- Diluted Earnings per Share from
Continuing Operations of $0.10 Includes Cumulative Impact of
Certain Items of ($0.61) per Share
- Non-GAAP Diluted Earnings per Share
from Continuing Operations of $0.71, up 16% YoY
- Income from Continuing Operations
Before Taxes of $78 Million Includes Cumulative Impact from Certain
Items of ($46) Million
- Operating Income, adjusted for
certain items, of $190 Million and Operating Income Margin on the
same basis of 10.9%, up 200 basis points YoY
CSC (NYSE: CSC) today reported results for the third quarter of
fiscal year 2016.
“In the third quarter, CSC successfully completed its separation
into two industry-leading pure-plays, while delivering margin
improvement and earnings growth through disciplined cost
management," said Mike Lawrie, chairman, president and CEO. “Our
results in the third quarter were consistent with the long-term
outlook we presented at our Investor Day in New York. We are seeing
strong momentum in our next-generation offerings and a moderation
of the headwinds in our legacy business, and we delivered the
strongest bookings this quarter in the last 2 years. We are also
making progress in our acquisition strategy. We are on track to
complete the UXC acquisition by the end of February and have
successfully moved into the regulatory approval stage of our
Xchanging acquisition.”
Financial Highlights
- Diluted earnings per share from
continuing operations were $0.10 in the third quarter and included
the cumulative impact of certain items of ($0.61) per share. These
items included ($0.25) per share in separation, restructuring and
other transaction costs, $0.04 per share in U.S. pension and OPEB
impacts related to our separation of CSRA, ($0.10) per share in
certain CSRA overhead costs, $0.09 per share in pension & OPEB
actuarial and settlement gains, and ($0.38) per share from tax
valuation allowance impacts. Excluding these items, non-GAAP
diluted earnings per share from continuing operations were $0.71,
up 16 percent when compared with $0.61 in the third quarter of
fiscal 2015.
- Income from continuing operations
before taxes was $78 million, which includes the cumulative cost of
certain items of ($46) million. Excluding the impact of these
items, non-GAAP income from continuing operations before taxes was
$124 million compared with $109 million a year ago.
- Operating income, adjusted for certain
items, was $190 million and compares with $174 million in the prior
year. Operating margin on the same basis was 10.9 percent, up from
8.9 percent in the prior year.
- Income from continuing operations was
$15 million for the third quarter. Excluding the impact of the
items discussed above, non-GAAP income from continuing operations
was $100 million, compared with $87 million in the prior year.
- Preliminary free cash flow of $120
million.
Global Business Services
GBS revenue of $886 million in the quarter compares with $965
million in the year ago quarter, a decline of 2.5 percent
year-over-year in constant currency. Modest growth in our Industry
Software & Solutions and Big Data businesses partially offset
lower than expected Consulting and Applications revenue. GBS
operating margin, excluding the impact of certain items, was 13.1
percent, up from 12.8 percent a year ago. New business awards for
GBS were $1.6 billion in the third quarter, up 35 percent
year-over-year.
Global Infrastructure Services
GIS revenue of $864 million in the quarter compares with $984
million in the year-ago quarter, a decline of 7.2 percent
year-over-year in constant currency. The decline in revenue from
our legacy business moderated and was partially offset by growth in
next-generation offerings. GIS operating margin, excluding the
impact of certain items, was 9.1 percent, up from 6.4 percent a
year ago. New business awards for GIS were $1.0 billion in the
quarter, up 4 percent year-over-year.
Completed Spin-Off of Public Sector Business
During the third quarter, CSC completed the separation of the
company into two industry-leading pure-plays by spinning off its
public sector business and merging it with SRA International, Inc.
(SRA). The new company began trading as an independent public
company on the New York Stock Exchange (“NYSE”) under the ticker
symbol “CSRA.” Concurrent with the spin-off, CSC shareholders were
paid a special dividend in aggregate of $10.50 per share.
Returning Capital to Shareholders
During the third quarter, in addition to the special dividend
associated with the separation, CSC returned $42 million to
shareholders consisting of $32 million in common stock dividends
and $10 million of share repurchases. CSC repurchased 307,000
shares in the quarter at a weighted average price of $32.40.
CSC had 138,816,691 basic shares outstanding on January 1,
2016.
