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CSC Reports Solid Second Quarter Results
Improvements in Key Financial Measures Continue
Related Quotes
| Symbol | Price | Change |
|---|---|---|
| CSC | 55.70 | -0.17 |
FALLS CHURCH, Va., Nov. 11 /PRNewswire-FirstCall/ -- CSC (NYSE: CSC - News) today reported second quarter fiscal 2010 revenue of $4.0 billion and fully diluted earnings per share (EPS) of $1.40, compared to second quarter fiscal 2009 revenue of $4.2 billion and EPS of $2.95 (including net tax benefits of $2.27 from resolution of prior year domestic and international tax audits).
(Logo: http://www.newscom.com/cgi-bin/prnh/20090422/CSCLOGO)
Highlights include:
- New business awards of $4.58 billion;
- Pre-tax margin of 6.43%, a 204 basis points improvement from the previous year;
- Operating margin of 8.44%, a 179 basis points improvement from the previous year;
- Operating cash flow of $572 million, as compared to $401 million in 2Q09;
- Free cash flow of $429 million, as compared to $166 million in 2Q09.
Commenting on the results, CSC Chairman and Chief Executive Officer Michael W. Laphen said, "We are pleased with our Q2 results, most notably our significant, sequential and year over year, continuing performance improvements in cash flow, operating income, and margin rate. Additionally, new business awards in the quarter also increased sequentially and that momentum continues into the third quarter."
New Business Awards
For the quarter, the new business awards totaled $4.58 billion. Across the three lines of business, North American Public Sector (NPS) contributed $3.23 billion, Business Solutions and Services (BSS) reported $0.98 billion, and Managed Services Sector (MSS) closed $0.37 billion of new business. Thus far in the third quarter of fiscal 2010, the company has secured new business awards of approximately $4.2 billion including the yet to be finalized Zurich Financial Services Group contract.
Business Outlook
"In MSS, our new business activity is strong," said Laphen, "benefiting from the counter-cyclical pressure for businesses to look to outsourcing as a means of achieving necessary cost reductions and earnings improvement. Our year-to-date bookings support our optimism for the second half of this fiscal year. However, demand for short term IT consulting projects is still subdued and this is currently impacting our BSS sector. Our Federal business continues to experience growth due to the company's solid market position, performance and customer satisfaction, and we remain confident that NPS revenue will grow at mid to high single digits this fiscal year."
Lines of Business
NPS revenue was $1.62 billion, up 8.5% from the previous year. MSS revenue was $1.58 billion, down 12.5% from the previous year and down 7.4% in constant currency. BSS revenue was $0.86 billion, down 10.7% and down 7.5% in constant currency.
Guidance
The company re-affirmed its guidance for fiscal year 2010.
- New business awards of $17 to $18 billion,
- Revenue of $16.0 to $16.5 billion,
- Operating Margin expansion of 25 to 50 basis points over fiscal year 2009,
- EPS of $4.80 - $5.00, and
- Free cash flow in the range of 90% to 100% of net income.
Conference Call & Webcast
CSC senior management will host a conference call and Webcast at 5 p.m. EST today. The conference call dial-in number for domestic callers is 877-627-6581. International callers will need to dial 719-325-4747. The pass code for all participants is 4173888. The Webcast and presentation slides can be accessed at www.csc.com/investorrelations.
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 and free cash flow. 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 & 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. Headquartered in Falls Church, VA., CSC has approximately 92,000 employees and reported revenue of $16.0 billion for the 12 months ended October 2, 2009. For more information, visit the company's Web Site 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 3, 2009 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
(unaudited)
Quarter Ended
--------------------------------------
% of Total
---------------
October 2, October 3, Fiscal Fiscal
2009 2008 2010 2009
(In millions) --------------------------------------
-------------
Business Solutions & Services $864 $967 21% 23%
---- ---- --- ---
Managed Services Sector 1,579 1,804 39 43
Department of Defense 1,210 1,040 30 24
Civil agencies 342 418 8 10
Other (1) 70 37 2 1
--- --- --- ---
North American Public Sector 1,622 1,495 40 35
----- ----- --- ---
Corporate & Eliminations (24) (27) 0 (1)
--- --- --- ---
Total Revenue $4,041 $4,239 100% 100%
====== ====== === ===
Six Months Ended
--------------------------------------
% of Total
---------------
October 2, October 3, Fiscal Fiscal
2009 2008 2010 2009
(In millions) --------------------------------------
-------------
Business Solutions & Services $1,702 $2,041 21% 23%
------ ------ --- ---
Managed Services Sector 3,143 3,701 40 43
Department of Defense 2,330 2,061 29 24
Civil agencies 708 843 9 10
Other (1) 102 84 1 1
--- --- --- ---
North American Public Sector 3,140 2,988 39 35
----- ----- --- ---
Corporate & Eliminations (47) (54) - (1)
--- --- --- ---
$7,938 $8,676 100% 100%
====== ====== === ===
Note (1): Other revenues consist of state, local and foreign government
as well as commercial contracts performed by the North
American Public Sector (NPS).
