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| | Moved on Business Wire |
| | November 3, 2016 |
CSC Delivers Revenue Growth and Sequential Commercial Margin Expansion in Second Quarter 2017
News Release -- November 3, 2016
| |
| • | Q2 Earnings per Share from Continuing Operations of $0.10 includes Cumulative Impact of Certain Items of $(0.51) per Share |
| |
| • | Q2 Non-GAAP Earnings per Share from Continuing Operations was $0.61, compared with $0.55 in prior year |
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| • | Income from Continuing Operations of $21 Million includes Certain Items of $(73) Million |
| |
| • | Consolidated Segment Commercial Operating Income of $109 Million, adjusted for Certain Items is $171 Million and Consolidated Segment Commercial Operating Margin on the same basis is 9.1%, compared with 9.9% in the prior year |
| |
| • | Q2 Net Cash from Operating Activities of $192 Million |
| |
| • | Adjusted Free Cash Flow of $75 Million for Q2 |
| |
| • | FY17 Non-GAAP EPS from Continuing Operations Target Remains $2.75 to $3.00 |
TYSONS, Va., Nov. 3, 2016 –CSC (NYSE: CSC) today reported results for the second quarter of fiscal year 2017.
“In the second quarter, CSC delivered revenue growth and sequential margin improvement as we continue to execute on our transformation strategy," said Mike Lawrie, chairman, president and CEO. "We have integrated our recent acquisitions, and are growing our next generation offerings, such as Business Process Services. Recent wins such as MetLife are a strong confirmation of our leadership in the insurance market and other sectors. Today, we announced a global alliance with PwC to deliver end-to-end digital transformation solutions to our clients. Finally, we remain on track to close our proposed merger with the Enterprise Services business of Hewlett Packard Enterprise on or about April 1st.”
Financial Highlights
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| • | Diluted earnings per share from continuing operations were $0.10 in the second quarter, compared with $0.66 in the year-ago period. Diluted earnings per share from continuing operations included $(0.13) per share of restructuring costs and $(0.38) per share of transaction and other integration-related costs. |
| |
| • | Non-GAAP diluted earnings per share from continuing operations excluding these items were $0.61, compared with $0.55 in the prior period. |
| |
| • | (Loss) income from continuing operations before taxes was $(1) million for the second quarter, compared with $47 million in the prior year and includes $(25) million of restructuring and $(78) million of transaction and other integration-related costs. Excluding the impact of these items, non-GAAP income from continuing operations, before taxes was $102 million compared with $95 million a year ago. |
| |
| • | Consolidated segment adjusted commercial operating income, which includes GBS and GIS, excluding certain items, was $171 million compared with $173 million in the second quarter of fiscal 2016. Consolidated segment adjusted commercial operating margin on the same basis was 9.1% compared to 9.9% in the prior year. |
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| • | Net cash provided by operating activities was $192 million in the second quarter, compared to $122 million in the prior year. |
| |
| • | Adjusted free cash flow was $75 million in the second quarter, compared to $58 million in the prior year. During the second quarter of fiscal 2016, CSC’s net cash provided by operating activities and adjusted free cash flow included the results of its since-divested U.S. federal IT services business, CSRA. |
Global Business Services
GBS revenue of $1,035 million in the quarter compares with $891 million in the year ago quarter, an increase of 16.2%. GBS revenue increased 19.2% year-over-year in constant currency. The GBS revenue increase included the contributions of our recent acquisitions. GBS consolidated segment operating margin in the quarter, excluding the impact of certain items, was 10.1% compared to 12.3% in the prior year. New business awards for GBS were $2 billion in the second quarter.
Global Infrastructure Services
GIS revenue of $836 million in the quarter compares with $854 million in the year-ago quarter, a decrease of 2.1%. GIS revenue increased 1.1% year-over-year in constant currency. The GIS revenue increase was driven by the growth in our next generation offerings and the inclusion of our recent acquisitions. GIS consolidated segment operating margin in the quarter, excluding the impact of certain items, was 7.9% up from 7.4% in the prior year. New business awards for GIS were $0.5 billion in the second quarter.
Returning Capital to Shareholders
During the second quarter, CSC returned $20 million to shareholders consisting of common stock dividends.
CSC had 140,770,133 basic shares outstanding on September 30, 2016.
Earnings Conference Call and Webcast
CSC senior management will host a conference call and webcast today at 5 p.m. EDT. The dial-in number for domestic callers is 800-218-2154. Callers who reside outside of the United States or Canada should dial 913-981-5550. The passcode for all participants is 7167172. The webcast audio and any presentation slides will be available on CSC’s Investor Relations website.
A replay of the conference call will be available from approximately two hours after the conclusion of the call until November 15, 2016. The replay dial-in number is 888-203-1112 for domestic callers and 719-457-0820 for callers who reside outside of the United States and Canada. The replay passcode is also 7167172. 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 and unaudited
results as determined by U.S. generally accepted accounting principles (GAAP), the Company has also disclosed in this press release preliminary non-GAAP information and certain further adjustments thereto, which management believes provides useful information to investors, including: constant currency, consolidated segment operating income, consolidated segment commercial operating income, consolidated segment commercial operating margin, consolidated segment adjusted operating income, consolidated segment operating and adjusted operating margin, earnings before interest and taxes (EBIT), adjusted EBIT, EBIT and adjusted EBIT margin, adjusted free cash flow and non-GAAP results including non-GAAP income from continuing operations and non-GAAP diluted earnings per share from continuing operations. 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 are included below.