Earnings Conference Call and Webcast
CSC senior management will host a conference call and webcast at
5 p.m. ET today. The dial-in number for domestic callers is
866-290-0920. Callers who reside outside of the United States or
Canada should dial 913-312-0635. The passcode for all participants
is 7639844. 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
February 16, 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 7639844.
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: operating income, adjusted operating income, operating
and adjusted operating margin, earnings before interest and taxes
(EBIT), adjusted EBIT, EBIT and adjusted EBIT margin, free cash
flow, and non-GAAP results including non-GAAP income (loss) from
continuing operations and non-GAAP diluted earnings (loss) 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 3, 2015 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)
Revenues by
Segment
Quarter Ended (Amounts in millions)
January 1, 2016
January 2, 2015
% Change
% Change at Constant
Currency
Global Business Services $ 886 $ 965 (8.2 )% (2.5 )% Global
Infrastructure Services 864 984 (12.2 ) (7.2 ) Total
Revenues $ 1,750 $ 1,949 (10.2 )% (4.9 )%
Nine Months Ended (Amounts in millions)
January 1, 2016
January 2, 2015
% Change
% Change at Constant
Currency
Global Business Services $ 2,696 $ 3,056 (11.8 )% (4.7 )% Global
Infrastructure Services 2,603 3,151 (17.4 ) (11.3 )
Total Revenues $ 5,299 $ 6,207 (14.6 )% (8.0 )%
Operating Income
and Operating Margins by Segment
Quarter Ended January 1, 2016 January 2, 2015
(Amounts in millions)
Operating Income
Operating Margin
Operating Income
Operating Margin
Global Business Services $ 101 11.4 % $ 128 13.3 % Global
Infrastructure Services 70 8.1 72 7.3 Corporate (23 ) — (22 ) —
Total Operating Income $ 148 8.5 % $ 178 9.1 %
Nine Months Ended January 1, 2016 January 2,
2015 (Amounts in millions)
Operating Income
Operating Margin
Operating Income
Operating Margin
Global Business Services $ 299 11.1 % $ 366 12.0 % Global
Infrastructure Services 187 7.2 % 211 6.7 % Corporate &
Eliminations (64 ) — (79 ) — Total Operating Income $ 422
8.0 % $ 498 8.0 %
Consolidated Condensed Statements of
Operations
(preliminary and unaudited)
Quarter
Ended Nine Months Ended (Amounts in millions, except
per-share amounts)
January 1, 2016
January 2, 2015
January 1, 2016
January 2, 2015
Revenues $ 1,750 $ 1,949 $ 5,299 $
6,207 Costs of services (excludes depreciation and
amortization and restructuring costs) 1,216 1,572 3,725 4,541
Selling, general and administrative (excludes SEC settlement
related charges and restructuring costs) 257 322 789 954 Selling,
general and administrative - SEC settlement related charges — 195 —
195 Depreciation and amortization 161 205 503 658 Restructuring
costs 7 12 12 15 Separation costs 2 — 10 — Interest expense 33 32
92 96 Interest income (8 ) (4 ) (26 ) (14 ) Other expense (income),
net 4 1 (3 ) 5 Total costs and expenses 1,672
2,335 5,102 6,450 Income (loss)
from continuing operations, before taxes 78 (386 ) 197 (243 )
Income tax expense (benefit) 63 (192 ) 31 (157 )
Income (loss) from continuing operations 15 (194 ) 166 (86 ) Income
(loss) from discontinued operations, net of taxes 30 (119 )
216 80 Net income (loss) 45 (313 ) 382 (6 ) Less: net
income attributable to noncontrolling interest, net of tax 2
1 12 11 Net income (loss) attributable to CSC
common stockholders $ 43 $ (314 ) $ 370 $ (17 )
Earnings (loss) per common share Basic: Continuing
operations $ 0.11 $ (1.35 ) $ 1.19 $ (0.60 ) Discontinued
operations 0.20 (0.84 ) 1.48 0.48 $ 0.31
$ (2.19 ) $ 2.67 $ (0.12 ) Diluted: Continuing
operations $ 0.10 $ (1.35 ) $ 1.17 $ (0.60 ) Discontinued
operations 0.20 (0.84 ) 1.45 0.48 $ 0.30
$ (2.19 ) $ 2.62 $ (0.12 ) Cash dividend per
common share $ 2.39 $ 0.23 $ 2.85 $ 0.69 Weighted average
common shares outstanding for: Basic EPS 138.864 143.279 138.359
144.346 Diluted EPS 141.183 143.279 141.003 144.346
Selected Balance Sheet Data
(preliminary and unaudited)
As of (Amounts
in millions) January 1, 2016 April 3,
2015 Assets Cash and cash equivalents $ 1,830 $ 2,076
