CSC Provides Update on NHS MOU Status and FY2011 Guidance
News Release -- May 02, 2011
Fourth Quarter Earnings Call Rescheduled
FALLS CHURCH, Va., May 2 – CSC (NYSE: CSC) announced today that it anticipates concluding a non-binding memorandum of understanding (MOU) with the National Health Service (NHS). The MOU will form the foundation of a revised contract to deliver efficiency savings and reaffirm a continued commitment to CSC's Local Service Provider contract with the NHS. The anticipated amended contract contemplated by the MOU will be realigned to respond to the NHS’ change agenda and will incorporate a reduced scope and volume for Lorenzo Regional Care. The MOU terms are substantially completed and CSC expects signing of the MOU in the next few weeks pending final NHS and other government reviews and approvals.
“After several months of detailed discussions we’re now in the final stages of concluding this agreement and moving on to a new era of certainty and partnership with the U.K. government,” said Michael W. Laphen, CSC Chairman, President and Chief Executive Officer. “CSC is building on our extensive global understanding and experience in healthcare to help the government deliver more efficient and secure public services in the U.K. We look forward to continuing to work with the NHS to meet their needs today and into the future.”
The company stated during its third quarter earnings report on February 9, 2011 that the financial guidance at that time for Fiscal Year 2011 excluded any impacts emanating from discussions surrounding this MOU. Additionally, the company indicated that the NHS’ preference for more flexibility rather than guaranteed volumes could impact CSC’s income recognition under Percentage of Completion accounting.
Therefore and primarily due to the anticipated MOU, a related NHS fourth quarter milestone revenue shift, and a slightly higher tax rate, the company is updating its Fiscal 2011 guidance. Earnings per share (EPS) guidance has been adjusted downward as the result of an inception to date reduction in contract profit to a rate that should still be accretive to the company’s long term profit goals. The revised contract scope and schedule has also resulted in lower fourth quarter milestone payments and advances and therefore Free Cash Flow expressed as a percent of Net Income is at 80 percent versus the previous guidance of >90 percent.
New business awards were also further impacted primarily due to delayed procurement decisions within the federal sector.
Below is a comparison of the current and prior guidance:
Q3 FY2011 Guidance
|New Business Awards||$14.0 billion||$16.0 billion|
|Revenue||$16.1 billion||$16.2 billion|
|Operating Margin||7.7%||8% - 8.5%|
|Free Cash Flow as % Net Income||80%||>90%|
*includes discontinued operations
Financial results for the fourth quarter of fiscal year 2011 will now be released on Wednesday, May 25, 2011 at approximately 4:15 p.m. Eastern Daylight Time (EDT). This will be followed by a conference call and Webcast at 5:00 p.m. EDT. The conference call dial-in number for the domestic callers is 800-479-9001. Callers who reside outside the United States or Canada will need to dial 719-457-2710. The passcode for all participants is 9399139. The Webcast audio and presentation slides will be available at www.csc.com/investor_relations.
CSC confirms that on May 11, 2011, the previously announced Institutional Investor Meeting will commence at 9:00 a.m. in New York. A webcast and slides will be available on the company website at http://www.csc.com/investorrelations.
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.
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 93,000 employees and reported revenue of $16.2 billion for the 12 months ended December 31, 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.