the responsibility of the general partner'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 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, the financial statements referred to above present fairly, in all material respects, the financial position of Swift Energy Pension Partners 1995-B, Ltd., as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the year ended December 31,1996 and the period from inception (December 14, 1995) through December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas February 10, 1997
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD. BALANCE SHEETS DECEMBER 31, 1996 AND 1995
See accompanying notes to financial statements.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD. STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM INCEPTION (DECEMBER 14, 1995) THROUGH DECEMBER 31, 1995
See accompanying notes to financial statements.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD. STATEMENTS OF PARTNERS' CAPITAL FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM INCEPTION (DECEMBER 14, 1995) THROUGH DECEMBER 31, 1995
See accompanying notes to financial statements.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD. STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM INCEPTION (DECEMBER 14, 1995) THROUGH DECEMBER 31, 1995
See accompanying notes to financial statements.
IV-7
SWIFT ENERGY PENSION PARTNERS 1995-B, LTD. NOTES TO FINANCIAL STATEMENTS
(1) Organization and Terms of Partnership Agreement -
Swift Energy Pension Partners 1995-B, Ltd., a Texas limited partnership (the Partnership), was formed on December 14, 1995 for the purpose of purchasing net profits interest, overriding royalty interests and royalty interests (collectively, "nonoperating interests") in producing oil and gas properties within the continental United States and Canada. Swift Energy Company ("Swift"), a Texas corporation, and VJM Corporation ("VJM"), a California corporation, serve as Managing General Partner and Special General Partner of the Partnership, respectively. The sole limited partner of the Partnership is Swift Depositary Company, which has assigned all of its beneficial (but not of record) rights and interests as limited partner to the investors in the Partnership ("Interest Holders"), in the form of Swift Depositary Interests ("SDIs").
The Managing General Partner has paid or will pay out of its own corporate funds (as a capital contribution to the Partnership) $575,482, which includes all selling commissions, offering expenses, printing, legal and accounting fees and other formation costs incurred in connection with the offering of SDIs and the formation of the Partnership, for which the Managing General Partner will receive an interest in continuing costs and revenues of the Partnership. The 272 interest holders made total capital contributions of $2,866,912.
Generally, all continuing costs (including general and administrative reimbursements and direct expenses) and revenues are allocated 85 percent to the Interest Holders and 15 percent to the general partners. After partnership payout, as defined in the Partnership Agreement, continuing costs and revenues will be shared 75 percent by the Interest Holders, and 25 percent by the general partners. Payout had not occurred as of December 31, 1996.
(2) Significant Accounting 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates.
Nonoperating Interests in Oil and Gas Properties --
For financial reporting purposes, the Partnership follows the "full-cost" method of accounting for nonoperating interests in oil and gas property costs. Under this method of accounting, all costs incurred in the acquisition of nonoperating interests in oil and gas properties are capitalized. The unamortized cost of nonoperating interests in oil and gas properties is limited to the "ceiling limitation", (calculated separately for the partnership, limited partner, and general partners). The "ceiling limitation" is calculated on a quarterly basis and represents the estimated future net revenues from nonoperating interests in proved properties using current prices, discounted at ten percent. Proceeds from the sale or disposition of nonoperating interests in oil and gas properties are treated as a reduction of the cost of the nonoperating interests with no gains or losses recognized except in significant transactions.
The Partnership computes the provision for amortization of nonoperating interests in oil and gas properties on the units-of-production method. Under this method, the provision is calculated by multiplying the total unamortized cost of nonoperating interests in oil and gas properties by an overall rate determined by dividing the physical units of oil and gas produced during the period by the total estimated units of proved oil and gas reserves attributable to the Partnership's nonoperating interests at the beginning of the period.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The calculation of the "ceiling limitation" and the provision for amortization is based on estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production, timing and plan of development. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered.
Statement of Cash Flows --
Highly liquid debt instruments with an initial maturity of three months or less are considered to be cash equivalents.
(3) Acquisition of Nonoperating Interests in Oil and Gas Porperty Costs-
Effective December 14, 1995, the Partnership entered into a Net Profits and Overriding Royalty Interests Agreement (NP/OR Agreement) with Swift Energy Operating Partners 1995-B, Ltd. (Operating Partnership), managed by Swift, for the purpose of acquiring interests in producing oil and gas properties. Under the terms of the NP/OR Agreement the Partnership has been conveyed a nonoperating interest in the aggregate net profits (i.e, oil and gas sales net of related operating costs) of the properties acquired equal to its proportionate share of the property acquisition costs as defined. Property acquisition costs are amounts actually paid by the Operating Partnership for the properties plus costs incurred by the Operating Partnerhsip in acquireing the properties and costs related to screening and evaluation of properties not acquired. In 1996, the Partnership acquired nonoperating interests in producing oil and gas properties for $424,253 of which $24,172 related to costs charged by Swift to the Operating Partnership for the evaluation and acquisition effort, including costs related to interests not acquired.