Receivables, net 1,691 1,678 Prepaid expenses and other current
assets
412
290 Assets of discontinued operations - current — 806 Total
current assets
3,933
4,850 Property and equipment, net 1,028 1,110
Software, net 729 718 Outsourcing contract costs, net 335 326
Goodwill 1,026 838 Other assets
977
928 Assets of discontinued operations - noncurrent — 1,457
Total Assets $ 8,028 $ 10,227 Liabilities Short-term
debt and current maturities of long-term debt 760 883 Accounts
payable 211 295 Accrued payroll and related costs 305 265 Accrued
expenses and other current liabilities 800 948 Deferred revenue and
advance contract payments 463 457 Income taxes payable and deferred
income taxes
100
— Liabilities of discontinued operations - current — 691
Total current liabilities $
2,639
$ 3,539 Long-term debt, net of current maturities
1,909 1,635 Income tax liabilities and deferred income taxes
446
523 Other long-term liabilities 817 850 Liabilities of discontinued
operations - noncurrent — 731 Total Equity
2,217
2,949 Total Liabilities and Equity $ 8,028 $
10,227
Non-GAAP Financial Measures
The following tables reconcile non-GAAP financial measures of
operating income, earnings before interest and taxes (EBIT), and
adjusted EBIT, to the respective most directly comparable financial
measure calculated and presented in accordance with GAAP. Also
presented below are the Company's non-GAAP results, which exclude
certain items that management believes are not indicative of the
Company's operating performance. 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 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 reflect the complete financial results of the Company.
CSC compensates for these limitations by providing a reconciliation
between operating income and income from continuing operations,
before taxes.
Management uses non-GAAP income from continuing operations and
non-GAAP EPS to evaluate the Company's results, excluding the
impact of items that management believes are not indicative of the
Company's operating performance. CSC compensates for the
limitations of these non-GAAP measures by providing a
reconciliation from non-GAAP results to reported results.
Adjustments to operating results include:
- Certain CSRA overhead costs - Reflects
costs historically allocated to CSRA but not included in
discontinued operations based on Accounting Standards Codification
Subtopic 205-20 "Presentation of Financial Statements -
Discontinued Operations." 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's financial results that
have been transferred to CSRA as part of the previously announced
separation.
- Pension and OPEB actuarial &
settlement gains (losses) - Reflects pension and OPEB actuarial and
settlement gains (losses) from mark-to-market accounting.
- Separation, restructuring & other
transaction costs - Reflects non-recurring costs related to CSC's
(1) previously announced separation, (2) certain special
accelerated workforce optimization and real estate charges, and (3)
previously announced acquisitions.
- SEC settlement-related items - Reflects
costs associated with certain SEC charges and settlements.
- Tax valuation allowance &
adjustments - Reflects the adjustments to tax valuation allowances
in certain jurisdictions and the application of a 20% tax rate, for
the first and second quarters, 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.
GAAP Reconciliations
Operating Income and Adjusted Operating
Income
(preliminary and unaudited)
CSC defines operating income as revenue less costs of services,
depreciation and amortization expense, restructuring costs and
segment selling, general and administrative (SG&A) expense.
Operating Income, as defined by CSC, excludes corporate G&A,
actuarial and settlement gains (losses) related to CSC's pension
and OPEB plans, and separation costs. Operating margin is defined
as operating income as a percentage of revenue.
Adjusted operating income is computed by excluding from
operating income certain CSRA overhead costs, U.S. Pension and
OPEB, and separation, restructuring & other transaction
costs.
