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| 8-K - 8-K - CSRA Inc. | csra8-k021016.htm |
EXHIBIT 99.1
CSRA Announces Financial Results for Third Quarter of Fiscal Year 2016
FALLS CHURCH, Va., Feb. 10, 2016 /PRNewswire/ --
• | GAAP revenues, operating income, and diluted earnings per share (EPS) increased with one month of combined operations of CSRA Inc. and SRA International, Inc. |
• | Pro forma revenues decreased 5% compared to the third quarter of 2015 |
• | Pro forma adjusted EBITDA of $224M represented EBITDA margin of 17.7% |
• | Pro forma bookings of $1.8 billion represent industry leading book-to-bill ratio of 1.4 |
• | Repurchased 1.8 million shares in December and January under $400 million share repurchase authorization |
CSRA Inc. (NYSE: CSRA), a leading provider of next-generation IT solutions and professional services to government organizations, today announced financial results for the third quarter of fiscal year 2016, which ended January 1, 2016. The information contained in this release is preliminary and unaudited. CSRA expects to file its Form 10-Q for the third quarter early next week.
On November 27, 2015, CSRA became an independent company through consummation of the spin-off by Computer Sciences Corporation (CSC) of its U.S. public sector business. On November 30, 2015, CSRA completed its combination with SRA International, Inc. and began trading on the New York Stock Exchange under the ticker symbol "CSRA." All references to CSRA throughout this release include both of its primary operating subsidiaries, CSC Government Solutions LLC and SRA International, Inc.
"We are excited to begin operating and reporting as CSRA Inc., the leader in bringing information technology and mission solutions to the U.S. federal government," said Larry Prior, CSRA's President and CEO. "We intend to deliver robust and sustainable growth in earnings per share, and are pleased to begin our first quarter as an independent public company delivering on that model. With our fourth consecutive quarter of strong bookings, we are building the underlying momentum in the business. Our positioning as the company best able to combine deep domain mission expertise with next generation IT delivery will offer significant growth opportunities for our shareholders and employees and lower costs and risk as we help our customers navigate their digital future."
Summary Operating Results
($ in millions, except for per share data) | Three Months Ended | Growth Rate | ||||||
1-Jan-16 | 2-Jan-15 | |||||||
GAAP revenue | $ 1,032 | $ 999 | 3.3 | % | ||||
GAAP earnings before taxes | $ 59 | $ 91 | -35.4 | % | ||||
GAAP diluted EPS | $ 0.29 | N/A | N/A | |||||
Pro forma revenue | $ 1,272 | $ 1,340 | -5.1 | % | ||||
Pro forma adjusted EBITDA | $ 224 | N/A | N/A | |||||
Pro forma adjusted diluted EPS | $ 0.48 | N/A | N/A | |||||
Note: Growth rates are calculated from the actual amounts, not the rounded amounts displayed in the table. | ||||||||
GAAP results reflect the operations of CSC Government Solutions LLC for the full reported period and SRA International, Inc. for the period from November 30, 2015 to January 1, 2016. GAAP revenue for the quarter was $1.03 billion, up 3.3 percent compared to the third quarter of fiscal year 2015 as a result of the addition of one month of operations of SRA International, Inc. GAAP net income from continuing operations before tax was $59 million, down from $91 million in the third quarter of fiscal year 2015, driven by $44 million in separation and merger costs. GAAP net income from continuing operations before tax also contained one month of intangibles amortization associated with the SRA merger, including the amortization expense associated with SRA's funded contract backlog, which was preliminarily valued at $65 million and is being amortized over one year. GAAP diluted earnings per share were $0.29. Diluted share count for the third quarter of fiscal year 2015 is not meaningful.
Because of the large number of separations and merger-related factors impacting the quarter, the company believes that pro forma adjusted results represent meaningful additional information to investors regarding fundamental business performance. Pro forma adjusted results include a full period of SRA results; assess the impact of interest, intangibles amortization, pension, and other costs as if the separation and merger had occurred at the beginning of the period; and exclude costs directly associated with the separation and merger transactions and the ongoing integration process. The tables at the end of this press release provide appropriate reconciliations from pro forma adjusted results to GAAP results. When analyzing CSRA's performance, investors and securities analysts should evaluate each adjustment in our reconciliation and use pro forma adjusted measures in addition to, and not as an alternative to, GAAP measures.