About CSC
CSC (NYSE: CSC) leads clients on their digital transformation journeys. The company provides innovative next-generation technology services and solutions that leverage deep industry expertise, global scale, technology independence and an extensive partner community. CSC serves leading commercial and international public sector organizations throughout the world. CSC is a Fortune 500 company and ranked among the best corporate citizens. 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.” 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 1, 2016 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.
# # #
Contact:
Richard Adamonis, Corporate Media Relations, 862.228.3481, radamonis@csc.com
Neil DeSilva, Global M&A and Investor Relations, 703.245.9700, neildesilva@csc.com
Note: On November 27, 2015, CSC completed the separation of CSRA. The Company’s results of operations for the second quarter and first six months of fiscal 2016 have been adjusted to reflect the separation.
Business Segment Revenues, Consolidated Segment Operating Income and Consolidated Segment Operating Margins
(preliminary and unaudited)
|
| | | | | | | | | | | | | | |
| Revenues by Segment | | | | | | | | |
| | | Three Months Ended |
| (in millions) | | September 30, 2016 | | October 2, 2015 | | % Change | | % Change at Constant Currency(1) |
| Global Business Services | | $ | 1,035 |
| | $ | 891 |
| | 16.2 | % | | 19.2 | % |
| Global Infrastructure Services | | 836 |
| | 854 |
| | (2.1 | )% | | 1.1 | % |
| Total Revenues | | $ | 1,871 |
| | $ | 1,745 |
| | 7.2 | % | | 10.3 | % |
|
| | | | | | | | | | | | | | |
| Revenues by Segment | | | | | | | | |
| | | Six Months Ended |
| (in millions) | | September 30, 2016 | | October 2, 2015 | | % Change | | % Change at Constant Currency(1) |
| Global Business Services | | $ | 2,084 |
| | $ | 1,810 |
| | 15.1 | % | | 17.8 | % |
| Global Infrastructure Services | | 1,717 |
| | 1,739 |
| | (1.3 | )% | | 1.4 | % |
| Total Revenues | | $ | 3,801 |
| | $ | 3,549 |
| | 7.1 | % | | 9.7 | % |
(1) Selected references are made on a “constant currency basis” so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby providing comparisons of operating performance from period to period. Financial results on a “constant currency basis” are non-U.S. Generally Accepted Accounting Principle (GAAP) measures calculated by translating current period activity into U.S. dollars using the comparable prior period’s currency conversion rates. This approach is used for all results where the functional currency is not the U.S. dollar.
|
| | | | | | | | | | | | | | |
| Consolidated Segment Operating Income and Consolidated Segment Operating Margins by Segment |
| | | |
| | | Three Months Ended |
| | | September 30, 2016 | | October 2, 2015 |
| (in millions) | | Consolidated Segment Operating Income | | Consolidated Segment Operating Margin | | Consolidated Segment Operating Income | | Consolidated Segment Operating Margin |
| Global Business Services | | $ | 83 |
| | 8.0 | % | | $ | 101 |
| | 11.3 | % |
| Global Infrastructure Services | | 26 |
| | 3.1 | % | | 64 |
| | 7.5 | % |
| Consolidated Segment Commercial Operating Income | | 109 |
| | 5.8 | % | | 165 |
| | 9.5 | % |
| Corporate | | (11 | ) | | — |
| | (35 | ) | | — |
|
| Total Consolidated Segment Operating Income | | $ | 98 |
| | 5.2 | % | | $ | 130 |
| | 7.4 | % |
|
| | | | | | | | | | | | | | |
| | | Six Months Ended |
| | | September 30, 2016 | | October 2, 2015 |
| (in millions) | | Consolidated Segment Operating Income | | Consolidated Segment Operating Margin | | Consolidated Segment Operating Income | | Consolidated Segment Operating Margin |
| Global Business Services | | 156 |
| | 7.5 | % | | $ | 198 |
| | 10.9 | % |
| Global Infrastructure Services | | 22 |
| | 1.3 | % | | 117 |
| | 6.7 | % |
| Consolidated Segment Commercial Operating Income | | 178 |
| | 4.7 | % | | 315 |
| | 8.9 | % |
| Corporate | | (28 | ) | | — |
| | (41 | ) | | — |
|
| Total Consolidated Segment Operating Income | | $ | 150 |
| | 3.9 | % | | $ | 274 |
| | 7.7 | % |
Condensed Consolidated Statements of Operations
(preliminary and unaudited)
