3rd quarter fy 2015 earnings presentation · 3rd quarter fy 2015 earnings presentation february 9,...

3rd QUARTER FY 2015 EARNINGS PRESENTATIONFebruary 9, 2015

2February 9, 20153rd Quarter FY 2015 Earnings Presentation

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 risk 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, earnings before interest and taxes (EBIT), free cash flow and capital expenditures. Also included are certain non-GAAP results such as non-GAAP income from continuing operations and non-

GAAP EPS. 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 measures 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.

Selected references are made on a “constant currency basis” so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby providing

comparisons of operating performance from period to period. Financial results on a “constant currency basis” are non-GAAP measures calculated by translating current period activity into U.S. dollars using the comparable prior period’s currency conversion rates. This approach is used for all

results where the functional currency is not the U.S. dollar.


Basis of Presentation

During the first quarter of fiscal year 2015, CSC changed its pension accounting policy. Under the new policy, actuarial gains and losses and changes in fair value of plan assets

are recorded in the year in which they occur and are excluded from the Company’s definition of operating income and EBIT. Also during the quarter, CSC changed its inter-company accounting policy. Previously, inter-company transactions between segments

were generally reflected as inter-company revenue. Under the new policy, inter-company transactions are now generally treated as cost transfers.

The Company has recast its financial statements for the year-ago periods to reflect both these accounting policy changes.

3rd QUARTER FY 2015 EARNINGS PRESENTATION

Mike LawrieChief Executive Officer


NPS revenue up modestly; strong operating margins

Non-GAAP EPS* of $1.18 driven by cost takeout and lower tax rate

Commercial margin improvement on lower revenue

Key Messages

Strong free cash flow of ~$500M

Strength in next-generation offerings and partnerships

Maintaining non-GAAP EPS* target of $4.45 – $4.65*Non-GAAP EPS excludes net actuarial pension and OPEB gains/losses,

pension settlement losses, and charges related to the proposed SEC settlement


Paul SalehChief Financial Officer


$M Except EPS GAAP Pension & OPEB

actuarial & settlement losses

SEC Settlement related charges

Non-GAAP Results*

(Loss) income from continuing operations, before taxes (418) (462) (195) 239

Income tax (benefit) expense (105) (171) (1) 67

(Loss) income from continuing operations (313) (291) (194) 172

Basic EPS from continuing operations $ (2.23) $ (2.05) $ (1.38) $ 1.20

Diluted EPS from continuing operations $ (2.23) $ (2.02) $ (1.36) $ 1.18 **

Reconciliation from GAAP Results to Non-GAAP Results*Q3 FY15

*Non-GAAP results exclude net actuarial pension and OPEB gains/losses, pension settlement losses, and charges related to the proposed SEC settlement

**Diluted EPS equals Basic EPS due to loss from continuing operations in Q3 FY15


FY15 FY14 FY15 FY14

Revenue ($M) $ 2,947 $ 3,228 $ 9,264 $ 9,669

YoY growth (8.7%) (4.2%)

YoY growth – cc (6.5%) (4.2%)

Operating Income ($M) 332 338 985 1,031

Operating Margin (%) 11.3% 10.5% 10.6% 10.7%

EBIT ($M) 272 278 797 818

EBIT Margin 9.2% 8.6% 8.6% 8.5%

Income from Continuing Operations ($M)* 172 167 509 490

EPS from Continuing Operations* $ 1.18 $ 1.08 $ 3.39 $ 3.12

Bookings ($B) $ 2.7 $ 3.3 $ 8.4 $ 10.3

Q3 YTD

3rd Quarter Results*


See slides 20 – 23 for non-GAAP reconciliations


NPS 34%

GIS33%

GBS33%

Global Business Services (GBS)

$4.5 $3.6

YTD FY14 YTD FY15

$3,169 $3,056

YTD FY14 YTD FY15

OI Margin %Revenue ($M) Bookings ($B)Year to Date

11.8% 12.0%

YTD FY14 YTD FY15

Decline in cc of 3.7%

Q3 FY15 Q3 FY14

Revenue ($M) $ 965 $ 1,093 – YoY growth (11.7%)

– YoY growth cc (8.5%)

Operating Income ($M)– As reported 128 140 – Adjusted for restructuring 138 147

Operating Margin (%) – As reported 13.3% 12.8%– Adjusted for restructuring 14.3% 13.4%

Bookings ($B) $ 1.2 $ 2.0


Q3 FY15 Q3 FY14

Revenue ($M) $ 984 $ 1,145 – YoY growth (14.1%)

– YoY growth cc (10.9%)

Operating Income ($M)– As reported 72 91 – Adjusted for restructuring 73 95

Operating Margin (%) – As reported 7.3% 7.9%– Adjusted for restructuring 7.4% 8.3%