Pro forma revenue for the quarter was $1.27 billion, down 5.1 percent from $1.34 billion in the third quarter of fiscal year 2015. Major drivers of the year-over-year decline include a reduction on the Army Logistics Modernization Program as it transitions from development to maintenance and lower material purchases on several contracts with federal civilian agencies, partially offset by increases on some Intelligence and Health programs.
Pro forma adjusted EBITDA for the quarter was $224 million, representing a pro forma adjusted EBITDA margin of 17.7 percent. Third quarter pro forma adjusted EBITDA includes $4 million of stock-based compensation expense and $28 million of net pension-related income. The strong pro forma adjusted EBITDA performance was driven by a combination of non-recurring improvements in profitability on certain contracts, a stronger mix of direct labor, cost synergies realized from the SRA merger, and a change in the method of estimating pension income.
Pension income in the quarter was $7 million above the run rate in the first half of the fiscal year, primarily as a result of a change in the method used to estimate the service and interest cost components of pension income in the third quarter. The company anticipates that using the full yield curve in the estimation should improve the correlation between projected benefit cash flows and yield curve spot rates and provide a more accurate measurement of service and interest costs.
Pro forma adjusted EBITDA excludes transaction related costs such as investment banking, legal and accounting fees, as well as the costs to extinguish SRA's interest rate swaps and to redeem its bonds. It also exclude costs specifically related to merger integration, such as external consulting, IT system integration, and employee severance costs associated with the SRA merger, as well as the periodic mark-to-market adjustments to the pension plan.
Pro forma adjusted diluted earnings per share for the quarter were $0.48 based on a diluted share count of 165 million. Basic and diluted share counts for all GAAP and pro forma adjusted tables for the period ended January 1, 2016, are based on the weighted average share count over the period of November 30, 2015, the day of the spin-off and merger transactions, through January 1, 2016. Share count for the quarter was lower than anticipated as a result of the final share count calculations and the effect of share repurchases in the quarter. The additional pension income associated with the change in estimation method and the lower share count together added
$0.04 to pro forma adjusted diluted earnings per share in the quarter. Pro forma adjusted diluted earnings per share include a non-cash depreciation and amortization expense of $50 million but exclude the intangibles amortization expense associated with SRA's funded contract backlog. Pro forma adjusted diluted earnings per share are calculated assuming an effective tax rate of 39 percent, the company's estimated long-term rate.
Segment Operating Results
CSRA delivers IT, mission, and operations-related services across the U.S. federal government through two reportable segments—Defense and Intelligence, which supports customers in the Department of Defense (DoD) and Intelligence Community, and Civil, which supports customers in homeland security, civil, law enforcement, and healthcare agencies as well as certain state and local government agencies. The following table summarizes revenue by reportable segment:
(in millions) | Three Months Ended | Growth Rate | |||||||||
1-Jan-16 | 2-Jan-15 | ||||||||||
Pro forma revenue | |||||||||||
Defense and Intelligence | $ 545 | $ 625 | -12.8 | % | |||||||
Civil | $ 727 | $ 716 | 1.6 | % | |||||||
Total pro forma revenue | $ 1,272 | $ 1,341 | -5.1 | % | |||||||
Historical SRA revenue for periods prior to November 30, 2015 | (240) | (342) | |||||||||
Total revenue | $ 1,032 | $ 999 | 3.3 | % | |||||||
Note: Growth rates are calculated from the actual amounts, not the rounded amounts displayed in the table. | |||||||||||
For the three months ended January 1, 2016, pro forma Defense and Intelligence segment revenues decreased by $80 million, or 12.8 percent compared to the same period of the prior year. A major source of this decline was our Army Logistics Modernization Program, which is transitioning to a maintenance phase after a very successful, large-scale software deployment. In addition, lower material purchases on Navy contracts, the sale of the Welkin business, and the wind down of Army Overseas Contingency Operations (OCO) work outweighed the ramp up on new Intelligence programs.
For the three months ended January 1, 2016, pro forma Civil segment revenues increased by $11 million, or 1.6 percent as compared to the same period of the prior year. New program starts and program expansions, primarily in Health, more than offset reductions in material purchases on several federal civilian contracts.
