CSC Reports Continuing Operating Improvement and Strong Profitability in Fourth Quarter and Fiscal Y

CSC Reports Continuing Operating Improvement and Strong Profitability in Fourth Quarter and Fiscal Year 2013

Diluted EPS from Continuing Operations of $1.57 for the Fourth Quarter and $3.20 for 2013

Q4 Operating Income of $212 Million Including Restructuring and $365 Million Excluding Restructuring


Full Year Operating Income of $900 Million Including Restructuring and $1,162 Million Excluding Restructuring

Q4 Operating Margin of 5.7% Including Restructuring and 9.9% Excluding Restructuring

Full Year Operating Margin of 6.0% Including Restructuring and 7.8% Excluding Restructuring

Free Cash Flow* of $307 Million for the Fourth Quarter and $764 Million for 2013

Revenue of $3.70 Billion for the Fourth Quarter and $14.99 Billion for 2013

EPS from Continuing Operations Target Raised to $3.30 - $3.50 for Fiscal Year 2014

FALLS CHURCH, Va.--(BUSINESS WIRE)-- CSC (NYS: CSC) today reported fourth quarter 2013 diluted earnings per share of $1.81 consisting of $1.57 from continuing operations and $0.24 from discontinued operations. This compares with a diluted loss per share from continuing operations of ($1.20) in the fourth quarter 2012. Total revenues for the quarter were $3.70 billion and compares with $3.99 billion in the year ago period.

For fiscal year 2013, diluted earnings per share were $6.18 consisting of $3.20 from continuing operations and $2.98 from discontinued operations. This compares with a diluted loss per share from continuing operations of ($28.31) in fiscal 2012. Total revenues were $14.99 billion and compares with $15.36 billion in the year ago period.

"During fiscal 2013, CSC delivered on its commitments and made significant strides in transforming our company. We returned to profitability and exceeded our targets for cost takeout, operating margin expansion, EPS and free cash flow growth. We are making significant investments in our business - employees, offerings, systems, and partnerships - designed to enhance our competitive position and long-term earnings growth. And we returned $428 million to shareholders through share repurchases and dividends," said Mike Lawrie, president and CEO. "For fiscal year 2014, our plans include continued cost takeout, investing in our people, expanding market coverage, pursuing delivery excellence and driving innovation with our clients."

* Excludes discretionary pension contribution of $500 million.

Financial Highlights

  • Diluted EPS of $1.81 for the fourth quarter and $6.18 for the fiscal year 2013 compares with losses in the prior year.
  • Non-GAAP diluted EPS from continuing operations of $1.27 for the fourth quarter excludes certain items: a tax planning benefit of $1.02 per share, a gain on the sale of an Australian IT staffing business of $0.24 per share, settlement of a shareholder securities class action lawsuit of ($0.24) per share, and restructuring charges of ($0.72) per share. For fiscal year 2013, non-GAAP diluted EPS from continuing operations excluding these certain items was $2.90.
  • Income from continuing operations before taxes of $110 million for the quarter and $480 million for fiscal year 2013 compares with a loss in both prior periods.
  • Pre-tax margin of 3.0% for the quarter and 3.2% for fiscal year 2013 improved 760 bps and 3,220 bps when compared with the prior year.
  • Operating income of $212 million for the quarter and $900 million for the year are significant improvements when compared with operating losses in the year ago periods. Excluding restructuring charges of $153 million for the fourth quarter and $262 million for the year, operating income was $365 million and $1,162 million respectively.
  • Operating margin of 5.7% for the quarter and 6.0% for fiscal year 2013. Excluding restructuring charges, operating margin was 9.9% for the fourth quarter and 7.8% for the fiscal year.
  • Operating cash flow of $41 million in the quarter declined from $496 million in the prior year primarily due to CSC's previously announced decision to make a $500 million discretionary contribution to its pension plans. For fiscal 2013, operating cash flow was $1,119 million as reported and $1,619 million excluding the discretionary pension contributions.
  • Excluding discretionary pension contributions of $500 million, free cash flow was $307 million for the fourth quarter and was $764 million for 2013. Fiscal 2013 free cash flow compares favorably with $59 million from fiscal 2012.
  • Ending cash and cash equivalents were $2.05 billion, an increase of $961 million from March 30, 2012.

