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CSC Reports fourth quarter results
Earnings Per Share From Continuing Operations Up 26% (Up 21% Excluding Special Items); Cash and Marketable Securities Increase by $517.5 Million in the Quarter to $1.29 Billion
For the year ended March 31, 2006, net earnings of $634.0 million, or $3.38 per share (diluted), included an after-tax gain of $61.3 million, or 33 cents per share, on sale of discontinued operations; an after-tax special charge of $48.3 million, or 26 cents per share (diluted) related to the Nortel Networks contract; and the $4.3 million charge, or 2 cents per share resulting from the adoption of FIN 47.
Revenue was $3.88 billion, up slightly (approximately 3% in constant currency) over last year’s fourth quarter. Strong double-digit revenue growth from CSC’s U.S. federal government activities as well as the company’s Australia and Asia operations were offset by declines in both U.S. commercial and European revenue. Revenue for fiscal 2006 was $14.6 billion, up 4% (approximately 5% in constant currency) over last year’s comparable 12-month period.
For the fourth quarter, CSC’s U.S. federal government revenue increased 13.3% to $1.37 billion from $1.21 billion for the fourth quarter of fiscal 2005. Revenue derived from CSC’s DoD-related business was $919.5 million, up 21.7% from last year’s $755.3 million. This growth was the result of incremental revenue from a combination of existing engagements and recent new business awards, including Rapid Response, C-21 and AUTEC, among others. CSC’s civil agencies activities generated revenue of $417.9 million, up 1.6%, compared to $411.4 million last year. Various NASA projects contributed positively to the quarter’s activity while being partially offset by reductions in scope for other civil agency engagements. Other federal segment revenue, comprised of state, local and foreign government as well as commercial contracts performed by the U.S. federal segment, was $28.9 million, down from last year’s $39.1 million.
Fourth quarter global commercial revenue was $2.52 billion, compared to $2.67 billion in the year-ago quarter, a decline of 5.8% (down approximately 2% in constant currency). U.S. commercial revenue was $1.01 billion, down 5.8 %, compared with $1.08 billion last year. European revenue was $1.13 billion, a decline of 11.4% (down approximately 4% in constant currency) from $1.28 billion for the fourth quarter last year. CSC's non-European international revenue was $369.0 million, up 16.7% (approximately 18% in constant currency), compared with last year’s $316.1 million.
North American consulting and systems integration activities were stable with a slight decline in utilization compared to the prior-year period, which was partially offset by an increase in average billable headcount and a small increase in the average hourly rate. The quarter’s utilization decline was principally caused by the completion of work related to certain federal engagements and the delay in start date of certain other activities. The European market for similar shorter-term activities continues to be impacted negatively by soft demand in certain country-specific markets.
The company’s cash and marketable securities at March 31, 2006, were $1.29 billion, an increase of $517.5 million in the fourth quarter, resulting primarily from strong cash flow from operations.
“Our fourth quarter results continued our solid operational progress for fiscal 2006,” said CSC Chairman and Chief Executive Officer Van B. Honeycutt. “We are pleased with the year’s performance and look forward to another solid year for fiscal 2007. Our U.S. federal government activities for the quarter accelerated nicely and continue to illustrate CSC’s leading position in the federal information technology services market. We also are encouraged by the strong revenue growth reported by our operations in Australia and Asia. We anticipate the quality and quantity of our federal and commercial pipelines will provide us with engagements enhancing our operational progress going forward.”
Major business announcements for the fourth quarter were $2.8 billion, bringing the full-year total to approximately $12.1 billion, the third-highest announced annual award total in the company’s history. The $12.1 billion total is comprised of 59% federal and 41% commercial awards.
“The market for U.S. federal government information technology services continues to demonstrate solid demand,” said Honeycutt. “Our strong competitive position and historical win rate have enabled us to continue to be a leader in providing IT services to this large and growing market.”
The company’s U.S. federal pipeline of opportunities over the next 22 months is approximately $37 billion, comprised of nearly 500 programs across a broad spectrum of government agencies and departments. Of the total pipeline, approximately $22 billion is scheduled for award in the current fiscal year, which is nearly 38% higher than a year ago.
As announced last month, a restructuring program involving workforce reductions is being implemented, with the majority of these reductions occurring in Europe. 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.
“For fiscal 2007, ending March 30, 2007, we anticipate revenue to be up approximately 2% to 3% and earnings per share to be in the $3.79 to $3.89 range, excluding the special charge for restructuring and the impact of expensing stock options,” Honeycutt added. “This estimate is comparable to the fiscal 2006 $3.33 per share, which was ahead of our previous guidance of $3.27 to $3.31. Our current estimate of the incremental impact of stock options expense is approximately 18 cents for fiscal 2007, bringing our fiscal 2007 earnings per share estimate, including options expense, to approximately $3.61 to $3.71. For the first quarter, ending June 30, we anticipate revenue to be in the range of $3.4 billion to $3.5 billion and earnings per share to be in the mid-60 cent range, excluding options expense. The options expense for the first quarter is anticipated to be approximately 4 cents. Our first quarter and fiscal year 2007 assumptions exclude the expense impacts of the previously announced restructuring charges.”
As announced in the company’s press release dated April 11, 2006, a teleconference will be held today at 5:00 p.m. EDT to discuss the fourth quarter results. This teleconference can be accessed from the CSC Web site at www.csc.com/investorrelations, in a listen-only mode.
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-Q for the quarter ended December 30, 2005. 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.
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