4th quarter fy 2014 earnings presentation · pdf file*eps from continuing ... reversal of...

4th QUARTER FY 2014 EARNINGS PRESENTATION

May 8, 2014

24th Quarter FY 2014 Earnings Presentation May 8, 2014

Forward-Looking Statements

All written or oral statements made by CSC at this meeting or in these presentation materials 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 CSC’s expectations and beliefs, and no assurance can be

given that the results described in such statements will be achieved. These statements are subject to risks, uncertainties, and other factors, many outside of CSC’s control, that could cause actual results to differ materially from the results described in such statements. For a

description of these factors, please see CSC’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.


Non-GAAP Reconciliations

This presentation includes certain non-GAAP financial measures, such as operating income, operating margin, earnings before interest and taxes (EBIT), EBIT margin, free cash flow,

and capital expenditures. These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for results prepared in accordance with

accounting principles generally accepted in the United States (GAAP). A reconciliation of non-GAAP financial measures included in this presentation to the most directly comparable

financial measure calculated and presented in accordance with GAAP accompanies this presentation and is on our website at www.csc.com. 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.


Mike LawrieChief Executive Officer


Key Messages

*EPS from Continuing Operations

Sequential revenue and bookings growth in the commercial business

Margin expansion, earnings, and cash flow growth driven by cost takeout

Expanding partnerships to lead in next-generation IT services

NPS performing in line with expectations

FY 2015 EPS* target of $4.35 – $4.55

Returning more capital to shareholders• 15% increase in dividend• New $1.5 billion share repurchase authorization


Paul SalehChief Financial Officer


4th Quarter and Full-Year Results

*Adjusted for divestiture of Australian IT staffing business in FY13

**Q4 FY14 and full-year FY14 Operating Income, EBIT, Income from Continuing Operations, and EPS from Continuing Operations exclude $21M benefit from reversal of contingent consideration related to ServiceMesh acquisition

FY14** FY13 FY14** FY13

Revenue ($M) $ 3,329 $ 3,503 $ 12,998 $ 14,195

Adjusted Growth in cc* (4.7%) (6.8%)

Operating Income ($M) 338 205 1,301 878

Operating Margin 10.2% 5.9% 10.0% 6.2%

EBIT ($M) 271 131 1,020 610

EBIT Margin 8.1% 3.7% 7.8% 4.3%

Income from Continuing Operations ($M) 165 247 606 498

EPS from Continuing Operations $ 1.09 $ 1.56 $ 3.91 $ 3.09

Bookings ($B) $ 4.3 $ 3.0 $ 14.5 $ 14.1

Q4 Full Year


$5.1**$6.1

FY13 FY14

$7.7

NPS 30%

GIS35%

GBS35%

Global Business Services (GBS)

Q4 FY14 Q4 FY13

Revenue ($M) $ 1,181 $ 1,224

YoY Growth – GAAP (3.5%)– Adjusted cc* (3.0%)

Operating Income ($M)– As reported 193 126

– Adjusted for restructuring 214 171

Operating Margin % – As reported 16.3% 10.3%– Adjusted for restructuring 18.1% 14.0%

Bookings ($B) $ 1.5 $ 1.6

$4,701 $4,414

FY13 FY14

OI Margin %Revenue ($M) Bookings ($B)FY 2014Decline in cc of 6.1%

*

*Adjusted for divestiture of Australian IT staffing business in FY13**Adjusted for two large commercial awards

Two Large

Awards

8.0%*12.4%

FY13 FY14


$2.9*$4.1

$0

$1

$2

$3

$4

FY13 FY14

$3.2

Global Infrastructure Services (GIS)

NPS 30%

GIS35%

GBS35%

$4,743 $4,613

FY13 FY14

2.6%

7.0%**

FY13 FY14

Decline in cc 2.2%

*Adjusted for one large commercial award**Q4 FY14 excludes $21M benefit from reversal of contingent liability related to ServiceMesh acquisition

LargeAward

Q4 FY14** Q4 FY13

Revenue ($M) $ 1,188 $ 1,186 YoY Growth – GAAP 0.2% – cc 0.3%

Operating Income ($M)– Adjusted for contingent consideration 59 9

– Adjusted for restructuring and contingent consideration 77 93

Operating Margin % – Adjusted for contingent consideration 5.0% 0.8%– Adjusted for restructuring and contingent consideration 6.5% 7.8%

