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

FALLS CHURCH, Va.--(BUSINESS WIRE)-- CSC (NYS: 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 millions)

September 28, 2012

September 30, 2011

% Change

Currency

North American Public Sector

$

1,375

$

1,436

(4.2

)%

(4.2

)%

Managed Services Sector

1,583

1,619

(2.2

)%

1.1

%

Business Solutions & Services

921

945

(2.5

)%

1.4

%

Corporate & Eliminations

(25

)

(34

)

Total Revenues

$

3,854

$

3,966

(2.8

)%

(0.5

)%

Six Months Ended

% Change in

Constant

(Amounts in millions)

September 28, 2012

September 30, 2011

% Change

Currency

North American Public Sector

$

2,743

$

2,920

(6.1

)%

(6.1

)%

Managed Services Sector

3,218

3,238

(0.6

)%

3.0

%

Business Solutions & Services

1,906

1,906

4.2

%

Corporate & Eliminations

(56

)

(65

)

Total Revenues

$

7,811

$

7,999

(2.4

)%

0.1

%

Operating Income and Operating Margins by Segment

Quarter Ended

September 28, 2012

September 30, 2011

(Amounts in millions)

Operating Income

Operating Margin

Operating Income

Operating Margin

North American Public Sector

$

150

10.9

%

$

(132

)

(9.2

)%

Managed Services Sector

88

5.6

%

45

2.8

%

Business Solutions & Services

64

6.9

%

34

3.6

%

Corporate & Eliminations

(4

)

(22

)

Total Operating Income

$

298

7.7

%

$

(75

)

(1.9

)%

Six Months Ended

September 28, 2012

September 30, 2011

(Amounts in millions)

Operating Income

Operating Margin

Operating Income

Operating Margin

North American Public Sector

$

251

9.2

%

$

(14

)

(0.5

)%

Managed Services Sector

183

5.7

%

54

1.7

%

Business Solutions & Services

80

4.2

%

91

4.8

%

Corporate & Eliminations

(33

)

(26

)

Total Operating Income

$

481

6.2

%

$

105

1.3

%

Consolidated Condensed Statements of Operations

(preliminary and unaudited)

Quarter Ended

Six Months Ended

(Amounts in millions, except per-share amounts)

September 28, 2012

September 30, 2011

September 28, 2012

September 30, 2011

Revenues

$

3,854

$

3,966

$

7,811

$

7,999

Costs of services (excludes depreciation and amortization, settlement charge and restructuring costs ($56 and $83 for the second quarter and first six months of fiscal 2013))

2,994

3,283

6,247

6,648

Cost of services - settlement charge (excludes amount charged to revenue of $42 (2012))

227

227

Selling, general and administrative (excludes restructuring costs ($2 for both the second quarter and first six months of fiscal 2013))

301

307

592

571

Depreciation and amortization

273

290

536

568

Goodwill impairment

2,685

2,685

Restructuring costs

58

85

Interest expense

45

46

90

88

Interest income

(5

)

(12

)

(10

)

(24

)

Other (income) expense, net

(14

)

(6

)

(5

)

(11

)

Total costs and expenses

3,652

6,820

7,535

10,752

Income (loss) from continuing operations before taxes

202

(2,854

)

276

(2,753

)

Taxes on income

64

12

96

(73

)

Income (loss) from continuing operations

138

(2,866

)

180

(2,680

)

Loss from discontinued operations, net of taxes

(1

)

Net income (loss)

138

(2,866

)

180

(2,681

)

Less: net income attributable to noncontrolling interest, net of tax

8

11

10

13

Net income (loss) attributable to CSC common shareholders

$