2ND QUARTER FY 2017 EARNINGS PRESENTATION€¦ · 2nd Quarter FY 2017 Earnings Presentation 2...

2ND QUARTER FY 2017EARNINGS PRESENTATION

November 3, 2016

2 November 3, 20162nd Quarter FY 2017 Earnings Presentation

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”. 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 differmaterially 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.


Non-GAAP Reconciliations

This presentation includes certain non-GAAP financial measures such as consolidated segment operating income, consolidated segment adjusted operating income, consolidated segment operating and consolidated segment adjusted operating margin, consolidated segment commercial operating income, consolidated segment commercial adjusted operating income, consolidated segment commercial operating and consolidated segment commercial adjusted operating margin, earnings before interest and taxes (EBIT), EBIT margin, adjusted EBIT, adjusted EBIT margin. Also included are certain non-GAAP results such as non-GAAP income from continuing operations and non-GAAP EPS from continuing operations and adjusted free cash flow. 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 ofnon-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 itsdebt, 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.


Mike LawrieChief Executive Officer


Key Messages

*Non-GAAP EPS from continuing operations excludes restructuring costs, transaction and integration-related costs, certain CSRA overhead costs,impact of transfer of U.S. Pension and OPEB assets to CSRA, SEC settlement-related items, and tax adjustment

(see slides 7, 15 – 21 for non-GAAP reconciliations)

Q2 FY17 revenue up YoY, inclusive of acquisitions

Q2 FY17 adjusted GBS and GIS consolidated margin up sequentially

Q2 FY17 non-GAAP EPS* of $0.61, or $0.53 at a normalized 20% tax rate

CSC/HPE-ES merger on track; PwC global alliance established to drive digital transformations for clients

Positive momentum in next-gen offerings, including MetLife BPS win

FY17 non-GAAP EPS* target of $2.75 – $3.00

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Paul SalehChief Financial Officer


Reconciliation of Non-GAAP Results

*EPS from continuing operations and per-share values of certain items may not sum to non-GAAP EPS due to rounding

Q2 FY17

$M Except EPS GAAP Restructuringcosts

Transaction and integration-

related costs Non-GAAP

results

(Loss) income from continuing operations, before taxes (1) (25) (78) 102

Income tax (benefit) expense (22) (6) (24) 8

Income from continuing operations 21 (19) (54) 94

Diluted EPS from continuing operations* $ 0.10 (0.13) (0.38) $ 0.61

Q2 FY16

$M Except EPS GAAP Restructuringcosts

Transaction and integration-

related costs

Certainoverhead

costs

U.S. Pensionand OPEB

SEC settlement-related items

Taxadjustment

Non-GAAPresults

Income from continuing operations, before taxes 47 (20) (7) (33) 14 (2) - 95

Income tax (benefit) expense (46) (6) (3) (13) 6 (1) (46) 17

Income from continuing operations 93 (14) (4) (20) 8 (1) 46 78

Diluted EPS from continuing operations* $ 0.66 (0.10) (0.03) (0.14) 0.06 (0.01) 0.33 $ 0.55


P&L Presentation

(in millions)Revenue

GBS Segment Operating Income

GIS Segment Operating Income

Consolidated Segment Commercial Operating Income

Corporate Income/(Expense)

Consolidated Segment Operating Income

Corporate G&A

Other expense (income), net

EBIT

Interest expense

Interest income

(Loss) income from continuing operations, before taxes

Income tax (benefit) expense

Net income


2nd Quarter Results

*Non-GAAP results exclude, as applicable, restructuring costs, transaction and integration-related costs, certain overhead costs,impact of transfer of U.S. Pension & OPEB assets to CSRA, SEC settlement-related items, and tax adjustment

(see slides 7, 15 – 21 for non-GAAP reconciliations)

FY17 FY16 FY17 FY16Revenue ($M) 1,871$ 1,745$ 3,801$ 3,549$

YoY Growth – GAAP 7.2% 7.1%

YoY Growth – cc 10.3% 9.7%

Consolidated Segment Adjusted Commercial Operating Income ($M) 171 173 332 309

Consolidated Segment Adjusted Commercial Operating Margin (%) 9.1% 9.9% 8.7% 8.7%

