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CSC Reports Continued Improvement in Second Quarter 2013 Results



  CSC Reports Continued Improvement in Second Quarter 2013 Results

                             Diluted EPS of $0.83

                       Operating Income of $298 Million

   As Reported Operating Margin of 7.7%; Adjusted Operating Margin of 9.2%
                            Excludes Restructuring

      Free Cash Flow of $237 Million, a YoY Improvement of $505 Million

                           Bookings of $4.2 Billion

                FY2013 EPS Target Increased to $2.30 to $2.50

Business Wire

FALLS CHURCH, Va. -- November 06, 2012

CSC (NYSE: CSC) today reported second quarter 2013 diluted earnings of $0.83
per share, compared with diluted EPS of $(18.56) in the second quarter 2012
which included a goodwill impairment charge of $18.21 per share and a U.S.
Claims settlement of $1.20 per share. Total revenues were $3.85 billion
compared with $3.97 billion in the year ago period, a decrease of 3% as
reported and a 1% decline in constant currency.

Financial Highlights

  * Diluted EPS of $0.83 per share included a workforce restructuring charge
    of $58 million, or $0.25 per share.
  * Operating income of $298 million was compared with an operating loss in
    the year ago period.
  * Operating margin of 7.7% increased compared with -1.9% a year ago and 4.6%
    in the prior quarter. Excluding the impact of a $269 million U.S. Claims
    settlement in the prior year, operating margin improved by 289 basis
    points.
  * Operating cash flow of $444 million for the quarter, improved by $438
    million from the previous year.
  * Free cash flow of $237 million for the quarter improved by $505 million
    compared to the previous year, as the result of better contract
    management, cost takeout, and the benefit of the NHS Interim Agreement.
  * The company raised $700 million of senior unsecured notes and secured
    commitments for a new $250 million bank term loan. Funds from these
    financings were used to redeem maturing debt in October, 2012.
  * Ending cash and cash equivalents were $1.85 billion.

“Our second quarter results reflect continued progress made on our contract
management performance and cost takeout program. As a result, operating
margins improved across all three lines of business when compared with the
prior year and we are raising our fiscal year 2013 EPS targets to $2.30 to
$2.50,” said Mike Lawrie, President and CEO. “During the quarter, we also
strengthened our offering portfolio through the acquisition of a premiere
software development company that specializes in big data, analytics and
advanced applications. This action is consistent with our strategy of being a
leader in next generation technology solutions and services. We are also
taking steps to divest certain non-core assets such as a smaller business in
Italy. There is much work to be completed but we are encouraged with the early
results of our turnaround program.”

Lines of Business

Managed Services Sector (MSS) revenue of $1.58 billion decreased by 2% from
the second quarter of last year but increased 1% in constant currency mainly
due to the AppLabs acquisition. Segment operating margin increased 278 basis
points to 5.6% due to better contract performance and cost takeout partially
offset by a $47 million workforce restructuring charge. MSS signed $2.2
billion of new business during the quarter.

Business Solutions & Services (BSS) revenue was $0.92 billion decreased by 3%
from the second quarter of last year but increased 1% in constant currency.
BSS operating margin expanded by 335 basis points to 6.9% primarily as the
result of improved contract performance and cost takeout partially offset by a
$10 million workforce restructuring charge. New business awards for BSS were
$0.9 billion.

North American Public Sector (NPS) revenue of $1.38 billion declined by 4%
from the second quarter last year primarily due to the Department of Defense
contract completions which occurred at the end of fiscal year 2012. Operating
margin of 10.9% increased significantly year over year due to the impact of
the U.S. Claims settlement in the prior year. NPS bookings of $1.1 billion
declined from one year ago as new business awards continue to be impacted by
continued uncertainty in government procurement.

Conference Call and Webcast

CSC senior management will host a conference call and Webcast at 11:00 a.m.
EST today. The dial-in number for domestic callers is 888-401-4691. Callers
who reside outside the United States or Canada should dial 719-325-2132. The
passcode for all participants is 1519747. The Webcast audio and any
presentation slides will be available at www.csc.com/investorrelations.

A replay of the conference call will be available from approximately two hours
after the conclusion of the call until November 12, 2012. The replay dial-in
number is 888-203-1112 for domestic callers and 719-457-0820 for callers who
reside outside of the U.S. and Canada. The replay passcode is also 1519747.

Non-GAAP Measures

In an effort to provide investors with additional information regarding the
Company’s preliminary results as determined by generally accepted accounting
principles (GAAP), the Company has also disclosed in this press release
preliminary non-GAAP information which management believes provides useful
information to investors, including: operating income, operating margin,
earnings before interest and taxes (EBIT), EBIT margin, and free cash flow.
Reconciliations of the preliminary non-GAAP measures to the respective and
most directly comparable GAAP measures, as well as the rationale for
management’s use of non-GAAP measures, is included below.

