Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CSC > SEC Filings for CSC > Form 10-Q on 31-Jan-2014All Recent SEC Filings

Show all filings for COMPUTER SCIENCES CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for COMPUTER SCIENCES CORP


31-Jan-2014

Quarterly Report

PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Third Quarter and Nine Months of Fiscal 2014 versus Third Quarter and Nine Months of Fiscal 2013

All statements and assumptions in this quarterly report on Form 10-Q and in the documents attached or incorporated by reference that do not directly and exclusively relate to historical facts constitute "forward-looking statements" within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements represent current expectations and beliefs of CSC, and no assurance can be given that the results described in such statements will be achieved.

Forward-looking information contained in these statements include, among other things, statements with respect to the Company's financial condition, results of operations, cash flows, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities, plans and objectives of management, management's assessment of estimates related to profitability of its long-term contracts and estimates related to impairment of contract-specific assets, and other matters. Such statements are subject to numerous assumptions, risks, uncertainties and other factors, many of which are outside of the Company's control, which could cause actual results to differ materially from the results described in such statements. These forward looking statements should be read in conjunction with the Company's Annual Report on Form 10-K. The reader should specifically consider the various risks discussed in the Risk Factors section included elsewhere herein.

Forward-looking statements in this quarterly report on Form 10-Q speak only as of the date hereof, and forward-looking statements in documents attached or incorporated by reference speak only as to the date of those documents. The Company does not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.

General

The following discussion and analysis provides information management believes relevant to an assessment and understanding of the consolidated results of operations and financial condition of Computer Sciences Corporation (CSC or the Company). The discussion should be read in conjunction with the unaudited Consolidated Condensed Financial Statements and notes thereto and the Company's Annual Report on Form 10-K for the fiscal year ended March 29, 2013. The following discusses the Company's financial condition and results of operations as of and for the quarter and nine months ended December 27, 2013, and the comparable periods of the prior fiscal year.

Reportable Segments

CSC is a global leader of information technology (IT) and professional services and solutions. The Company's mission is to enable superior returns on its client's technology investments through best-in-class industry solutions, domain expertise and global scale.

During fiscal 2013, the Company focused its strategy on leading the next generation of IT services and solutions. CSC has undertaken numerous organizational and operational changes to align the company's leadership, assets, and operating model with this strategy. The new operating model supports the execution of CSC's strategy by facilitating the effective development, sales and support of a portfolio of next generation offerings for commercial and government clients. The redesigned operating model, which came into effect at the beginning of fiscal 2014, resulted in a change to the Company's reportable segments for fiscal 2014 and going forward.

The Company's new reportable segments are as follows:

Global Business Services (GBS) - GBS is uniquely positioned to help clients understand and exploit industry trends of IT modernization and virtualization of the IT stack (which consists of hardware, software, networking, storage and computing assets). The segment comprises three units: Consulting, Industry Software & Solutions, and Applications Services. The Consulting business is a global leader in helping large organizations, public-sector entities, and local businesses innovate, transform, and create sustainable competitive advantage through a


combination of industry, business process, technology, systems integration and change management expertise. Industry Software & Solutions is a leader in industry-based software, services, and business process services and outsourcing. The software solutions and process-based intellectual property power mission-critical transaction engines in insurance, banking, healthcare and life sciences. Applications Services optimizes and modernizes clients' application portfolio and information services sourcing strategy, enabling clients to capitalize on emerging services such as cloud, mobility, and big data within new commercial models such as the agile "as a Service - Economy" (aaS). Key competitive differentiators for GBS include its global scale, solution objectivity, depth of industry expertise and end-to-end solutions. Changing business issues such as globalization, fast-developing economies, government regulation, and growing concerns around risk, security, and compliance drive demand for these GBS offerings.