Bookings ($B) $ 1.0 $ 0.7

Global Infrastructure Services (GIS)

NPS 34%

GIS33%

GBS33%

$2.4 $2.8

YTD FY14 YTD FY15

$3,405 $3,151

YTD FY14 YTD FY15

8.5%6.7%

YTD FY14 YTD FY15

OI Margin %Revenue ($M) Bookings ($B)Year to DateDecline in cc of 7.5%


Q3 FY15 Q3 FY14

Revenue ($M) $ 998 $ 990

– YoY growth 0.8%

Operating Income ($M) 145 122 Operating Margin (%) 14.5% 12.3%

Bookings ($B) $ 0.5 $ 0.6

North American Public Sector (NPS)

DoD 52%Civil 40%Other 8%

NPS 34%

GBS33%

GIS33%

$2.4*$1.9

$0$1$1$2$2$3$3$4$4

YTD FY14 YTD FY15

$3,095 $3,057

YTD FY14 YTD FY15

13.3%14.9%

YTD FY14 YTD FY15

Large Renewal

$3.4

*Adjusted for one large NPS renewal

OI Margin %Revenue ($M) Bookings ($B)Year to DateDecline of 1.2%


Q3 FY15 YTD FY15

Free Cash Flow $498M $599M

Cap Ex — Including Capital Leases $163M $565M

Cap Ex as a % of Revenue 5.5% 6.1%

Cash Flow Performance

Financial Highlights

Q3 FY15 Q3 FY14

Cash and Equivalents $2.4B $2.3B

Net Debt to Capital Ratio 5.4% 8.2%

Capital Structure


Effective Tax Rate

Q3 FY15 ETR* of 28%

Progressing with tax planning strategies

Capital to Shareholders

Q3 FY15 YTD FY15

Dividends $32M $98M

Share Repurchases0.2M shares

$9M7.2M shares

$437M

Accelerated Stock Repurchases1.3M shares

$75M

Financial Highlights (Cont’d)

*Non-GAAP effective tax rate from operations excludes the tax effect of net actuarial pension and OPEB gains/losses, pension settlement losses, and charges related to the proposed SEC settlement

See slide 20 for non-GAAP ETR reconciliation


Cost Takeout and Reinvestment Update

COST TAKEOUT• Continued G&A efficiency• Shift to low-cost delivery centers• Workforce optimization• Supply chain management

REINVESTMENTS• Next-generation offerings• Strategic partnerships• Sales• Finance and HR systems• Customer-committed savings

$350M – $400M~$70M

~$115M

Q3 FY15

$450M – $500M

FY15 Targets

~$240M

~$310M

YTD FY15


FY 2015 Targets

Free Cash Flow $700 million or more

RevenueMid-single digit decline (cc)• Commercial down mid-single digits in cc• NPS relatively flat

Non-GAAP EPS from Continuing Operations* $4.45 – $4.65

*Non-GAAP EPS from Continuing Operations excludes net actuarial pension and OPEB gains/losses, pension settlement losses, and charges related to the proposed SEC settlement


Supplemental Information


Operating Income ($M) Q3 FY15 Q3 FY14Q3 FY14

As Previously Reported*

Operating income $ 332 $ 338 $ 316 Corporate G&A (59) (65) (66)Pension & OPEB actuarial & settlement (losses) gains (462) 114 - SEC settlement related charges (195) - - Interest expense (37) (38) (38)Interest income 4 4 4 Other income (expense), net (1) 5 5 (Loss) income from continuing operations before taxes $ (418) $ 358 $ 221

Q3 FY15 Q3 FY14Q3 FY14


Earnings before interest and taxes $ 272 $ 278 $ 255 Pension & OPEB actuarial & settlement (losses) gains (462) 114 - SEC settlement related charges (195) - - Interest expense (37) (38) (38)Interest income 4 4 4 Income tax benefit (expense) 105 (77) (70)(Loss) income from continuing operations $ (313) $ 281 $ 151

Q3 FY15 Q3 FY14Q3 FY14


Revenue ($M) $ 2,947 $ 3,228 $ 3,228 Operating Income Margin % 11.3% 10.5% 9.8%EBIT Margin % 9.2% 8.6% 7.9%

Earnings Before Interest and Taxes ($M)

Margin %

Q3 Non-GAAP Reconciliation

*Before the change in the pension accounting policy


Operating Income ($M) YTD FY15 YTD FY14YTD FY14


Operating income $ 985 $ 1,031 $ 963 Corporate G&A (182) (197) (198)Pension & OPEB actuarial & settlement (losses) gains (463) 114 - SEC settlement related charges (195) - - Interest expense (112) (112) (112)Interest income 14 11 11 Other income (expense), net (6) (16) (16)Income (loss) from continuing operations before taxes $ 41 $ 831 $ 648

