4th QUARTER FY 2015 EARNINGS PRESENTATION

Transcription

1 4th QUARTER FY 2015 EARNINGS PRESENTATION 1

2 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 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. 2

3 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. 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 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 (cc) 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. 3

4 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. Additionally, actuarial and settlement gains and losses are excluded from the Company s definition of operating income. Also during the first fiscal quarter of 2015, 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 prior fiscal years to reflect both these accounting policy changes. 4

5 4th QUARTER FY 2015 EARNINGS PRESENTATION Mike Lawrie Chief Executive Officer 5

6 Key Messages FY15 non-gaap EPS* of $4.64 up 9%, driven by higher margins NPS revenue flat; strong operating margin Commercial revenue up sequentially, good book-to-bill Investments to optimize global workforce Continue to return significant capital to shareholders *Non-GAAP EPS from continuing operations excludes net pension and OPEB actuarial & settlement gains/losses, charges related to the proposed SEC settlement & Other, Q4 FY15 tax valuation allowance benefit, Q4 FY15 special restructuring costs, and the Q4 FY14 benefit from the reversal of contingent consideration related to the ServiceMesh acquisition (see slides for non-gaap reconciliations) 6

7 4th QUARTER FY 2015 EARNINGS PRESENTATION Paul Saleh Chief Financial Officer 7

8 Reconciliation of Non-GAAP Results Q4 FY15 and FY15 Q4 FY15 $M Except EPS GAAP Tax valuation allowance benefit Special restructuring costs SEC Settlement related charges & Other Pension & OPEB actuarial & settlement losses Non-GAAP results (Loss) income from continuing operations, before taxes (317) - (246) (5) (319) 253 Income tax (benefit) expense (330) (264) (63) (2) (70) 69 Income from continuing operations (183) (3) (249) 184 Diluted EPS from continuing operations* $ (1.28) (0.02) (1.74) $ 1.26 FY15 $M Except EPS GAAP Tax valuation allowance benefit Special restructuring costs SEC Settlement related charges & Other Pension & OPEB actuarial & settlement losses Non-GAAP results (Loss) income from continuing operations, before taxes (276) - (246) (200) (782) 952 Income tax (benefit) expense (312) (264) (63) (3) (241) 259 Income from continuing operations (183) (197) (541) 693 Diluted EPS from continuing operations* $ (1.26) (1.35) (3.70) $ 4.64 *EPS from continuing operations and per-share values of certain items may not add to non-gaap EPS due to rounding 8

9 4th Quarter and Full Year Results* Q4 Full Year FY15 FY14 FY15 FY14 Revenue ($M) $ 2,909 $ 3,329 $ 12,173 $ 12,998 YoY Growth GAAP (12.6%) (6.3%) YoY Growth cc (8.0%) (5.2%) QtQ Growth cc 1.4% Adjusted Operating Income ($M)* ,334 1,395 Adjusted Operating Margin (%)* 12.0% 10.9% 11.0% 10.7% Adjusted EBIT ($M)* ,080 1,114 Adjusted EBIT Margin (%)* 9.7% 8.9% 8.9% 8.6% Non-GAAP Income from Continuing Operations ($M)* Non-GAAP EPS from Continuing Operations* $ 1.26 $ 1.15 $ 4.64 $ 4.27 Bookings ($B) $ 3.4 $ 4.3 $ 11.7 $ 14.5 *Non-GAAP and Adjusted results exclude net pension and OPEB actuarial & settlement gains/losses, charges related to the proposed SEC settlement & Other, Q4 FY15 tax valuation allowance benefit, Q4 FY15 special restructuring costs, and the Q4 FY14 benefit from the reversal of contingent consideration related to the ServiceMesh acquisition, as applicable (see slides for non-gaap reconciliations) 9

10 Global Business Services (GBS) Q4 FY15 Q4 FY14 GBS 34% GIS 32% Revenue ($M) $ 980 $ 1,152 YoY growth (14.9%) YoY growth cc (7.6%) QtQ growth cc 6.1% Operating Income ($M) NPS 34% As reported Adjusted* Operating Margin (%) As reported 4.0% 17.4% Adjusted* 16.7% 17.4% Bookings ($B) $ 1.1 $ 1.5 FY 2015 Revenue ($M) OI Margin % Bookings ($B) Decline in cc of 4.7% $0.1 ** $4,321 $4, % 13.1%* $6.1 $4.7 FY14 FY15 FY14 FY15 FY14 FY15 *Adjusted operating income excludes the impact of Q4 FY15 special restructuring costs ** Impact from contract awarded in Q4 FY15 but signed after quarter end 10