Global Infrastructure Services (GIS) - GIS provides managed and virtual desktop solutions, mobile device management, unified communications and collaboration services, data center management, compute and managed storage solutions to commercial clients globally. GIS also delivers CSC's next generation Cloud offerings, including secure Infrastructure as a Service (IaaS), private Cloud solutions, CloudMail and Storage as a Service (SaaS). These offerings are designed to provide a rich portfolio of standardized offerings that have predictable outcomes and measurable results while reducing business risk and operating costs for clients. To provide clients with uniquely differentiated offerings and expanded market coverage, GIS also collaborates with a select number of strategic partners. This collaboration helps CSC determine the best technology, road map and opportunities to differentiate solutions, augment capabilities, and jointly deliver impactful solutions. The Company seeks to capitalize on an emerging market trend - to rebundle the IT stack on virtualized infrastructure. GIS offerings are designed for any enterprise - from national, multinational and global enterprises.

North American Public Sector (NPS) - NPS delivers IT, mission, and operations-related services to the Department of Defense, civil agencies of the U.S. federal government, as well as other foreign, state and local government agencies. Commensurate with the Company's strategy, NPS is leveraging CSC's commercial best practices and next-generation technologies to bring scalable and more cost-effective IT solutions to government agencies that are seeking efficiency through innovation. This approach is designed to yield lower implementation and operational costs as well as a higher standard of delivery excellence. Evolving government priorities such as: 1) IT efficiency, which includes data center consolidation and next generation cloud technologies, 2) cyber security,
3) immigration reform, 4) mission intelligence driven by big data solutions, and 5) health IT and informatics, drive demand for NPS offerings.

Segment results for the third quarter and first nine months of fiscal 2013 have been recast to reflect the change in reportable segments. In addition, segment results for the third quarter and first nine months of fiscal 2013 have been adjusted from amounts previously reported to reflect discontinued operations (see Note 3 to the Consolidated Condensed Financial Statements).


Overview

The key operating results for the third quarter and first nine months of fiscal 2014 include:

Revenues for the third quarter of fiscal 2014 decreased $308 million, or 8.7%, to $3,228 million, and on a constant currency basis(1), decreased $302 million, or 8.5%, as compared to the third quarter of fiscal 2013. For the first nine months of fiscal 2014, revenues decreased $1,023 million, or 9.6%, to $9,669 million, and on a constant currency basis, revenues decreased $988 million, or 9.2%, as compared to the first nine months of fiscal 2013.

Operating income(2) for the third quarter of fiscal 2014 increased to $316 million as compared to operating income of $260 million for the third quarter of fiscal 2013. The operating income margin increased to 9.8% from last year's third quarter margin of 7.4%. For the first nine months, operating income increased to $963 million as compared to operating income of $673 million for the first nine months of fiscal 2013. The operating income margin increased to 10.0% from 6.3% for the comparable period of fiscal 2013.

Earnings before interest and taxes(3) (EBIT) increased to $255 million as compared to EBIT of $197 million for the third quarter of fiscal 2013. EBIT margin improved to 7.9% from last year's third quarter margin of 5.6%. EBIT increased to $749 million as compared to EBIT of $479 million for the first nine months of fiscal 2013. EBIT margin improved to 7.7% from last year's margin of 4.5% for the comparable period.

(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 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.

(2) Operating income is a non-U.S. Generally Accepted Accounting Principle (GAAP) measure used by management to assess performance at the segments and on a consolidated basis. The Company's definition of such measure may differ from that used by other companies. CSC defines operating income as revenue less costs of services, depreciation and amortization expense, restructuring costs and segment general and administrative (G&A) expense, excluding corporate G&A. Operating margin is defined as operating income as a percentage of revenue. Management compensates for the limitations of this non-GAAP measure by also reviewing income from continuing operations before taxes, which includes costs excluded from the operating income definition such as corporate G&A, interest and other income (expense). A reconciliation of consolidated operating income to income from continuing operations before taxes is as follows:

                                               Quarter Ended                                 Nine Months Ended
(Amounts in millions)            December 27, 2013       December 28, 2012      December 27, 2013        December 28, 2012
Operating income                $            316       $            260        $           963         $             673
Corporate G&A                                (66 )                  (56 )                 (198 )                    (186 )
Interest expense                             (38 )                  (57 )                 (112 )                    (147 )
Interest income                                4                      4                     11                        14
Other income (expense), net                    5                     (7 )                  (16 )                      (8 )
Income from continuing
operations before taxes         $            221       $            144        $           648         $             346

(3) Earnings before interest and taxes (EBIT) is a non-GAAP measure that provides useful information to investors regarding the Company's results of operations as it provides another measure of the Company's profitability, and is considered an important measure by financial analysts covering CSC and its peers. The Company's definition of such measure may differ from that used by other companies. CSC defines EBIT as revenue less costs of services, selling, general and administrative expenses, depreciation and amortization, restructuring costs, and other income (expense). EBIT margin is defined as EBIT as a percentage of revenue. A reconciliation of EBIT to income from continuing operations is as follows:

                                                    Quarter Ended                                 Nine Months Ended
(Amounts in millions)                 December 27, 2013       December 28, 2012      December 27, 2013        December 28, 2012
Earnings before interest and taxes   $            255       $            197        $           749         $             479
Interest expense                                  (38 )                  (57 )                 (112 )                    (147 )
Interest income                                     4                      4                     11                        14
Taxes on income                                   (70 )                  (30 )                 (206 )                     (95 )
Income from continuing operations    $            151       $            114        $           442         $             251


Income from continuing operations before taxes was $221 million for the third quarter of fiscal 2014, as compared to $144 million in the third quarter of fiscal 2013, an increase of $77 million. Income from continuing operations before taxes was $648 million, compared to $346 million in the first nine months of fiscal 2013, an increase of $302 million.

(Loss) income from discontinued operations, net of taxes, was $(5) million for the third quarter of fiscal 2014, as compared to $399 million in the same period of fiscal 2013. Income from discontinued operations, net of taxes, was $72 million for the first nine months of fiscal 2014, as compared to $442 million in the same period of fiscal 2013.

Net income attributable to CSC common stockholders was $141 million, a decrease of $369 million from last year's third quarter. Net income attributable to CSC common stockholders was $500 million, a decrease of $180 million from the first nine months of fiscal 2013.

Diluted earnings (loss) per share (EPS) for the third quarter of fiscal 2014, was $0.94, a decrease of $2.33 as compared to $3.27 for the same period in the prior fiscal year. Diluted EPS was comprised of $0.98 from continuing operations and $(0.04) from discontinued operations, as compared to $0.71 and $2.56, respectively, for the same period in the prior fiscal year. For the first nine months of fiscal 2014, diluted EPS was $3.31, a decrease of $1.05 as compared to $4.36 for the same period in the prior fiscal year. Diluted EPS was comprised of $2.83 from continuing operations and $0.48 from discontinued operations, as compared to $1.52 and $2.84, respectively, for the same period in the prior fiscal year.

The Company announced total contract awards(4)(5) of $3.3 billion for the third quarter of fiscal 2014, including $2 billion for GBS, $0.7 billion for GIS and $0.6 billion for NPS. Total contract awards for the third quarter of fiscal 2013 were $2.9 billion, including $1.2 billion for GBS, $1.1 billion for GIS and $0.6 billion for NPS.

Total backlog(6) at the end of the third quarter of fiscal 2014 was $30.7 billion, as compared to $31.6 billion in the prior year. Of the total $30.7 billion backlog, $2.7 billion of the backlog at the end of the third quarter is expected to be realized as revenue in the remainder of fiscal 2014. Of the total $30.7 billion backlog, $9.1 billion is not yet funded.

Days Sales Outstanding (DSO)(7) was 76 days at December 27, 2013, an increase from 75 days at the end of the third quarter of the prior fiscal year.

Debt-to-total capitalization ratio(8) was 43.1% at December 27, 2013, a decrease of 3.3 percentage points from 46.4% at March 29, 2013.

Cash provided by operating activities was $1,012 million for the first nine months of fiscal 2014, as compared to $1,078 million in the prior year. Cash used in investing activities was $377 million for the first nine months of fiscal 2014, as compared to cash provided of $474 million in the prior year. Cash used in financing activities was $393 million for the first nine months of fiscal 2014, as compared to $433 million provided in the prior year.

Free cash flow(9) of $401 million for the first nine months of fiscal 2014 decreased $56 million as compared to $457 million for the first nine months of fiscal 2013.

(4) The Company deployed a new global order input system at the beginning of fiscal 2014 to enhance "lead-to-order" management. This new system permits better and more comprehensive tracking of awards, and enabled the implementation of a revised methodology for reporting new bookings. Fiscal 2013 awards have been recast to be consistent for comparison purposes.

(5) Business awards for GIS are estimated at the time of contract signing based on then existing projections of service volumes and currency exchange rates, and include option years. Effective fiscal 2014, GBS' policy of tracking awards was made consistent with the existing GIS policy. For NPS, announced award values for competitive indefinite delivery and indefinite quantity (IDIQ) awards represent the expected contract value at the time a task order is awarded under the contract. Announced values for non-competitive IDIQ awards represent management's estimate at the award date. CSC's business awards, for all periods presented, have been recast to exclude the awards relating to businesses that have been sold.

(6) Backlog represents total estimated contract value of predominantly long-term contracts, based on customer commitments that the Company believes to be firm. Backlog value is based on contract commitments, management's judgment and assumptions about volume of services,


availability of customer funding and other factors. Backlog estimates for government contracts include both the funded and unfunded portions and all of the option periods. Backlog estimates are subject to change and may be affected by factors including modifications of contracts and foreign currency movements. CSC's backlog, for all periods presented, have been recast to exclude the backlog relating to discontinued operations.

(7) DSO is calculated as total receivables at the fiscal period end divided by revenue-per-day. Revenue-per-day equals total revenues divided by the number of days in the fiscal period. Total receivables includes unbilled receivables but excludes income tax receivables and long-term receivables.

(8) Debt-to-total capitalization ratio is defined as total current and long-term debt divided by total debt and equity, including noncontrolling interest.

(9) Free cash flow is a non-GAAP measure and the Company's definition of such measure may differ from that of other companies. CSC defines free cash flow as equal to the sum of (1) operating cash flows, (2) investing cash flows, excluding business acquisitions, dispositions and investments (including short-term investments and purchase or sale of available for sale securities) and (3) payments on capital leases and other long-term asset financings.

CSC's free cash flow measure does not distinguish operating cash flows from investing cash flows as they are required to be presented in accordance with GAAP, and should not be considered a substitute for operating and investing cash flows as determined in accordance with GAAP. Free cash flow is one of the factors CSC management uses in reviewing the overall performance of the business. Management compensates for the limitations of this non-GAAP measure by also reviewing the GAAP measures of operating, investing and financing cash flows as well as debt levels measured by the debt-to-total capitalization ratio.

A reconciliation of free cash flow to the most directly comparable GAAP financial measure is presented below:

                                                       Quarter Ended                               Nine Months Ended
(Amounts in millions)                    December 27, 2013       December 28, 2012      December 27, 2013     December 28, 2012
Net cash provided by operating          $            529       $            413        $           1,012     $           1,078
activities
Net cash (used in) provided by
investing activities                                (301 )                  840                     (377 )                 474
Acquisitions, net of cash acquired                   163                      -                      190                    34
Business dispositions                                (13 )                 (956 )                   (245 )                (958 )
Short-term investments                                 -                      -                       (5 )                   -
Payments on capital leases and other                 (54 )                  (52 )                   (174 )                (171 )
long-term asset financings
Free cash flow                          $            324       $            245        $             401     $             457

Results of Operations

Revenues

Revenues for the GBS, GIS and NPS segments for the quarters and nine months
ended December 27, 2013 and December 28, 2012 are as follows:
                                                 Quarter Ended
                                                                               Percent
(Amounts in millions)    December 27, 2013     December 28, 2012     Change     Change
GBS                     $           1,109     $           1,220     $ (111 )    (9.1 )%
GIS                                 1,154                 1,191        (37 )    (3.1 )
NPS                                   990                 1,157       (167 )   (14.4 )
Corporate                               2                     3         (1 )       -
Subtotal                            3,255                 3,571       (316 )    (8.8 )
Eliminations                          (27 )                 (35 )        8         -
Total Revenue           $           3,228     $           3,536     $ (308 )    (8.7 )%


                                                           Nine Months Ended
(Amounts in millions)        December 27, 2013     December 28, 2012        Change         Percent Change
GBS                         $           3,233     $           3,693     $        (460 )          (12.5 )%
GIS                                     3,425                 3,557              (132 )           (3.7 )
NPS                                     3,095                 3,530              (435 )          (12.3 )
Corporate                                   9                     9                 -
Subtotal                                9,762                10,789            (1,027 )           (9.5 )
Eliminations                              (93 )                 (97 )               4
Total Revenue               $           9,669     $          10,692     $      (1,023 )           (9.6 )%

The major factors affecting the percent change in revenues for the quarter and nine months ended December 27, 2013 are presented as follows:

                                                             Quarter Ended
                                                       Approximate
                                                        Impact of
                                                        Currency         Net Internal
                                   Acquisitions       Fluctuations          Growth          Total
GBS                                       0.1                0.1  %          (9.3 )%          (9.1 )%
GIS                                       0.1               (0.6 )           (2.6 )           (3.1 )
NPS                                         - %                -            (14.4 )          (14.4 )
Cumulative Net Percentage                 0.1 %             (0.2 )%          (8.6 )%          (8.7 )%



                                                       Nine Months Ended
                                                   Approximate
                                                    Impact of
                                                    Currency        Net Internal
                                 Acquisitions     Fluctuations         Growth          Total
GBS                                      -             (0.3 )%         (12.2 )%        (12.5 )%
GIS                                      -             (0.7 )           (3.0 )          (3.7 )
NPS                                    0.1 %              -            (12.4 )         (12.3 )
Cumulative Net Percentage              0.1 %           (0.4 )%          (9.3 )%         (9.6 )%

Global Business Services

GBS segment revenue for the third quarter of fiscal 2014 decreased $111 million, or 9.1%, as compared to the same period of fiscal 2013, and decreased $112 million, or 9.2% in constant currency. For the first nine months, GBS revenue decreased $460 million or 12.5%, as compared to the same period of fiscal 2013, and decreased $452 million, or 12.2%, in constant currency.

GBS revenue, for both the third quarter and first nine months of fiscal 2014, was unfavorably impacted by certain fiscal 2013 revenues that did not recur in fiscal 2014. These principally included revenues from the fiscal 2013 divestiture of the Company's Australian information technology staffing business unit (Paxus) of $61 million and $202 million, respectively (see Note 3 to the Consolidated Condensed Financial Statements), and $55 million of milestone revenue realized on the NHS contract during the first quarter of fiscal 2013. In addition, for the first nine months of fiscal 2014, GBS revenue was adversely impacted by adjustments of $23 million on certain contracts within the industry software and solutions (IS&S) group (see Note 4 to the Consolidated Condensed Financial Statements), and net year-over-year adverse revenue adjustments $1 million and $12 million, respectively, on contracts accounted for under the percentage-of-completion method.


Excluding the effect of the items mentioned above, GBS revenue declined $51 million, or 4.2% and $161 million, or 4.4%, for the third quarter and first nine months of fiscal 2014, respectively. The revenue decreases for both the third quarter and the nine-month period were mainly attributable to GBS' efforts to reposition its consulting business to a partner-led model with industry specific offerings, and the overall economic conditions and associated business performance, primarily in Central Europe and Australia.

GBS had contract awards of $2 billion in the third quarter and $4.5 billion in the first nine months of fiscal 2014, as compared to awards of $1.2 billion in the third quarter and $6.1 billion in the first nine months of fiscal 2013.

Global Infrastructure Services

GIS segment revenue for the third quarter of fiscal 2014 decreased $37 million, or 3.1%, as compared to the same period of fiscal 2013, and decreased $30 million, or 2.5% in constant currency. For the first nine months, GIS revenue decreased $132 million, or 3.7%, as compared to the same period of fiscal 2013, and decreased $105 million, or 3.0%, in constant currency.

. . .

  Add CSC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CSC - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.