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| (in millions, except per-share amounts) | | September 30, 2016 | | October 2, 2015 | | September 30, 2016 | | October 2, 2015 |
| | | | | | | | | |
| Revenues | | $ | 1,871 |
| | $ | 1,745 |
| | $ | 3,801 |
| | $ | 3,549 |
|
| | | | | | | | | |
| Costs of services (excludes depreciation and amortization and restructuring costs) | | 1,363 |
| | 1,237 |
| | 2,784 |
| | 2,509 |
|
| Selling, general and administrative (excludes depreciation and amortization and restructuring costs) | | 293 |
| | 269 |
| | 598 |
| | 540 |
|
| Depreciation and amortization | | 167 |
| | 168 |
| | 333 |
| | 342 |
|
| Restructuring costs | | 25 |
| | 5 |
| | 82 |
| | 5 |
|
| Interest expense | | 29 |
| | 29 |
| | 54 |
| | 59 |
|
| Interest income | | (8 | ) | | (7 | ) | | (18 | ) | | (18 | ) |
| Other expense (income), net | | 3 |
| | (3 | ) | | 5 |
| | (7 | ) |
| Total costs and expenses | | 1,872 |
| | 1,698 |
| | 3,838 |
| | 3,430 |
|
| | | | | | | | | |
| (Loss) income from continuing operations, before taxes | | (1 | ) | | 47 |
| | (37 | ) | | 119 |
|
| Income tax benefit | | (22 | ) | | (46 | ) | | (38 | ) | | (39 | ) |
| Income from continuing operations | | 21 |
| | 93 |
| | 1 |
| | 158 |
|
| Income from discontinued operations, net of taxes | | — |
| | 84 |
| | — |
| | 186 |
|
| Net income | | 21 |
| | 177 |
| | 1 |
| | 344 |
|
| Less: net income attributable to noncontrolling interest, net of tax | | 6 |
| | 6 |
| | 7 |
| | 10 |
|
| Net income (loss) attributable to CSC common stockholders | | $ | 15 |
| | $ | 171 |
| | $ | (6 | ) | | $ | 334 |
|
| | | | | | | | | |
| Earnings (loss) per common share | | | | | | | | |
| Basic: | | | | | | | | |
| Continuing operations | | $ | 0.11 |
| | $ | 0.68 |
| | $ | (0.04 | ) | | $ | 1.14 |
|
| Discontinued operations | | — |
| | 0.56 |
| | — |
| | 1.28 |
|
| | | $ | 0.11 |
| | $ | 1.24 |
| | $ | (0.04 | ) | | $ | 2.42 |
|
| Diluted: | | | | | | | | |
| Continuing operations | | $ | 0.10 |
| | $ | 0.66 |
| | $ | (0.04 | ) | | $ | 1.12 |
|
| Discontinued operations | | — |
| | 0.55 |
| | — |
| | 1.24 |
|
| | | $ | 0.10 |
| | $ | 1.21 |
| | $ | (0.04 | ) | | $ | 2.36 |
|
| | | | | | | | | |
| Cash dividend per common share | | $ | 0.14 |
| | $ | 0.23 |
| | $ | 0.28 |
| | $ | 0.46 |
|
| | | | | | | | | |
| Weighted average common shares outstanding for: | | | | | | | | |
| Basic EPS | | 140.53 |
| | 138.30 |
| | 139.76 |
| | 138.11 |
|
| Diluted EPS | | 143.78 |
| | 140.85 |
| | 139.76 |
| | 141.27 |
|
Selected Balance Sheet Data
(preliminary and unaudited)
|
| | | | | | | | |
| | | As of |
| (in millions) | | September 30, 2016 | | April 1, 2016 |
| | | | | |
| Assets | | | | |
| Cash and cash equivalents | | $ | 1,054 |
| | $ | 1,178 |
|
| Receivables, net | | 1,893 |
| | 1,831 |
|
| Prepaid expenses and other current assets | | 379 |
| | 403 |
|
| Total current assets | | 3,326 |
| | 3,412 |
|
| | | | | |
| Intangible assets, net | | 1,882 |
| | 1,328 |
|
| Goodwill | | 1,843 |
| | 1,277 |
|
| Deferred income taxes, net | | 327 |
| | 345 |
|
| Property and equipment, net | | 984 |
| | 1,025 |
|
| Other assets | | 457 |
| | 349 |
|
| Total Assets | | $ | 8,819 |
| | $ | 7,736 |
|
| | | | | |
| Liabilities | | | | |
| Short-term debt and current maturities of long-term debt | | 794 |
| | 710 |
|
| Accounts payable | | 281 |
| | 341 |
|
| Accrued payroll and related costs | | 285 |
| | 288 |
|
| Accrued expenses and other current liabilities | | 787 |
| | 720 |
|
| Deferred revenue and advance contract payments | | 537 |
| | 509 |
|
| Income taxes payable | | 17 |
| | 40 |
|
| Total current liabilities | | 2,701 |
| | 2,608 |
|
| | | | | |
| Long-term debt, net of current maturities | | 2,506 |
| | 1,934 |
|
| Non-current deferred revenue | | 313 |
| | 348 |
|
| Deferred tax liabilities | | 221 |
| | 181 |
|
| Non-current income tax liabilities | | 184 |
| | 175 |
|
| Other liabilities | | 569 |
| | 458 |
|
| Total Liabilities | | 6,494 |
| | 5,704 |
|
| | | | | |
| Total Equity | | 2,325 |
| | 2,032 |
|
| | | | | |
| Total Liabilities and Equity | | $ | 8,819 |
| | $ | 7,736 |
|
Condensed Consolidated Statements of Cash Flows
(preliminary and unaudited)
|
| | | | | | | | |
| | | Six Months Ended |