Consolidated Segment Adjusted Operating Income ($M) 160 156 304 304

Consolidated Segment Adjusted Operating Margin (%) 8.6% 8.9% 8.0% 8.6%

Adjusted EBIT ($M) 120 117 226 233

Adjusted EBIT Margin (%) 6.4% 6.7% 5.9% 6.6%

Non-GAAP Income from Continuing Operations ($M)* 94 78 170 144

Non-GAAP EPS from Continuing Operations* 0.61$ 0.55$ 1.14$ 1.02$

Bookings ($B) 2.5$ 1.4$ 4.1$ 3.6$

Q2 YTD


$1.6 $2.7

YTD FY16 YTD FY17

$1,810 $2,084

YTD FY16 YTD FY17

11.2% 10.3%

YTD FY16 YTD FY17

Growth in cc of 17.8%

*Segment adjusted operating income and margin exclude, as applicable, restructuring costs, transaction and integration-related costs, and impact of transfer of U.S. Pension & OPEB assets to CSRA

Global Business Services (GBS)

Segment Adjusted OI Margin %*Revenue ($M) Bookings ($B)Year to Date

Q2 FY17 Q2 FY16Revenue ($M) 1,035$ 891$ – YoY growth - GAAP 16.2%– YoY growth - cc 19.2%

Segment adjusted operating income ($M)* 105 110 Segment adjusted operating margin (%)* 10.1% 12.3%Bookings ($B) 2.0$ 0.7$


$2.1 $1.4

YTD FY16 YTD FY17

$1,739 $1,717

YTD FY16 YTD FY17

Segment Adjusted OI Margin %*Revenue ($M) Bookings ($B)

6.1% 6.8%

YTD FY16 YTD FY17

Growth in cc of 1.4%

Global Infrastructure Services (GIS)

*Segment adjusted operating income and margin exclude, as applicable, restructuring costs, transaction and integration-related costs, and impact of transfer of U.S. Pension & OPEB assets to CSRA

Year to Date

Q2 FY17 Q2 FY16Revenue ($M) 836$ 854$ – YoY growth - GAAP (2.1%)– YoY growth - cc 1.1%

Segment adjusted operating income ($M)* 66 63 Segment adjusted operating margin (%)* 7.9% 7.4%Bookings ($B) 0.5$ 0.7$


Financial Highlights

Q2 FY17 Q2 FY16

Adjusted Free Cash Flow $75M $58M

Cap Ex — Including Capital Leases $176M $180M

Cap Ex as a % of Revenue 9.4% 10.3%

Cash Flow Performance

Q2 FY17 Q2 FY16

Dividends $20M $32M

Share Repurchases – 0.2M shares–

Capital to Shareholders

Q2 FY17 Q2 FY16

Cash and Equivalents $1.1B $1.8B

Net Debt-to-Total Capitalization Ratio 39.9% 14.0%

Capital Structure


Up low double digits (cc)Revenue

FY 2017 Targets

$2.75 – $3.00Non-GAAP EPS from Continuing Operations

100%+ of Adj. Net IncomeAdjusted Free Cash Flow


Supplemental Information


Q2 FY17 Non-GAAP Reconciliation

Operating Income ($M) Q2 FY17 Q2 FY16

Consolidated segment adjusted operating income 160$ 156$ Restructuring costs (25) (20) Transaction and integration-related costs (37) (2) Certain overhead costs - (18) U.S. Pension and OPEB - 14 Consolidated segment operating income 98$ 130$ Corporate G&A (75) (64) Pension and OPEB actuarial and settlement losses - - SEC settlement-related items - - Interest expense (29) (29) Interest income 8 7 Other (expense) income, net (3) 3 (Loss) income from continuing operations, before taxes (1)$ 47$

Earnings Before Interest and Taxes ($M) Q2 FY17 Q2 FY16

Adjusted EBIT 120$ 117$ Restructuring costs (25) (20) Transaction and integration-related costs (75) (7) Certain overhead costs - (33) U.S. Pension and OPEB - 14 SEC settlement-related items - (2) EBIT 20$ 69$ Interest expense (29) (29) Interest income 8 7 Income tax benefit 22 46 Income from continuing operations 21$ 93$ Income from discontinued operations, net of taxes - 84 Net income 21$ 177$

Operating Margin % Q2 FY17 Q2 FY16

Consolidated segment adjusted operating margin 8.6% 8.9%Consolidated segment operating margin 5.2% 7.4%

EBIT Margin % Q2 FY17 Q2 FY16

Adjusted EBIT margin 6.4% 6.7%EBIT margin 1.1% 4.0%


YTD FY17 Non-GAAP Reconciliation

Operating Income ($M) YTD FY17 YTD FY16

Consolidated segment adjusted operating income 304$ 304$ Restructuring costs (82) (20) Transaction and integration-related costs (72) (2) Certain overhead costs - (36) U.S. Pension and OPEB - 28 Consolidated segment operating income 150$ 274$ Corporate G&A (145) (121) Pension and OPEB actuarial and settlement losses (1) - SEC settlement-related items - - Interest expense (54) (59) Interest income 18 18 Other (expense) income, net (5) 7 (Loss) income from continuing operations, before taxes (37)$ 119$

