| Contact | Chris Grandis | FOR DISTRIBUTION |
| | Media Relations Director | Moved on Business Wire |
| | Corporate | February 9, 2011 |
| | 703.641.2316 | |
| | cgrandis@csc.com | |
| | | |
| | | Bryan Brady |
| | | Vice President, Investor Relations |
| | | Corporate |
| | | 703.641.3000 |
| | | investorrelations@csc.com |
CSC REPORTS THIRD QUARTER RESULTS
Increased EPS and Free Cash Flow
FALLS CHURCH, Va., Feb. 9 – CSC (NYSE: CSC) today reported third quarter fiscal 2011 revenue of $4.01 billion and fully diluted earnings per share (EPS) of $1.54 compared to third quarter fiscal 2010 revenue of $3.95 billion and EPS of $1.36. The year to date revenue was $11.93 billion and EPS was $3.64 compared to the year to date fiscal 2010 revenue of $11.89 billion and EPS of $3.62.
Operating cash flow was $462 million for the quarter, as compared to $131 million from the previous year. For the year to date, operating cash flow was $804 million compared to $407 million from the previous year.
Free Cash Flow was $253 million for the quarter, as compared to -$107 million from the previous year. For the year to date, free cash flow was $110 million compared to -$140 million from the previous year.
Commenting on the results, CSC Chairman and Chief Executive Officer Michael W. Laphen said, “Our revenue growth of 1.4% (2.1% constant currency) reflects year over year growth within all of our business sectors. Sequentially, our Public Sector revenue continues to be impacted by award decision delays by the federal government while our Commercial segments continue on their growth trajectory. Operating results were primarily impacted by a trailing effect from the previously disclosed Nordics Region issue, offset by a lower tax rate, resulting in a year over year increase in EPS. I am pleased to see the positive results from our continued focus on cash management and the corresponding contribution to our balance sheet strength.”
New Business Awards
Across the three lines of business, new business awards for the quarter were $2.3 billion. North American Public Sector (NPS) contributed approximately $0.5 billion, Business Solutions & Services (BSS) reported $0.8 billion and Managed Services Sector (MSS) closed $1.0 billion of new business.
Revenue by Line of Business
For the quarter, NPS revenue was $1.48 billion (up 0.3% from the third quarter last year), MSS revenue was $1.65 billion (up 2.2% from the third quarter last year) and BSS revenue was $899 million (up 1.4% from the third quarter last year).
Business Outlook
“The acquisitions we announced during the quarter further demonstrated the progress we are making in the expansion of our capabilities in Cyber Security and Healthcare,” continued Laphen. “We have also cloud-enabled more of our data centers and we are experiencing more demand for these services. Although the sluggish pace of new business awards in NPS is impacting the rate of our revenue growth, we remain confident our businesses will grow in line with our longer term projections and our Commercial businesses, which are already growing at a steady pace, will continue to benefit from the opportunities arising from Cloud, Cyber and Healthcare.”
Guidance
As a consequence of the above, the company modified its Fiscal Year 2011 guidance as follows:
| New Business | ~ $16 billion |
| Revenue | ~ $16.2 billion |
| Operating Income Margin | 8% – 8.5% |
| EPS | ~ $5.20 |
| Free Cash Flow | Greater than 90% of net income attributable to CSC common shareholders |
Conference Call and Webcast
CSC senior management will host a conference call and Webcast at 11:00 a.m. EST today. The conference call dial-in number for domestic callers is 888-312-3046. International callers will need to dial +1 719-325-2282. The pass code for all participants is 6914748. The Webcast and presentation slides can be accessed at www.csc.com/investor_relations.
Non-GAAP Measures
In an effort to provide investors with additional information regarding the Company’s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release non-GAAP information which management believes provides useful information to investors, including: operating income, operating margin, free cash flow and free cash flow as a percentage of net income attributable to CSC common shareholders. A reconciliation of the adjustments to GAAP results for this quarter and prior periods, as well as the rationale for management’s use of non-GAAP measures, is included in the tables below.
About CSC
CSC is a global leader in providing technology-enabled solutions and services through three primary lines of business. These include Business Solutions and Services, the Managed Services Sector and the North American Public Sector. CSC’s advanced capabilities include system design and integration, information technology and business process outsourcing, applications software development, Web and application hosting, mission support and management consulting. The company has been recognized as a leader in the industry, including being named by FORTUNE Magazine as one of the World’s Most Admired Companies for Information Technology Services (2010). Headquartered in Falls Church, Va., CSC has approximately 93,000 employees and reported revenue of $16.2 billion for the 12 months ended December 31, 2010. For more information, vis it 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 April 2, 2010 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.
