Attached files
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| 8-K - PRESS RELEASE COVER Q2-FY11 - COMPUTER SCIENCES CORP | form8k.htm |
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Contact
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Chris Grandis
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FOR RELEASE
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Media Relations Director
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Moved on Business Wire
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Corporate
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November 10, 2010
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703.641.2316
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cgrandis@csc.com
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Bryan Brady
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Vice President, Investor Relations
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Corporate
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703.641.3000
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investorrelations@csc.com
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CSC REPORTS SECOND QUARTER RESULTS
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 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:
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New business awards of $4.5 billion for the quarter, compared to $4.6 billion from the previous year.
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Pre-tax margin of 6.92% for the quarter, an increase of 49 basis points from the previous year.
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Operating margin of 7.75% for the quarter, a reduction of 69 basis points from the previous year.
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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.
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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.
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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:
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New Business Bookings
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In excess of $18.5 billion
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Revenue
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$16.5 – $17.0 billion
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Margin Rate
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8.5% – 9.0% | |||
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EPS
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$5.35 – $5.45 | |||
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FCF greater than
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90% of net income attributable to CSC common shareholders.
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Conference Call and Webcast
CSC senior management will host a conference call and Webcast at 11:00 a.m. EDT 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. Headquartered in Falls Church, Va., CSC has approximately 94,000 employees and reported revenue of $16.1 billion for the 12 months ended October 1, 2010. For more information, visit the Company’s website at www.csc.com.
All statements in this press release and in all future press releases that do not directly and exclusively relate to historical facts constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent the Company’s intentions, plans, expectations and beliefs, and are subject to risks, uncertainties and other factors, many of which are outside the Company’s control. These factors could cause actual results to differ materially from such forward-looking statements. For a written description of these factors, see the section titled “Risk Factors” in CSC’s Form 10-K for the fiscal year ended April 2, 2010 and any updating information in subsequent SEC filings. The Company disclaims any intention or obligation to update these forward-looking statements whether as a result of subsequent event or otherwise, except as required by law.
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CSC-Page 4
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11/10/2010
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Revenues by Segment
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(preliminary and unaudited)
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Quarter Ended
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October 1, 2010
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October 2, 2009
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% of Total Revenue
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(Dollars in millions)
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Fiscal 2011
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Fiscal 2010
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Business Solutions & Services
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$ | 869 | $ | 864 | 22 | % | 21 | % | ||||||||
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Managed Services Sector
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1,581 | 1,579 | 40 | 39 | ||||||||||||
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Department of Defense
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1,161 | 1,210 | 30 | 30 | ||||||||||||
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Civil agencies
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333 | 342 | 8 | 9 | ||||||||||||
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Other (1)
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55 | 70 | 1 | 2 | ||||||||||||
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North American Public Sector
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1,549 | 1,622 | 39 | 41 | ||||||||||||
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Corporate & Eliminations
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(24 | ) | (24 | ) | (1 | ) | (1 | ) | ||||||||
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Total Revenue
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$ | 3,975 | $ | 4,041 | 100 | % | 100 | % | ||||||||
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Six Months Ended
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October 1, 2010
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October 2, 2009
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% of Total Revenue
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(Dollars in millions)
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Fiscal 2011
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Fiscal 2010
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Business Solutions & Services
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$ | 1,690 | $ | 1,702 | 21 | % | 21 | % | ||||||||
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Managed Services Sector
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3,179 | 3,143 | 40 | 40 | ||||||||||||
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Department of Defense
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2,284 | 2,330 | 30 | 30 | ||||||||||||
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Civil agencies
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705 | 708 | 9 | 9 | ||||||||||||
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Other (1)
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112 | 102 | 1 | 1 | ||||||||||||
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North American Public Sector
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3,101 | 3,140 | 40 | 40 | ||||||||||||
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Corporate & Eliminations
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(53 | ) | (47 | ) | (1 | ) | (1 | ) | ||||||||
| $ | 7,917 | $ | 7,938 | 100 | % | 100 | % | |||||||||
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Note (1): Other revenues consist of state, local and foreign government as well as commercial contracts performed by the North American Public Sector (NPS).