| (in millions) | | September 30, 2016 | | October 2, 2015 |
| Cash flows from operating activities: | | | | |
| Net income | | $ | 1 |
| | $ | 344 |
|
| Adjustments to reconcile net loss income to net cash provided by operating activities: | | | | |
| Depreciation and amortization | | 339 |
| | 410 |
|
| Stock-based compensation | | 35 |
| | 7 |
|
| Gain on dispositions | | — |
| | (55 | ) |
| Unrealized foreign currency exchange loss | | 90 |
| | 7 |
|
| Other non-cash charges, net | | — |
| | 12 |
|
| Changes in assets and liabilities, net of acquisitions and dispositions: | | | | |
| Decrease in assets | | 64 |
| | 176 |
|
| Decrease in liabilities | | (287 | ) | | (417 | ) |
| Net cash provided by operating activities | | 242 |
| | 484 |
|
| | | | | |
| Cash flows from investing activities: | | | | |
| Purchases of property and equipment | | (143 | ) | | (184 | ) |
| Payments for outsourcing contract costs | | (49 | ) | | (53 | ) |
| Software purchased and developed | | (78 | ) | | (104 | ) |
| Payments for acquisitions, net of cash acquired | | (434 | ) | | (236 | ) |
| Business dispositions | | — |
| | 34 |
|
| Proceeds from sale of assets | | 9 |
| | 50 |
|
| Other investing activities, net | | (26 | ) | | 12 |
|
| Net cash used in investing activities | | (721 | ) | | (481 | ) |
| | | | | |
| Cash flows from financing activities: | | | | |
| Borrowings of commercial paper | | 1,163 |
| | 299 |
|
| Repayments of commercial paper | | (1,058 | ) | | (84 | ) |
| Borrowings under lines of credit | | 920 |
| | 1,310 |
|
| Repayment of borrowings under lines of credit | | (529 | ) | | (1,150 | ) |
| Debt borrowings | | 107 |
| | — |
|
| Debt repayments | | (188 | ) | | (461 | ) |
| Proceeds from stock options | | 42 |
| | 45 |
|
| Taxes paid related to net share settlements of stock-based compensation awards | | (12 | ) | | (27 | ) |
| Repurchase of common stock | | — |
| | (118 | ) |
| Dividend payments | | (39 | ) | | (64 | ) |
| Other financing activities, net | | (30 | ) | | (6 | ) |
| Net cash provided by (used in) financing activities | | 376 |
| | (256 | ) |
| Effect of exchange rate changes on cash and cash equivalents | | (21 | ) | | (27 | ) |
| Net decrease in cash and cash equivalents | | (124 | ) | | (280 | ) |
| Cash and cash equivalents at beginning of year | | 1,178 |
| | 2,098 |
|
| Cash and cash equivalents at end of period | | $ | 1,054 |
| | $ | 1,818 |
|
Non-GAAP Financial Measures
We present non-GAAP financial measures of performance which are derived from the condensed consolidated financial information of CSC. These non-GAAP financial measures include consolidated segment operating income and margin, consolidated segment adjusted operating income and margin, consolidated segment commercial operating income and margin, earnings before interest and taxes (EBIT), adjusted EBIT, EBIT and adjusted EBIT margin, non-GAAP income from continuing operations before taxes, non-GAAP net income from continuing operations, non-GAAP EPS from continuing operations and adjusted free cash flow.
We present these non-GAAP financial measures to supplement financial information presented on a GAAP basis. Non-GAAP financial measures exclude certain items from GAAP which management believes are not indicative of core operating performance. These non-GAAP financial measures allow management to better understand the consolidated financial performance of the Company exclusive of corporate wide strategic decisions. Management believes that adjusting for certain items not indicative of our core operating performance provides investors with additional measures to evaluate our operating financial performance on a more comparable basis. We believe the non-GAAP measures we provide are also considered important measures used by financial analysts covering CSC and its peers.
There are limitations to the use of the non-GAAP financial measures we present. One of the limitations is that they do not reflect complete financial results. We compensate for this limitation by providing a reconciliation between our non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP. Additionally, other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.