The company intends to provide segment operating income in future periods. Operating income provides useful information to CSRA's management for assessment of CSRA's performance and results of operations and is one of the financial measures utilized to determine executive compensation. The complexity of the one-time charges associated with the spin-off and merger transactions make pro forma adjusted operating income less meaningful for the current quarter.
Cash Management and Capital Deployment
As of January 1, 2016, the company had $204 million in cash and cash equivalents, an increase of $194 million compared to the end of the prior quarter. With $200 million of drawn revolver and $2.8 billion of term-loan debt at
quarter end, management believes the company's steady cash flows and $500 million of undrawn revolver capacity create a capital structure that provides substantial liquidity and flexibility to manage the business.
Due to the complex nature of the spin-off and merger transactions, the company deemed it impractical to generate a pro forma adjusted cash flow statement, so all cash flow impacts are stated on a GAAP basis. The third quarter cash flow statement reflects a number of unique items, the most significant of which are reflected in cash flows from investing and financing activities. The company received funding from CSC prior to the spin-off to bring CSRA's cash balance to $300 million. Then, on the dates of the spin-off and merger, the company received $3 billion of new debt financing and used it to pay off SRA's existing debt and hedges, distribute the cash portion of the merger consideration to SRA shareholders, fund the special dividend to CSC shareholders, and pay SRA's transaction-related expenses.
Large GAAP operating payments include $30 million to CSC, the first of five annual payments under the Intellectual Property agreement that governs inter-company proprietary information sharing, and more than $20 million in transaction fees to investment banks and other advisory firms. Accounts receivable increased by about $20 million compared to the usual run rate due to normal seasonal slowdown in payment. As a result, days sales outstanding for the quarter were 55 days.
On November 30, 2015, CSRA's Board of Directors declared a quarterly cash dividend of $0.10 per share on CSRA's common stock. The first quarterly dividend was paid after the third quarter close on January 26, 2016 to CSRA stockholders of record at the close of business on January 5, 2016. Also on November 30, 2015, CSRA's Board of Directors authorized up to $400 million for repurchases of outstanding shares of its common stock, effective immediately through March 31, 2019. Through the end of the quarter, the company repurchased $37 million of shares on the open market, which is reflected as a cash outflow from financing activities. The dividend and stock repurchase programs are part of the company's overall strategy for capital allocation to maximize shareholder value. The Board's action is a reflection of the company's strong financial position and its confidence in the company's future performance.
Contract Awards
Pro forma contract awards (bookings) totaled $1.8 billion in the third quarter, representing a pro forma book-to-bill ratio of 1.4x. The third quarter marked the fourth consecutive quarter with a pro forma book-to-bill ratio in excess of 1.0x. Pro forma contract awards for the trailing twelve-month period totaled $7.0 billion, representing a pro forma book-to-bill ratio of 1.3x. New business awards constituted about one-quarter of the total awards in the third quarter and one-third of the total awards in the trailing twelve months.
Included in the quarterly bookings were four single-award prime contracts in excess of $100 million in total contract value:
• | DC-1 Contract. The Department of Homeland Security (DHS) awarded CSRA a single award, Indefinite Delivery, Indefinite Quantity contract with a maximum value of $967 million over 54-months to extend current work in support of the agency's Data Center 1. Under the new contract any DHS component may award task orders for an array of managed services, private cloud offerings, hardware and software, network and security infrastructure, applications support, and project management. With services focused on the as-a-service model and CSRA's exclusive private cloud, this contract will provide a unique combination of flexibility and technical capabilities to evolve with technology and mission needs as well as the highest levels of security and value. |
• | Army National Guard, Enterprise Operations and Security Services (ARNG EOSS) III. Under a task order with a potential value of $247 million over five years, CSRA will continue to provide 24x7 network operations and cyber security solutions to support 105,000 EOSS users worldwide. Through the EOSS III program, the ARNG provides the operation, modernization, expansion, and further evolution of enterprise network services and cyber security via GuardNet to provide mission command support across all ARNG locations and missions. CSRA will support the ARNG with the operation and maintenance of GuardNet and protect the security of its data and network through the Network Operations and Security Center. |
• | Administrative Office of the US Courts (AOUSC) Support. Under a task order with a potential value of $115 million over five years, CSRA will provide full software development lifecycle expertise for a variety |
of applications supporting probation and pre-trial services and electronic court filings. The services include program and project management, business requirements analysis, solutions architecture, software engineering, COTS/GOTS support and the development of new solutions as needed. As part of the program, CSRA will expand its level of effort supporting the AOUSC Department of Program Services (DPS) Case Management Systems Office (CMSO) as it transitions all application development to Agile methodologies leading to the implementation of the Scaled Agile Framework® (SAFe®) and Development/Operations (DevOps) methodologies.