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CSC-Page 5
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11/10/20100
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Consolidated Condensed Statements of Income
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(preliminary and unaudited)
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Quarter Ended
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Six Months Ended
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(In millions except per-share amounts)
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October 1, 2010
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October 2, 2009
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October 1, 2010
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October 2, 2009
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Revenues
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$ | 3,975 | $ | 4,041 | $ | 7,917 | $ | 7,938 | ||||||||
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Costs of services
(excludes depreciation and amortization)
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3,182 | 3,215 | 6,379 | 6,371 | ||||||||||||
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Selling, general and administrative
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247 | 246 | 491 | 493 | ||||||||||||
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Depreciation and amortization
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273 | 275 | 529 | 544 | ||||||||||||
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Interest expense
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42 | 53 | 83 | 108 | ||||||||||||
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Interest income
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(9 | ) | (7 | ) | (17 | ) | (13 | ) | ||||||||
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Other (income) expense
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(35 | ) | (1 | ) | (38 | ) | (9 | ) | ||||||||
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Total costs and expenses
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3,700 | 3,781 | 7,427 | 7,494 | ||||||||||||
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Income before taxes
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275 | 260 | 490 | 444 | ||||||||||||
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Taxes on income
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82 | 39 | 149 | 91 | ||||||||||||
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Net Income
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193 | 221 | 341 | 353 | ||||||||||||
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Less: Net income attributable to noncontrolling interest, net of tax
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9 | 5 | 14 | 7 | ||||||||||||
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Net income attributable to CSC common shareholders
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$ | 184 | $ | 216 | $ | 327 | $ | 346 | ||||||||
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Earnings per share:
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Basic
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$ | 1.19 | $ | 1.42 | $ | 2.12 | $ | 2.28 | ||||||||
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Diluted
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$ | 1.18 | $ | 1.40 | $ | 2.09 | $ | 2.26 | ||||||||
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Cash dividend per common share
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$ | 0.15 | $ | - | $ | 0.30 | $ | - | ||||||||
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Weighted average common shares outstanding for:
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Basic EPS
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154.393 | 151.835 | 154.304 | 151.687 | ||||||||||||
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Diluted EPS
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155.766 | 154.126 | 156.302 | 153.373 | ||||||||||||
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CSC-Page 6
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11/10/2010
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Selected Balance Sheet Data
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(preliminary and unaudited)
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(Amounts in millions)
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October 1, 2010
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April 2, 2010
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Assets
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Cash and cash equivalents
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$ | 2,657 | $ | 2,784 | ||||
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Receivables, net
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3,956 | 3,849 | ||||||
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Prepaid expenses and other current assets
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1,994 | 1,789 | ||||||
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Total current assets
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8,607 | 8,422 | ||||||
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Property and equipment, net
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2,358 | 2,241 | ||||||
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Outsourcing contract costs, net
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670 | 642 | ||||||
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Software, net
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516 | 511 | ||||||
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Goodwill
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3,921 | 3,866 | ||||||
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Other assets
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815 | 773 | ||||||
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Total assets
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$ | 16,887 | $ | 16,455 | ||||
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Liabilities
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Short-term debt and current maturities of long-term debt
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$ | 112 | $ | 75 | ||||
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Accounts payable
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428 | 409 | ||||||
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Accrued payroll and related costs
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806 | 821 | ||||||
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Other accrued expenses
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1,174 | 1,344 | ||||||
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Deferred revenue
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1,177 | 1,189 | ||||||
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Income taxes payable and deferred income taxes
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282 | 284 | ||||||
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Total current liabilities
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3,979 | 4,122 | ||||||
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Long-term debt, net
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3,835 | 3,669 | ||||||
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Income tax liabilities and deferred income taxes
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573 | 550 | ||||||
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Other long-term liabilities
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1,466 | 1,606 | ||||||
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Total stockholders' equity
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7,034 | 6,508 | ||||||
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Total liabilities and stockholders' equity
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$ | 16,887 | $ | 16,455 | ||||
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Debt as a percentage of total capitalization
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35.9 | % | 36.5 | % | ||||
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CSC-Page 7
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11/10/2010
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Consolidated Condensed Statement of Cash Flows
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(preliminary and unaudited)
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Six Months Ended
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(Amounts in millions)
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October 1, 2010
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October 2, 2009
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Cash flows from operating activities:
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Net income
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$ | 341 | $ | 353 | ||||
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Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
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Depreciation and amortization and other non-cash charges
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571 | 577 | ||||||
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Stock based compensation