About CSC

CSC is a global leader in providing technology-enabled business solutions and
services. Headquartered in Falls Church, Va., CSC has approximately 95,000
employees and reported revenue of $15.7 billion for the 12 months ended
September 28, 2012. For more information, visit the company's website at
www.csc.com.

All statements in this press release and in all future press releases 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
intentions, plans, expectations and beliefs, and are subject to risks,
uncertainties and other factors, many of which are outside the Company’s
control. These factors could cause actual results to differ materially from
such forward-looking statements. For a written description of these factors,
see the section titled “Risk Factors” in CSC’s Form 10-K for the fiscal year
ended March 30, 2012 and any updating information in subsequent SEC filings.
The Company disclaims any intention or obligation to update these
forward-looking statements whether as a result of subsequent event or
otherwise, except as required by law.

Business Segment Revenues, Operating Income and Operating Margins
(preliminary and unaudited)
                                                                     
Revenues by
Segment
                    Quarter Ended
                                                                      % Change
                                                                      in
                                                                      Constant
(Amounts in         September          September        %             Currency
millions)           28, 2012           30, 2011         Change
North
American            $  1,375           $  1,436         (4.2 )%       (4.2  )%
Public Sector
Managed
Services            1,583              1,619            (2.2 )%       1.1   %
Sector
Business
Solutions &         921                945              (2.5 )%       1.4   %
Services
Corporate &         (25       )        (34      )       —             —
Eliminations
Total               $  3,854           $  3,966         (2.8 )%       (0.5  )%
Revenues
                                                                             

                    Six Months Ended
                                                                      % Change
                                                                      in
                                                                      Constant
(Amounts in         September          September        %             Currency
millions)           28, 2012           30, 2011         Change
North
American            $  2,743           $  2,920         (6.1 )%       (6.1  )%
Public Sector
Managed
Services            3,218              3,238            (0.6 )%       3.0   %
Sector
Business
Solutions &         1,906              1,906            —             4.2   %
Services
Corporate &         (56       )        (65      )       —             —
Eliminations
Total               $  7,811           $  7,999         (2.4 )%       0.1   %
Revenues
                                                                             

Operating Income and Operating Margins by                           
Segment
                     Quarter Ended
                     September 28, 2012              September 30, 2011
(Amounts in          Operating       Operating       Operating       Operating
millions)            Income          Margin          Income          Margin
North American       $  150          10.9   %        $  (132 )       (9.2  )%
Public Sector
Managed
Services             88              5.6    %        45              2.8   %
Sector
Business
Solutions &          64              6.9    %        34              3.6   %
Services
Corporate &          (4      )       —               (22     )       —
Eliminations
Total
Operating            $  298          7.7    %        $  (75  )       (1.9  )%
Income
                                                                            

                     Six Months Ended
                     September 28, 2012              September 30, 2011
(Amounts in          Operating       Operating       Operating       Operating
millions)            Income          Margin          Income          Margin
North American       $  251          9.2   %         $  (14  )       (0.5  )%
Public Sector
Managed
Services             183             5.7   %         54              1.7   %
Sector
Business
Solutions &          80              4.2   %         91              4.8   %
Services
Corporate &          (33     )       —               (26     )       —
Eliminations
Total
Operating            $  481          6.2   %         $  105          1.3   %
Income
                                                                            

Consolidated Condensed Statements of Operations      
(preliminary and unaudited)
                    
                     Quarter Ended                    Six Months Ended
(Amounts in
millions,            September       September        September       September
except               28, 2012        30, 2011         28, 2012        30, 2011
per-share
amounts)
                                    
Revenues             $ 3,854         $ 3,966          $ 7,811         $ 7,999   
                                                                       
Costs of
services
(excludes
depreciation
and
amortization,
settlement
charge and           2,994           3,283            6,247           6,648
restructuring
costs ($56 and
$83 for the
second quarter
and first six
months of
fiscal 2013))
Cost of
services –
settlement
charge               —               227              —               227
(excludes
amount charged
to revenue of
$42 (2012))
Selling,
general and
administrative
(excludes
restructuring
costs ($2 for        301             307              592             571
both the
second quarter
and first six
months of
fiscal 2013))
Depreciation
and                  273             290              536             568
amortization
Goodwill             —               2,685            —               2,685
impairment
Restructuring        58              —                85              —
costs
Interest             45              46               90              88
expense
Interest             (5      )       (12      )       (10     )       (24      )
income
Other (income)       (14     )       (6       )       (5      )       (11      )
expense, net
Total costs          3,652           6,820            7,535           10,752    
and expenses
                                                                       