• | Department of Veterans Affairs (VA) Intake, Conversion, and Mail Handling Services (ICMHS). CSRA was awarded the ICMHS program to improve the Veterans Benefits Administration's paperless processing of veterans' disability claims by reducing the time required to establish, develop, rate, adjudicate, and pay the claims. CSRA will receive benefits claims material, convert the claims into paperless content, and help upload and process the material into the VA's benefit management system. The five-year prime task order, which is valued at $233 million if all options are exercised, represents new work for CSRA. |
The company's backlog of signed business orders at the end of third quarter of fiscal year 2016 was $15.3 billion, of which $2.6 billion was funded. As compared to the pro forma backlog at the end of the third quarter of fiscal year 2015, total backlog increased 6 percent.
Forward Guidance
The company is initiating guidance ranges for revenue, adjusted EBITDA, and adjusted diluted earnings per share for the fourth quarter of fiscal year 2016 as specified in the table below. Beginning in fiscal year 2017, the company intends to provide guidance for annual periods rather than quarters, since the timing of the spin-off transaction was not conducive to that approach in fiscal year 2016.
Measure | Q4 Fiscal 2016 |
Revenue (millions) | $1,280 – $1,330 |
Adjusted EBITDA (millions) | $214 – $226 |
Adjusted Diluted EPS | $0.45 – $0.49 |
The company affirms its long-term model of average compound annual growth in revenue of 2 percent to 3 percent and average compound annual growth in adjusted EPS of 8 percent to 10 percent.
Dave Keffer, CSRA CFO commented, "Overall, I am pleased with the third quarter results, especially how well our team managed our costs while executing a very complex transaction. We are delivering on our commitment to unlock cost synergies from the SRA merger and drive earnings growth for our shareholders. We look forward to strong free cash flow conversion and balanced capital deployment as we pay down debt and return cash to shareholders through our ongoing dividend and share repurchase programs."
Conference Call
CSRA executive management will hold a conference call on February 10, 2016, at 5 p.m. Eastern to discuss the financial results and outlook and answer questions. Analysts and institutional investors may participate on the conference call by dialing (877) 883-0383 (domestic) or (412) 902-6506 (international) and entering pass code 2225850. The conference call will be webcast simultaneously to the public through a link on the Investor Relations section of the CSRA website (http://investorrelations.csra.com). A replay of the conference call will be available on the CSRA website approximately two hours after the conclusion of the call.
About CSRA Inc.
Every day CSRA (NYSE: CSRA) makes a difference in how the government serves our country and our citizens. We deliver a broad range of innovative, next-generation IT solutions and professional services to help our customers modernize their legacy systems, protect their networks and assets, and improve the effectiveness and efficiency of mission-critical functions for our warfighters and our citizens. Our 19,000 employees understand that success is a matter of perseverance, courage, adaptability and experience. CSRA is headquartered in Falls Church, Virginia. To learn more about CSRA, visit www.csra.com.
Forward-looking Statements
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 safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements represent CSRA's intentions, plans, expectations and beliefs, including statements about network and asset protection and improving mission-critical functions. The forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside the control of CSRA. These factors could cause actual results to differ materially from such forward-looking statements. For a written description of these factors, see the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Computer Sciences GS" in CSRA's Quarterly Report for the Fiscal Quarter Ended October 2, 2015 and any updating information in subsequent SEC filings. CSRA 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.
In particular, our defined benefit pension plans are currently underfunded based on U.S. GAAP accounting methodologies and our pension funding requirements could increase significantly due to a reduction in funded status as a result of a variety of factors, including weak performance of financial markets, declining interest rates, changes in laws or regulations, changes in assumptions or investments that do not achieve adequate returns. Our future funding requirements for our U.S. defined benefit pension plans depend upon the future performance of assets placed in trusts for these plans, the level of interest rates used to determine funding levels, the level of benefits provided for by the plans and any changes in government laws and regulations. Future funding requirements generally increase if the discount rate decreases or if actual asset returns are lower than expected asset returns, assuming other factors are held constant.