Reconciliation of Non-GAAP Financial Measures
Our non-GAAP adjustments include:
| |
| • | Restructuring costs - Reflects restructuring costs related to workforce optimization and real estate charges. |
| |
| • | Transaction and other integration-related costs - Reflects costs related to (1) the Separation, (2) integration planning, financing and advisory fees associated with the proposed merger with the Enterprise Services segment of HPE, and (3) acquisitions and related amortization. |
| |
| • | Certain overhead costs - Reflects costs historically allocated to CSRA but not included in discontinued operations due to accounting rules. These costs are expected to be largely eliminated on a prospective basis. |
| |
| • | U.S. Pension and OPEB - Reflects the impact of certain U.S. pension and other postretirement benefit (OPEB) plans historically included in CSC financial results that have been transferred to CSRA as part of the separation. |
| |
| • | SEC settlement-related items - Reflects costs associated with certain SEC charges and settlements. |
| |
| • | Tax adjustment - Reflects the adoption of a new accounting standard in fiscal 2016 changing excess tax benefits on stock-based compensation to be recorded as a reduction to income tax expense, the release of tax valuation allowances in certain jurisdictions, and the application of an approximate 20% tax rate for fiscal 2016 periods, which is at the low end of the prospective targeted effective tax rate range of 20% to 25% and effectively excludes the impact of discrete tax adjustments for those periods. |
Reconciliation of Non-GAAP Financial Measures
(preliminary and unaudited)
Consolidated Segment Operating Income and Consolidated Segment Adjusted Operating Income
We define consolidated segment operating income as revenue less costs of services, depreciation and amortization expense, restructuring costs and segment SG&A expenses. Consolidated segment operating income excludes corporate G&A and pension and OPEB actuarial and settlement losses. A reconciliation of consolidated segment operating income and consolidated segment adjusted operating income to (loss) income from continuing operations, before taxes is as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| (in millions) | | September 30, 2016 | | October 2, 2015 | | September 30, 2016 | | October 2, 2015 |
| Consolidated segment adjusted operating income | | $ | 160 |
| | $ | 156 |
| | $ | 304 |
| | $ | 304 |
|
| Restructuring costs | | (25 | ) | | (20 | ) | | (82 | ) | | (20 | ) |
| Transaction and integration-related costs | | (37 | ) | | (2 | ) | | (72 | ) | | (2 | ) |
| Certain overhead costs | | — |
| | (18 | ) | | — |
| | (36 | ) |
| U.S. Pension and OPEB | | — |
| | 14 |
| | — |
| | 28 |
|
| Consolidated segment operating income | | 98 |
| | 130 |
| | 150 |
| | 274 |
|
| Corporate G&A | | (75 | ) | | (64 | ) | | (145 | ) | | (121 | ) |
| Pension and OPEB actuarial and settlement losses | | — |
| | — |
| | (1 | ) | | — |
|
| Interest expense | | (29 | ) | | (29 | ) | | (54 | ) | | (59 | ) |
| Interest income | | 8 |
| | 7 |
| | 18 |
| | 18 |
|
| Other (expense) income, net | | (3 | ) | | 3 |
| | (5 | ) | | 7 |
|
| (Loss) income from continuing operations, before taxes | | $ | (1 | ) | | $ | 47 |
| | $ | (37 | ) | | $ | 119 |
|
| | | | | | | | | |
| Consolidated segment adjusted operating margin | | 8.6 | % | | 8.9 | % | | 8.0 | % | | 8.6 | % |
| Consolidated segment operating margin | | 5.2 | % | | 7.4 | % | | 3.9 | % | | 7.7 | % |
Earnings Before Interest and Taxes and Adjusted Earnings Before Interest and Taxes
A reconciliation of EBIT and adjusted EBIT to net (loss) income is as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| (in millions) | | September 30, 2016 | | October 2, 2015 | | September 30, 2016 | | October 2, 2015 |
| Adjusted EBIT | | $ | 120 |
| | $ | 117 |
| | $ | 226 |
| | $ | 233 |
|
| Restructuring costs | | (25 | ) | | (20 | ) | | (82 | ) | | (20 | ) |
| Transaction and integration-related costs | | (75 | ) | | (7 | ) | | (145 | ) | | (10 | ) |
| Certain overhead costs | | — |
| | (33 | ) | | — |
| | (66 | ) |
| U.S. Pension and OPEB | | — |
| | 14 |
| | — |
| | 28 |
|
| SEC settlement-related items | | — |
| | (2 | ) | | — |
| | (5 | ) |
| EBIT | | $ | 20 |
| | $ | 69 |
| | $ | (1 | ) | | $ | 160 |
|
| Interest expense | | (29 | ) | | (29 | ) | | (54 | ) | | (59 | ) |
| Interest income | | 8 |
| | 7 |
| | 18 |
| | 18 |
|
| Income tax benefit | | 22 |
| | 46 |
| | 38 |
| | 39 |
|
| (Loss) income from continuing operations | | $ | 21 |
| | $ | 93 |
| | $ | 1 |
| | $ | 158 |
|
| Income from discontinued operations, net of taxes | | — |
| | 84 |
| | — |
| | 186 |
|
| Net income | | $ | 21 |
| | $ | 177 |
| | $ | 1 |
| | $ | 344 |
|
| | | | | | | | | |
| Adjusted EBIT margin | | 6.4 | % | | 6.7 | % | | 5.9 | % | | 6.6 | % |
| EBIT margin | | 1.1 | % | | 4.0 | % | | — | % | | 4.5 | % |
Adjusted Free Cash Flow
(preliminary and unaudited)
A reconciliation of net cash provided by operating activities to adjusted free cash flow is as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| (in millions) | | September 30, 2016 | | October 2, 2015 | | September 30, 2016 | | October 2, 2015 |
| Net cash provided by operating activities | | $ | 192 |
| | $ | 122 |
| | $ | 242 |
| | $ | 484 |
|
| Net cash used in investing activities | | (154 | ) | | (397 | ) | | (678 | ) | | (481 | ) |
| Acquisitions, net of cash acquired | | 11 |
| | 236 |
| | 434 |
| | 236 |
|
| Business dispositions | | — |
| | — |
| | — |
| | (34 | ) |
| Short-term investments | | — |
| | — |
| | — |
| | — |
|
| Payments on capital leases and other long-term asset financings | | (50 | ) | | (42 | ) | | (95 | ) | | (111 | ) |
| Payments on transaction and integration-related costs | | 50 |
| | 49 |
| | 143 |
| | 60 |
|
| Payments on restructuring costs | | 26 |
| | 32 |
| | 61 |
| | 51 |
|
| SEC settlement-related payments | | — |
| | 1 |
| | — |
| | 187 |
|
| Sale of NPS accounts receivables | | $ | — |
| | $ | 57 |
| | $ | — |
| | $ | (176 | ) |
| Adjusted free cash flow | | $ | 75 |
| | $ | 58 |
| | $ | 107 |
| | $ | 216 |
|
(1) Excludes capital expenditures financed through CSC Finco and other investments.
