CSC Reports Preliminary Fourth Quarter Results
News Release -- May 25, 2011
FALLS CHURCH, Va., May 25 – CSC (NYSE: CSC) today reported preliminary fourth quarter fiscal 2011 revenue of $4.20 billion and fully diluted earnings per share (EPS including discontinued operations) of $1.09 compared to fourth quarter fiscal 2010 revenue of $4.20 billion and EPS of $1.66.
“The preliminary fourth quarter results are in-line with our updated guidance issued on May 2,” said Michael W. Laphen, CSC Chairman, President and Chief Executive Officer. “Although Fiscal Year 2011 was challenging given the NHS uncertainty, the unexpected difficulties in the Nordics and the delays in the Federal budgets, I am pleased with the sequential and year over year revenue growth achieved in our commercial business. Excluding the challenges, our business performed as expected in terms of operating margin and free cash flow.”
The Company also announced preliminary full year revenue of $16.04 billion and EPS (including discontinued operations) of $4.73 compared to fiscal 2010 revenue of $15.92 billion and EPS of $5.28. The reduction in the Company’s preliminary earnings per share for fiscal 2011 as compared to fiscal 2010 is primarily due to a profit adjustment related to the Company’s contract with National Health Service in the United Kingdom, net out of period adjustments in the Company’s Managed Services Sector and a higher effective tax rate.
Exhibit A provides a breakdown of the Company’s preliminary 2011 EPS from continuing and discontinued operations with comparisons to its May 2, 2011 guidance.
Preliminary highlights for the quarter and full year include:
- New business awards of $4.0 billion for the quarter and $14.0 billion for the year.
- Pre-tax margin of 6.71% for the quarter and 6.03% for the year.
- Operating margin of 8.04% for the quarter and 7.59% for the year.
- Operating cash flow of $760 million for the quarter and $1,564 million for the year.
- Free cash flow of $510 million for the quarter and $620 million for the full year, representing 84% of net income attributable to CSC common shareholders.
Investigation Update; Preliminary Results Subject to Change
As previously disclosed, in fiscal year 2011 the Company initiated an investigation into certain accounting errors in the Company’s Managed Services Sector (MSS), primarily involving accounting irregularities in the Nordic region. Initially, the investigation was conducted by Company personnel, but outside Company counsel and forensic accountants retained by such counsel later assisted in the Company’s investigation. On January 28, 2011, the Company was notified by the Division of Enforcement of the United States Securities and Exchange Commission (SEC) that the SEC had commenced a formal civil investigation relating to these matters, with which the Company is cooperating. On May 2, 2011, the Audit Committee of the Board of Directors commenced an independent investigation into matters relating to MSS and the Nordic region, matters identified by subpoenas issued by the SEC’s Division of Enforcement and certain other accounting matters identified by the Audit Committee and retained independent counsel to represent CSC on behalf of, and under the exclusive direction of, the Audit Committee in connection with such independent investigation. Independent counsel has retained forensic accountants to assist their work. Independent counsel also represents CSC on behalf of, and under the exclusive direction of, the Audit Committee in connection with the investigation by the SEC’s Division of Enforcement.
In addition, the SEC’s Division of Corporation Finance has issued comment letters to the Company requesting additional information regarding its previously disclosed adjustments in connection with the above-referenced accounting errors, the Company’s conclusions regarding such adjustments and the Company’s analysis of the effectiveness of its disclosure controls and procedures and its internal control over financial reporting. The Company is responding to such comments.
The investigation of the accounting irregularities in the Nordic region is not sufficiently complete so as to allow the Audit Committee and the Company to determine the appropriateness of filing the Company’s financial statements for the year ended April 1, 2011. Consequently, the Company will not be able to file its Form 10-K for the year ended April 1, 2011 before the required filing date of May 31, 2011. The Company currently anticipates that the Form 10-K will be filed on or before June 15, 2011, the prescribed due date according to SEC Rule 12b-25.
Because the Company has not issued its financial statements for the year ended April 1, 2011, all financial results and other financial data described in this press release should be considered preliminary and are subject to change to reflect any necessary additional corrections or adjustments, or changes in accounting estimates, that are identified in connection with these matters. In addition, the outcomes of the SEC and Audit Committee investigations are uncertain at this time.
The Company is unable to predict the effect, if any, the foregoing matters may have on its business, financial condition or results of operations.
New Business Awards
Across the three lines of business, new business awards for the fourth quarter were $4.0 billion. North American Public Sector (NPS) contributed approximately $0.9 billion, Business Solutions & Services (BSS) reported $1.1 billion and the Managed Services Sector (MSS) closed $2.0 billion of new business.
For the full year, new business awards of $14.0 billion were comprised of $5.5 billion from NPS, $3.5 billion from BSS, and $5.0 billion from MSS.
Preliminary Revenue by Line of Business
For the quarter, NPS revenue from continuing operations was $1.50 billion (down 4.4% from the fourth quarter last year), MSS revenue was $1.75 billion (an increase of 3.6% from the fourth quarter of last year and 1.4% in constant currency) and BSS revenue from continuing operations was $981 million (up 1.0% from the fourth quarter last year and down 1.4% in constant currency).
For the fiscal year, NPS revenue from continuing operations was $6.00 billion (down 1.5% from last year), MSS revenue was $6.58 billion (an increase of 2.0% from last year and up 2.1% in constant currency) and BSS revenue from continuing operations was $3.57 billion (up 2.5% from last year and 2.7% in constant currency).
“As I said at our recent investor conference, I am confident in the Company’s future,” continued Laphen. “The industry analysts have recognized our leadership position in the emerging technologies in demand and we will continue to invest in these areas. The Company is financially solid, we’ve realigned our sales engine and infused new talent. I believe we have a great market position as we head into fiscal year 2012.”
During the fourth quarter, the Company used $65 million of cash on hand to purchase approximately 1.4 million shares under the Company’s previously-announced open market share repurchase program.
The Company issued fiscal year 2012 guidance as follows:
|New Business Awards||~$17B|
|Revenue||$16.5 B - $17.0 B|
|Operating Income Margin||8.75% - 9.25%|
|EPS||$4.70 - $4.80|
|Free Cash Flow as a % of Net Income||
The above forecast does not reflect any impact from the pending acquisition of iSOFT.
|FY2011||May 2, 2011
Conference Call and Webcast
CSC senior management will host a conference call and Webcast at 5 p.m. EST today. The conference call dial-in number for domestic callers is 800-479-9001. International callers will need to dial +1 719-457-2710. The pass code for all participants is 9399139. The Webcast and presentation slides can be accessed at www.csc.com/investor_relations.
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, free cash flow and free cash flow as a percentage of net income attributable to CSC common shareholders. A reconciliation of the adjustments to preliminary GAAP results for this quarter, twelve months 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 business solutions and services. Headquartered in Falls Church, Va., CSC has approximately 91,000 employees and reported revenue of $16.0 billion for the 12 months ended April 1, 2011. 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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