Income (loss)
from
continuing           202             (2,854   )       276             (2,753   )
operations
before taxes
Taxes on             64              12               96              (73      )
income
Income (loss)
from                 138             (2,866   )       180             (2,680   )
continuing
operations
Loss from
discontinued         —               —                —               (1       )
operations,
net of taxes
Net income           138             (2,866   )       180             (2,681   )
(loss)
Less: net
income
attributable
to                   8               11               10              13        
noncontrolling
interest, net
of tax
Net income
(loss)
attributable         $ 130           $ (2,877 )       $ 170           $ (2,694 )
to CSC common
shareholders
                                                                       
Earnings
(loss) per
common share:
Basic:
Continuing           $ 0.84          $ (18.56 )       $ 1.09          $ (17.38 )
operations
Discontinued         —               —                —               (0.01    )
operations
                     $ 0.84          $ (18.56 )       $ 1.09          $ (17.39 )
Diluted:
Continuing           $ 0.83          $ (18.56 )       $ 1.09          $ (17.38 )
operations
Discontinued         —               —                —               (0.01    )
operations
                     $ 0.83          $ (18.56 )       $ 1.09          $ (17.39 )
                                                                       
Cash dividend
per common           $ 0.20          $ 0.20           $ 0.40          $ 0.40
share
                                                                       
Weighted
average common
shares
outstanding
for:
Basic EPS            155.360         155.045          155.293         154.944
Diluted              155.754         155.045          155.742         154.944
                                                                                

Selected Balance Sheet Data           
(preliminary and unaudited)
                                        
                                       As of
(Amounts in millions)                  September 28, 2012       March 30, 2012
                                                                 
Assets
Cash and cash equivalents              $    1,850               $   1,093
Receivables, net                       3,102                    3,257
Prepaid expenses and other             516                      533          
current assets
Total current assets                   5,468                    4,883        
                                                                 
Property and equipment, net            2,335                    2,441
Software, net                          634                      649
Outsourcing contract costs, net        539                      562
Goodwill                               1,768                    1,752
Other assets                           905                      902          
Total Assets                           $    11,649              $   11,189   
                                                                 
Liabilities
Short-term debt and current            $    988                 $   1,254
maturities of long-term debt
Accounts payable                       386                      478
Accrued payroll and related            712                      789
costs
Accrued expenses and other             1,276                    1,339
current liabilities
Deferred revenue and advance           607                      619
contract payments
Income taxes payable and               46                       57           
deferred income taxes
Total current liabilities              4,015                    4,536        
                                                                 
Long-term debt, net of current         2,399                    1,486
maturities
Income tax liabilities and             358                      357
deferred income taxes
Other long-term liabilities            1,992                    1,976
                                                                 
Total Equity                           2,885                    2,834
                                                                 
Total Liabilities and Equity           $    11,649              $   11,189   
                                                                 
Debt as a percentage of total          54.0           %         49.2        %
capitalization
                                                                             

Consolidated Condensed            
Statements of Cash Flows
(preliminary and unaudited)
                                    
                                   Six Months Ended
(Amounts in millions)              September 28, 2012       September 30, 2011
Cash flows from operating
activities:
Net income (loss)                  $    180                 $    (2,681    )
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization and other             560                      611
non-cash charges
Goodwill impairment                —                        2,685
Settlement charge                  —                        269
Stock-based compensation           20                       22
Loss on dispositions               11                       3
Provision for losses on            3                        6
accounts receivable
Unrealized foreign currency        (71           )          10
exchange (gain) loss
Changes in assets and
liabilities, net of effects
of acquisitions and
dispositions:
Decrease (increase) in             55                       (217           )
assets
Decrease in liabilities            (93           )          (748           )
Net cash provided by (used         665                      (40            )
in) operating activities
                                                             
Cash flows from investing
activities:
Purchases of property and          (215          )          (301           )
equipment
Outsourcing contracts              (61           )          (96            )
Acquisitions, net of cash          (34           )          (368           )
acquired
Software purchased and             (89           )          (146           )
developed
Other investing activities,        33                       8               
net
Net cash used in investing         (366          )          (903           )
activities
                                                             
Cash flows from financing
activities:
Net borrowings of commercial       —                        505
paper
Borrowings under lines of          126                      79
credit
Repayment of borrowings            (143          )          (19            )
under lines of credit
Borrowings on long-term            699                      —
debt, net of discount
Principal payments on              (120          )          (395           )
long-term debt
Proceeds from stock options
and other common stock             1                        15
transactions
Excess tax benefit from            —                        2
stock-based compensation
Dividend payments                  (62           )          (62            )
Other financing activities,        (32           )          (6             )
net
Net cash provided by               469                      119             
financing activities
Effect of exchange rate
changes on cash and cash           (11           )          (35            )
equivalents
Net increase (decrease) in         757                      (859           )
cash and cash equivalents
Cash and cash equivalents at       1,093                    1,837           
beginning of year
Cash and cash equivalents at       $    1,850               $    978        
end of period
                                                                            

Non-GAAP Financial Measures

The following tables reconcile operating income, earnings before interest and
taxes (EBIT) and free cash flow to the most directly comparable financial
measure calculated and presented in accordance with GAAP. CSC management
believes that these non-GAAP financial measures provide useful information to
investors regarding the Company's financial condition and results of
operations as they provide another measure of the Company's profitability and
ability to service its debt, and are considered important measures by
financial analysts covering CSC and its peers.

