[February 02, 2017]

CSC Delivers Revenue Growth, Year-over-Year and Sequential Commercial Margin Expansion and Record Adjusted Free Cash Flow in Third Quarter 2017

CSC (NYSE: CSC) today reported results for the third quarter of fiscal year 2017.

"CSC continued to execute on our strategic roadmap in the third quarter, in which CSC delivered revenue growth, year-over-year and sequential margin improvement, and record adjusted free cash flow," said Mike Lawrie, chairman, president and CEO. "Revenue was up nearly 14 percent in constant currency driven by growth in next generation and Business Process Services offerings, as well as the contributions of our recent acquisitions. In addition, we remain on track to complete our proposed merger with the Enterprise Services business of Hewlett Packard Enterprise on or about April 1."

Financial Highlights

• Diluted earnings per share from continuing operations were $0.21 in the third quarter, compared with $0.15 in the year-ago period. Diluted earnings per share from continuing operations included $(0.06) per share of restructuring costs and $(0.54) per share of transaction and other integration-related costs.
• Non-GAAP diluted earnings per share from continuing operations excluding these items were $0.81, compared with $0.73 in the prior period.
• Income from continuing operations before taxes was $50 million for the third quarter, compared with $78 million in the prior year and includes $(12) million of restructuring and $(109) million of transaction and other integration-related costs. Excluding the impact of these items, non-GAAP income from continuing operations, before taxes was $171 million compared with $124 million a year ago.
• Consolidated segment commercial operating income, which includes GBS and GIS, excluding certain items, was $227 million compared with $195 million in the third quarter of fiscal 2016. Consolidated segment commercial operating margin on the same basis was 11.8% compared to 11.1% in the prior year.
• Net cash provided by operating activities was $563 million in the third quarter, compared to $258 million in the prior year.
• Adjusted free cash flow was $299 million in the third quarter, compared to $169 million in the prior year.

Global Business Services

GBS revenue of $1,046 million in the quarter compares with $886 million in the year ago quarter, an increase of 18.1%. GBS revenue increased 22.3% year-over-year in constant currency. GBS revenue growth was driven by momentum in our Business Process Services offerings, as well as the contributions of our recent acquisitions. GBS consolidated segment operating margin in the quarter, excluding the impact of certain items, was 13.3% up from 13.1% in the prior year. New business awards for GBS were $1.1 billion in the third quarter.

Global Infrastructure Services

GIS revenue of $871 million in the quarter compares with $864 million in the year-ago quarter, an increase of 0.8%. GIS revenue increased 4.9% year-over-year in constant currency. The GIS revenue increase was driven by the growth in our next generation offerings and the contributions of our recent acquisitions. GIS consolidated segment operating margin in the quarter, excluding the impact of certain items, was 10.1% up from to 9.1% in the prior year, reflecting a shift in mix toward cloud-based software solutions. New business awards for GIS were $1.3 billion in the third quarter.

Returning Capital to Shareholders

During the third quarter, CSC returned $20 million to shareholders consisting of common stock dividends.

CSC had 140,984,524 basic shares outstanding on December 30, 2016.

Earnings Conference Call and Webcast

CSC senior management will host a conference call and webcast today at 5 p.m. EST. The dial-in number for domestic callers is 877-852-6583. Callers who reside outside of the United States or Canada should dial +1-719-325-4771. The passcode for all participants is 6790196. The webcast audio and any presentation slides will be available on CSC's Investor Relations website.

A replay of the conference call will be available from approximately two hours after the conclusion of the call until February 9, 2016. The replay dial-in number is 888-203-1112 for domestic callers and +1-719-457-0820 for callers who reside outside of the United States and Canada. The replay passcode is also 6790196. A replay of this webcast will also be available on CSC's Investor Relations website.

Non-GAAP Measures

In an effort to provide investors with additional information regarding the Company's preliminary and unaudited results as determined by U.S. generally accepted accounting principles (GAAP), the Company has also disclosed in this press release preliminary non-GAAP information and certain further adjustments thereto, which management believes provides useful information to investors, including: constant currency, consolidated segment operating income, consolidated segment commercial operating income, consolidated segment commercial operating margin, consolidated segment adjusted operating income, consolidated segment operating and adjusted operating margin, earnings before interest and taxes (EBIT), adjusted EBIT, EBIT and adjusted EBIT margin, adjusted free cash flow and non-GAAP results including non-GAAP income from continuing operations and non-GAAP diluted earnings per share from continuing operations. Reconciliations of the preliminary non-GAAP measures to the respective and most directly comparable GAAP measures, as well as the rationale for management's use of non-GAAP measures are included below.

About CSC

CSC (NYSE: CSC) leads clients on their digital transformation journeys. The company provides innovative next-generation technology services and solutions that leverage deep industry expertise, global scale, technology independence and an extensive partner community. CSC serves leading commercial and international public sector organizations throughout the world. CSC is a Fortune 500 company and ranked among the best corporate citizens. For more information, visit the company's website at www.csc.com.