Revenues by Segment
(preliminary and unaudited)
| | | Quarter Ended | |
| | | | | | | | | % of Total Revenue | |
(Dollars in millions) | | December 31, 2010 | | | January 1, 2010 | | | Fiscal 2011 | | | Fiscal 2010 | |
| | | | | | | | | | | | | |
| Business Solutions & Services | | $ | 899 | | | $ | 887 | | | | 23 | % | | | 23 | % |
| Managed Services Sector | | | 1,653 | | | | 1,618 | | | | 41 | | | | 41 | |
| Department of Defense | | | 1,141 | | | | 1,074 | | | | 28 | | | | 27 | |
| Civil agencies | | | 301 | | | | 353 | | | | 8 | | | | 9 | |
Other(1) | | | 40 | | | | 50 | | | | 1 | | | | 1 | |
| North American Public Sector | | | 1,482 | | | | 1,477 | | | | 37 | | | | 37 | |
| Corporate & Eliminations | | | (26 | ) | | | (29 | ) | | | (1 | ) | | | (1 | ) |
| Total Revenue | | $ | 4,008 | | | $ | 3,953 | | | | 100 | % | | | 100 | % |
| | | Nine Months Ended | |
| | | | | | | | | % of Total Revenue | |
(Dollars in millions) | | December 31, 2010 | | | January 1, 2010 | | | Fiscal 2011 | | | Fiscal 2010 | |
| | | | | | | | | | | | | |
| Business Solutions & Services | | $ | 2,589 | | | $ | 2,589 | | | | 22 | % | | | 22 | % |
| Managed Services Sector | | | 4,832 | | | | 4,761 | | | | 41 | | | | 40 | |
| Department of Defense | | | 3,424 | | | | 3,405 | | | | 29 | | | | 29 | |
| Civil agencies | | | 1,007 | | | | 1,062 | | | | 8 | | | | 9 | |
Other(1) | | | 152 | | | | 150 | | | | 1 | | | | 1 | |
| North American Public Sector | | | 4,583 | | | | 4,617 | | | | 38 | | | | 39 | |
| Corporate & Eliminations | | | (79 | ) | | | (75 | ) | | | (1 | ) | | | (1 | ) |
| | | $ | 11,925 | | | $ | 11,892 | | | | 100 | % | | | 100 | % |
| (1) | Other revenues consist of state, local and select foreign government as well as commercial contracts |
performed by the North American Public Sector reporting segment (NPS).
Consolidated Condensed Statements of Income
(preliminary and unaudited)
| | | | | | | | | | | | | |
| | | Quarter Ended | | | Nine Months Ended | |
| (In millions except per-share amounts) | | December 31, 2010 | | | January 1, 2010 | | | December 31, 2010 | | | January 1, 2010 | |
| | | | | | | | | | | | | |
| Revenues | | $ | 4,008 | | | $ | 3,953 | | | $ | 11,925 | | | $ | 11,892 | |
| Costs of services (excludes depreciation and amortization) | | | 3,232 | | | | 3,105 | | | | 9,611 | | | | 9,476 | |
| Selling, general and administrative | | | 243 | | | | 239 | | | | 734 | | | | 732 | |
| Depreciation and amortization | | | 269 | | | | 280 | | | | 798 | | | | 825 | |
| Interest expense | | | 43 | | | | 50 | | | | 126 | | | | 158 | |
| Interest income | | | (8 | ) | | | (6 | ) | | | (25 | ) | | | (20 | ) |
| Other income, net | | | (2 | ) | | | (6 | ) | | | (40 | ) | | | (15 | ) |
| Total costs and expenses | | $ | 3,777 | | | $ | 3,662 | | | $ | 11,204 | | | $ | 11,156 | |
| | | | | | | | | | | | | | | | | |
| Income before taxes | | | 231 | | | | 291 | | | | 721 | | | | 736 | |
| Taxes on income | | | (12 | ) | | | 75 | | | | 137 | | | | 166 | |
| Net Income | | | 243 | | | | 216 | | | | 584 | | | | 570 | |
| Less: Net income attributable to noncontrolling interest, net of tax | | | 1 | | | | 5 | | | | 15 | | | | 12 | |
| Net income attributable to CSC common shareholders | | $ | 242 | | | $ | 211 | | | $ | 569 | | | $ | 558 | |
| | | | | | | | | | | | | | | | | |
| Earnings per share | | | | | | | | | | | | | | | | |
| Basic | | $ | 1.57 | | | $ | 1.38 | | | $ | 3.69 | | | $ | 3.67 | |
| Diluted | | $ | 1.54 | | | $ | 1.36 | | | $ | 3.64 | | | $ | 3.62 | |
| | | | | | | | | | | | | | | | | |
