CSC Reports Second Quarter Results

News Release -- November 10, 2010

Sequential Improvements in Revenue and Profit

FALLS CHURCH, Va., Nov. 10 – CSC (NYSE: CSC) today reported second quarter fiscal 2011 revenue of $4.0 billion and fully diluted earnings per share (EPS) of $1.18 compared to second quarter fiscal 2010 revenue of $4.0 billion and EPS of $1.40 ($1.15 after normalizing for the tax rate). The half year revenue was $7.9 billion and EPS was $2.09 compared to half year fiscal 2010 revenue of $7.9 billion and EPS of $2.26 ($1.97 after normalizing for the tax rate).

Commenting on the results, CSC Chairman and Chief Executive Officer Michael W. Laphen said, “Our underlying performance in the quarter continues to track in a positive direction. We achieved a solid quarter in new business bookings which supports our anticipated growth in the second half of the fiscal year. Our pre-tax margin and operating margin improved sequentially, this despite a series of non-recurring accounting adjustments in MSS, primarily in the Nordics Region.”

Highlights for the quarter include:

• New business awards of $4.5 billion for the quarter, compared to $4.6 billion from the previous year.
• Pre-tax margin of 6.92% for the quarter, an increase of 49 basis points from the previous year.
• Operating margin of 7.75% for the quarter, a reduction of 69 basis points from the previous year.
• Operating cash flow of $402 million for the quarter, as compared to $572 million from the previous year. At the half year, operating cash flow was $342 million compared to $275 million from the previous year.
• Free Cash Flow of $175 million for the quarter, as compared to $429 million from the previous year. At the half year, free cash flow was -$143 million compared to -$33 million from the previous year.

New Business Awards

Across the three lines of business, new business awards for the quarter were $4.5 billion. North American Public Sector (NPS) contributed approximately $2.9 billion, Business Solutions & Services (BSS) reported $0.8 billion, and Managed Services Sector (MSS) closed $0.8 billion of new business.

Lines of Business

For the quarter, NPS revenue was $1.55 billion (down 4.5% from the second quarter last year mainly due to the previous year’s benefit of a claims settlement), MSS revenue was $1.58 billion (up 0.1% from the second quarter last year) and BSS revenue was $0.87 billion (up 0.6% from the second quarter last year and up 6% when adjusted for currency and the fiscal 2010 acquisition and divestiture).

Business Outlook

“While our NPS business is still experiencing a slowdown in the pace of customer decisions, our continued success in capturing sizeable IDIQ awards positions us for meaningful second half growth,” said Laphen. “Our commercial businesses have achieved new logo wins and are building a robust pipeline, particularly in our targeted areas of Applications Outsourcing, Cyber and Cloud solutions.”

Guidance

The company updated its guidance for the full year, increasing New Business Bookings and EPS while modifying its Revenue and Margin range as a consequence of the aforementioned NPS award delays and the adjustments in the Nordics. Free Cash Flow guidance is unchanged.

The revised guidance is:

New Business Bookings	In excess of $18.5 billion
Revenue	$16.5 – $17.0 billion
Margin Rate	8.5% – 9.0%
EPS	$5.35 – $5.45
FCF	Greater than 90% of net income attributable to CSC common shareholders.

 

Conference Call and Webcast

CSC senior management will host a conference call and Webcast at 11:00 a.m. EST today. The conference call dial-in number for domestic callers is 877-545-1403. International callers will need to dial +1 719-325-4812. The pass code for all participants is 6934108. The Webcast and presentation slides can be accessed at www.csc.com/investor_relations.

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, free cash flow and free cash flow as a percentage of net income attributable to CSC common shareholders. 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 and 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. The company has been recognized as a leader in the industry, including being named by FORTUNE Magazine as one of the World’s Most Admired Companies for Information Technology Services (2010). Headquartered in Falls Church, Va., CSC has approximately 94,000 employees and reported revenue of $16.1 billion for the 12 months ended October 1, 2010. 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 April 2, 2010 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.

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