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30 | 34 | ||||||
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Provision for losses on accounts receivable
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6 | 15 | ||||||
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Unrealized foreign currency exchange gain, net
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(12 | ) | (65 | ) | ||||
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Gain on dispositions
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(30 | ) | (4 | ) | ||||
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Changes in assets and liabilities, net of effects of acquisitions and
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dispositions:
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Increase in assets
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(277 | ) | (40 | ) | ||||
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Decrease in liabilities
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(287 | ) | (595 | ) | ||||
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Net cash provided by operating activities
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342 | 275 | ||||||
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Cash flows from investing activities:
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Purchases of property and equipment
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(337 | ) | (209 | ) | ||||
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Outsourcing contracts
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(58 | ) | (77 | ) | ||||
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Business acquisitions, net of cash acquired
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(65 | ) | (5 | ) | ||||
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Business dispositions
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52 | 12 | ||||||
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Software purchased and developed
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(94 | ) | (68 | ) | ||||
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Other investing activities, net
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44 | 61 | ||||||
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Net cash used in investing activities
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(458 | ) | (286 | ) | ||||
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Cash flows from financing activities:
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Borrowings under lines of credit
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8 | 28 | ||||||
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Repayments of borrowings under lines of credit
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(5 | ) | (32 | ) | ||||
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Principal payments on long-term debt
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(40 | ) | (17 | ) | ||||
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Proceeds from stock options
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18 | 30 | ||||||
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Repurchase of common stock and acquisition of treasury stock
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- | (3 | ) | |||||
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Excess tax benefit from stock-based compensation
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2 | 3 | ||||||
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Dividend payments
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(23 | ) | - | |||||
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Other financing activities, net
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(7 | ) | - | |||||
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Net cash (used in) provided by financing activities
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(47 | ) | 9 | |||||
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Effect of exchange rate changes on cash and cash equivalents
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36 | 112 | ||||||
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Net (decrease) increase in cash and cash equivalents
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(127 | ) | 110 | |||||
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Cash and cash equivalents at beginning of year
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2,784 | 2,297 | ||||||
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Cash and cash equivalents at end of period
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$ | 2,657 | $ | 2,407 | ||||
CSC-Page8 11/10/2010
Non-GAAP Financial Measures
The following tables reconcile operating income 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. 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.
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GAAP Reconciliations
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Operating Income (preliminary and unaudited)
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Quarter Ended
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Six Months Ended
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(Amounts in millions)
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October 1 , 2010
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October 2, 2009
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October 1, 2010
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October 2, 2009
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Operating income
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$ | 308 | $ | 341 | $ | 589 | $ | 607 | ||||||||
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Corporate G&A
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(35 | ) | (36 | ) | (71 | ) | (77 | ) | ||||||||
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Interest expense
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(42 | ) | (53 | ) | (83 | ) | (108 | ) | ||||||||
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Interest income
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9 | 7 | 17 | 13 | ||||||||||||
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Other income (expense)
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35 | 1 | 38 | 9 | ||||||||||||
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Income before taxes
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$ | 275 | $ | 260 | $ | 490 | $ | 444 | ||||||||
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Free Cash Flow (preliminary and unaudited)
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Quarter Ended
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Six Months Ended
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(Amounts in millions)
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October 1, 2010
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October 2, 2009
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October 1, 2010
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October 2, 2009
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Free cash flow
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$ | 175 | $ | 429 | $ | (143 | ) | $ | (33 | ) | ||||||
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Net cash used in investing activities
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205 | 128 | 458 | 286 | ||||||||||||
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Business acquisitions, net of cash acquired
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(61 | ) | (5 | ) | (65 | ) | (5 | ) | ||||||||
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Business dispositions
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52 | 12 | 52 | 12 | ||||||||||||
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Payments on capital leases and other long-term
assets financings
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31 | 8 | 40 | 15 | ||||||||||||
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Net cash provided by operating activities
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$ | 402 | $ | 572 | $ | 342 | $ | 275 | ||||||||
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Net cash used in investing activities
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$ | (205 | ) | $ | (128 | ) | $ | (458 | ) | $ | (286 | ) | ||||
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Net cash (used in) provided by financing activities
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$ | (49 | ) | $ | 23 | $ | (47 | ) | $ | 9 | ||||||
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Operating income
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$ | 308 | $ | 341 | $ | 589 | $ | 607 | ||||||||
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Operating margin
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7.75 | % | 8.44 | % | 7.44 | % | 7.65 | % | ||||||||
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Pre-tax margin
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6.92 | % | 6.43 | % | 6.19 | % | 5.59 | % | ||||||||
Note: Payments on capital leases and other long-term asset financings, and proceeds from the sale of property and equipment (included in investment activities) are included in the calculation of Free Cash Flow (FCF). Operating margin is defined as operating income as a percentage of revenue. Pre-tax margin is defined as income before taxes as a percentage of revenue.