Bookings ($B) $ 1.8 $ 0.7

OI Margin %Revenue ($M) Bookings ($B)FY 2014


$3.2 $3.3*

$0

$1

$2

$3

$4

$5

FY13 FY14

North American Public Sector (NPS)

Q4 FY14 Q4 FY13

Revenue ($M) $ 1,004 $ 1,132

YoY Growth – GAAP (11.3%)

Operating Income ($M)

– As reported 107 123 – Adjusted for restructuring 109 133

Operating Margin %

– As reported 10.7% 10.9%– Adjusted for restructuring 10.9% 11.7%

Bookings ($B) $ 1.0 $ 0.7

DoD 56%Civil 38%Other 6%

NPS 30%

GBS35%

GIS35%

$4,662$4,099

FY13 FY14

10.5%12.2%

FY13 FY14

Large Renewal

$4.3

*Adjusted for one large NPS renewal

OI Margin %Revenue ($M) Bookings ($B)FY 2014


Q4 FY 2014 FY 2014

$288M

$689M

Financial Highlights

Free Cash Flow

Q4 FY 2014 FY 2014• $21M debt-for-debt exchanges• Improved credit outlook‒ Credit rating upgrade from S&P

to BBB+‒ Stable outlook from Fitch Ratings

• $82M debt-for-debt exchanges• Amended credit facility of $2.5B• $2.4B cash on hand

Liquidity

Q4 FY 2014 FY 2014• $151M to repurchase 2.5M shares• $29M in dividends

• $505M to repurchase 9.8M shares• $118M in dividends

Capital to Shareholders


~$315M $300M – $325M~$120M

~$155M

COST TAKEOUT• Contract management discipline• Supply chain and procurement• Workforce optimization• Enterprise overhead reduction

REINVESTMENTS• Customer-committed savings• Business transformation

– Enterprise Finance and HR systems– Sales and go-to-market initiatives

• Restructuring

Cost Takeout Update

Q4 FY14

~$570M $500M – $550M

FY14 FY14 Target


$350M – $400M

COST TAKEOUT• Greater G&A efficiency• Low-cost delivery centers• Productivity gains from

automation• Contract management

REINVESTMENTS• Finance and HR systems• Customer committed savings• Restructuring

– Workforce rebalancing– Real estate optimization

• Next-generation offerings

FY15 Cost Takeout and Reinvestment Framework

$450M – $500M

FY15 Target


FY 2015 Targets

Revenue

Reinvestments

Cost Takeout $450 – $500 million

Free Cash Flow ~$700 million

Flat to slightly up• Commercial — up (low single digits)• NPS — down (mid single digits)

$350 – $400 million

EPS from Continuing Operations $4.35 – $4.55

Continuing to Return More Capital to Shareholders

• 15% increase in dividend• Share repurchases


Supplemental Information


$B FY13 FY14

North American Public SectorNPSGlobal Business ServicesGBS Global Infrastructure ServicesGIS

Bookings*

*The summation of the quarter bookings number may not equal the full-year number, due to rounding


Non-GAAP Reconciliations

Q4 FY14 Q4 FY13 FY14 FY13Earnings Before Interest and Taxes $ 292 $ 131 $ 1,041 $ 610 Interest Expense (35) (36) (147) (183)Interest Income 5 8 16 22 Taxes on Income (83) 144 (289) 49 Income from Continuing Operations $ 179 $ 247 $ 621 $ 498

Q4 FY14 Q4 FY13 FY14 FY13Earnings Before Interest and Taxes ($M) $ 292 $ 131 $ 1,041 $ 610 Revenue ($M) $ 3,329 $ 3,503 $ 12,998 $ 14,195 EBIT Margin % 8.8% 3.7% 8.0% 4.3%

Earnings Before Interest and Taxes ($M)

EBIT Margin %

Operating Income ($M) Q4 FY14 Q4 FY13 FY14 FY13Operating Income $ 359 $ 205 $ 1,322 $ 878 Corporate G&A (65) (107) (263) (293)Interest Expense (35) (36) (147) (183)Interest Income 5 8 16 22 Other (Expense) Income, Net (2) 33 (18) 25 Income from Continuing Operations Before Taxes $ 262 $ 103 $ 910 $ 449