| Cash dividend per common share | | $ | .20 | | | $ | - | | | $ | .50 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Weighted average common shares outstanding for: | | | | | | | | | | | | | | | | |
| Basic EPS | | | 154.526 | | | | 152.784 | | | | 154.378 | | | | 152.052 | |
| Diluted | | | 156.716 | | | | 155.430 | | | | 156.434 | | | | 154.279 | |
Selected Balance Sheet Data
(preliminary and unaudited)
(Amounts in millions) | | December 31, 2010 | | | April 2, 2010 | |
| Assets | | | | | | |
| Cash and cash Equivalents | | $ | 1,629 | | | $ | 2,784 | |
| Receivables, net | | | 3,804 | | | | 3,849 | |
| Prepaid expenses and other current assets | | | 2,032 | | | | 1,789 | |
| Total current assets | | | 7,465 | | | | 8,422 | |
| | | | | | | | | |
| Property and equipment, net | | | 2,364 | | | | 2,241 | |
| Outsourcing contract costs, net | | | 629 | | | | 642 | |
| Software, net | | | 504 | | | | 511 | |
| Goodwill | | | 3,964 | | | | 3,866 | |
| Other assets | | | 830 | | | | 773 | |
| Total assets | | $ | 15,756 | | | $ | 16,455 | |
| | | | | | | | | |
| Liabilities | | | | | | | | |
| Short-term debt and current maturities of long-term debt | | $ | 471 | | | $ | 75 | |
| Accounts payable | | | 390 | | | | 409 | |
| Accrued payroll and related costs | | | 709 | | | | 821 | |
| Other accrued expenses | | | 1,267 | | | | 1,344 | |
| Deferred revenue | | | 1,085 | | | | 1,189 | |
| Income taxes payable and deferred income taxes | | | 270 | | | | 284 | |
| Total current liabilities | | | 4,192 | | | | 4,122 | |
| | | | | | | | | |
| Long-term debt, net | | | 2,343 | | | | 3,669 | |
| Income tax liabilities and deferred income taxes | | | 533 | | | | 550 | |
| Other long-term liabilities | | | 1,466 | | | | 1,606 | |
| | | | | | | | | |
| Total equity | | | 7,222 | | | | 6,508 | |
| | | | | | | | | |
| Total liabilities and equity | | $ | 15,756 | | | $ | 16,455 | |
| | | | | | | | | |
| Debt as a percentage of total capitalization | | | 28.0 | % | | | 36.5 | % |
Consolidated Condensed Statement of Cash Flows
(preliminary and unaudited)
| | | Nine Months Ended | |
(Amounts in millions) | | December 31, 2010 | | | January 1, 2010 | |
| Cash flows from operating activities: | | | | | | |
| Net income | | $ | 584 | | | $ | 570 | |
| | | | | | | | | |
Adjustments to reconcile net income to net cash provided by (used in) Operating activities: | | | | | | | | |
| Depreciation and amortization and other non-cash charges | | | 857 | | | | 878 | |
| Stock based compensation | | | 46 | | | | 49 | |
| Provision for losses on accounts receivable | | | 7 | | | | 17 | |
| Unrealized foreign currency exchange gain, net | | | (5 | ) | | | (44 | ) |
| Gain on dispositions | | | (33 | ) | | | (7 | ) |
Changes in assets and liabilities, net of effects of acquisitions and dispositions: | | | | | | | | |
| Increase in assets | | | (50 | ) | | | (173 | ) |
| Decrease in liabilities | | | (602 | ) | | | (883 | ) |
| | | | | | | | | |
| Net cash provided by operating activities | | | 804 | | | | 407 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchases of property and equipment | | | (513 | ) | | | (437 | ) |
| Outsourcing contracts | | | (79 | ) | | | (106 | ) |
| Business acquisitions, net of cash acquired | | | (158 | ) | | | (5 | ) |
| Business dispositions | | | 54 | | | | 14 | |
| Software purchased and developed | | | (127 | ) | | | (106 | ) |
| Other investing activities, net | | | 88 | | | | 126 | |
| Net cash used in investing activities | | | (735 | ) | | | (514 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Net borrowing (repayments) of commercial paper | | | 335 | | | | (1 | ) |