Additionally, in connection with our spin-off from our former parent company, we rely on information we receive from that company to make certain calculations that are important to our external financial reporting. For example, we rely on that company to supply us with the number of CSRA options held by employees of Computer Sciences Corporation ("CSC") whose CSC option awards were converted into options to purchase both CSC shares and CSRA shares at the time of the spin-off, which we use among other things in calculating our diluted earnings per share. We also rely on that company for other information including certain historical tax assets and liabilities and cash balances for pass-through payments made by certain customers and third parties to CSC accounts. We expect our dependence on information supplied by that company to diminish over time, but until then we will have limited ability to control the quality, accuracy or timeliness of the information we receive from that company.
For a written description of these and other important factors, see the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Computer Sciences GS" in CSRA's Quarterly Report for the Fiscal Quarter Ended October 2, 2015, CSRA's Registration Statement on Form S-1 filed December 9, 2015, as amended, and any updating information in subsequent SEC filings. CSRA 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.
CSRA INC. COMBINED CONDENSED BALANCE SHEETS (preliminary and unaudited) | ||||||||
As of | ||||||||
(Dollars in thousands) | January 1, 2016 | April 3, 2015 | ||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 204,469 | $ | 4,979 | ||||
Receivables, net of allowance for doubtful accounts of $20,429 (fiscal 2016) and $14,733 (fiscal 2015) | 740,511 | 696,727 | ||||||
Prepaid expenses and other current assets | 133,023 | 92,665 | ||||||
Total current assets | 1,078,003 | 794,371 | ||||||
Intangible and other assets | ||||||||
Goodwill | 2,344,457 | 802,582 | ||||||
Customer-related and other intangible assets, net of accumulated amortization of $167,221 (fiscal 2016) and $150,295 (fiscal 2015) | 902,799 | 33,405 | ||||||
Software, net of accumulated amortization of $93,030 (fiscal 2016) and $75,544 (fiscal 2015) | 38,769 | 35,261 | ||||||
Other assets | 72,275 | 58,931 | ||||||
Total intangible and other assets | 3,358,300 | 930,179 | ||||||
Property and equipment, net of accumulated depreciation of $792,539 (fiscal 2016) and $696,796 (fiscal 2015) | 501,174 | 436,732 | ||||||
Total assets | $ | 4,937,477 | $ | 2,161,282 | ||||
Current liabilities | ||||||||
Accounts payable | $ | 144,124 | $ | 130,551 | ||||
Accrued payroll and related costs | 217,703 | 109,539 | ||||||
Accrued expenses and other current liabilities | 468,522 | 440,606 | ||||||
Current capital lease liability | 27,871 | 21,351 | ||||||
Current maturities of long-term debt | 80,000 | — | ||||||
Dividends payable | 16,252 | — | ||||||
Total current liabilities | 954,472 | 702,047 | ||||||
Commitments and contingent liabilities | ||||||||
Long-term debt, net of current maturities | 2,871,906 | — | ||||||
Noncurrent capital lease liability | 111,928 | 129,933 | ||||||
Noncurrent deferred income tax liabilities | 194,931 | 153,297 | ||||||
Other long-term liabilities | 576,008 | 80,957 | ||||||
Equity | ||||||||
Net Parent investment, prior to Spin-Off | — | 1,067,492 | ||||||
CSRA Stockholders' Equity: | ||||||||
Common stock, $0.001 par value, 750,000,000 shares authorized, 162,621,486 shares issued and outstanding | 162 | — | ||||||
Additional paid-in capital | 160,946 | — | ||||||
Earnings retained for use in business | 15,215 | — | ||||||
Accumulated other comprehensive income (loss) | 29,877 | (405) | ||||||
Total CSRA stockholders' equity | 206,200 | 1,067,087 | ||||||
Noncontrolling interests | 22,032 | 27,961 | ||||||
Total equity | 228,232 | 1,095,048 | ||||||
Total liabilities and equity | $ | 4,937,477 | $ | 2,161,282 | ||||
