2nd QUARTER FY 2015 EARNINGS PRESENTATION November 6, 2014

2nd QUARTER FY 2015
EARNINGS PRESENTATION
November 6, 2014
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 factors, please see CSC’s most recent Annual Report on Form 10-K
and Quarterly Reports on Form 10-Q.
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
2
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. 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.
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
3
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. 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.
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
4
2nd QUARTER FY 2015
EARNINGS PRESENTATION
Mike Lawrie
Chief Executive Officer
Key Messages
EPS* of $1.18 driven by cost takeout and lower tax rate
Growth from next-generation offerings and partnerships;
headwinds in infrastructure
NPS performing better than expected
Total revenue target flat to slightly down for FY15
Increasing EPS* target to $4.45 – $4.65
Continuing to return capital to shareholders
*EPS from Continuing Operations
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
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2nd QUARTER FY 2015
EARNINGS PRESENTATION
Paul Saleh
Chief Financial Officer
2nd Quarter Results
Q2
YTD
FY15
Revenue ($M)
$
FY14
3,080
$
FY15
3,187
$
FY14
6,317
YoY Growth – GAAP
(3.4%)
(1.9%)
YoY Growth – cc
(4.3%)
(3.1%)
Operating Income ($M)
Operating Margin (%)
EBIT ($M)
EBIT Margin
Income from Continuing Operations ($M)
$
6,441
349
361
653
693
11.3%
11.3%
10.3%
10.8%
276
271
524
540
9.0%
8.5%
8.3%
8.4%
177
162*
336
323*
1.01*
$
2.22
2.05*
4.2
$
5.7
EPS from Continuing Operations
$
1.18
Bookings ($B)
$
3.0
$
$
7.0
*Prior to the change in the pension accounting policy, Q2 FY14 and Q2 FY14 YTD Income from Continuing Operations was $146 million and $291 million, respectively,
and Q2 FY14 and Q2 FY14 YTD EPS from Continuing Operations was $0.93 and $1.86, respectively
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
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Global Business Services (GBS)
Q2 FY15
GBS
32%
GIS
34%
Revenue ($M)
$
1,003
YoY Growth – GAAP
YoY Growth – cc
Year to Date
Operating Margin (%)
Bookings ($B)
Revenue ($M)
OI Margin %
$
1,022
(1.9%)
(3.2%)
Operating Income ($M)
NPS
34%
Q2 FY14
130
120
13.0%
11.7%
$
1.2 $
1.3
Bookings ($B)
Decline in cc of 1.2%
$2,076
$2,091
11.2%
11.4%
$2.5
$2.4
YTD FY14
YTD FY15
YTD FY14
YTD FY15
YTD FY14
YTD FY15
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
9
Global Infrastructure Services (GIS)
Q2 FY15
GIS
34%
GBS
32%
Revenue ($M)
$
1,036
YoY Growth – GAAP
YoY Growth – cc
Year to Date
Operating Margin (%)
Bookings ($B)
Revenue ($M)
$
1,113
(6.9%)
(8.4%)
Operating Income ($M)
NPS
34%
Q2 FY14
68
107
6.6%
9.6%
$
OI Margin %
0.6
$
0.8
Bookings ($B)
Decline in cc 5.8%
$2
$2,260
$2,167
8.8%
6.4%
YTD FY14
YTD FY15
2nd Quarter FY 2015 Earnings Presentation
YTD FY14
YTD FY15
$1
$0
$1.7
$1.8
YTD FY14
YTD FY15
November 6, 2014
10
North American Public Sector (NPS)
Q2 FY15
Revenue ($M)
GIS
34%
GBS
32%
$
1,041
YoY Growth – GAAP
Year to Date
Operating Margin (%)
DoD
Civil
Other
Revenue ($M)
$2,105
YTD FY14
$2,059
YTD FY15
53%
38%
9%
Bookings ($B)
OI Margin %
13.8%
YTD FY14
