EX-99 2 exhibit99_080106.htm PRESS RELEASE Exhibit 99

EXHIBIT 99

 

 

 

Contact:

Bill Lackey

FOR IMMEDIATE RELEASE

 

Director, Investor Relations

Moved On PR Newswire

 

Corporate

Date:  August 1, 2006

 

310.615.1700

 

 

blackey3@csc.com

 

 

 

 

 

Mike Dickerson

 

 

Director, Media Relations

 

 

Corporate

 

 

310.615.1647

 

 

mdickers@csc.com

 

 

 

CSC REPORTS FIRST QUARTER RESULTS

IN LINE WITH PREVIOUS GUIDANCE

 

 

          EL SEGUNDO, Calif., Aug. 1 -- Computer Sciences Corporation (NYSE: CSC) today reported results for its fiscal 2007 first quarter, ended June 30, 2006. After a special pre-tax charge related to the restructuring program announced on April 4, 2006, of $215 million, partially offset by an $18.3 million pre-tax gain on the redemption of the DynCorp International preferred stock, or 90 cents per share, net, the company reported a net loss of $55.3 million, or 29 cents per share (diluted). Diluted earnings per share from continuing operations, excluding the special items, were 61 cents. Last year's first quarter earnings per share from continuing operations were 58 cents. This year's quarter includes a 4 cent adverse incremental impact of stock options expense resulting from the adoption of SFAS 123R.

 

          Revenue for the first quarter was $3.56 billion, ahead of estimates, but down slightly (approximately 1% in constant currency) from last year's first quarter. Solid revenue growth from CSC's U.S. federal government activities, as well as the company's Australia and Asia operations, was offset by declines in commercial revenue in the U.S. and Europe.

 

          For the first quarter, CSC's U.S. federal government revenue increased 5.8% to $1.29 billion from $1.22 billion for the first quarter of fiscal 2006. Revenue derived from CSC's DoD-related business was $853.8 million, up 7.5% from last year's $793.9 million. Several existing engagements and recent new business awards, including

 

 

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Computer Sciences Corporation - Page 2

August 1, 2006

 

 

Mission Support Services, Vance Air Force Base and the U.S. Army's Flight School XXI, among others, contributed to the revenue increase. CSC's civil agencies activities generated revenue of $404.1 million, up 7.3%, compared to $376.7 million last year. Work for the U.S. Department of Education, the FAA and NASA contributed positively to the quarter's activity. Other federal segment revenue, comprised of state, local and foreign government as well as commercial contracts performed by the U.S. federal segment, was $33.7 million, down from last year's $50.3 million.

 

          First quarter global commercial revenue was $2.26 billion, compared to $2.36 billion in the year-ago quarter, a decline of 4.1% (down approximately 4% in constant currency). U.S. commercial revenue was $976.6 million, down 3%, compared with $1.01 billion last year. European revenue was $941.9 million, a decline of 9.2% (down approximately 8% in constant currency) from $1.04 billion for the first quarter last year. CSC's non-European international revenue was $346.1 million, up 9% (approximately 8% in constant currency), compared with last year's $317.5 million.

 

          North American consulting and systems integration activities delivered modest gains in revenue and profitability with slight increases in utilization, hourly billing rates and headcount compared to the comparable quarter last year. The shorter-term activities market in Europe continues to be impacted negatively by soft demand in Germany and Italy.

 

          "Our solid first quarter results begin another year of anticipated improved operational performance," said CSC Chairman and Chief Executive Officer Van B. Honeycutt. "Our U.S. federal government activities for the quarter delivered good growth as we continue to exhibit a leadership role in the federal information technology services market. We continue to be encouraged by the strong revenue growth reported by our operations in Australia and Asia. The quality and quantity of our federal and commercial pipelines are expected to provide us ample opportunities to enhance our operational progress going forward.

 

 

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Computer Sciences Corporation - Page 3

August 1, 2006

 

 

          "The information technology services market for agencies and departments of the U.S. federal government continues to demonstrate solid demand. We expect to continue to be a leader in providing IT services to this large, growing and important market. Just yesterday we announced our selection by the U.S. Army for an Information Technology Enterprise Solutions-2 Services (ITES-2S) contract to provide a comprehensive range of IT services to support the Army's enterprise infrastructure worldwide. We have valued the nine-year contract at approximately $2 billion if all options are exercised."

 

          The company's U.S. federal pipeline of opportunities over the next 20 months is approximately $36 billion, comprised of more than 450 programs across a broad spectrum of government agencies and departments. This pipeline is up approximately 17% over last year's comparable 20-month set, and about $15 billion of the total is scheduled for award in the current fiscal year. Major business announcements, federal and commercial, for the first quarter were $2.2 billion.