Consolidated Segment Adjusted Operating Income and Consolidated Segment Adjusted Operating Margin
A reconciliation of consolidated segment operating income to consolidated segment adjusted operating income is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, 2016 |
| (in millions) | | Consolidated Segment Operating Income | | Restructuring costs | | Transaction and integration-related costs | | Consolidated Segment Adjusted Operating Income | | Consolidated Segment Adjusted Operating Margin |
| Global Business Services | | $ | 83 |
| | $ | (2 | ) | | $ | (20 | ) | | $ | 105 |
| | 10.1 | % |
| Global Infrastructure Services | | 26 |
| | (23 | ) | | (17 | ) | | 66 |
| | 7.9 | % |
| Total Commercial | | 109 |
| | (25 | ) | | (37 | ) | | 171 |
| | 9.1 | % |
| Corporate | | (11 | ) | | — |
| | — |
| | (11 | ) | | — |
|
| Total | | $ | 98 |
| | $ | (25 | ) | | $ | (37 | ) | | $ | 160 |
| | 8.6 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | | Six months ended September 30, 2016 |
| (in millions) | | Consolidated Segment Operating Income | | Restructuring costs | | Transaction and integration-related costs | | Consolidated Segment Adjusted Operating Income | | Consolidated Segment Adjusted Operating Margin |
| Global Business Services | | $ | 156 |
| | (22 | ) | | (37 | ) | | $ | 215 |
| | 10.3 | % |
| Global Infrastructure Services | | 22 |
| | (60 | ) | | (35 | ) | | 117 |
| | 6.8 | % |
| Total Commercial | | 178 |
| | (82 | ) | | (72 | ) | | 332 |
| | 8.7 | % |
| Corporate | | (28 | ) | | — |
| | — |
| | (28 | ) | | — |
|
| Total | | $ | 150 |
| | $ | (82 | ) | | $ | (72 | ) | | $ | 304 |
| | 8.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended October 2, 2015 |
| (in millions) | | Consolidated Segment Operating Income | | Certain overhead costs | | U.S. Pension and OPEB | | Restructuring costs | | Transaction and integration-related costs | | Consolidated Segment Adjusted Operating Income | | Consolidated Segment Adjusted Operating Margin |
| Global Business Services | | $ | 101 |
| | — |
| | 4 |
| | $ | (12 | ) | | $ | (1 | ) | | $ | 110 |
| | 12.3 | % |
| Global Infrastructure Services | | 64 |
| | — |
| | 10 |
| | (8 | ) | | (1 | ) | | 63 |
| | 7.4 | % |
| Total Commercial | | 165 |
| | — |
| | 14 |
| | (20 | ) | | (2 | ) | | 173 |
| | 9.9 | % |
| Corporate | | (35 | ) | | (18 | ) | | — |
| | — |
| | — |
| | (17 | ) | | — |
|
| Total | | $ | 130 |
| | $ | (18 | ) | | $ | 14 |
| | $ | (20 | ) | | $ | (2 | ) | | $ | 156 |
| | 8.9 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six months ended October 2, 2015 |
| (in millions) | | Consolidated Segment Operating Income | | Certain overhead costs | | U.S. Pension and OPEB | | Restructuring costs | | Transaction and integration-related costs | | Consolidated Segment Adjusted Operating Income | | Consolidated Segment Adjusted Operating Margin |
| Global Business Services | | $ | 198 |
| | — |
| | 8 |
| | (12 | ) | | (1 | ) | | $ | 203 |
| | 11.2 | % |
| Global Infrastructure Services | | 117 |
| | — |
| | 20 |
| | (8 | ) | | (1 | ) | | 106 |
| | 6.1 | % |
| Total Commercial | | 315 |
| | — |
| | 28 |
| | (20 | ) | | (2 | ) | | 309 |
| | 8.7 | % |
| Corporate | | (41 | ) | | (36 | ) | | — |
| | — |
| | — |
| | (5 | ) | | — |
|
| Total | | $ | 274 |
| | $ | (36 | ) | | $ | 28 |
| | $ | (20 | ) | | $ | (2 | ) | | $ | 304 |
| | 8.6 | % |
Non-GAAP Results
A reconciliation of non-GAAP results to the respective most directly comparable financial measure calculated and presented in accordance with GAAP is as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30, 2016 |
| (in millions, except per-share amounts) | | As reported | | Restructuring costs | | Transaction and integration-related costs | | Non-GAAP results |
| | | | | | | | | |
| Costs of services (excludes depreciation and amortization and restructuring costs) | | $ | 1,363 |
| | $ | — |
| | $ | — |
| | $ | 1,363 |
|
| | | | | | | | | |