| Borrowings under lines of credit | | | 47 | | | | 101 | |
| Repayments of borrowings under lines of credit | | | (1,545 | ) | | | (43 | ) |
| Principal payments on long-term debt | | | (63 | ) | | | (27 | ) |
| Proceeds from stock options | | | 26 | | | | 79 | |
| Repurchase of common stock and acquisition of treasury stock | | | - | | | | (2 | ) |
| Excess tax benefit from stock-based compensation | | | 2 | | | | 7 | |
| Dividend payments | | | (46 | ) | | | - | |
| Other financing activities, net | | | (19 | ) | | | - | |
| Net cash (used in) provided by financing activities | | | (1,263 | ) | | | 114 | |
| | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | 39 | | | | 123 | |
| | | | | | | | | |
| Net (decrease) increase in cash and cash equivalents | | | (1,155 | ) | | | 130 | |
| Cash and cash equivalents at beginning of year | | | 2,784 | | | | 2,297 | |
| Cash and cash equivalents at end of period | | $ | 1,629 | | | $ | 2,427 | |
&# 160;
Non-GAAP Financial Measures
The following tables reconcile operating income 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 reflec t the complete financial results of the Company. CSC compensates for these limitations by providing reconciliation between operating income and income before taxes.
GAAP Reconciliations
Operating Income (preliminary and unaudited) | | Quarter Ended | | | Nine Months Ended | |
| (Amounts in millions) | | December 31, 2010 | | | January 1, 2010 | | | December 31, 2010 | | | January 1, 2010 | |
| | | | | | | | | | | | | |
| Operating income | | $ | 298 | | | $ | 377 | | | $ | 887 | | | $ | 982 | |
| Corporate G&A | | | (34 | ) | | | (48 | ) | | | (105 | ) | | | (123 | ) |
| Interest expense | | | (43 | ) | | | (50 | ) | | | (126 | ) | | | (158 | ) |
| Interest income | | | 8 | | | | 6 | | | | 25 | | | | 20 | |
| Other income, net | | | 2 | | | | 6 | | | | 40 | | | | 15 | |
| Income before taxes | | $ | 231 | | | $ | 291 | | | $ | 721 | | | $ | 736 | |
Free Cash Flow (preliminary and unaudited) | | Quarter Ended | | | Nine Months Ended | |
| (Amounts in millions) | | December 31, 2010 | | | January 1, 2010 | | | December 31, 2010 | | | January 1, 2010 | |
| | | | | | | | | | | | | |
| Free cash flow | | $ | 253 | | | $ | (107 | ) | | $ | 110 | | | $ | (140 | ) |
| Net cash used in investing activities | | | 277 | | | | 228 | | | | 735 | | | | 514 | |
| Business acquisitions, net of cash acquired | | | (93 | ) | | | - | | | | (158 | ) | | | (5 | ) |
| Business dispositions | | | 2 | | | | 2 | | | | 54 | | | | 14 | |
| Payment on capital leases and other long-term asset financings | | | 23 | | | | 8 | | | | 63 | | | | 24 | |
| Net cash provided by operating activities | | $ | 462 | | | $ | 131 | | | $ | 804 | | | $ | 407 | |
| Net cash used in investing activities | | $ | (277 | ) | | $ | (228 | ) | | $ | (735 | ) | | $ | (514 | ) |
| Net cash (used in) provided by financing activities | | $ | (1,216 | ) | | $ | 105 | | | $ | (1,263 | ) | | $ | 114 | |
| | | | | | | | | | | | | | | | | |
| Operating income | | $ | 298 | | | $ | 377 | | | $ | 887 | | | $ | 982 | |
| Operating margin | | | 7.44 | % | | | 9.54 | % | | | 7.44 | % | | | 8.26 | % |
| Pre-tax margin | | | 5.76 | % | | | 7.36 | % | | | 6.05 | % | | | 6.19 | % |
Note: Payments on capital leases and other long-term asset financings, and proceeds from the sale of property and equipment (included in investment activities) are included in the calculation of Free Cash Flow (FCF). Operating margin is defined as operating income as a percentage of revenue. Pre-tax margin is defined as income before taxes as a percentage of revenue.