11 Global Infrastructure Services (GIS) Q4 FY15 Q4 FY14 GBS 34% NPS 34% GIS 32% Revenue ($M) $ 929 $ 1,173 YoY growth (20.8%) YoY growth cc (14.8%) QtQ growth cc (1.9%) Operating Income ($M) As reported (49) 92 Adjusted* Operating Margin (%) As reported (5.3%) 7.8% Adjusted* 6.8% 6.1% Bookings ($B) $ 1.2 $ 1.8 FY 2015 Revenue ($M) Adjusted OI Margin %* Bookings ($B) Decline in cc of 9.4% $0.6 ** $4,578 $4, % 6.7% $4.1 $4.1 FY14 FY15 FY14 FY15 FY14 FY15 *Adjusted operating income excludes the impact of Q4 FY15 special restructuring costs and the Q4 FY14 benefit from the reversal of contingent consideration related to the ServiceMesh acquisition ** Impact from contract awarded in Q4 FY15 but signed after quarter end 11

12 North American Public Sector (NPS) Q4 FY15 Q4 FY14 Revenue ($M) $ 1,000 $ 1,004 GBS 34% GIS 32% YoY growth (0.4%) Operating Income ($M) As reported Adjusted* NPS 34% DoD 54% Civil 38% Other 8% Operating Margin (%) As reported 13.5% 11.2% Adjusted* 14.0% 11.2% Bookings ($B) $ 1.0 $ 1.0 FY 2015 Revenue ($M) OI Margin % Bookings ($B) Decline of 1% $4.3 Large Renewal $4,099 $4, % 14.7%* $3.3** $2.9 FY14 FY15 FY14 FY15 FY14 FY15 *Adjusted operating income excludes the impact of Q4 FY15 special restructuring costs **Adjusted for one large NPS renewal 12

13 Financial Highlights Cash Flow Performance Q4 FY15 FY 2015 Free Cash Flow $118M $717M Cap Ex Including Capital Leases $170M $735M Cap Ex as a % of Revenue 5.8% 6.0% Capital Structure Q4 FY15 Q4 FY14 Cash and Equivalents $2.1B $2.4B Net Debt to Capital Ratio 10.2% 6.5% Capital to Shareholders Q4 FY15 FY 2015 Dividends $33M $131M Share Repurchases 3.2M shares $224M 11.7M shares $736M 13

14 Cost Takeout and Reinvestment Update COST TAKEOUT Continued G&A efficiency Real estate consolidation Workforce optimization Supply chain management FY15 ~$480M FY15 Targets $450M $500M REINVESTMENTS Next-generation offerings Strategic partnerships Sales Finance and HR systems Customer-committed savings ~$360M $350M $400M 14

15 FY 2016 Targets Revenue Flat to slightly down (cc) NPS slightly up Commercial flat to slightly down in cc Non-GAAP EPS from Continuing Operations * $4.75 $5.05 Free Cash Flow ** $750 $800 million * Non-GAAP EPS from continuing operations excludes net actuarial pension and OPEB gains/losses **Excludes cash impact from Q4 FY15 special restructuring payments, proposed SEC settlement, and other related separation costs 15

16 4th QUARTER FY 2015 EARNINGS PRESENTATION Supplemental Information 16

17 Q4 FY15 Non-GAAP Reconciliation Operating Income ($M) Q4 FY15 Q4 FY14 Adjusted operating income $ 349 $ 364 Special restructuring costs (246) - Reversal of contingent consideration - 21 Operating income $ 103 $ 385 Corporate G&A (60) (66) Pension & OPEB actuarial & settlement (losses) gains (319) 145 SEC settlement related charges and Other (5) - Interest expense (36) (35) Interest income 6 5 Other expense, net (6) (2) (Loss) income from continuing operations, before taxes $ (317) $ 432 Earnings Before Interest and Taxes ($M) Q4 FY15 Q4 FY14 Adjusted EBIT $ 283 $ 296 Pension & OPEB actuarial & settlement (losses) gains (319) 145 SEC settlement related charges and Other (5) - Special restructuring costs (246) - Reversal of contingent consideration - 21 EBIT $ (287) $ 462 Interest expense (36) (35) Interest income 6 5 Income tax benefit (expense) 330 (156) Income from continuing operations $ 13 $ 276 Margin % Q4 FY15 Q4 FY14 Revenue ($M) $ 2,909 $ 3,329 Adjusted operating margin 12.0% 10.9% Operating margin 3.5% 11.6% Adjusted EBIT margin 9.7% 8.9% EBIT margin (9.9%) 13.9% 17