| Selling, general and administrative (excludes depreciation and amortization, restructuring costs and transaction costs) | | 293 |
| | — |
| | (53 | ) | | 240 |
|
| | | | | | | | | |
| (Loss) income from continuing operations, before taxes | | (1 | ) | | (25 | ) | | (78 | ) | | 102 |
|
| Income tax (benefit) expense | | (22 | ) | | (6 | ) | | (24 | ) | | 8 |
|
| Income from continuing operations | | 21 |
| | (19 | ) | | (54 | ) | | 94 |
|
| | | | | | | | | |
| Net income | | 21 |
| | (19 | ) | | (54 | ) | | 94 |
|
| Less: net income attributable to noncontrolling interest, net of tax | | 6 |
| | — |
| | — |
| | 6 |
|
| Net income attributable to CSC common stockholders | | $ | 15 |
| | $ | (19 | ) | | $ | (54 | ) | | $ | 88 |
|
| | | | | | | | | |
| Effective Tax Rate | | n/m |
| | | | | | 7.8 | % |
| | | | | | | | | |
| Basic EPS from continuing operations | | $ | 0.11 |
| | $ | (0.14 | ) | | $ | (0.38 | ) | | $ | 0.63 |
|
| Diluted EPS from continuing operations | | $ | 0.10 |
| | $ | (0.13 | ) | | $ | (0.38 | ) | | $ | 0.61 |
|
| | | | | | | | | |
| Weighted average common shares outstanding for: | | | | | | | | |
| Basic EPS | | 140.53 |
| | 140.53 |
| | 140.53 |
| | 140.53 |
|
| Diluted EPS | | 143.78 |
| | 143.78 |
| | 143.78 |
| | 143.78 |
|
|
| | | | | | | | | | | | | | | | |
| | | Six months ended September 30, 2016 |
| (in millions, except per-share amounts) | | As reported | | Restructuring costs | | Transaction and integration-related costs | | Non-GAAP results |
| | | | | | | | | |
| Costs of services (excludes depreciation and amortization and restructuring costs) | | 2,784 |
| | $ | — |
| | $ | — |
| | $ | 2,784 |
|
| | | | | | | | | |
| Selling, general and administrative (excludes depreciation and amortization, restructuring costs and transaction costs) | | 598 |
| | — |
| | (109 | ) | | 489 |
|
| | | | | | | | | |
| (Loss) income from continuing operations, before taxes | | (37 | ) | | (82 | ) | | (148 | ) | | 193 |
|
| Income tax (benefit) expense | | (38 | ) | | (18 | ) | | (43 | ) | | 23 |
|
| Income from continuing operations | | 1 |
| | (64 | ) | | (105 | ) | | 170 |
|
| | | | | | | | | |
| Net income | | 1 |
| | (64 | ) | | (105 | ) | | 170 |
|
| Less: net income attributable to noncontrolling interest, net of tax | | 7 |
| | — |
| | — |
| | 7 |
|
| Net (loss) income attributable to CSC common stockholders | | $ | (6 | ) | | $ | (64 | ) | | $ | (105 | ) | | $ | 163 |
|
| | | | | | | | | |
| Effective Tax Rate | | 102.7 | % | | | | | | 11.9 | % |
| | | | | | | | | |
| Basic EPS from continuing operations | | $ | (0.04 | ) | | $ | (0.46 | ) | | $ | (0.75 | ) | | $ | 1.17 |
|
| Diluted EPS from continuing operations | | $ | (0.04 | ) | | $ | (0.45 | ) | | $ | (0.73 | ) | | $ | 1.14 |
|
| | | | | | | | | |
| Weighted average common shares outstanding for: | | | | | | | | |
| Basic EPS | | 139.76 |
| | 139.76 |
| | 139.76 |
| | 139.76 |
|
| Diluted EPS | | 139.76 |
| | 143.14 |
| | 143.14 |
| | 143.14 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended October 2, 2015 |
| (in millions, except per-share amounts) | | As reported | | Certain overhead costs | | U.S. Pension and OPEB | | Restructuring costs | | Transaction and integration-related costs | | SEC settlement-related items | | Tax adjustment | | Non-GAAP results |
| | | | | | | | | | | | | | | | | |
| Costs of services (excludes depreciation and amortization and restructuring costs) | | $ | 1,237 |
| | $ | (17 | ) | | $ | 12 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,232 |
|
| | | | | | | | | | | | | | | | | |
| Selling, general and administrative (excludes depreciation and amortization and restructuring costs) | | 269 |
| | (16 | ) | | 2 |
| | — |
| | (7 | ) | | (2 | ) | | — |
| | 246 |
|
| | | | | | | | | | | | | | | | | |
| Income from continuing operations, before taxes | | 47 |
| | (33 | ) | | 14 |
| | (20 | ) | | (7 | ) | | (2 | ) | | — |
| | 95 |
|
| Income tax (benefit) expense | | (46 | ) | | (13 | ) | | 6 |