All statements in this press release and in all future press releases that do not directly and exclusively relate to historical facts constitute "forward-looking statements." 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 "Risk Factors" in CSC's Form 10-K for the fiscal year ended April 1, 2016 and any updating information in subsequent SEC filings. 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.

Note: On November 27, 2015, CSC completed the separation of CSRA. The Company's results of operations for the third quarter and first nine months of fiscal 2016 have been adjusted to reflect the separation.

Non-GAAP Financial Measures

We present non-GAAP financial measures of performance which are derived from the condensed consolidated financial information of CSC. These non-GAAP financial measures include constant currency, consolidated segment operating income and margin, consolidated segment adjusted operating income and margin, consolidated segment commercial operating income and margin, earnings before interest and taxes (EBIT), adjusted EBIT, EBIT and adjusted EBIT margin, non-GAAP income from continuing operations before taxes, non-GAAP net income from continuing operations, non-GAAP EPS from continuing operations and adjusted free cash flow.

We present these non-GAAP financial measures to provide investors with meaningful supplemental financial information, in addition to the financial information presented on a GAAP basis. Non-GAAP financial measures exclude certain items otherwise required by GAAP which management believes are not indicative of core operating performance. We believe these non-GAAP measures allow investors to better understand the financial performance of CSC exclusive of the impacts of corporate wide strategic decisions. We believe that adjusting for these items provides investors with additional measures to evaluate the financial performance of our core business operations on a comparable basis from period to period. We believe the non-GAAP measures provided are also considered important measures by financial analysts covering CSC as equity research analysts continue to publish estimates and research notes based on our Non-GAAP commentary, including our guidance around Non-GAAP EPS.

There are limitations to the use of the non-GAAP financial measures we present. One of the limitations is that they do not reflect complete financial results. We compensate for this limitation by providing a reconciliation between our non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP. Additionally, other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes between companies. Consolidated segment operating income and consolidated segment adjusted operating income are useful measures in evaluating the financial performance of our core segment business operations on a more comparable basis year-over-year. However, these measures could limit one's ability to assess our financial performance by excluding corporate G&A and certain other items. To compensate for this limitation, we provide a reconciliation between these measure and income from continuing operations, before taxes, which is the most directly comparable financial measure calculated and presented in accordance with GAAP.

Reconciliation of Non-GAAP Financial Measures

Our non-GAAP adjustments include:

• Restructuring costs - Reflects restructuring costs related to workforce optimization and real estate charges.
• Transaction and other integration-related costs - Reflects costs related to (1) the Separation, (2) integration planning, financing and advisory fees associated with the proposed merger with the Enterprise Services segment of Hewlett Packard Enterprise Company, and (3) acquisitions and related amortization.
• Certain overhead costs - Reflects costs historically allocated to CSRA but not included in discontinued operations due to accounting rules. These costs are expected to be largely eliminated on a prospective basis.
• U.S. Pension and OPEB - Reflects the impact of certain U.S. pension and other postretirement benefit (OPEB) plans historically included in CSC financial results that have been transferred to CSRA as part of the separation.
• Pension and OPEB actuarial and settlement gains - Reflects pension and OPEB actuarial and settlement gains from mark-to-market accounting.
• SEC settlement-related items - Reflects costs associated with certain SEC charges and settlements.
• Tax adjustment - Reflects the adoption of a new accounting standard in fiscal 2016 changing excess tax benefits on stock-based compensation to be recorded as a reduction to income tax expense, the release of tax valuation allowances in certain jurisdictions, and the application of an approximate 20% tax rate for fiscal 2016 periods, which is at the low end of the prospective targeted effective tax rate range of 20% to 25% and effectively excludes the impact of discrete tax adjustments for those periods.

Reconciliation of Non-GAAP Financial Measures
(preliminary and unaudited)

Consolidated Segment Operating Income and Consolidated Segment Adjusted Operating Income

We define consolidated segment operating income as revenue less costs of services, associated depreciation and amortization expense, restructuring costs, and segment SG&A expenses. Consolidated segment operating income excludes pension and OPEB actuarial and settlement gains (losses) and corporate G&A, which is largely associated with centrally managed overhead and shared-services functions which are not controlled by segment level leadership nor directly related to our core segment business operations. Consolidated segment adjusted operating income further excludes the impacts of corporate wide strategic decisions, such as segment related restructuring and other transaction costs. We define consolidated segment operating margin and consolidated segment adjusted operating margin as consolidated segment operating income and consolidated segment adjusted operating income as a percentage of revenue. A reconciliation of consolidated segment operating income and consolidated segment adjusted operating income to income from continuing operations, before taxes is as follows:

Non-GAAP Results

A reconciliation of non-GAAP results to the respective most directly comparable financial measure calculated and presented in accordance with GAAP is as follows: