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CSC Reports Continued Improvement In Second Quarter 2013 Results

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

CSC is a global leader in providing technology-enabled business solutions and services. Headquartered in Falls Church, Va., CSC has approximately 95,000 employees and reported revenue of $15.7 billion for the 12 months ended September 28, 2012. 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” 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

 

 

Constant
(Amounts in millions)

September 28, 2012

September 30, 2011

% Change Currency
North American Public Sector $ 1,375 $ 1,436 (4.2 )% (4.2 )%
Managed Services Sector 1,583 1,619 (2.2 )% 1.1 %
Business Solutions & Services 921 945 (2.5 )% 1.4 %
Corporate & Eliminations (25 ) (34 )
Total Revenues $ 3,854   $ 3,966   (2.8 )% (0.5 )%
 
      Six Months Ended
                  % Change in

 

 

Constant
(Amounts in millions)

September 28, 2012

September 30, 2011

% Change Currency
North American Public Sector $ 2,743 $ 2,920 (6.1 )% (6.1 )%
Managed Services Sector 3,218 3,238 (0.6 )% 3.0 %
Business Solutions & Services 1,906 1,906 4.2 %
Corporate & Eliminations (56 ) (65 )
Total Revenues $ 7,811   $ 7,999   (2.4 )% 0.1 %
 

Operating Income and Operating Margins by Segment

           
      Quarter Ended
September 28, 2012 September 30, 2011
(Amounts in millions) Operating Income       Operating Margin Operating Income Operating Margin
North American Public Sector $ 150 10.9 % $ (132 ) (9.2 )%
Managed Services Sector 88 5.6 % 45 2.8 %
Business Solutions & Services 64 6.9 % 34 3.6 %
Corporate & Eliminations (4 ) (22 )
Total Operating Income $ 298   7.7 % $ (75 ) (1.9 )%
 
      Six Months Ended
September 28, 2012       September 30, 2011
(Amounts in millions) Operating Income       Operating Margin Operating Income       Operating Margin
North American Public Sector $ 251 9.2 % $ (14 ) (0.5 )%
Managed Services Sector 183 5.7 % 54 1.7 %
Business Solutions & Services 80 4.2 % 91 4.8 %
Corporate & Eliminations (33 ) (26 )
Total Operating Income $ 481   6.2 % $ 105   1.3 %
 
Consolidated Condensed Statements of Operations      

(preliminary and unaudited)

     
Quarter Ended Six Months Ended

(Amounts in millions, except per-share amounts)

September 28, 2012       September 30, 2011 September 28, 2012       September 30, 2011
 
Revenues $ 3,854   $ 3,966   $ 7,811   $ 7,999  
 
Costs of services (excludes depreciation and amortization, settlement charge and restructuring costs ($56 and $83 for the second quarter and first six months of fiscal 2013)) 2,994 3,283 6,247 6,648
Cost of services – settlement charge (excludes amount charged to revenue of $42 (2012)) 227 227
Selling, general and administrative (excludes restructuring costs ($2 for both the second quarter and first six months of fiscal 2013)) 301 307 592 571
Depreciation and amortization 273 290 536 568
Goodwill impairment 2,685 2,685
Restructuring costs 58 85
Interest expense 45 46 90 88
Interest income (5 ) (12 ) (10 ) (24 )
Other (income) expense, net (14 ) (6 ) (5 ) (11 )
Total costs and expenses 3,652   6,820   7,535   10,752  
 
Income (loss) from continuing operations before taxes 202 (2,854 ) 276 (2,753 )
Taxes on income 64   12   96   (73 )
Income (loss) from continuing operations 138 (2,866 ) 180 (2,680 )
Loss from discontinued operations, net of taxes       (1 )
Net income (loss) 138 (2,866 ) 180 (2,681 )
Less: net income attributable to noncontrolling interest, net of tax 8   11   10   13  
Net income (loss) attributable to CSC common shareholders $ 130   $ (2,877 ) $ 170   $ (2,694 )
 