| | (6 | ) | | (3 | ) | | (1 | ) | | (46 | ) | | 17 |
|
| Income from continuing operations | | 93 |
| | (20 | ) | | 8 |
| | (14 | ) | | (4 | ) | | (1 | ) | | 46 |
| | 78 |
|
| | | | | | | | | | | | | | | | | |
| Net income | | 177 |
| | (20 | ) | | 8 |
| | (14 | ) | | (4 | ) | | (1 | ) | | 46 |
| | 162 |
|
| Less: net income attributable to noncontrolling interest, net of tax | | 6 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6 |
|
| Net income attributable to CSC common stockholders | | $ | 171 |
| | $ | (20 | ) | | $ | 8 |
| | $ | (14 | ) | | $ | (4 | ) | | $ | (1 | ) | | $ | 46 |
| | $ | 156 |
|
| | | | | | | | | | | | | | | | | |
| Effective Tax Rate | | (97.9 | )% | | | | | | | | | | | | | | 17.9 | % |
| | | | | | | | | | | | | | | | | |
| Basic EPS from continuing operations | | $ | 0.68 |
| | $ | (0.14 | ) | | $ | 0.06 |
| | $ | (0.10 | ) | | $ | (0.03 | ) | | $ | (0.01 | ) | | $ | 0.33 |
| | $ | 0.56 |
|
| Diluted EPS from continuing operations | | $ | 0.66 |
| | $ | (0.14 | ) | | $ | 0.06 |
| | $ | (0.10 | ) | | $ | (0.03 | ) | | $ | (0.01 | ) | | $ | 0.33 |
| | $ | 0.55 |
|
| | | | | | | | | | | | | | | | | |
| Weighted average common shares outstanding for: | | | | | | | | | | | | | | | | |
| Basic EPS | | 138.30 |
| | 138.30 |
| | 138.30 |
| | 138.30 |
| | 138.30 |
| | 138.30 |
| | 138.30 |
| | 138.30 |
|
| Diluted EPS | | 140.85 |
| | 140.85 |
| | 140.85 |
| | 140.85 |
| | 140.85 |
| | 140.85 |
| | 140.85 |
| | 140.85 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six months ended October 2, 2015 |
| (in millions, except per-share amounts) | | As reported | | Certain overhead costs | | U.S. Pension and OPEB | | Restructuring costs | | Transaction and integration-related costs | | SEC settlement-related items | | Tax adjustment | | Non-GAAP results |
| | | | | | | | | | | | | | | | | |
| Costs of services (excludes depreciation and amortization and restructuring costs) | | $ | 2,509 |
| | $ | (34 | ) | | $ | 24 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,499 |
|
| | | | | | | | | | | | | | | | | |
| Selling, general and administrative (excludes depreciation and amortization and restructuring costs) | | 540 |
| | (32 | ) | | 4 |
| | — |
| | (10 | ) | | (5 | ) | | — |
| | 497 |
|
| | | | | | | | | | | | | | | | | |
| Income from continuing operations, before taxes | | 119 |
| | (66 | ) | | 28 |
| | (20 | ) | | (10 | ) | | (5 | ) | | — |
| | 192 |
|
| Income tax expense | | (39 | ) | | (26 | ) | | 11 |
| | (6 | ) | | (4 | ) | | (2 | ) | | (60 | ) | | 48 |
|
| Income from continuing operations | | 158 |
| | (40 | ) | | 17 |
| | (14 | ) | | (6 | ) | | (3 | ) | | 60 |
| | 144 |
|
| | | | | | | | | | | | | | | | | |
| Net income | | 344 |
| | (40 | ) | | 17 |
| | (14 | ) | | (6 | ) | | (3 | ) | | 60 |
| | 330 |
|
| Less: net income attributable to noncontrolling interest, net of tax | | 10 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10 |
|
| Net income attributable to CSC common stockholders | | $ | 334 |
| | $ | (40 | ) | | $ | 17 |
| | $ | (14 | ) | | $ | (6 | ) | | $ | (3 | ) | | $ | 60 |
| | $ | 320 |
|
| | | | | | | | | | | | | | | | | |
| Effective Tax Rate | | (32.8 | )% | | | | | | | | | | | | | | 25.0 | % |
| | | | | | | | | | | | | | | | | |
| Basic EPS from continuing operations | | $ | 1.14 |
| | $ | (0.29 | ) | | $ | 0.12 |
| | $ | (0.10 | ) | | $ | (0.04 | ) | | $ | (0.02 | ) | | $ | 0.43 |
| | $ | 1.04 |
|
| Diluted EPS from continuing operations | | $ | 1.12 |
| | $ | (0.28 | ) | | $ | 0.12 |
| | $ | (0.10 | ) | | $ | (0.04 | ) | | $ | (0.02 | ) | | $ | 0.42 |
| | $ | 1.02 |
|
| | | | | | | | | | | | | | | | | |
| Weighted average common shares outstanding for: | | | | | | | | | | | | | | | | |
| Basic EPS | | 138.11 |
| | 138.11 |
| | 138.11 |
| | 138.11 |
| | 138.11 |
| | 138.11 |
| | 138.11 |
| | 138.11 |
|
| Diluted EPS | | 141.27 |
| | 141.27 |
| | 141.27 |
| | 141.27 |
| | 141.27 |
| | 141.27 |
| | 141.27 |
| | 141.27 |
|