Management uses operating income to evaluate business unit financial
performance and it is one of the measures used in assessing management
performance. One of the limitations associated with the use of operating
income (as compared to reported earnings) is that it does not reflect the
complete financial results of the Company. CSC compensates for these
limitations by providing reconciliation between operating income and income
before taxes. Management uses free cash flow as one of the factors in
reviewing the overall performance of the business. Management compensates for
the limitations of this non-GAAP measure by also reviewing the GAAP measures
of operating, investing and financing cash flows as well as debt levels
measured by the debt-to-total capitalization ratio.

GAAP Reconciliations

CSC defines operating income as revenue less costs of services, depreciation
and amortization expense, restructuring costs and segment general and
administrative (G&A) expense, excluding corporate G&A. Operating margin is
defined as operating income as a percentage of revenue. A reconciliation of
consolidated operating income to income from continuing operations before
taxes is as follows:

Operating
income
(preliminary       Quarter Ended                     Six Months Ended
and
unaudited)
                   September       September         September       September
                   28,             30,               28,             30,
(Amounts in        2012            2011              2012            2011
millions)
                                                                      
Operating          $  298          $ (75    )        $  481          $ 105
income
Corporate          (70     )       (66      )        (130    )       (120     )
G&A
Interest           (45     )       (46      )        (90     )       (88      )
expense
Interest           5               12                10              24
income
Goodwill           $  —            $ (2,685 )        $  —            $ (2,685 )
impairment
Other income
(expense),         14              6                 5               11        
net
Income from
continuing         $  202          $ (2,854 )        $  276          $ (2,753 )
operations
before taxes
                                                                      
Operating          7.7     %       (1.9     )%       6.2     %       1.3      %
margin
                                                                               

CSC defines EBIT as revenue less costs of services, selling, general and
administrative expenses, depreciation and amortization, restructuring costs,
goodwill impairment, and other income (expense). EBIT margin is defined as
EBIT as a percentage of revenue. A reconciliation of EBIT to net income is as
follows:

Earnings
before
interest and
taxes              Quarter Ended                     Six Months Ended
(preliminary
and
unaudited)
                   September       September         September       September
                   28,             30,               28,             30,
(Amounts in        2012            2011              2012            2011
millions)
                                                                      
Earnings
before             $  242          $ (2,820 )        $   356         $ (2,689 )
interest and
taxes
Interest           (45     )       (46      )        (90     )       (88      )
expense
Interest           5               12                10              24
income
Taxes on           (64     )       (12      )        (96     )       73        
income
Net income
from               $  138          $ (2,866 )        $   180         $ (2,680 )
continuing
operations
                                                                      
EBIT margin        6.3     %       (71.1    )%       4.6   %         (33.6    )%
                                                                               

CSC defines free cash flow as equal to the sum of (1) operating cash flows,
(2) investing cash flows, excluding business acquisitions, dispositions and
investments (including short-term investments and purchase or sale of
available for sale securities), and (3) payments on capital leases and other
long-term asset financings. A reconciliation of free cash flow to net cash
provided by (used in) operating activities is as follows:

Free Cash Flow
(preliminary         Quarter Ended                   Six Months Ended
and unaudited)
                     September       September       September       September
                     28,             30,             28,             30,
(Amounts in          2012            2011            2012            2011
millions)
                                                                      
Free cash flow       $  237          $  (268 )       $  212          $  (671 )
Net cash used
in investing         187             569             366             903
activities
Acquisitions,
net of cash          (34     )       (360    )       (34     )       (368    )
acquired
Business             —               —               2               —
dispositions
Short-term           —               9               —               3
investments
Payment on
capital leases
and other            54              56              119             93       
long-term
asset
financings
Net cash
provided by
(used in)            $  444          $  6            $  665          $  (40  )
operating
activities
Net cash used
in investing         $  (187 )       $  (569 )       $  (366 )       $  (903 )
activities
Net cash
provided by
(used in)            $  566          $  (75  )       $  469          $  119   
financing
activities
                                                                              

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Contact:

CSC
Joel Shadle
Corporate Media Relations
703-645-2660
jshadle@csc.com
or
Steve Virostek
Investor Relations
Corporate
703-641-3000
investorrelations@csc.com
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