YTD Non-GAAP Reconciliation

*Before the change in the pension accounting policy

YTD FY15 YTD FY14YTD FY14


Earnings before interest and taxes $ 797 $ 818 $ 749 Pension & OPEB actuarial & settlement (losses) gains (463) 114 - SEC settlement related charges (195) - - Interest expense (112) (112) (112)Interest income 14 11 11 Income tax benefit (expense) (18) (227) (206)Income (loss) from continuing operations $ 23 $ 604 $ 442

YTD FY15 YTD FY14YTD FY14


Revenue ($M) $ 9,264 $ 9,669 $ 9,669 Operating Income Margin % 10.6% 10.7% 10.0%EBIT Margin % 8.6% 8.5% 7.7%

Earnings Before Interest and Taxes ($M)

Margin %


$M Except EPS As ReportedPension & OPEB



Non-GAAP Results*

Costs of services (excludes depreciation and amortization and restructuring costs) $ 2,530 $ (418) $ - $ 2,112

Selling, general and administrative (excludes SEC settlement related charges and restructuring costs) $ 356 $ (44) $ - $ 312

(Loss) income from continuing operations, before taxes $ (418) $ (462) $ (195) $ 239 Income tax (benefit) expense (105) (171) (1) 67 (Loss) income from continuing operations (313) (291) (194) 172 Loss from discontinued operations, net of taxes - - - - Net (loss) income (313) (291) (194) 172 Less: Net income (loss) attributable to noncontrolling interest, net of tax 1 (2) - 3 Net (loss) income attributable to CSC common stockholders $ (314) $ (289) $ (194) $ 169

Effective Tax Rate 25.1% 37.0% 0.5% 28.0%

Weighted average common shares outstanding for:Basic EPS 140.637 140.637 140.637 140.637 Diluted EPS 140.637 142.852 142.852 142.852

Basic EPS from continuing operations $ (2.23) $ (2.05) $ (1.38) $ 1.20 Basic EPS from discontinued operations $ - $ - $ - $ - Diluted EPS from continuing operations $ (2.23) $ (2.02) $ (1.36) $ 1.18 Diluted EPS from discontinued operations $ - $ - $ - $ -

Q3 FY15 Non-GAAP Results*



$M Except EPS As Reported Pension actuarial gains

Non-GAAP Results*

Costs of services (excludes depreciation and amortization and restructuring costs) $ 2,261 $ 80 $ 2,341

Selling, general and administrative (excludes restructuring costs) $ 318 $ 34 $ 352

Income from continuing operations, before taxes $ 358 $ 114 $ 244 Income tax expense 77 - 77 Income from continuing operations 281 114 167 Loss from discontinued operations, net of taxes (5) - (5)Net income 276 114 162 Less: Net income attributable to noncontrolling interest, net of tax 5 - 5 Net income attributable to CSC common stockholders $ 271 $ 114 $ 157

Effective Tax Rate 21.5% 0.0% 31.6%

Weighted average common shares outstanding for:Basic EPS 146.735 146.735 146.735 Diluted EPS 149.362 149.362 149.362

Basic EPS from continuing operations $ 1.88 $ 0.78 $ 1.10 Basic EPS from discontinued operations $ (0.03) $ - $ (0.03)Diluted EPS from continuing operations $ 1.84 $ 0.76 $ 1.08 Diluted EPS from discontinued operations $ (0.03) $ - $ (0.03)

Q3 FY14 Non-GAAP Results*

*Non-GAAP results exclude net actuarial pension gains


$M Except EPS As ReportedPension & OPEB



Non-GAAP Results*

Costs of services (excludes depreciation and amortization and restructuring costs) $ 7,101 $ (418) $ - $ 6,683

Selling, general and administrative (excludes SEC settlement related charges and restructuring costs) $ 1,046 $ (45) $ - $ 1,001

Income (loss) from continuing operations, before taxes $ 41 $ (463) $ (195) $ 699 Income tax expense (benefit) 18 (171) (1) 190 Income (loss) from continuing operations 23 (292) (194) 509 Loss from discontinued operations, net of taxes (29) - - (29)Net (loss) income (6) (292) (194) 480 Less: Net income (loss) attributable to noncontrolling interest, net of tax 11 (2) - 13 Net (loss) income attributable to CSC common stockholders $ (17) $ (290) $ (194) $ 467

Effective Tax Rate 43.9% 36.9% 0.5% 27.2%

Weighted average common shares outstanding for:Basic EPS 143.141 143.141 143.141 143.141