 

          The restructuring program announced in April involving workforce reductions, primarily in Europe, is proceeding as planned. The restructuring program is designed to streamline the company's worldwide operations, further leverage the increased use of lower-cost resources and significantly improve future cash flow and earnings.

 

 

Updated Guidance

 

          "For fiscal 2007, ending March 30, 2007, we continue to anticipate revenue to be up approximately 2% to 3% excluding the effect of any acquisitions," said Honeycutt. "We are revising upward our 2007 fiscal year earnings per share guidance from the previous range of $3.61 to $3.71, to the range of $3.71 to $3.81, including the adverse incremental impact of options expensing and the estimated 10 cent benefit of the share repurchase, previously announced on June 29, 2006, but excluding the net restructuring charge. For the second quarter, ending September 29, we anticipate revenue to be in the range of $3.5 billion to $3.6 billion and earnings per share to be in the high 60 cent to low 70 cent range, including the effect of options expensing and share repurchase, but excluding any restructuring charge."

 

 

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Computer Sciences Corporation - Page 4

August 1, 2006

 

 

Conference Call

 

          As announced in the company's press release dated July 10, 2006, a teleconference will be held today at 5:00 p.m. EDT to discuss the first quarter results. This teleconference can be accessed from the CSC Web site at www.csc.com/investorrelations, in a listen-only mode.

 

 

Update on Options Queries

 

          Two shareholders of the Company have filed purported derivative actions against the Company, as nominal defendant, and certain of CSC's executive officers and directors. The two actions, which are expected to be consolidated, allege that the individual defendants breached their fiduciary duty to the Company by purportedly "backdating" stock options granted to CSC executives, improperly recording and accounting for allegedly backdated stock options, and producing and disseminating disclosures that improperly recorded and accounted for the allegedly backdated options. They allege that certain of the defendants were unjustly enriched and seek to require them to disgorge their profits.

 

          In response to an investigation of the Company's option grant practices by the U.S. Securities and Exchange Commission and the United States Attorney's Office in the Eastern District of New York, the Company's Board of Directors has established a special committee of directors to conduct an independent investigation into CSC's option grant practices. The special committee's investigation is still in a preliminary stage. The Company and the special committee are cooperating with the SEC and the U.S. Attorney on these matters.

 

 

About CSC

 

          Founded in 1959, Computer Sciences Corporation is a leading global IT services company. CSC's mission is to provide customers in industry and government with solutions crafted to meet their specific challenges and enable them to profit from the advanced use of technology.

 

 

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Computer Sciences Corporation - Page 5

August 1, 2006

 

 

          With approximately 78,000 employees, CSC provides innovative solutions for customers around the world by applying leading technologies and CSC's own advanced capabilities. These include systems design and integration; IT and business process outsourcing; applications software development; Web and application hosting; and management consulting. Headquartered in El Segundo, Calif., CSC reported revenue of $14.6 billion for the 12 months ended June 30, 2006. For more information, visit the company's Web site at www.csc.com.

 

 

All statements in this press release 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 "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in CSC's Form 10-K for the fiscal year ended March 31, 2006. The Company disclaims any intention or obligation to update these forward-looking statements whether as a result of subsequent events or otherwise except as required by law.

 

 

Note to Analysts and Editors: Please see attached tables.

 

 

 

 

Computer Sciences Corporation - Page 6

August 1, 2006

 

 

Revenues by Segment

(unaudited)

 

 

                                  First Quarter Ended                                  

 

June 30,

 

July 1,

 

              % of Total              

(In millions)

      2006      

 

      2005      

 

Fiscal 2007

 

Fiscal 2006

 

 

 

 

 

 

 

 

   U.S. Commercial

$   976.6   

 

$1,007.1   

 

27%     

 

28%     

   Europe

941.9   

 

1,037.0   

 

27        

 

29        

   Other International

        346.1   

 

        317.5   

 

        10        

 

          9        

Global Commercial segment

     2,264.6   

 

     2,361.6   

 

        64        

 

        66        

 

 

 

 

 

 

 

 

   Department of Defense

853.8   

 

793.9   

 

24        

 

22        

   Civil agencies

404.1   

 

376.7   

 

11        

 

11        

   Other (1)

          33.7   

 

          50.3   

 

          1        

 

          1        

U.S. Federal segment

     1,291.6   

 

     1,220.9   

 

        36        

 

        34        

 

 

 

 

 

 

 

 

 

$3,556.2   
=========

 

$3,582.5   
=========

 

100%     
=========

 

100%     
=========

 

 

 

(1)

Other revenues consist of state, local and foreign government as well as commercial contracts performed by the U.S. Federal reporting segment.