CSRA INC. COMBINED CONDENSED STATEMENTS OF OPERATIONS (preliminary and unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
(Dollars in thousands) | January 1, 2016 | January 2, 2015 | January 1, 2016 | January 2, 2015 | ||||||||||||
Revenue | $ | 1,031,572 | $ | 997,486 | $ | 2,955,522 | $ | 3,061,863 | ||||||||
Related party revenue | 740 | 1,547 | 4,775 | 6,765 | ||||||||||||
Total revenue | 1,032,312 | 999,033 | 2,960,297 | 3,068,628 | ||||||||||||
Cost of services | 815,906 | 814,048 | 2,343,792 | 2,463,687 | ||||||||||||
Related party cost of services | 740 | 1,547 | 4,775 | 6,765 | ||||||||||||
Total cost of services (excludes depreciation and amortization) | 816,646 | 815,595 | 2,348,567 | 2,470,452 | ||||||||||||
Selling, general and administrative expenses | 50,094 | 53,037 | 134,846 | 144,778 | ||||||||||||
Depreciation and amortization | 45,310 | 33,225 | 112,976 | 104,272 | ||||||||||||
Separation and merger costs | 43,694 | — | 99,979 | — | ||||||||||||
Interest expense, net | 13,646 | 5,354 | 24,599 | 16,563 | ||||||||||||
Other expense (income), net | 4,397 | 1,276 | (16,688) | 3,641 | ||||||||||||
Total costs and expenses | 973,787 | 908,487 | 2,704,279 | 2,739,706 | ||||||||||||
Income from continuing operations before taxes | 58,525 | 90,546 | 256,018 | 328,922 | ||||||||||||
Income tax expense | 7,093 | 33,900 | 84,891 | 122,696 | ||||||||||||
Income from continuing operations | 51,432 | 56,646 | 171,127 | 206,226 | ||||||||||||
Loss from discontinued operations, net of taxes | — | (288) | — | (1,711) | ||||||||||||
Net income | 51,432 | 56,358 | 171,127 | 204,515 | ||||||||||||
Less: noncontrolling interests | 2,990 | 1,220 | 12,119 | 10,477 | ||||||||||||
Net income attributable to CSRA common stockholders | $ | 48,442 | $ | 55,138 | $ | 159,008 | $ | 194,038 | ||||||||
Earnings (loss) per common share | ||||||||||||||||
Basic: | ||||||||||||||||
Continuing operations | $ | 0.30 | $ | 0.40 | $ | 0.98 | $ | 1.39 | ||||||||
Discontinued operations | — | — | — | (0.010) | ||||||||||||
$ | 0.30 | $ | 0.40 | $ | 0.98 | $ | 1.38 | |||||||||
Diluted: | ||||||||||||||||
Continuing operations | $ | 0.29 | $ | 0.40 | $ | 0.97 | $ | 1.39 | ||||||||
Discontinued operations | — | — | — | (0.010) | ||||||||||||
$ | 0.29 | $ | 0.40 | $ | 0.97 | $ | 1.38 | |||||||||
Cash dividend per common share | $ | 0.10 | $ | — | $ | 0.10 | $ | — | ||||||||
CSRA INC. COMBINED CONDENSED STATEMENTS OF CASH FLOWS (preliminary and unaudited) | |||||||
(Dollars in thousands) | Nine Months Ended | ||||||
January 1, 2016 | January 2, 2015 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | 171,127 | $ | 204,515 | |||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||
Depreciation and amortization | 112,976 | 104,272 | |||||
Stock-based compensation | 8,134 | 13,013 | |||||
Net (gain) loss on dispositions of businesses and assets | (7,188) | 1,804 | |||||
Amortization of above market contract intangibles | 6,870 | 7,416 | |||||
Amortization of debt issuance costs | 995 | — | |||||
Other non-cash charges, net | 275 | — | |||||
Changes in assets and liabilities, net of acquisitions and dispositions: | |||||||
Decrease in assets | 149,695 | 10,809 | |||||
(Decrease) Increase in liabilities | (68,080) | 55,493 | |||||
Cash provided by operating activities | 374,804 | 397,322 | |||||
Cash flows from investing activities | |||||||
Purchases of property and equipment | (92,470) | (43,593) | |||||
Software purchased and developed | (12,932) | (2,926) | |||||
Payments for acquisitions, net of cash acquired | |||||||
Payments for acquisitions, net of cash acquired | (341,606) | (35,514) | |||||
Extinguishment of SRA long-term debt and costs | (1,100,698) | — | |||||
Reimbursement of SRA-related expenses | (29,885) | — | |||||
Proceeds from business dispositions | 34,001 | 3,000 | |||||
Proceeds from disposals of assets | 2,644 | 4,571 | |||||
Other investing | (10,414) | — | |||||
Cash used in investing activities | (1,551,360) | (74,462) | |||||
Cash flows from financing activities | |||||||