During 1996, the limited partners' share of unamortized oil and gas property costs exceeded their "ceiling limitation", resulting in a valuation allowance of $20,113. This amount is included in the income (loss) attributable to the limited partners shown in the statement of partners' capital together with a "combining adjustment" for the difference between the limited partners' valuation allowance and the Partnership's valuation allowance. The "combining adjustment" changes quarterly as the Partnership's total amortization provision is more or less than the combined amortization provision attributable to general and limited partners.
(4) Related Party Transactions-
During 1996, the Partnership paid Swift $43,004 as a general and administrative overhead allowance.
During 1996, the Partnership also paid Swift an incentive amount, as defined in the Partnership Agreement, for services rendered to the Partnership. Such amount totaled $43,004 in 1996 and is included in general and administrative expenses.
(5) Federal Income Taxes -
The Partnership is not a tax-paying entity. No provision is made in the accounts of the Partnership for federal or state income taxes, since such taxes are liabilities of the individual partners, and the amounts thereof depend upon their respective tax situations.
The tax returns and the amount of distributable Partnership income are subject to examination by the federal and state taxing authorities. If the Partnership's royalty income for federal income tax purposes is ultimately changed by the taxing authorities, the tax liability of the Interest Holders could be changed accordingly. Royalty income reported on the Partnership's federal return of income for the year ended December 31, 1996 and the period from inception (December 14,1995) through December 31, 1995 was $20,452 and $0, respectively. The difference between royalty income for federal income tax purposes reported by the Partnership and income or loss from nonoperating interests reported herein primarily results from the exclusion of amortization (as described below) from ordinary income reported in the Partnership's federal return of income.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED0
For federal income tax purposes, amortization with respect to nonoperating interests in oil and gas is computed separately by the partners and not by the Partnership. Since the amount of amortization on nonoperating interests in oil and gas in not computed at the Partnership level, amortization is not included in the Partnership's income for federal income tax purposes but is charged directly to the partners' capital accounts to the extent of the cost of nonoperating interests in oil and gas properties, and thus is treated as a separate item on the partners' Schedule K-1. Amortization for federal income tax purposes may vary from that computed for financial reporting purposes in cases where a ceiling adjustment is recorded, as such amount is not recognized for tax purposes.
(6) Vulnerability Due to Certain Concentrations -
The Partnership's revenues are primarily the result of sales of its oil and natural gas production. Market prices of oil and natural gas may fluctuate and adversely affect operating results.
The Partnership extends credit to various companies in the oil and gas industry which results in a concentration of credit risk. This concentration of credit risk may be affected by changes in economic or other conditions and may accordingly impact the Partnership's overall credit risk. However, the Managing General Partner believes that the risk is mitigated by the size, reputation, and nature of the companies to which the Partnership extends credit. In addition, the Partnership generally does not require collateral or other security to support customer receivables.
(7) Fair Value of Financial Instruments -
The Partnership's financial instruments consist of cash and cash equivalents. The carrying amounts approximate fair value due to the highly liquid nature of the short-term instruments.
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD
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.
SWIFT ENERGY PENSION PARTNERS 1995-B, LTD. (Registrant)
By: SWIFT ENERGY COMPANY General Partner
Date: March 17, 1997 By: s/b A. Earl Swift -------------- ---------------------------------- A. Earl Swift President
Date: March 17, 1997 By: s/b John R. Alden -------------- ---------------------------------- John R. Alden Principal Financial Officer
Date: March 17, 1997 By: s/b Alton D. Heckaman, Jr. -------------- ---------------------------------- Alton D. Heckaman, Jr. Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SWIFT ENERGY PENSION PARTNERS 1996-B, LTD. (Registrant)
By: SWIFT ENERGY COMPANY General Partner
Date: March 17, 1997 By: s/b A. Earl Swift -------------- ---------------------------------- A. Earl Swift Director and Principal Executive Officer
Date: March 17, 1997 By: s/b Virgil N. Swift -------------- ---------------------------------- Virgil N. Swift Director and Executive Vice President - Business Development
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SWIFT ENERGY PENSION PARTNERS 1995-B, LTD
Date: March 17, 1997 By: s/b G. Robert Evans -------------- ---------------------------------- G. Robert Evans Director
Date: March 17, 1997 By: s/b Raymond O. Loen -------------- ---------------------------------- Raymond O. Loen Director
Date: March 17, 1997 By: s/b Henry C. Montgomery -------------- ---------------------------------- Henry C. Montgomery Director
Date: March 17, 1997 By: s/b Clyde W. Smith, Jr. -------------- ---------------------------------- Clyde W. Smith, Jr. Director
Date: March 17, 1997 By: s/b Harold J. Withrow -------------- ---------------------------------- Harold J. Withrow Director
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