 

 

Computer Sciences Corporation - Page 7

August 1, 2006

 

 

Consolidated Statements of Income

(unaudited)

(In millions except per-share amounts)

    First Quarter Ended    

 

June 30,

 

July 1,

 

     2006     

 

     2005     

 

 

 

 

Revenues

  $3,556.2   

 

  $3,582.5   

 

 

 

 

Costs of services

2,883.3   

 

2,926.7   

Selling, general and administrative

227.6   

 

205.1   

Depreciation and amortization

260.9   

 

269.7   

Interest expense

30.7   

 

24.1   

Interest income

(26.0)  

 

(5.3)  

Special items

       196.9   

 

                   

 

 

 

 

Total costs and expenses

    3,573.4   

 

    3,420.3   

 

 

 

 

(Loss) income before taxes

(17.2)  

 

162.2   

Taxes on income

         38.1   

 

         53.5   

 

 

 

 

(Loss) income from continuing operations

(55.3)  

 

108.7   

Discontinued operations, net of taxes

                   

 

         22.9   

 

 

 

 

Net (loss) income

$   (55.3)  

 

$   131.6   

 

========

 

========

 

 

 

 

(Loss) earnings per share:

 

 

 

   Continuing operations

$    (0.29)  

 

$     0.59   

   Discontinued operations

                   

 

         0.12   

      Basic

$    (0.29)  

 

$     0.71   

 

========

 

========

 

 

 

 

   Continuing operations

$     (0.29)  

 

$      0.58   

   Discontinued operations

                   

 

         0.12   

      Diluted

$     (0.29)  

 

$      0.70   

 

========

 

========

 

 

 

Average common shares outstanding for:

 

 

    Basic EPS

187.536   

 

185.510   

    Diluted EPS

187.536   

 

187.152   

 

 

Computer Sciences Corporation - Page 8

August 1, 2006

 

 

Selected Balance Sheet Data

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

March 31,

(In millions)

       2006       

 

       2006       

Assets

 

 

 

   Cash and cash equivalents

$  1,008.0    

 

$  1,290.7    

   Receivables, net of allowance for doubtful accounts

4,012.9    

 

3,746.3    

   Prepaid expenses and other current assets

       1,250.2    

 

       1,268.9    

Total current assets

       6,271.1    

 

       6,305.9    

 

 

 

 

   Property and equipment, net

2,392.9    

 

2,320.1    

   Outsourcing contract costs, net

1,116.6    

 

1,175.3    

   Software, net

455.8    

 

453.3    

   Goodwill, net

2,339.5    

 

2,306.3    

   Other assets

          465.1    

 

          468.7    

      Total assets

   $13,041.0    

 

   $13,029.6    

 

==========

 

==========

 

 

 

 

Liabilities

 

 

 

   Short-term debt and current maturities of long-term debt

$       86.8    

 

$       85.3    

   Accounts payable

597.5    

 

705.1    

   Accrued payroll and related costs

750.1    

 

706.5    

   Other accrued expenses

1,933.6    

 

1,359.7    

   Deferred revenue

578.6    

 

629.1    

   Federal, state and foreign income taxes

          612.4    

 

          655.4    

 

   $  4,559.0    

 

   $  4,141.1    

 

 

 

 

   Long-term debt, net

1,397.3    

 

1,376.8    

   Other long-term liabilities

737.1    

 

739.8    

 

 

 

 

   Stockholders' equity

       6,347.6    

 

       6,771.9    

 

 

 

 

      Total liabilities and stockholders' equity

$13,041.0    

 

$13,029.6    

 

==========

 

==========

 

 

 

Computer Sciences Corporation - Page 9

August 1, 2006

 

 

Consolidated Statements of Cash Flows

 

(unaudited)

 

 

 

 

       Three Months Ended       

(In millions)

June 30,

 

July 1,

 

       2006       

 

       2005       

Cash flows from operating activities:

 

 

 

   Net (loss) income

$   (55.3)   

 

$   131.6    

   Adjustments to reconcile net (loss) income to net

 

 

 

     cash provided by operating activities:

 

 

 

      Depreciation and amortization and other non-cash charges

299.1    

 

296.3    

      Gain on disposition, net of taxes

(19.3)   

 

(22.9)   

      Changes in assets and liabilities, net of effects of acquisitions:

 

 

 

         Increase in assets

(347.0)   

 

(286.8)   

         Decrease in liabilities

          (89.9)   

 

        (108.7)   

 

 

 

 

Net cash (used in) provided by operating activities

        (212.4)   

 

              9.5    

 

 

 

 

Investing activities:

 

 

 

   Purchases of property and equipment

(199.4)   

 

(235.4)   

   Outsourcing contracts

(17.0)   

 

(98.0)   

   Software

(36.7)   

 

(40.4)   

   Other investing cash flows

          165.8    

 

            18.2    

 

 

 

 

Net cash used in investing activities

          (87.3)   

 

        (355.6)   

 

 

 

 

Financing activities:

 

 

 

   Borrowings on lines of credit, net

(6.4)   

 