Borrowings under revolving credit facility | 200,000 | — | |||||
Borrowings from other long-term debt | 2,800,000 | — | |||||
Debt issuance costs | (56,415) | — | |||||
Repurchase of CSRA common stock | (36,830) | — | |||||
Special Dividend payment | (1,147,807) | — | |||||
Repayment of transitory note | (350,038) | — | |||||
Payments on lease liability | (13,158) | (22,903) | |||||
Payments to noncontrolling interest | (18,000) | (16,998) | |||||
Net contribution to CSC | (10,425) | (279,419) | |||||
Other financing activities | 8,719 | — | |||||
Cash provided by (used in) financing activities | 1,376,046 | (319,320) | |||||
Net increase in cash and cash equivalents | 199,490 | 3,540 | |||||
Cash and cash equivalents at beginning of period | 4,979 | 3,979 | |||||
Cash and cash equivalents at end of period | $ | 204,469 | $ | 7,519 | |||
Non-GAAP Financial Measures
The following tables reconcile non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Also presented are the company's non-GAAP results, which exclude certain items that management believes are not indicative of the company's operating performance. CSRA 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 CSRA.
Pro Forma Adjusted Income Statement
Because of the large number of merger and separation-related factors impacting the quarter, the company believes that pro forma adjusted results represent meaningful additional information to investors regarding fundamental business performance. Pro forma adjusted results include a full period of SRA results; assess the impact of interest, intangibles amortization, pension, and other costs as if the separation and merger had occurred at the beginning of the period; and exclude costs directly associated with the separation and merger transactions and the ongoing integration process. When analyzing CSRA's performance, investors and securities analysts should evaluate each adjustment in our reconciliation and use pro forma adjusted measures in addition to, and not as an alternative to, GAAP measures.
CSRA INC. | |||||||
PRO FORMA ADJUSTED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (preliminary and unaudited) | |||||||
(Amounts in millions) | CSRA Three Months Ended January 1, 2016 | Historical SRA October 1, 2015 to November 29, 2015 | Effect of Spin-Off and Merger | Pro Forma for Spin-off and Merger | |||
Revenue | $ 1,032 | 240 | 0 | A | $ 1,272 | ||
Cost of services | 817 | 190 | (31) | A | 976 | ||
Selling, general and administrative expenses | 50 | 23 | (1) | A | 73 | ||
Depreciation and amortization | 45 | 8 | (3) | A | 50 | ||
Separation and merger costs | 44 | 30 | (74) | B | - | ||
Interest expense, net | 14 | 44 | (29) | C | 29 | ||
Other | 4 | - | - | 4 | |||
Total costs and expenses | $ 974 | 295 | (137) | $ 1,131 | |||
- | - | - | |||||
Income (loss) from continuing operations before taxes | 59 | (55) | 137 | 140 | |||
Income tax expense (benefit) | 7 | (18) | 52 | 41 | |||
Net income (loss) | 51 | (37) | 85 | 99 | |||
Less: noncontrolling interests | 3 | - | - | 3 | |||
Net income attributable to parent | $ 48 | (37) | 85 | $ 96 | |||
Pro Forma Revenue | $ 1,272 | ||||||
Pro Forma Total Costs and Expenses | 1,131 | ||||||
Integration and Other Costs | 5 | D | |||||
Pro Forma Adjusted Total Costs and Expenses | $ 1,136 | ||||||
Pro Forma Adjusted Income (loss) from continuing operations before Taxes | 135 | ||||||
Pro Forma Adjusted Income tax expense | 53 | E | |||||
Pro Forma Adjusted Net income | 82 | ||||||
Less: Non-controlling interest | 3 | ||||||
Pro Forma Adjusted Net income attributable to parent | $ 80 | ||||||
Pro Forma Adjusted Net income per common share | |||||||
Basic | $ 0.49 | ||||||
Diluted | $ 0.48 | ||||||
Weighted Average number of shares outstanding | |||||||
Basic | 162 | ||||||
Diluted | 165 | ||||||
The unaudited pro forma condensed combined income statements reflect the following adjustments: | |
The following adjustments are intended to reflect the operations of CSRA as if the Spin-Off and Mergers occurred on March 29, 2014. | |