15.1%
YTD FY15
$
1,052
(1.0%)
Operating Income ($M)
NPS
34%
Q2 FY14
160
163
15.4%
15.5%
$
$4
$4
$3
$3
$2
$2
$1
$1
$0
1.1 $
2.1
Bookings ($B)
$2.8
Large
Renewal
$1.8*
YTD FY14
$1.4
YTD FY15
*Adjusted for one large NPS renewal
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
11
Financial Highlights
Effective
Tax Rate
Q2 tax rate of 27.8%
Targeting 32% for Q3 and Q4
Continuing with tax planning strategies
Cash Flow
Performance
Q2 FY15
Free Cash Flow
Cap Ex — Including Capital Leases
Cap Ex as a % of Revenue
2nd Quarter FY 2015 Earnings Presentation
YTD FY15
$31M
$101M
$199M
$402M
6.5%
6.4%
November 6, 2014
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Financial Highlights (Cont’d)
Capital to
Shareholders
Capital
Structure
Q2 FY15
Q2 FY14
$32M
$30M
Share Repurchases
4.6M shares
$278M
2.0M shares
$102M
Accelerated Stock Repurchases
1.3M shares
$75M
Dividends
Q2 FY15
Q2 FY14
Cash and Equivalents
$1.9B
$2.1B
Net Debt to Capital Ratio
13.2%
10.1%
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
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Cost Takeout and Reinvestment Update
Q2 FY15
YTD FY15
FY15 Targets
~$85M
~$195M
$450M – $500M
~$65M
~$170M
$350M – $400M
COST TAKEOUT
• Continued G&A efficiency
• Shift to low-cost delivery centers
• Productivity gains
• Supply chain management
REINVESTMENTS
• Next-generation offerings
• Strategic partnerships
• Sales
• Finance and HR systems
• Customer-committed savings
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
14
FY 2015 Targets
Revenue
Flat to slightly down
• Commercial
• NPS
EPS from Continuing
Operations
$4.45 – $4.65
Free Cash Flow
$700 million
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
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2nd QUARTER FY 2015
EARNINGS PRESENTATION
Supplemental Information
Bookings*
$B
FY14
GBS
Global Business Services
GIS
FY15
Global Infrastructure Services
NPS
North American Public Sector
*Segment bookings may not add to total due to rounding
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
17
Non-GAAP Reconciliations
Operating Income ($M)
Operating Income
Corporate G&A
Interest Expense
Interest Income
Other Income (Expense), Net
Income from Continuing Operations Before
Taxes
Q2 FY15
$
349
(67)
(36)
5
(6)
$
361
(68)
(35)
3
(22)
$
245
$
239
Earnings Before Interest and Taxes ($M)
Earnings Before Interest and Taxes
Interest Expense
Interest Income
Taxes on Income
Income from Continuing Operations
Q2 FY15
$
$
Margin %
Revenue ($M)
Pre-tax Margin %
Operating Income Margin %
EBIT Margin %
Q2 FY14
276
(36)
5
(68)
177
Q2 FY14
$
$
Q2 FY15
$
3,080
8.0%
11.3%
9.0%
271
(35)
3
(77)
162
Q2 FY14
$
3,187
7.5%
11.3%
8.5%
Q2 FY14
As Previously
Reported*
$
338
(68)
(35)
3
(22)
$
216
Q2 FY14
As Previously
Reported*
$
$
248
(35)
3
(70)
146
Q2 FY14
As Previously
Reported*
$
3,187
6.8%
10.6%
7.8%
*Before the change in the pension accounting policy
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
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Q2 FY14 Select P&L Items
$M except EPS
Revenue
Cost of Services
SG&A
Income from Continuing Operations, Before Taxes
Taxes on Income
Income from Continuing Operations
Income from Discontinued Operations, Net of Taxes
Net Income