Consolidated Statements of Income
(preliminary and unaudited)
Quarter Six Months
Ended Ended
----------------- -----------------
October October October October
(In millions except 2, 2009 3, 2008 2, 2009 3, 2008
per-share amounts) ------- ------- ------- -------
Revenues $4,041 $4,239 $7,938 $8,676
------ ------ ------ -----
Costs of services
(excludes depreciation
and amortization) 3,215 3,410 6,371 7,012
Selling, general and
administrative 246 285 493 563
Depreciation and amortization 275 312 544 629
Interest expense 53 59 108 123
Interest income (7) (9) (13) (19)
Other (income)/expense (1) (4) (9) 5
--- --- --- --
Total costs and expenses $3,781 $4,053 $7,494 $8,313
------ ------ ------ -----
Income before taxes $260 $186 $444 $363
Taxes on income $39 $(267) $91 $(214)
--- ----- --- -----
Net Income $221 $453 $353 $577
==== ==== ==== ====
Less: net income attributable
to noncontrolling interest,
net of tax $5 $1 $7 $5
--- --- --- ---
Net income attributable to
CSC common shareholders $216 $452 $346 $572
==== ==== ==== ====
Earnings per share: ----- ----- ----- -----
Basic $1.42 $2.98 $2.28 $3.78
===== ===== ===== =====
----- ----- ----- -----
Diluted $1.40 $2.95 $2.26 $3.74
===== ===== ===== =====
Average common shares
outstanding for:
Basic EPS 151.835 151.396 151.687 151.288
Diluted EPS 154.126 153.107 153.373 153.085
Selected Balance Sheet Data
(preliminary and unaudited)
(In millions) October 2, 2009 April 3, 2009
--------------- -------------
Assets
Cash and cash equivalents $2,407 $2,297
Receivables, net 3,850 3,786
Prepaid expenses and other current
assets 1,898 1,624
----- -----
Total current assets $8,155 $7,707
------ ------
Property and equipment, net 2,345 2,353
Outsourcing contract costs, net 680 684
Software, net 471 476
Goodwill 3,924 3,784
Other assets 562 615
--- ---
Total assets $16,137 $15,619
======= =======
Liabilities
Short-term debt and current maturities
of long-term debt $65 $62
Accounts payable 532 636
Accrued payroll and related costs 841 822
Other accrued expenses 1,135 1,264
Deferred revenue 933 915
Income taxes payable and deferred
income taxes 285 317
--- ---
Total current liabilities $3,791 $4,016
------ ------
Long-term debt, net $4,175 $4,173
Income tax liabilities and deferred
income taxes 477 486
Other long-term liabilities 1,314 1,326
Stockholders' Equity 6,380 5,618
----- -----
Total liabilities and stockholders'
equity $16,137 $15,619
======= =======
Debt as a percentage of total
capitalization 39.9% 43.0%
Consolidated Statement of Cash Flows
(preliminary and unaudited)
Six Months Ended
---------------------------------
(In millions) October 2, 2009 October 3, 2008
------------- --------------- ---------------
Cash flows from operating activities:
Net income $353 $577
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities:
Depreciation and amortization and
other non-cash charges 577 681
Stock based compensation 34 34
Provision for losses on accounts
receivable 15 12
Unrealized foreign currency exchange
(gain)/loss, net (65) (19)
(Gain)/loss on dispositions, net of taxes (4) 2
Changes in assets and liabilities, net
of effects of acquisitions:
(Increase)/decrease in assets (40) 159
Decrease in liabilities (595) (1,100)
--- -----
Net cash provided by operating activities 275 346
--- ---
Investing activities:
Purchases of property and equipment (209) (362)
Outsourcing contracts (77) (73)
Acquisitions (5) (63)
Software (68) (99)
Other investing cash flows 73 40
--- ---
Net cash used in investing activities (286) (557)
--- ---
Financing activities:
Net borrowings of commercial paper, net - 472
Borrowings under lines of credit 28 280
Repayments on lines of credit (32) (161)
Principal payments on long-term debt (17) (316)
Proceeds from stock options and
other common stock transactions 30 12
Repurchase of common stock, net
of settlement (3) (3)
Excess tax benefit from stock-based
compensation 3 1
Other financing cash flows - 2
--- ---
Net cash provided by financing activities $9 $287
--- ---
Effect of exchange rate changes on cash
and cash equivalents $112 $(33)
Net increase in cash and cash equivalents $110 $43
Cash and cash equivalents at beginning
of year $2,297 $699
------ ----
Cash and cash equivalents at end of period $2,407 $742
====== ====
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 accounting principles generally accepted in the United States (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 reflect the complete financial results of the Company. CSC compensates for these limitations by providing a reconciliation between operating income and reported earnings.
GAAP Reconciliations
(In millions)
Operating Income Quarter Ended Six Months Ended
(preliminary and unaudited) ---------------------------------
October October October October
2, 2009 3, 2008 2, 2009 3, 2008
------- ------- ------- -------
Operating Income $341 $282 $607 $564
Corporate G&A (36) (50) (77) (92)
Interest expense (53) (59) (108) (123)
Interest income 7 9 13 19
Other Income/(expense) 1 4 9 (5)
--- --- --- ---
Income Before Taxes 260 186 444 363
Taxes on income 39 (267) 91 (214)
--- --- --- ---
Income from continuing
operations 221 453 353 577
Net income attributable to
non controlling interest,
net of tax 5 1 7 5
--- --- --- ---
Net income attributable to CSC
common shareholders $216 $452 $346 $572
---- ---- ---- ----
Free Cash Flow Quarter Ended Six Months Ended
(preliminary and unaudited) ---------------------------------
October October October October
2, 2009 3, 2008 2, 2009 3, 2008
------- ------- ------- -------
Free cash flow $429 $166 $(33) $(163)
Net cash used in investing
activities 128 228 286 557
Acquisitions, net of cash
acquired (5) (1) (5) (63)
Dispositions 12 - 12 0
Capital lease payments 8 8 15 15
--- --- --- ---
Net cash provided by
operating activities $572 $401 $275 $346
--- --- --- ---
Net cash used in investing
activities $128 $228 $286 $557
Net cash provided by (used in)
financing activities $23 $(12) $9 $287
Operating Income $341 $282 $607 $564
Operating Margin 8.44% 6.65% 7.65% 6.50%
Pre-tax margin 6.43% 4.39% 5.59% 4.18%
Note: Capital lease payments 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.
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