Managed Services Sector (MSS)

For the fourth quarter, MSS revenue of $1.63 billion decreased 4%, as reported, and in constant currency, when compared with the fourth quarter of 2012. Segment operating margin was 3.4% compared with a (8.4%) margin in the prior year and includes restructuring charges of $122 million which were partially offset by better contract performance and cost takeout. MSS signed $1.1 billion of new business during the quarter.

For fiscal 2013, MSS revenue of $6.46 billion decreased by 2%, as reported, and was unchanged in constant currency, when compared with the prior year. Segment operating margin was 5.6% improved by 530 bps when compared with fiscal 2012 due to better contract performance and cost takeout, partially offset by restructuring charges of $190 million. New business awards for MSS were $6.9 billion during fiscal 2013.

Business Solutions & Services (BSS)

Fourth quarter BSS revenue of $0.80 billion decreased by 12%, as reported, and in constant currency primarily due to the sale of an Australian IT staffing business. BSS operating margin of 9.9% compares with a (1.9%) margin in the prior year. Operating margin improved primarily as the result of cost takeout and included a restructuring charge of $7 million. New business awards for BSS were $1.0 billion during the quarter.

For fiscal 2013, BSS revenue of $3.27 billion increased by 3%, as reported, and increased by 6% in constant currency, when compared with the prior year. Operating margin of 4.2% compares favorably with an operating loss in the prior year due to progress on cost takeout partially offset by workforce restructuring charges of $39 million. BSS signed $3.4 billion of new business during fiscal 2013, excluding divested businesses.

Subsequent to the fourth quarter of 2013, CSC reached an agreement to divest a flood insurance business process outsourcing business for $46 million in cash. This business contributed approximately $44 million of revenue and four cents of diluted EPS from continuing operations in fiscal 2013. These results will be recast as discontinued operations in future periods.

North American Public Sector (NPS)

Fourth quarter NPS revenue of $1.31 billion declined by 7% from the fourth quarter of 2012 primarily due to contracts which were winding down and the slow pace of new business awards. Operating margin of 10.0% increased by 420 bps when compared with the prior year and included better cost takeout and contract management partially offset by restructuring costs of $10 million. NPS awards of $0.8 billion declined from one year ago primarily due to delays in government procurement.

For fiscal 2013, NPS revenue of $5.39 billion decreased by 6% when compared with the prior year. Operating margin increased by 730 basis points to 9.6% due to better contract management and cost takeout partially offset by workforce restructuring charges of $13 million. NPS signed $3.5 billion of new business during fiscal 2013.

Returning Cash to Shareholders

During the fourth quarter, CSC returned $258 million to shareholders consisting of $30 million in common stock dividends and $228 million of share repurchases. CSC repurchased 4.7 million shares during the quarter at an average price of $48.15.

For the fiscal year 2013, CSC returned $428 million to shareholders in the form of $123 million in common stock dividends and $305 million of share repurchases. During the year, CSC repurchased 6.7 million shares at an average price of $45.47.

CSC ended fiscal year 2013 with 150,164,762 shares outstanding on March 29, 2013.

Conference Call and Webcast

CSC senior management will host a conference call and webcast at 11:00 a.m. EDT today. The dial-in number for domestic callers is 888-395-3230. Callers who reside outside the United States or Canada should dial 719-325-2282. The passcode for all participants is 2733188. The webcast audio and presentation slides will be available at www.csc.com/investorrelations.

A replay of the conference call will be available from approximately three hours after the conclusion of the call until May 21, 2013. 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 2733188. A replay of this webcast will also be available on CSC's website.