18 FY15 Non-GAAP Reconciliation Operating Income ($M) FY15 FY14 Adjusted operating income $ 1,334 $ 1,395 Special restructuring costs (246) - Reversal of contingent consideration - 21 Operating income $ 1,088 $ 1,416 Corporate G&A (242) (263) Pension & OPEB actuarial & settlement (losses) gains (782) 259 SEC settlement related charges and Other (200) - Interest expense (148) (147) Interest income Other expense, net (12) (18) (Loss) income from continuing operations, before taxes $ (276) $ 1,263 Earnings Before Interest and Taxes ($M) FY15 FY14 Adjusted EBIT $ 1,080 $ 1,114 Pension & OPEB actuarial & settlement (losses) gains (782) 259 SEC settlement related charges and Other (200) - Special restructuring costs (246) - Reversal of contingent consideration - 21 EBIT $ (148) $ 1,394 Interest expense (148) (147) Interest income Income tax benefit (expense) 312 (383) Income from continuing operations $ 36 $ 880 Margin % FY15 FY14 Revenue ($M) $ 12,173 $ 12,998 Adjusted operating margin 11.0% 10.7% Operating margin 8.9% 10.9% Adjusted EBIT margin 8.9% 8.6% EBIT margin (1.2%) 10.7% 18

19 Q4 FY15 Non-GAAP Results* $M Except EPS As reported Costs of services (excludes depreciation and amortization and restructuring costs) Selling, general and administrative (excludes SEC settlement related charges and restructuring costs) Pension & OPEB actuarial & settlement losses SEC Settlement related charges & Other Special restructuring costs Tax valuation allowance benefit Non-GAAP results* $ 2,433 $ (302) $ - $ - $ - $ 2,131 $ 294 $ (17) $ (3) $ - $ - $ 274 (Loss) income from continuing operations, before taxes $ (317) $ (319) $ (5) $ (246) $ - $ 253 Income tax (benefit) expense (330) (70) (2) (63) (264) 69 Income from continuing operations $ 13 $ (249) $ (3) $ (183) $ 264 $ 184 Net income $ 13 $ (249) $ (3) $ (183) $ 264 $ 184 Less: net income attributable to noncontrolling interest, net of tax Net (loss) income attributable to CSC common stockholders $ 9 $ (249) $ (3) $ (183) $ 264 $ 180 Effective tax rate 104.1% 21.9% 40.0% 25.6% % Basic EPS from continuing operations** $ 0.06 $ (1.77) $ (0.02) $ (1.30) $ 1.88 $ 1.28 Diluted EPS from continuing operations** $ 0.06 $ (1.74) $ (0.02) $ (1.28) $ 1.85 $ 1.26 Weighted average common shares outstanding for: Basic EPS Diluted EPS *Non-GAAP results exclude net pension and OPEB actuarial & settlement gains/losses, charges related to the proposed SEC settlement & Other, Q4 FY15 tax valuation allowance benefit, and Q4 FY15 special restructuring costs **EPS from continuing operations and per-share values of certain items may not add to non-gaap EPS due to rounding 19

20 Q4 FY14 Non-GAAP Results* $M Except EPS As reported Pension & OPEB actuarial gains Reversal of contingent consideration Non-GAAP results* Costs of services (excludes depreciation and amortization and restructuring costs) Selling, general and administrative (excludes SEC settlement related charges and restructuring costs) $ 2,257 $ 132 $ - $ 2,389 $ 300 $ 13 $ 21 $ 334 Income from continuing operations, before taxes $ 432 $ 145 $ 21 $ 266 Income tax expense Income from continuing operations $ 276 $ 81 $ 21 $ 174 Net income $ 273 $ 81 $ 21 $ 171 Less: net income attributable to noncontrolling interest, net of tax Net income attributable to CSC common stockholders $ 270 $ 81 $ 21 $ 168 Effective tax rate 36.1% 44.1% % Basic EPS from continuing operations** $ 1.87 $ 0.55 $ 0.14 $ 1.17 Diluted EPS from continuing operations** $ 1.83 $ 0.54 $ 0.14 $ 1.15 Weighted average common shares outstanding for: Basic EPS Diluted EPS *Non-GAAP results exclude net pension and OPEB actuarial gains/losses and the Q4 FY14 benefit from the reversal of contingent consideration related to the ServiceMesh acquisition **EPS from continuing operations and per-share values of certain items may not add to non-gaap EPS due to rounding 20