(15.2)   

   Principal payments on long-term debt

(8.1)   

 

(2.0)   

   Proceeds from stock option and other common stock transactions

32.1    

 

8.7    

   Excess tax benefit from stock-based compensation

1.7    

 

 

   Repurchase of common stock

 

 

(227.6)   

   Other financing cash flows

            (4.3)   

 

              1.6    

 

 

 

 

Net cash provided by (used in) financing activities

            15.0    

 

        (234.5)   

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

              2.0    

 

            (2.4)   

 

 

 

 

Net decrease in cash and cash equivalents

(282.7)   

 

(583.0)   

Cash and cash equivalents at beginning of year

       1,290.7    

 

       1,010.3    

 

 

 

 

Cash and cash equivalents at end of period

$1,008.0    

 

$   427.3    

 

==========

 

==========

 

 

Computer Sciences Corporation - Page 10

August 1, 2006

 

 

The following tables reconcile Earnings Before Interest, Taxes, and Depreciation and Amortization (EBITDA); Earnings Before Interest and Taxes (EBIT); and Free Cash Flow to the most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP). CSC management believes that these three 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.

 

GAAP Reconciliations

 

 

 

(In millions)

 

 

 

 

 

 

 

EBITDA / EBIT (unaudited)

  First Quarter Ended  

 

June 30,

 

July 1,

 

     2006     

 

     2005     

EBITDA and special items

$   445.3   

 

$   450.7   

   Special items

      196.9   

 

                  

EBITDA

248.4   

 

450.7   

   Depreciation and amortization

      260.9   

 

      269.7   

EBIT

(12.5)  

 

181.0   

   Interest, net

          4.7   

 

        18.8   

(Loss) income before taxes

(17.2)  

 

162.2   

   Taxes on income

        38.1   

 

        53.5   

(Loss) income from continuing operations

(55.3)  

 

108.7   

Discontinued operations, net of taxes

                  

 

        22.9   

Net (loss) income

$   (55.3)  

 

$   131.6   

 

========

 

========

 

 

 

 

 

 

 

 

Free Cash Flow (unaudited)

  First Quarter Ended  

 

June 30,

 

July 1,

 

     2006     

 

     2005     

Free cash flow

$  (434.1)  

 

$  (346.1)  

Net cash used in investing activities

87.3   

 

355.6   

Proceeds from redemption of preferred stock

126.5   

 

 

Capital lease payments

          7.9   

 

                  

Net cash (used in) provided by operating activities

$  (212.4)  

 

$        9.5   

 

========

 

========

Note:

Capital lease payments and proceeds from the sale of property and equipment (included in other investing activities) are included in the calculation of free cash flow.

 

Prior periods have been adjusted to conform with this presentation.

 

Proceeds from the redemption of DynCorp preferred stock is included in other investing activities and is excluded from the calculation of free cash flow.

 

 

 

Computer Sciences Corporation - Page 11

August 1, 2006

 

 

Earnings per Share Reconciliation (unaudited)

 

The following table is presented to illustrate the impact of the special items on earnings per share. It also provides a reconciliation of the earnings per share amount relating to this item to earnings per share for continuing operations. The earnings per share amounts presented below include non-GAAP measures. This table should be read in conjunction with the Consolidated Statements of Income within this release on which the GAAP earnings per share measures are presented. Earnings per share before special items provides a basis for comparing current operations performance to past and future operating performance.

 

 

                         First Quarter Ended                         

 

        June 30, 2006        

 

          July 1, 2005          

 

 

 

EPS

 

 

 

EPS

 

 Amount 

 

 (diluted) 

 

 Amount 

 

 (diluted) 

Net (loss) income and EPS (diluted), as reported

$ (55.3)  

 

$  (0.29)  

 

$ 131.6   

 

$   0.70   

Less: Gain on discontinued operations

                 

 

                 

 

       22.9   

 

       0.12   

(Loss) income from total operations

(55.3)  

 

(0.29)  

 

108.7   

 

0.58   

Add back: Special items

     171.8   

 

       0.90   

 

                 

 

                 

Income and EPS from continuing operations

 

 

 

 

 

 

 

  before special items

$ 116.5   

 

$   0.61   

 

$ 108.7   

 

$   0.58   

 

=======

 

=======

 

=======

 

=======

 

 

 

 

 

 

 

 

Average common shares outstanding for diluted EPS

 

187.536   

 

 

 

187.152   

Notes:

All amounts are net of taxes.

 

Amounts are in millions except per-share amounts.

 

EPS from continuing operations before special items for the quarter ended June 30, 2006, is calculated using average common shares outstanding including common stock equivalents of 191.588, which includes those common stock equivalents that were antidilutive due to the reported loss.

 

The EPS impact of special items is calculated as the difference between EPS as reported and EPS from continuing operations before special items.