Adjusted Operating Income by SegmentQ4 FY14 and Q4 FY13

$M Operating Income

Restructuring Costs

Reversal of Contingent

Consideration

Adjusted Operating

Income

Adjusted Operating

MarginGBS $ 193 $ 21 $ - $ 214 18.1%GIS 80 18 (21) 77 6.5%NPS 107 2 - 109 10.9%Corporate & Eliminations (21) 2 - (19)Total $ 359 $ 43 $ (21) $ 381 11.4%

$M Operating Income

Restructuring Costs


Consideration

Adjusted Operating

Income

Adjusted Operating

MarginGBS $ 126 $ 45 $ - $ 171 14.0%GIS 9 84 - 93 7.8%NPS 123 10 - 133 11.7%Corporate & Eliminations (53) 14 - (39)Total $ 205 $ 153 $ - $ 358 10.2%

Q4 FY14

Q4 FY13

Reversal of ServiceMesh contingent consideration – This item represents the difference between the revised fair value of the ServiceMeshcontingent consideration and the actual amount paid.


Adjusted Operating Income by SegmentFY14 and FY13

$M Operating Income

Restructuring Costs


Consideration

Adjusted Operating

Income

Adjusted Operating

MarginGBS $ 547 $ 46 $ - $ 593 13.4%GIS 342 28 (21) 349 7.6%NPS 501 2 - 503 12.3%Corporate & Eliminations (68) - - (68)Total $ 1,322 $ 76 $ (21) $ 1,377 10.6%

$M Operating Income

Restructuring Costs


Consideration

Adjusted Operating

Income

Adjusted Operating

MarginGBS $ 379 $ 87 $ - $ 466 9.5%GIS 125 142 - 267 5.6%NPS 490 13 - 503 10.8%Corporate & Eliminations (116) 20 - (96)Total $ 878 $ 262 $ - $ 1,140 8.0%

FY14

FY13



Non-GAAP Reconciliation – EBIT

ActualResults


Consideration

Non-GAAPResults

Earnings Before Interest and Taxes ($M) $ 292 $ (21) $ 271 Income from Continuing Operations Before Taxes ($M)

262 (21) 241

Taxes on Income ($M) (83) 7 (76)Income from Continuing Operations ($M) 179 (14) 165

Diluted EPS from Continuing Operations* $ 1.19 $ (0.10) $ 1.09

ActualResults


Consideration

Non-GAAPResults

Earnings Before Interest and Taxes ($M) $ 1,041 $ (21) $ 1,020 Income from Continuing Operations Before Taxes ($M)

910 (21) 889

Taxes on Income ($M) (289) 6 (283)Income from Continuing Operations ($M) 621 (15) 606

Diluted EPS from Continuing Operations* $ 4.01 $ (0.10) $ 3.91

Q4 FY14

FY14

*Computation of Diluted EPS requires adjustment for non-controlling interests



Non-GAAP Reconciliation – Income from Continuing OpsQ4 FY13

GAAP Gain on Sale of Business* Tax Benefit Shareholder

Settlement Q4 Restructuring Non-GAAP excl. Certain Items

Income from Continuing Operations Before Taxes ($M)

110 (38) 53 156 281

Tax ($M) 139 (158) (15) (44) (78)

Income from Continuing Operations ($M)

249 (38) (158) 38 112 203

Diluted EPS fromContinuing Operations**

$ 1.57 (0.24) (1.02) 0.24 0.72 $ 1.27

Impact from Business Dispositions***

$ (0.01) 0.00 (0.03) 0.00 (0.01) $ (0.05)


$ 1.56 (0.24) (1.05) 0.24 0.71 $ 1.22

Certain Items

Prev

ious

ly R

epor

ted

on Q

4 FY

13 P

ress

Rel

ease

*Australia IT staffing business

**Computation of Diluted EPS requires adjustment for non-controlling interests

***Impact from Business Dispositions reflects the following discontinued operations: Applied Technology Division, flood insurance BPO, and a European software business that was held for sale as of March 28, 2014


Non-GAAP Reconciliation – Income from Continuing OpsFY13

GAAP Gain on Sale of Business* Tax Benefit Shareholder

Settlement Q4 Restructuring Non-GAAP excl. Certain Items

Income from Continuing Operations Before Taxes ($M)

480 (38) 53 156 651

Tax ($M) 35 (158) (15) (44) (182)

Income from Continuing Operations ($M)

515 (38) (158) 38 112 469


$ 3.20 (0.24) (1.02) 0.24 0.72 $ 2.90

Impact from Business Dispositions***

$ (0.11) 0.00 (0.04) 0.00 (0.01) $ (0.16)