Earnings (loss) per common share:
Basic:
Continuing operations $ 0.84 $ (18.56 ) $ 1.09 $ (17.38 )
Discontinued operations       (0.01 )
$ 0.84   $ (18.56 ) $ 1.09   $ (17.39 )
Diluted:
Continuing operations $ 0.83 $ (18.56 ) $ 1.09 $ (17.38 )
Discontinued operations       (0.01 )
$ 0.83   $ (18.56 ) $ 1.09   $ (17.39 )
 
Cash dividend per common share $ 0.20 $ 0.20 $ 0.40 $ 0.40
 
Weighted average common shares outstanding for:
Basic EPS 155.360 155.045 155.293 154.944
Diluted 155.754 155.045 155.742 154.944
 
Selected Balance Sheet Data      

(preliminary and unaudited)

 
As of
(Amounts in millions) September 28, 2012       March 30, 2012
 
Assets
Cash and cash equivalents $ 1,850 $ 1,093
Receivables, net 3,102 3,257
Prepaid expenses and other current assets 516   533  
Total current assets 5,468   4,883  
 
Property and equipment, net 2,335 2,441
Software, net 634 649
Outsourcing contract costs, net 539 562
Goodwill 1,768 1,752
Other assets 905   902  
Total Assets $ 11,649   $ 11,189  
 
Liabilities
Short-term debt and current maturities of long-term debt $ 988 $ 1,254
Accounts payable 386 478
Accrued payroll and related costs 712 789
Accrued expenses and other current liabilities 1,276 1,339
Deferred revenue and advance contract payments 607 619
Income taxes payable and deferred income taxes 46   57  
Total current liabilities 4,015   4,536  
 
Long-term debt, net of current maturities 2,399 1,486
Income tax liabilities and deferred income taxes 358 357
Other long-term liabilities 1,992 1,976
 
Total Equity 2,885 2,834
   
Total Liabilities and Equity $ 11,649   $ 11,189  
 
Debt as a percentage of total capitalization 54.0 % 49.2 %
 
Consolidated Condensed Statements of Cash Flows      

(preliminary and unaudited)

 
Six Months Ended
(Amounts in millions) September 28, 2012       September 30, 2011
Cash flows from operating activities:
Net income (loss) $ 180 $ (2,681 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization and other non-cash charges 560 611
Goodwill impairment 2,685
Settlement charge 269
Stock-based compensation 20 22
Loss on dispositions 11 3
Provision for losses on accounts receivable 3 6
Unrealized foreign currency exchange (gain) loss (71 ) 10
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Decrease (increase) in assets 55 (217 )
Decrease in liabilities (93 ) (748 )
Net cash provided by (used in) operating activities 665   (40 )
 
Cash flows from investing activities:
Purchases of property and equipment (215 ) (301 )
Outsourcing contracts (61 ) (96 )
Acquisitions, net of cash acquired (34 ) (368 )
Software purchased and developed (89 ) (146 )
Other investing activities, net 33   8  
Net cash used in investing activities (366 ) (903 )
 
Cash flows from financing activities:
Net borrowings of commercial paper 505
Borrowings under lines of credit 126 79
Repayment of borrowings under lines of credit (143 ) (19 )
Borrowings on long-term debt, net of discount 699
Principal payments on long-term debt (120 ) (395 )
Proceeds from stock options and other common stock transactions 1 15
Excess tax benefit from stock-based compensation 2
Dividend payments (62 ) (62 )
Other financing activities, net (32 ) (6 )
Net cash provided by financing activities 469   119  
Effect of exchange rate changes on cash and cash equivalents (11 ) (35 )
Net increase (decrease) in cash and cash equivalents 757 (859 )
Cash and cash equivalents at beginning of year 1,093   1,837  
Cash and cash equivalents at end of period $ 1,850   $ 978  
 

Non-GAAP Financial Measures

The following tables reconcile operating income, earnings before interest and taxes (EBIT) and free cash flow to the most directly comparable financial measure calculated and presented in accordance with 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.

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