Diluted EPS 146.323 146.323 146.323 146.323

Basic EPS from continuing operations $ 0.08 $ (2.03) $ (1.36) $ 3.47 Basic EPS from discontinued operations $ (0.20) $ - $ - $ (0.20)Diluted EPS from continuing operations $ 0.08 $ (1.98) $ (1.33) $ 3.39 Diluted EPS from discontinued operations $ (0.20) $ - $ - $ (0.20)

Q3 YTD FY15 Non-GAAP Results*



$M Except EPS As Reported Pension actuarial gains

Non-GAAP Results*

Costs of services (excludes depreciation and amortization and restructuring costs) $ 7,015 $ 80 $ 7,095

Selling, general and administrative (excludes restructuring costs) $ 920 $ 34 $ 954

Income from continuing operations, before taxes $ 831 $ 114 $ 717 Income tax expense 227 - 227 Income from continuing operations 604 114 490 Income from discontinued operations, net of taxes 91 - 91 Net income 695 114 581 Less: Net income attributable to noncontrolling interest, net of tax 18 - 18 Net income attributable to CSC common stockholders $ 677 $ 114 $ 563

Effective Tax Rate 27.3% 0.0% 31.7%

Weighted average common shares outstanding for:Basic EPS 148.212 148.212 148.212 Diluted EPS 151.124 151.124 151.124

Basic EPS from continuing operations $ 3.96 $ 0.77 $ 3.18 Basic EPS from discontinued operations $ 0.61 $ - $ 0.61 Diluted EPS from continuing operations $ 3.88 $ 0.75 $ 3.12 Diluted EPS from discontinued operations $ 0.60 $ - $ 0.60

Q3 YTD FY14 Non-GAAP Results*

*Non-GAAP results exclude net actuarial pension gains


$MNet Income $ (313) $ 276 $ (6) $ 695 Pension & OPEB actuarial & settlement losses (gains) 462 (114) 463 (114) SEC Settlement related charges 195 - 195 - Depreciation and amortization 238 251 762 753 Change in assets and liabilities 63 76 (310) (291) (Gain) loss on dispositions (9) 3 (22) (95) Other 17 37 61 64 Operating Cash Flow 653 529 1,143 1,012

Capital expenditures, net (109) (154) (372) (459) Business dispositions - 13 (13) 245 Acquisitions - (163) (35) (190) Other 8 3 21 27 Investing Cash Flow (101) (301) (399) (377)

Business dispositions - (13) 13 (245) Acquisitions - 163 35 190 Other - - - (5) Capital leases and other asset financing (54) (54) (193) (174)

Free Cash Flow* $ 498 $ 324 $ 599 $ 401

YTD FY14Q3 FY15 Q3 FY14 YTD FY15

Selected Cash Flow Items and Non-GAAP Reconciliation

*Capital lease payments, repayments of obligations related to assets acquired under long-term financing arrangements, and proceeds from the sale of assets (included in investing activities) are included in the calculation of free cash flow


$BFY14 FY15

North American Public SectorNPSGlobal Business ServicesGBS Global Infrastructure ServicesGIS

Bookings*

*Segment bookings may not add to total due to rounding


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

• Operating income: Revenue less costs of services, depreciation and amortization expense, restructuring costs, and segment general and administrative (G&A) expense, excluding corporate G&A, actuarial and settlement charges related to CSC’s pension and other post-employment benefit (OPEB) plans, and the proposed SEC settlement related charges

• Operating income margin: Operating income as a percentage of revenue• Earnings before interest and taxes: Income from continuing operations less actuarial and settlement charges

related to CSC’s pension other post-employment benefit (OPEB) plans, the proposed SEC settlement related charges, interest expense, interest income and income tax (benefit) 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 cash payments for purchases of property, equipment, and software, and payments on outsourcing contracts, capital leases and other asset financings, less proceeds from sales of assets

• Net debt: Calculated as the sum of long-term and short-term debt, less cash and cash equivalents• Net debt to capital: Calculated as the ratio of net debt to capital (total debt plus equity)• Non-GAAP (loss) income from continuing operations: (Loss) income from continuing operations, excluding the

effect of the proposed SEC settlement charge, net actuarial pension and OPEB gains/losses, and pension settlement losses

• Non-GAAP net (loss) income attributable to CSC common stockholders: Net (loss) income attributable to CSC common stockholders, excluding the effect of the proposed SEC settlement charge, net actuarial pension and OPEB gains/losses, and pension settlement losses

• Non-GAAP EPS: Non-GAAP EPS is calculated as non-GAAP net (loss) income attributable to CSC common stockholders divided by weighted average common shares outstanding

Non-GAAP and Other Definitions


Thank You

3rd quarter fy 2015 earnings presentation · 3rd quarter fy 2015 earnings presentation february 9,...

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