Earnings Before Interest and Taxes ($M) YTD FY17 YTD FY16

Adjusted EBIT 226$ 233$ Restructuring costs (82) (20) Transaction and integration-related costs (145) (10) Certain overhead costs - (66) U.S. Pension and OPEB - 28 SEC settlement-related items - (5) EBIT (1)$ 160$ Interest expense (54) (59) Interest income 18 18 Income tax benefit 38 39 Income from continuing operations 1$ 158$ Income from discontinued operations, net of taxes - 186 Net income 1$ 344$

Operating Margin % YTD FY17 YTD FY16

Consolidated segment adjusted operating margin 8.0% 8.6%Consolidated segment operating margin 3.9% 7.7%

EBIT Margin % YTD FY17 YTD FY16

Adjusted EBIT margin 5.9% 6.6%EBIT margin - 4.5%


Q2 FY17 Non-GAAP Results


$M Except EPS GAAP Restructuring costs

Transaction and integration-related costs

Non-GAAP results

Costs of services (excludes depreciation and amortization and restructuring costs) 1,363$ -$ -$ 1,363$

Selling, general and administrative (excludes depreciation and amortization, restructuring costs and transaction costs) 293 - (53) 240




Net income 21 (19) (54) 94

Less: net income attributable to noncontrolling interest, net of tax 6 - - 6

Net income attributable to CSC common stockholders 15$ (19)$ (54)$ 88$

Effective Tax Rate n/m 7.8%

Basic EPS from continuing operations* 0.11$ (0.14)$ (0.38)$ 0.63$

Diluted EPS from continuing operations* 0.10$ (0.13)$ (0.38)$ 0.61$

Weighted average common shares outstanding for:Basic EPS 140.53 140.53 140.53 140.53Diluted EPS 143.78 143.78 143.78 143.78


YTD FY17 Non-GAAP Results


$M Except EPS GAAP Restructuring costs


Non-GAAP results

Costs of services (excludes depreciation and amortization and restructuring costs) 2,784$ -$ -$ 2,784$

Selling, general and administrative (excludes depreciation and amortization, restructuring costs and transaction costs) 598 - (109) 489




Net income 1 (64) (105) 170

Less: net income attributable to noncontrolling interest, net of tax 7 - - 7

Net (loss) income attributable to CSC common stockholders (6)$ (64)$ (105)$ 163$

Effective Tax Rate 102.7% 11.9%

Basic EPS from continuing operations* (0.04)$ (0.46)$ (0.75)$ 1.17$

Diluted EPS from continuing operations* (0.04)$ (0.45)$ (0.73)$ 1.14$

Weighted average common shares outstanding for:Basic EPS 139.76 139.76 139.76 139.76Diluted EPS 139.76 143.14 143.14 143.14


Q2 FY16 Non-GAAP Results


$M Except EPS GAAPCertain

overheadcosts


Restructuring costs


SEC settlement-related items Tax adjustment Non-GAAP

results

Costs of services (excludes depreciation and amortization and restructuring costs) 1,237$ (17)$ 12$ -$ -$ -$ -$ 1,232$

Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 269 (16) 2 - (7) (2) - 246

Income from continuing operations, before taxes 47 (33) 14 (20) (7) (2) - 95

Income tax (benefit) expense (46) (13) 6 (6) (3) (1) (46) 17

Income from continuing operations 93 (20) 8 (14) (4) (1) 46 78

Net income 177 (20) 8 (14) (4) (1) 46 162

Less: net income attributable to noncontrolling interest, net of tax 6 - - - - - - 6

Net income attributable to CSC common stockholders 171$ (20)$ 8$ (14)$ (4)$ (1)$ 46$ 156$

Effective Tax Rate (97.9)% 17.9%

Basic EPS from continuing operations* 0.68$ (0.14)$ 0.06$ (0.10)$ (0.03)$ (0.01)$ 0.33$ 0.56$

Diluted EPS from continuing operations* 0.66$ (0.14)$ 0.06$ (0.10)$ (0.03)$ (0.01)$ 0.33$ 0.55$

Weighted average common shares outstanding for:Basic EPS 138.30 138.30 138.30 138.30 138.30 138.30 138.30 138.30Diluted EPS 140.85 140.85 140.85 140.85 140.85 140.85 140.85 140.85


YTD FY16 Non-GAAP Results


$M Except EPS GAAPCertain

overheadcosts


Restructuring costs


SEC settlement-related items Tax adjustment Non-GAAP

results

Costs of services (excludes depreciation and amortization and restructuring costs) 2,509$ (34)$ 24$ -$ -$ -$ -$ 2,499$

Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 540 (32) 4 - (10) (5) - 497

Income from continuing operations, before taxes 119 (66) 28 (20) (10) (5) - 192

Income tax expense (39) (26) 11 (6) (4) (2) (60) 48

Income from continuing operations 158 (40) 17 (14) (6) (3) 60 144

Net income 344 (40) 17 (14) (6) (3) 60 330

Less: net income attributable to noncontrolling interest, net of tax 10 - - - - - - 10

Net income attributable to CSC common stockholders 334$ (40)$ 17$ (14)$ (6)$ (3)$ 60$ 320$

Effective Tax Rate (32.8)% 25.0%

Basic EPS from continuing operations* 1.14$ (0.29)$ 0.12$ (0.10)$ (0.04)$ (0.02)$ 0.43$ 1.04$

Diluted EPS from continuing operations* 1.12$ (0.28)$ 0.12$ (0.10)$ (0.04)$ (0.02)$ 0.42$ 1.02$

Weighted average common shares outstanding for:Basic EPS 138.11 138.11 138.11 138.11 138.11 138.11 138.11 138.11Diluted EPS 141.27 141.27 141.27 141.27 141.27 141.27 141.27 141.27


Selected Cash Flow Items and Non-GAAP Reconciliation

*Excludes capital expenditures financed through CSC Finco and other investments

$M FY17 FY16 FY17 FY16Net cash provided by operating activities 192$ 122$ 242$ 484$

Net cash used in investing activities* (154) (397) (678) (481)

Acquisitions, net of cash acquired 11 236 434 236

Business dispositions - - - (34)

Payments on capital leases and other long-term asset financings (50) (42) (95) (111)

Payments on transaction and integration-related costs 50 49 143 60

Payments on restructuring costs 26 32 61 51

SEC settlement-related payments - 1 - 187

Sale of NPS accounts receivables - 57 - (176)

Adjusted free cash flow 75$ 58$ 107$ 216$

Q2 YTD


$B

Global Business ServicesGBS Global Infrastructure ServicesGIS

Bookings*

*Segment bookings may not sum to total due to rounding

$0.7 $1.0 $1.2

$0.9 $0.5

$0.7

$1.6 $1.1

$0.7 $2.0 $1.4

$2.7

$2.3

$1.6

$2.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Q2 FY16 Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17

FY16 FY17


• Consolidated segment operating income: Revenue less costs of services, depreciation and amortization expense, restructuring costs and segment selling, general and administrative (G&A) expenses. Consolidated segment operating income excludes corporate G&A, and pension and OPEB actuarial and settlement losses

• Consolidated segment operating margin: Consolidated segment operating income as a percentage of revenue• Consolidated segment adjusted operating income: Consolidated segment operating income excluding restructuring costs, transaction and integration-related costs,

certain overhead costs, and U.S. Pension and OPEB• Consolidated segment adjusted operating margin: Consolidated segment adjusted operating income as a percentage of revenue• Consolidated segment commercial operating income: Consolidated segment operating income for the combined GBS and GIS segments• Consolidated segment commercial operating margin: Consolidated segment commercial operating income as a percentage of revenue• Consolidated segment adjusted commercial operating income: Consolidated segment adjusted commercial operating income for the combined GBS and GIS

segments• Consolidated segment adjusted commercial operating margin: Consolidated segment adjusted commercial operating income as a percentage of revenue• Earnings before interest and taxes (EBIT): Net (loss) income less income from discontinued operations, net of taxes, interest expense, interest income, and income tax

benefit (expense)• EBIT margin: EBIT as a percentage of revenue• Adjusted EBIT: EBIT excluding the impact of certain items, including restructuring costs, transaction and integration-related costs, certain overhead costs, U.S. Pension

and OPEB, and SEC settlement-related items• Adjusted EBIT margin: Adjusted EBIT as a percentage of revenue• Adjusted free cash flow: Equal to the sum of (1) operating cash flows, (2) investing cash flows, excluding business acquisitions, 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. Adjusted free cash flow is further adjusted for certain cash flow items, such as (i) payments for transaction and integration-related costs, (ii) restructuring payments, (iii) SEC settlement-related payments and (iv) cash receipts from the sale of accounts receivables

• Capital expenditure: Equal to sum of purchases of property, equipment, and software, and payments on outsourcing contracts, less proceeds from sales of assets and purchases made through CSC Finco, excluding prior year CSRA capital expenditures

• Net debt: Total debt, less cash and cash equivalents• Net debt-to-total capitalization ratio: Calculated as the ratio of net debt to total capitalization

Non-GAAP and Other Definitions


Thank You

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