Net Income Attributable to Noncontrolling Interest, Net of Taxes
Net Income Attributable to CSC Common Stakeholders
EPS - Continuing Operations
EPS - Discontinued Operations
As
Previously
Reported
$
3,187
2,338
316
216
70
146
63
209
6
203
$
0.93
$
0.41
Impact of
MtM*
As Reported
$
$
$
3,187
2,317
314
239
77
162
80
242
10
232
1.01
0.53
$
$
$
(21)
(2)
23
7
16
17
33
4
29
0.08
0.12
*Adoption of Mark-to-Market pension accounting policy
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
19
Selected Cash Flow Items and Non-GAAP Reconciliations
$M
Net Income
Depreciation and Amortization
Change in Assets and Liabilities
Loss (Gain) on Dispositions
Other
Operating Cash Flow
Q2 FY15
$
156
252
(218)
7
20
217
Q2 FY14
$
242
247
(167)
(73)
21
270
YTD FY15
$
307
524
(372)
(13)
44
490
YTD FY14
$
419
502
(367)
(98)
27
483
(144)
(18)
(35)
13
(184)
(145)
176
(27)
21
25
(263)
(13)
(35)
13
(298)
(305)
232
(27)
24
(76)
18
35
(55)
31
(176)
27
(60)
$
86
13
35
(139)
101
(232)
27
(5)
(120)
77
Capital Expenditures
Business Dispositions
Acquisitions
Other
Investing Cash Flow
Business Dispositions
Acquisitions
Other
Capital Leases and Other Financing
Free Cash Flow
$
$
$
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
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
20
Recast FY14 and FY13 Quarterly Revenues by Segment
Quarterly revenues have been recast to reflect the change in CSC’s inter-company accounting policy
$M
GBS
GIS
NPS
Total Revenues
Q1 FY14
$ 1,054
1,147
1,053
$ 3,254
Q2 FY14
$ 1,022
1,113
1,052
$ 3,187
Q3 FY14
$ 1,093
1,145
990
$ 3,228
Q4 FY14
$ 1,152
1,173
1,004
$ 3,329
FY14
$ 4,321
4,578
4,099
$ 12,998
$M
GBS
GIS
NPS
Total Revenues
Q1 FY13
$ 1,257
1,188
1,183
$ 3,628
Q2 FY13
$ 1,185
1,153
1,190
$ 3,528
Q3 FY13
$ 1,201
1,178
1,157
$ 3,536
Q4 FY13
$ 1,201
1,170
1,132
$ 3,503
FY13
$ 4,844
4,689
4,662
$ 14,195
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
21
Recast FY14 and FY13 Quarterly OI by Segment
Quarterly operating income (loss) has been recast to reflect the change in CSC’s pension accounting policy
and change in CSC’s inter-company accounting policy
$M
GBS
GIS
NPS
Corporate & Eliminations
Total OI
Q1 FY14
$
113
92
127
$
332
Q2 FY14
$
120
107
163
(29)
$
361
Q3 FY14
$
140
91
122
(15)
$
338
Q4 FY14
$
201
92
112
(20)
$
385
FY14
$
574
382
524
(64)
$ 1,416
$M
GBS
GIS
NPS
Corporate & Eliminations
Total OI
Q1 FY13
$
75
23
99
(28)
$
169
Q2 FY13
$
89
52
147
(4)
$
284
Q3 FY13
$
106
67
136
(28)
$
281
Q4 FY13
$
133
26
129
(53)
$
235
FY13
$
403
168
511
(113)
$
969
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
22
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 minus Operating Cost
• Operating Income Margin: Operating Income as a percentage of Revenue
• Earnings Before Interest and Taxes: Revenue minus cost of services, selling, general and
administrative expenses, depreciation and amortization, restructuring costs, and other
income (expense)
• Earnings Before Interest and Taxes Margin: Earnings Before Interest and Taxes as a percentage
of Revenue
• Pre-tax Margin: Income from Continuing Operations Before 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)
2nd Quarter FY 2015 Earnings Presentation
November 6, 2014
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2nd QUARTER FY 2015
EARNINGS PRESENTATION
Thank You