CSC Reports Continuing Improvement in Operations in Third Quarter 2013

Diluted EPS from Continuing Operations of $0.77

Operating Income of $268 Million


Operating Margin of 7.1% Includes Restructuring

Free Cash Flow of $245 Million

Bookings of $3.0 Billion

FY2013 EPS from Continuing Operations Target Increased to $2.50 - $2.70

FALLS CHURCH, Va.--(BUSINESS WIRE)-- CSC (NYS: CSC) today reported third quarter 2013 diluted earnings per share of $3.27 consisting of $0.77 from continuing operations and $2.50 from two businesses that were divested during the quarter. This compares with a diluted loss per share of ($8.96) in the third quarter 2012, which included a charge relating to the UK National Health Service (NHS) contract of $9.93 per share. Total revenues were $3.78 billion compared with $3.69 billion in the year ago period, an increase of 2.8% in constant currency.

Financial Highlights

  • Diluted EPS from continuing operations of $0.77 per share included a workforce restructuring charge of $26 million, or $0.13 per share.
  • Income from continuing operations before taxes of $155 million compares with a loss from continuing operations before taxes in the year ago period resulting from the $1.5 billion NHS charge.
  • Operating income of $268 million compares with an operating loss in the year ago period resulting from the NHS charge.
  • Pre-tax margin of 4.1% compares with a loss in the prior year.
  • Operating margin of 7.1% compares with a loss in the year ago period. Operating margin excluding restructuring was 7.7% for the third quarter.
  • Operating cash flow of $413 million compares with $720 million in the previous year which included a US Claims settlement of $277 million.
  • Free cash flow of $245 million for the quarter compares with $499 million in the previous year which also included the US Claims settlement.
  • The company divested its credit services business and certain businesses in Italy during the quarter. The net impact of these transactions is reflected in the $2.50 of diluted EPS from discontinued operations.
  • During the quarter, CSC returned cash to shareholders by repurchasing approximately 1.97 million shares of common stock for an aggregate price of $77 million and paying $31 million in cash dividends, or $0.20 per share.
  • Ending cash and cash equivalents were $2.20 billion.

"Our turnaround is tracking to plan. We are transitioning to our new operating model and we are aligning our assets with our strategy of leading the next generation of technology services and solutions. Our cost takeout initiatives are yielding results as demonstrated by higher profit margins in all three lines of business when compared with the prior year. As a result, we are raising our target for fiscal year 2013 EPS from continuing operations to $2.50 - $2.70," said Mike Lawrie, president and CEO. "During the quarter, we divested certain non-core businesses and we are using the proceeds to return cash to shareholders through our share buyback program and incremental contributions to our pension plans."

Lines of Business

Managed Services Sector (MSS) revenue of $1.62 billion decreased by 3% as reported, and 2.8% in constant currency, when compared with the third quarter of 2012. Segment operating margin increased by 120 basis points to 7.7% due to better contract performance and cost takeout partially offset by workforce restructuring charges of $8 million. MSS signed $1.4 billion of new business during the quarter.

Business Solutions & Services (BSS) revenue of $0.85 billion increased by 28.7% as reported and 29.4% in constant currency. The year-over-year increases are due to a $204 million reduction of revenue in the year ago period resulting from NHS. BSS operating margin of 4.2% expanded when compared to a loss in the prior year due to the NHS charge. Operating margin improved primarily as the result of cost takeout progress and included a restructuring charge of $8 million. New business awards for BSS were $0.9 billion.

