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TheStreet Open House

CSC Reports Continued Improvement In Second Quarter 2013 Results

Stock quotes in this article: CSC

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 reconciliation between operating income and income before taxes. Management uses free cash flow as one of the factors 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.

GAAP Reconciliations

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. A reconciliation of consolidated operating income to income from continuing operations before taxes is as follows:

Operating income (preliminary and unaudited)       Quarter Ended       Six Months Ended
September 28,       September 30, September 28,       September 30,
(Amounts in millions) 2012 2011 2012 2011
 
Operating income $ 298 $ (75 ) $ 481 $ 105
Corporate G&A (70 ) (66 ) (130 ) (120 )
Interest expense (45 ) (46 ) (90 ) (88 )
Interest income 5 12 10 24
Goodwill impairment $ $ (2,685 ) $ $ (2,685 )
Other income (expense), net 14   6   5   11  
Income from continuing operations before taxes $ 202   $ (2,854 ) $ 276   $ (2,753 )
 
Operating margin 7.7 % (1.9 )% 6.2 % 1.3 %
 

CSC defines EBIT as revenue less costs of services, selling, general and administrative expenses, depreciation and amortization, restructuring costs, goodwill impairment, and other income (expense). EBIT margin is defined as EBIT as a percentage of revenue. A reconciliation of EBIT to net income is as follows:

Earnings before interest and taxes (preliminary and unaudited)       Quarter Ended       Six Months Ended
September 28,       September 30, September 28,       September 30,
(Amounts in millions) 2012 2011 2012   2011
 
Earnings before interest and taxes $ 242 $ (2,820 ) $ 356 $ (2,689 )
Interest expense (45 ) (46 ) (90 ) (88 )
Interest income 5 12 10 24
Taxes on income (64 ) (12 ) (96 ) 73  
Net income from continuing operations $ 138   $ (2,866 ) $ 180   $ (2,680 )
 
EBIT margin 6.3 % (71.1 )% 4.6 % (33.6 )%
 

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. A reconciliation of free cash flow to net cash provided by (used in) operating activities is as follows:

Free Cash Flow (preliminary and unaudited)       Quarter Ended       Six Months Ended
September 28,       September 30, September 28,       September 30,
(Amounts in millions) 2012 2011 2012 2011
 
Free cash flow $ 237 $ (268 ) $ 212 $ (671 )
Net cash used in investing activities 187 569 366 903
Acquisitions, net of cash acquired (34 ) (360 ) (34 ) (368 )
Business dispositions 2
Short-term investments 9 3
Payment on capital leases and other long-term asset financings 54   56   119   93  
Net cash provided by (used in) operating activities $ 444   $ 6   $ 665   $ (40 )
Net cash used in investing activities $ (187 ) $ (569 ) $ (366 ) $ (903 )
Net cash provided by (used in) financing activities $ 566   $ (75 ) $ 469   $ 119  
 

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