21 FY15 Non-GAAP Results* $M Except EPS As reported Costs of services (excludes depreciation and amortization and restructuring costs) Selling, general and administrative (excludes SEC settlement related charges and restructuring costs) Pension & OPEB actuarial & settlement losses SEC Settlement related charges & Other Special restructuring costs Tax valuation allowance benefit Non-GAAP results* $ 9,534 $ (720) $ - $ - $ - $ 8,814 $ 1,340 $ (62) $ (3) $ - $ - $ 1,275 (Loss) income from continuing operations, before taxes $ (276) $ (782) $ (200) $ (246) $ - $ 952 Income tax (benefit) expense (312) (241) (3) (63) (264) 259 Income from continuing operations $ 36 $ (541) $ (197) $ (183) $ 264 $ 693 Net income $ 7 $ (541) $ (197) $ (183) $ 264 $ 664 Less: net income attributable to noncontrolling interest, net of tax 15 (2) Net (loss) income attributable to CSC common stockholders $ (8) $ (539) $ (197) $ (183) $ 264 $ 647 Effective tax rate 113.0% 30.8% 1.5% 25.6% % Basic EPS from continuing operations** $ 0.15 $ (3.78) $ (1.38) $ (1.28) $ 1.85 $ 4.74 Diluted EPS from continuing operations** $ 0.15 $ (3.70) $ (1.35) $ (1.26) $ 1.81 $ 4.64 Weighted average common shares outstanding for: Basic EPS Diluted EPS *Non-GAAP results exclude net pension and OPEB actuarial & settlement gains/losses, charges related to the proposed SEC settlement & Other, Q4 FY15 tax valuation allowance benefit, and Q4 FY15 special restructuring costs **EPS from continuing operations and per-share values of certain items may not add to non-gaap EPS due to rounding 21

22 FY14 Non-GAAP Results* $M Except EPS As reported Pension & OPEB actuarial gains Reversal of contingent consideration Non-GAAP results* Costs of services (excludes depreciation and amortization and restructuring costs) Selling, general and administrative (excludes SEC settlement related charges and restructuring costs) $ 9,272 $ 212 $ - $ 9,484 $ 1,220 $ 47 $ 21 $ 1,288 Income from continuing operations, before taxes $ 1,263 $ 259 $ 21 $ 983 Income tax expense Income from continuing operations $ 880 $ 195 $ 21 $ 664 Net income $ 968 $ 195 $ 21 $ 752 Less: net income attributable to noncontrolling interest, net of tax Net income attributable to CSC common stockholders $ 947 $ 195 $ 21 $ 731 Effective tax rate 30.3% 24.7% % Basic EPS from continuing operations** $ 5.81 $ 1.32 $ 0.14 $ 4.35 Diluted EPS from continuing operations** $ 5.70 $ 1.29 $ 0.14 $ 4.27 Weighted average common shares outstanding for: Basic EPS Diluted EPS *Non-GAAP results exclude net pension and OPEB actuarial gains/losses and the Q4 FY14 benefit from the reversal of contingent consideration related to the ServiceMesh acquisition **EPS from continuing operations and per-share values of certain items may not add to non-gaap EPS due to rounding 22

23 Selected Cash Flow Items and Non-GAAP Reconciliation $M Net income Q4 FY15 $ 13 Q4 FY14 $ 273 FY15 $ 7 FY14 $ 968 Pension & OPEB actuarial & settlement losses (gains) 319 (145) 782 (259) Depreciation and amortization ,018 Change in assets and liabilities* 175 (50) 60 (341) Loss (gain) on dispositions - 10 (22) (85) Other (432) 195 (371) 259 Operating Cash Flow ,433 1,560 Capital expenditures, net (121) (191) (493) (650) Business dispositions - 3 (13) 248 Acquisitions (14) - (49) (190) Other (2) (1) Investing Cash Flow (137) (189) (536) (566) Business dispositions - (3) 13 (248) Acquisitions Other (5) Capital leases and other asset financing (49) (68) (242) (242) Free Cash Flow** $ 118 $ 288 $ 717 $ 689 *Includes accrual related to SEC settlement related charges **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 23

24 Bookings* $B FY14 FY15 GBS Global Business Services GIS Global Infrastructure Services NPS North American Public Sector *Segment bookings may not add to total due to rounding 24

25 Non-GAAP and Other Definitions 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, segment selling, general and administrative (G&A) expenses, depreciation and amortization expense, and restructuring costs. Operating income excludes corporate G&A, actuarial and settlement charges related to CSC s pension and other post-employment benefit (OPEB) plans, and the SEC settlement related charges and Other Adjusted operating income: Operating income excluding the impact of the fourth quarter fiscal 2015 special restructuring costs, and the impact of the fourth quarter fiscal 2014 reversal of the excess ServiceMesh contingent consideration payable Operating income margin: Operating income as a percentage of revenue Earnings before interest and taxes: Income from continuing operations less interest expense, interest income and income tax benefit (expense) Adjusted earnings before interest and taxes: Earnings before interest and taxes excluding the impact of the (1) actuarial gains (losses) and settlement charges related to CSC s pension & other post-employment benefit (OPEB) plans, (2) proposed SEC settlement related charges and Other, (3) fourth quarter fiscal 2015 special restructuring costs, and (4) the fourth quarter fiscal 2014 reversal of the excess ServiceMesh (SMI) contingent consideration payable 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 purchases of property, equipment, and software, and payments on outsourcing contracts, 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) 25

26 4th QUARTER FY 2015 EARNINGS PRESENTATION Thank You 26