CSC Reports Strong Fourth Quarter Results
Margin, EPS and Cash Flow Growth Well Ahead of Last Year
FALLS CHURCH, Va.- CSC (NYSE: CSC) today reported fourth quarter 2009 fully diluted earnings per share (EPS) of $2.51, compared with fourth quarter 2008 EPS of $1.15. For the full year, EPS was $7.31 compared with $3.20 in fiscal year 2008.
Operating cash flow was $1,058 million for the fourth quarter and $1,986 million for the full year. Free cash flow was $850 million for the quarter and $1,021 million for the fiscal year, compared to $175 million for the previous year.
* EPS for the fourth quarter included net favorable tax audit settlements of $1.11 per share ($3.36 per share net for the full year) and a fourth quarter goodwill impairment charge of $0.12 per share.
* Fourth quarter revenues of $4.11 billion, down 8.3% (up 0.4% in constant currency) from one year ago. For fiscal year 2009, revenues were $16.74 billion, up 1.5% (up 4.3% in constant currency) year-over-year.
* Pre-tax margin was 8.0% for the quarter, a 112 basis point improvement over the 6.9% pre-tax margin reported one year ago. CSC’s pre-tax margins improved slightly in fiscal year 2009, coming in at 5.7% versus 5.6% in fiscal 2008.
* Fourth quarter operating margin was 10.9% compared with 10.0% from a year ago. Full year operating margin was 8.25%, representing a 27 basis point improvement year over year.
* Net income was $382 million for the quarter and $1.12 billion for the fiscal year.
* Operating income was $447 million for the fourth quarter and $1.38 billion for the full year.
* New business awards for the fourth quarter totaled $3.47 billion, bringing CSC’s full year awards to approximately $16.19 billion, an increase of 4% when compared with fiscal year 2008.
Commenting on the results, CSC Chairman and Chief Executive Officer Michael W. Laphen said, “Fourth quarter 2009 was another successful and important step in our march to consistent results and continuous improvement. Despite the challenging economic environment, CSC’s achievements included exceptional cash generation, realization of our full-year goal of at least a 25 basis points margin rate improvement, successful execution and delivery of the National Health Service (NHS) milestones, and remediation of a material weakness associated with our tax accounting.”
New Business Awards
Across the three lines of business, the 2009 fourth quarter awards contributed approximately $1.66 billion to the North American Public Sector (NPS), $0.99 billion to Business Solutions & Services (BS&S), and $0.83 billion to Global Outsourcing Services (GOS). Subsequent to the company’s fiscal year ended April 3, 2009, CSC has secured new business awards with a total value in excess of $1 billion to date.
Lines of Business
Despite some delays in government task orders, revenue for the fourth quarter increased year over year by 2.6% to $1.51 billion. For fiscal year 2009, revenues grew by 3.4% to $5.98 billion compared to fiscal year 2008.
This sector was impacted by currency and pressures on discretionary projects, partially offset by our successful deliverables within the NHS program. Quarterly revenue was $1.14 billion, a decline of 5% year-over-year (up 8% in constant currency). Annual revenues of $4.41 billion in 2009 reflect an increase of 8% (12% growth in constant currency).
Currency and pressures on discretionary projects also impacted this sector. Consequently, revenue was $1.49 billion during the quarter, down 19% (down 7% in constant currency) from the previous year. For fiscal year 2009, revenues decreased by 4.4% to $6.46 billion (flat in constant currency) compared to the prior fiscal year.
“In the North American Public Sector, we expect to grow revenue in the mid to high single digits and early wins this fiscal year support our expectations. We see significant opportunities resulting from the economic stimulus packages, however this spending is not likely to manifest itself in our results before the end of the calendar year. CSC continues to be in a strong position to capture opportunities such as healthcare and cyber security,” Laphen said.
“Our commercial business appears to have stabilized at the levels achieved in the fourth quarter. On balance, we expect the first half of fiscal year 2010 revenue to be moderately down in constant currency versus last year with growth coming in the second half.”
Laphen added, “...we will continue our focus on operational improvements. Additionally, we are strengthening our ability to mitigate risks associated with external factors. For example, we are taking an important step in that direction by discontinuing our defined benefit pension plan in favor of enhancing our defined contribution 401K plan.”
Looking forward to FY2010, CSC expects to generate revenue in the $16 to $16.5 billion range and EPS in the $4.20 to $4.30 per share range. Free cash flow for FY2010 is expected to be in a range of 90% to100% of net income.
As announced in the company’s prior press release, dated May 7, 2009, a teleconference will be held today at 5 p.m. EDT to discuss fourth quarter and year-end results. This teleconference can be accessed at www.csc.com/investorrelations, in a listen-only mode, and slides will also be available at this site immediately prior to the call.
In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release non-GAAP information which management believes provides useful information to investors, including: operating income, operating margin and free cash flow. A reconciliation of the adjustments to GAAP results for this quarter and prior periods, as well as the rationale for management’s use of non-GAAP measures, is included in the tables below.
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