CSC Reports Third Quarter 2012 Results

CSC (NYSE: CSC) today reported results for the third quarter of fiscal 2012 ended December 30, 2011.

The financial summary for the third quarter is as follows:

• Revenue was $3.76 billion net of a $204 million reduction relating to the U.K. National Health Service (NHS) contract. Excluding the NHS reduction, revenue was $3.97 billion, a decrease of 0.7% when compared to a year ago.

• EPS from continuing operations was ($8.97) and included two significant non-cash charges:

On December 27, 2011, the Company issued a Form 8-K announcing that it would record a material impairment of the Company’s net investment in the NHS contract. Third quarter results reflect a charge of $1.49 billion, reducing EPS from continuing operations by $9.93.

A further goodwill impairment review for the BSS-Health reporting unit took place in the third quarter and resulted in a net goodwill impairment charge of $60 million which represented all of the remaining goodwill at BSS-Health. This charge reduced EPS from continuing operations by $0.39.

Excluding the impact of the above charges, non-GAAP EPS was $1.35.

Pre-tax margin was -38.2% versus 5.8% in the previous year.

Operating margin of -34.1% compares to 7.4% for the year ago quarter.

Operating cash flow was $720 million for the quarter, as compared to $462 million for the year ago quarter.

Free cash flow was $499 million for the quarter when compared to $250 million for the year ago quarter.

New business awards were $4.1 billion for the quarter and $13.0 billion year to date, which represents an increase of 71% and 26%, respectively, when compared to last year.

New Business Awards

Across the three lines of business, new business awards for the third quarter were $4.1 billion. North American Public Sector (NPS) contributed $0.8 billion, Managed Services Sector (MSS) delivered $2.4 billion, and Business Solutions & Services (BSS) closed $0.9 billion of new business.

On a year-to-date basis, new business awards were approximately $13.0 billion which is a 26% increase compared to the previous year.

Revenue by Line of Business

For the quarter, revenue from BSS was $0.74 billion. After adjusting for the $204 million NHS reduction, BSS revenue was $0.94 billion (an increase of 5.0% from the third quarter last year and an increase of 4.9% in constant currency). NPS revenue was $1.38 billion (down 6.1% from the third quarter last year). MSS revenue was $1.67 billion (an increase of 1.0% from the third quarter of last year and an increase of 1.1% in constant currency).

Business Commentary

“I am encouraged by our continued success in capturing new business, our strong cash generation, and the sequential improvement in MSS operating margin,” said Michael W. Laphen, CSC Chairman, President and Chief Executive Officer. “Notwithstanding the NHS charge, discussions continue toward defining a program scope and a market potential that builds upon our accomplishments to date.”

Guidance

On December 27, 2011, the Company issued a Form 8-K regarding the NHS contract and withdrew its guidance for fiscal year 2012 pending clarity around the NHS situation. As discussions continue with the client, guidance will not be provided at this time but will be communicated at a later date after discussions are completed.