$ 3.09 (0.24) (1.06) 0.24 0.71 $ 2.74

Certain Items

Prev

ious

ly R

epor

ted

on Q

4 FY

13 P

ress

Rel

ease

*Australia IT staffing business

**Computation of Diluted EPS requires adjustment for non-controlling interests

***Impact from Business Dispositions reflects the following discontinued operations: Applied Technology Division, flood insurance BPO, and a European software business that was held for sale as of March 28, 2014


$M Q4 FY14 Q4 FY13 FY14 FY13Cost of Services (excluding restructuring costs) $ 2,411 $ 2,653 $ 9,567 $ 11,100 Percentage of Revenue 72.4% 75.7% 73.7% 78.2%SG&A (excluding Corp. G&A) $ 316 $ 330 $ 1,278 $ 1,176 Percentage of Revenue 9.5% 9.4% 9.8% 8.3%Depreciation and Amortization $ 265 $ 269 $ 1,018 $ 1,070 Percentage of Revenue 8.0% 7.7% 7.8% 7.5%Restructuring Costs $ 43 $ 153 $ 76 $ 264 Percentage of Revenue 1.3% 4.4% .6% 1.9%Operating Costs $ 3,035 $ 3,405 $ 11,939 $ 15,889 Percentage of Revenue 91.2% 97.3% 91.9% 111.9%Corporate G&A $ 65 $ 107 $ 263 $ 293 Percentage of Revenue 2.0% 3.1% 2.0% 2.1%

Components of Operating Costs


Non-GAAP Reconciliation

*Capital lease payments, repayments of obligations related to assets acquired under long-term financing arrangements, and proceeds from the sale of P&E (included in investing activities) are included in the calculation of Free Cash Flow

Free Cash Flow* ($M) Q4 FY14 Q4 FY13 FY14 FY13Net Cash Provided by Operating Activities $ 548 $ 41 $ 1,560 $ 1,119 Net Cash (Used in) Provided by Investing Activities (189) (18) (566) 456

Acquisitions, Net of Cash Acquired - - 190 34 Business Dispositions (3) (150) (248) (1,108)Short-Term Investments - - (5) - Payments on Capital Leases and Other Long-Term Asset Financings (68) (66) (242) (237)

Free Cash Flow $ 288 $ (193) $ 689 $ 264 Free Cash Flow – Excl. $500M Discretionary Pension Contribution $ 307 $ 764


Selected Cash Flow Items

$MNet Income $ 176 $ 286 $ 690 $ 979 Depreciation and Amortization 265 269 1,018 1,070 Change in Working Capital (36) (607) (207) (304) Loss/(Gain) on Dispositions 10 (108) (73) (797) Other 133 201 132 171 Operating Cash Flow 548 41 1,560 1,119

Capital Expenditures (195) (119) (650) (640) Business Dispositions 3 150 248 1,108 Acquisitions - - (190) (34) Other 3 (49) 26 22 Investing Cash Flow (189) (18) (566) 456

Capital Leases and Other Financing (68) (66) (242) (237) Business Dispositions (3) (150) (248) (1,108) Acquisitions - - 190 34 Other - - (5) - Free Cash Flow $ 288 $ (193) $ 689 $ 264 Free Cash Flow – Excl. $500M Discretionary Pension Contribution

$ 307 $ 764

FY13Q4 FY14 Q4 FY13 FY14


• Operating Cost: Equal to the sum of (1) cost of services, (2) segment SG&A excluding Corporate G&A, (3) depreciation and amortization, (4) restructuring costs, and (5) goodwill impairment

• Operating Income: Revenue minus Operating Cost• Operating Income Margin: Operating Income as a percentage of Revenue• Earnings Before Interest and Taxes: Revenue minus cost of services, selling, general and

administrative expenses, depreciation and amortization, restructuring costs, and other income (expense)

• Earnings Before Interest and Taxes Margin: Earnings Before Interest and Taxes as a percentage of Revenue

• Free Cash Flow: Equal to the sum of (1) operating cash flows, (2) investing cash flows, excluding business acquisitions and dispositions, and investments (including short-term investments and purchase or sale of available-for-sale securities), and (3) payments on capital leases and other long-term asset financings

• Capital Expenditures: Equal to sum of net purchases of property, equipment and software, and payments on outsourcing contracts

Non-GAAP and Other Definitions


Thank You

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