North American Public Sector (NPS) revenue of $1.34 billion declined by 2.8% from the third quarter of 2012 primarily due to reductions in contracts from Civil agencies which were partially offset by revenue growth from Department of Defense contracts. Operating margin of 10.2% increased by 550 bps when compared with the prior year and included better cost management and the benefit of a $22 million settlement. NPS awards of $0.7 billion declined from one year ago primarily due to delays 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 800-378-6592. Callers who reside outside the United States or Canada should dial 719-325-2135. The passcode for all participants is 9100476. 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 February 11, 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 9100476. 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 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 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
December 28,

December 30,

Constant
(Amounts in millions) 2012

2011

% Change Currency
North American Public Sector $ 1,340 $ 1,379 (2.8 )% (2.8 )%
Managed Services Sector 1,620 1,670 (3.0 )% (2.8 )%
Business Solutions & Services 853 663 28.7 % 29.4 %
Corporate & Eliminations   (32 )   (25 )
Total Revenues $ 3,781   $ 3,687   2.5 % 2.8 %
 
Nine Months Ended
% Change in
December 28,

December 30,

Constant
(Amounts in millions) 2012

2011

% Change Currency
North American Public Sector $ 4,083 $ 4,299 (5.0 )% (5.0 )%
Managed Services Sector 4,838 4,908 (1.4 )% 1.0 %
Business Solutions & Services 2,601 2,410 7.9 % 11.2 %
Corporate & Eliminations   (88 )   (90 )
Total Revenues $ 11,434   $ 11,527   (0.8 )% 0.9 %
 
       

Operating Income and Operating Margins by Segment

    Quarter Ended
December 28, 2012 December 30, 2011

 

   

Operating

 

Operating
(Amounts in millions)

Operating Income

Margin

Operating Income

Margin
North American Public Sector $ 137 10.2 % $ 65 4.7 %
Managed Services Sector 125 7.7 % 108 6.5 %
Business Solutions & Services 36 4.2 % (1,459 ) (220.1 )%
Corporate & Eliminations (30 ) (21 )
Total Operating Income $ 268   7.1 % $ (1,307 ) (35.4 )%
 
Nine Months Ended
December 28, 2012 December 30, 2011

 

Operating

 

Operating
(Amounts in millions)

Operating Income

Margin

Operating Income

Margin
North American Public Sector $ 388 9.5 % $ 51 1.2 %
Managed Services Sector 308 6.4 % 162 3.3 %
Business Solutions & Services 65 2.5 % (1,417 ) (58.8 )%
Corporate & Eliminations (63 ) (47 )
Total Operating Income $ 698   6.1 % $ (1,251 ) (10.9 )%
 
 
Consolidated Condensed Statements of Operations

(preliminary and unaudited)

       
Quarter Ended Nine Months Ended

 

December 28,     December 30, December 28,     December 30,

(Amounts in millions, except per-share amounts)

2012   2011 2012 2011
 
Revenues $ 3,781   $ 3,687   $ 11,434   $ 11,527  
 
Costs of services (excludes depreciation and amortization, specified contract charge, settlement charge and restructuring costs ($18 and $101 for the third quarter and first nine months of fiscal 2013)) 2,995 3,186 9,141 9,730
Cost of services - specified contract charge (excludes amount charged to revenue of $204 (fiscal 2012)) 1,281 1,281
Cost of services - settlement charge (excludes amount charged to revenue of $42 (2012)) 227
Selling, general and administrative (excludes restructuring costs ($8 and $10 for the third quarter and first nine months of fiscal 2013)) 278 272 864 838
Depreciation and amortization 270 301 806 868
Goodwill impairment 60 2,745
Restructuring costs 26 111
Interest expense 57 42 147 129
Interest income (4 ) (8 ) (14 ) (32 )
Other expense (income), net 4   12   (1 ) 1  
Total costs and expenses 3,626   5,146   11,054   15,787  
 
Income (loss) from continuing operations before taxes 155 (1,459 ) 380 (4,260 )
Taxes on income 32   (38 ) 106   (78 )
Income (loss) from continuing operations 123 (1,421 ) 274 (4,182 )
Income from discontinued operations, net of taxes 390   30   419   110  
Net income (loss) 513 (1,391 ) 693 (4,072 )
Less: net income (loss) attributable to noncontrolling interest, net of tax 3   (1 ) 13   12  
Net income (loss) attributable to CSC common shareholders $ 510   $ (1,390 ) $ 680   $ (4,084 )
 
Earnings (loss) per commo

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