A reconciliation of consolidated operating
income to income from continuing operations, before taxes is as
follows:
Quarter Ended Nine Months Ended (Amounts in
millions)
January 1,
2016
January 2,
2015
January 1,
2016
January 2,
2015
Adjusted Operating income $ 190 $ 174 $ 494 $ 491 Certain CSRA
overhead costs (12 ) (9 ) (48 ) (31 ) U.S. Pension & OPEB 10 13
38 38 Separation, restructuring & other transaction costs
(40 ) — (62 ) — Operating
income $ 148 $ 178 $ 422 $ 498 Corporate G&A (58 ) (55 ) (171 )
(173 ) Pension & OPEB actuarial & settlement gains (losses)
19 (285 ) 19 (286 ) SEC settlement related charges — (195 ) — (195
) Separation costs (2 ) — (10 ) — Interest expense (33 ) (32 ) (92
) (96 ) Interest income 8 4 26 14 Other (expense) income, net
(4 ) (1 ) 3 (5 ) Income from
continuing operations before taxes $ 78 $ (386 ) $ 197
$ (243 ) Adjusted Operating margin 10.9 % 8.9 % 9.3 %
7.9 % Operating margin 8.5 % 9.1 % 8.0 % 8.0 %
Earnings Before
Interest and Taxes and Adjusted Earnings Before Interest and
Taxes
(preliminary and unaudited) EBIT is defined as income from
continuing operations less interest expense, interest income and
income tax expense. EBIT margin is defined as EBIT as a percentage
of revenue. Adjusted EBIT is computed by excluding from EBIT
the impact of certain items in the third quarter and first nine
months of fiscal 2016, including certain CSRA overhead costs, U.S.
pension and OPEB, separation, restructuring & other transaction
costs, SEC settlement related charges, and pension and OPEB
actuarial & settlement gains (losses). Adjusted EBIT margin is
computed as adjusted EBIT as a percentage of revenue. A
reconciliation of adjusted EBIT and EBIT to income from continuing
operations is as follows:
Quarter Ended Year to date (Amounts in
millions)
January 1,
2016
January 2,
2015
January 1,
2016
January 2,
2015
Adjusted EBIT $ 147 $ 137 $ 375 $ 362 Certain CSRA overhead costs
(22 ) (28 ) (88 ) (80 ) U.S. Pension & OPEB 10 13 38 38
Separation, restructuring & other transaction costs (51 ) — (81
) —
SEC settlement
related charges
— (195
) —
(195 ) Pension & OPEB actuarial &
settlement gains (losses) 19 (285 ) 19
(286 ) EBIT $ 103 $ (358 ) $ 263 $ (161 ) Interest
expense (33 ) (32 ) (92 ) (96 ) Interest income 8 4 26 14 Income
tax (expense) benefit (63 ) 192 (31 )
157 Income from continuing operations $ 15 $
(194 ) $ 166 $ (86 ) Adjusted EBIT margin 8.4 % 7.0 %
7.1 % 5.8 % EBIT margin 5.9 % (18.4 )% 5.0 % (2.6 )%
Adjusted Segment Operating Income and
Operating Margin
(preliminary and unaudited) Adjusted operating income is
computed by excluding from operating income certain CSRA overhead
costs, U.S. Pension and OPEB, and separation, restructuring &
other transaction costs. Reconciliations of adjusted operating
income to operating income, for the quarter and nine months ended
January 1, 2016, are as follows:
Quarter
Ended January 1, 2016 (Amounts in millions)
Operatingincome
CertainCSRAoverheadcosts
U.S. Pension& OPEB
Separation,restructuring&
othertransactioncosts
Adjustedoperatingincome
Adjustedoperatingmargin
Global Business Solutions $ 101 — (3 ) 18
$ 116 13.1 % Global Infrastructure Services 70 — (7 ) 16 79
9.1 Corporate (23 ) 12 —
6 (5 ) Total $ 148 $ 12 $
(10 ) $ 40 $ 190 10.9 %
Nine Months Ended January 1, 2016 (Amounts in
millions)
Operatingincome
CertainCSRAoverheadcosts
U.S. Pension& OPEB
Separation,restructuring&
othertransactioncosts
Adjustedoperatingincome
Adjustedoperatingmargin
Global Business Solutions $ 299 $ — $ (11 ) $ 31 $ 319 11.8 %
Global Infrastructure Services 187 — (27 ) 25 185 7.1 Corporate
(64 ) 48 — 6
(10 ) Total $ 422 $ 48 $ (38 )
$ 62 $ 494 9.3 %
Non-GAAP
Results
(preliminary and unaudited) Non-GAAP results are financial
measures calculated by excluding certain items, which management
believes are not indicative of the Company's operating performance.