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 financial 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

For more information, please visit CSC's company profile.

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 events or otherwise, except as required by law.

Business Segment Revenues, Operating Income and Operating Margins
(preliminary and unaudited)

Quarterly revenues and operating income of the MSS and BSS segments has been recast to reflect the impact of CSC's fiscal 2013 divestitures: U.S. credit services business, Italian consulting and system integration business and enterprise system integration business in Malaysia and Singapore.

  
Revenues by SegmentQuarter Ended
      % Change in
Constant

(Amounts in millions)

March 29, 2013March 30, 2012% ChangeCurrency
North American Public Sector$1,308$1,404(6.8)%(6.8)%
Managed Services Sector1,6321,705(4.3)(4.0)
Business Solutions & Services796908(12.3)(11.8)
Corporate & Eliminations(39)  (31)--
Total Revenue$3,697   $3,986 (7.3)%(7.0)%
 
 
Twelve Months Ended
% Change in
Constant

(Amounts in millions)

March 29, 2013March 30, 2012% ChangeCurrency
North American Public Sector$5,391$5,703(5.5)%(5.5)%
Managed Services Sector6,4576,602(2.2)(0.3)
Business Solutions & Services3,2723,1802.95.5
Corporate & Eliminations(127)  (121)--
Total Revenue$14,993   $15,364 (2.4)%(1.1)%
 
  
Operating Income and Operating
Margins by SegmentQuarter Ended
March 29, 2013  March 30, 2012
Operating  OperatingOperating  Operating

(Amounts in millions)

IncomeMarginIncomeMargin
North American Public Sector$13110.0%$815.8%
Managed Services Sector553.4%(144)(8.4)%
Business Solutions & Services799.9%(17)(1.9)%
Corporate & Eliminations(53)-(18)-
Total Operating Income$212 5.7%$(98)(2.5)%
 
 
Twelve Months Ended
March 29, 2013March 30, 2012
OperatingOperatingOperatingOperating

(Amounts in millions)

IncomeMarginIncomeMargin
North American Public Sector$5199.6%$1322.3%
Managed Services Sector3615.6%170.3%
Business Solutions & Services1364.2%(1,443)(45.4)%
Corporate & Eliminations(116)-(65)-
Total Operating Income$900 6.0%$(1,359)(8.8)%
 
    
Consolidated Statements of Operations

(preliminary and unaudited)

 
 Quarter Ended  Twelve Months Ended
(Amounts in millions, except per-share amounts)  March 29, 2013  March 30, 2012  March 29, 2013  March 30, 2012
    
Revenues $3,697 $3,986 $14,993 $15,364 
 

Costs of services (excludes depreciation and amortization, specified contract charge, settlement charge and restructuring costs of $137 and $238 for the fourth quarter and twelve months of fiscal 2013 and $137 for the fourth quarter and twelve months of fiscal 2012)

2,8363,42511,85113,019
Cost of services - specified contract charge (excludes amount charged to revenue of $204 (fiscal 2012))1,281
Cost of services - settlement charge (excludes amount charged to revenue of $42 fiscal 2012))227
Selling, general and administrative (excludes restructuring costs of $16 and $26 for the fourth quarter and twelve months of fiscal 2013, and $3 for the fourth quarter and twelve months of fiscal 2012)3312911,1951,128
Depreciation and amortization2722811,0761,147
Restructuring costs153140264140
Goodwill impairment2,745
Interest expense3646183175
Interest income(8)(6)(22)(38)
Other income, net (33)(7)(34)(6)
Total costs and expenses 3,587 4,170 14,513 19,818 
 
Income (loss) from continuing operations before taxes110(184)480(4,454)
Taxes on income (139)(3)(35)(84)
Income (loss) from continuing operations249(181)515(4,370)
Income from discontinued operations, net of taxes 37 28 464 145 
Net income (loss)286 Read Full Story

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