A. | Revenue, Costs of services, Selling, general and administrative expenses, Depreciation and amortization: | |
(1) | Includes the additional net cost associated with the Intellectual Property Matters Agreement dated as of November 27, 2015, which CSRA entered into with CSC, and which is attached as Exhibit 10.4 to CSRA's Current Report on Form 8-K filed on December 2, 2015. The adjustment also includes the removal of depreciation and other costs associated with intellectual property previously allocated to the Computer Sciences GS Business. | |
(2) | Includes net periodic benefits, and mark-to-market gains and losses, for pension and postretirement benefit plans transferred to CSRA by CSC as a result of the Spin-Off. | |
(3) | Includes the adjustment to Cost of services for the addition of facility costs related to the 3170 Fairview Park Drive building, which transferred to CSRA as part of the Spin-Off. | |
(4) | Include adjustments for the amortization of customer relationships and technology intangibles based on the purchase price allocation estimated fair value and estimated useful lives of such assets of fifteen and four-and-one-half years, respectively. | |
B. | Reflects the adjustment to remove investment banking, advisory consultants, and other costs incurred during the three months ended January 1, 2016 related to the Spin-Off and Merger. | |
C. | Reflects the adjustment to interest expense to give effect to the $1,500 of indebtedness for the Spin-Off, and an additional indebtedness of $1,500 related to the Mergers. Additionally, an adjustment was made to eliminate the interest on SRA historical debt, which was extinguished with the proceeds of the planned borrowings. | |
D. | Reflects adjustments for employee severance and other integration-related costs incurred subsequent to Spin-Off and Merger offset by the removal of mark-to-market pension gains added in the "Effects of Spin-Off and Merger" column. | |
E. | Reflects an estimated long-term income tax rate of 39%, based on blended federal and state statutory income tax rates. | |
Adjusted EBITDA
CSRA defines adjusted EBITDA as revenue less cost of services and selling, general, and administrative (SG&A) costs. In addition, adjusted EBITDA excludes periodic mark-to-market adjustments to the pension plan as well as certain non-cash items such as stock-based compensation expense. For the current quarter, pro forma adjusted EBITDA includes the same adjustments as made to the income statement above, such as including a full period of SRA results and excluding transaction related costs such as investment banking, legal and accounting fees, as well as the costs to extinguish SRA's interest rate swaps and to redeem its bonds. It also exclude costs specifically related to merger integration, such as external consulting, IT system integration, and employee severance costs associated with the SRA merger.
CSRA INC. | ||||
PRO FORMA ADJUSTED EBITDA (preliminary and unaudited) | ||||
(Amounts in millions) | CSRA Three Months Ended January 1, 2016 | Historical SRA October 1, 2015 to November 29, 2015(a) | Effects of Spin Off and Merger | Pro Forma for CSRA Inc. |
Income (loss) from continuing operations | $ 51 | (37) | 66 | $ 80 |
Interest expense, net | 14 | 44 | (29) | 29 |
Tax expense on income | 7 | (18) | 52 | 41 |
Depreciation and amortization | 45 | 8 | (3) | 50 |
Amortization of contract-related intangibles | 2 | - | - | 2 |
Stock-based compensation | 4 | 1 | (1) | 4 |
Restructuring costs | - | 0 | - | 0 |
Foreign currency loss | - | - | - | - |
Pension and post-retirement actuarial losses (gains), settlement losses, and amortization of other comprehensive income | 2 | - | 16 | 18 |
Gain on disposition | - | - | - | - |
Separation and CSRA merger costs | 44 | 30 | (74) | - |
Adjusted EBITDA | $ 169 | 29 | 26 | $ 224 |
CONTACT
Investors: M. Stuart Davis, 703.641.2267, stuart.davis@csra.com
Media: Shannon N. Booker, 703.645.5217, shannon.booker@csra.com