A reconciliation of select non-GAAP results to reported results is
as follows:
Quarter ended January 1,
2016 (Amounts in millions, except per-share amounts)
Asreported
CertainCSRAoverheadcosts
U.S.Pension
&OPEB
Separation,restructuring&
othertransactioncosts
Pension
&OPEBactuarial
&settlementgains
Taxvaluationallowance&adjustments
Non-GAAPresults
Costs of services (excludes depreciation and amortization and
restructuring costs) $ 1,216 $ (7 ) $ 8 $ (5 ) $ 16 $ — $ 1,228
Selling, general and administrative (excludes restructuring
costs) $ 257 $ (15 ) $ 2 $ (13 ) $ 3 $ — $ 234 Income (loss)
from continuing operations, before taxes $ 78 $ (22 ) $ 10 $ (53 )
$ 19 $ — $ 124 Income tax expense (benefit) 63
(8 ) 4 (17 ) 6 54 24
Income (loss) from continuing operations $ 15 $ (14 )
$ 6 $ (36 ) $ 13 $ (54 ) $ 100 Net income (loss) $ 45
$ (14 ) $ 6 $ (36 ) $ 13 $ (54 ) $ 130 Less: net income
attributable to noncontrolling interest, net of tax 2
—
—
—
—
—
2 Net income (loss) attributable to CSC common
stockholders $ 43 $ (14 ) $ 6 $ (36 ) $ 13 $ (54 ) $ 128
Effective tax rate
80.6
% 19.4 % Basic EPS from continuing operations $ 0.11 $ (0.10
) $ 0.04 $ (0.26 ) $ 0.09 $ (0.39 ) $ 0.72 Diluted EPS from
continuing operations $ 0.10 $ (0.10 ) $ 0.04 $ (0.25 ) $ 0.09 $
(0.38 ) $ 0.71 Weighted average common shares outstanding
for: Basic EPS 138.864 138.864 138.864 138.864 138.864 138.864
138.864 Diluted EPS 141.183 141.183 141.183 141.183 141.183 141.183
141.183
Nine months ended January 1,
2016 (Amounts in millions, except per-share amounts)
As reported
CertainCSRAoverheadcosts
U.S.Pension
&OPEB
Separation,restructuring&
othertransactioncosts
Pension
&OPEBactuarial
&settlementgains
SECsettlement-relateditems
Taxvaluationallowance
&adjustments
Non-GAAPresults
Costs of services (excludes depreciation and amortization and
restructuring costs) $ 3,725 $ (41 ) $ 32 $ (5 ) $ 16 $ — $ — $
3,727 Selling, general and administrative (excludes
restructuring costs) $ 789 $ (47 ) $ 6 $ (15 ) $ 3 $ (5 ) $ — $ 731
Income (loss) from continuing operations, before taxes $ 197
$ (88 ) $ 38 $ (83 ) $ 19 $ (5 ) $
—
$ 316 Income tax expense (benefit) 31 (34 )
15 (27 ) 6
(2
)
10 63 Income (loss) from continuing operations
$ 166 $ (54 ) $ 23 $ (56 ) $ 13 $ (3 ) $ (10 ) $ 253
Net income (loss) $ 382 $ (54 ) $ 23 $ (56 ) $ 13 $ (3 ) $
(10 ) $ 469 Less: net income attributable to noncontrolling
interest, net of tax 12 — —
— — — — 12
Net income (loss) attributable to CSC common stockholders $ 370
$ (54 ) $ 23 $ (56 ) $ 13 $ (3 ) $ (10 ) $ 457
Effective tax rate
15.6
% 19.9 % Basic EPS from continuing operations $ 1.19 $ (0.39
) $ 0.17 $ (0.40 ) $ 0.09 $ (0.02 ) $ (0.07 ) $ 1.82 Diluted EPS
from continuing operations $ 1.17 $ (0.38 ) $ 0.16 $ (0.40 ) $ 0.09
$ (0.02 ) $ (0.07 ) $ 1.79 Weighted average common shares
outstanding for: Basic EPS 138.359 138.359 138.359 138.359 138.359
138.359 138.359 138.359 Diluted EPS 141.003 141.003 141.003 141.003
141.003 141.003 141.003 141.003
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CSCRichard Adamonis, 862-228-3481Corporate Media
Relationsradamonis@csc.comorNeil DeSilva, 703-641-3000M&A and
Investor Relationsneildesilva@csc.com
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