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February 2, 2017

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

•
Q3 Earnings per Share from Continuing Operations of $0.21 includes Cumulative Impact of Certain Items of $(0.60) per Share
•
Q3 Non-GAAP Earnings per Share from Continuing Operations were $0.81, compared with $0.73 in prior year
•
Income from Continuing Operations of $37 Million includes Certain Items of $(86) Million
•
Consolidated Segment Commercial Operating Income of $177 Million, adjusted for Certain Items is $227 Million and Consolidated Segment Commercial Operating Margin on the same basis is 11.8%, compared with 11.1% in the prior year
•
Q3 Net Cash from Operating Activities of $563 Million
•
Adjusted Free Cash Flow of $299 Million for Q3 2017
•
FY17 Non-GAAP EPS from Continuing Operations Target Remains $2.75 to $3.00

TYSONS, Va., Feb. 2, 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.

Page 1




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.

# # #
Contact:
Richard Adamonis, Corporate Media Relations, +1-862-228-3481, radamonis@csc.com
Neil DeSilva, Global M&A and Investor Relations, +1-703-245-9700, neildesilva@csc.com


Page 2



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.

Business Segment Revenues, Consolidated Segment Operating Income and Consolidated Segment Operating Margins
(preliminary and unaudited)

Revenues by Segment
 
 
 
 
 
 
 
 
 
 
Three Months Ended
(in millions)
 
December 30, 2016
 
January 1, 2016
 
% Change
 
% Change at Constant Currency(1)
Global Business Services
 
$
1,046

 
$
886

 
18.1
%
 
22.3
%
Global Infrastructure Services
 
871

 
864

 
0.8
%
 
4.9
%
Total Revenues
 
$
1,917

 
$
1,750

 
9.5
%
 
13.7
%

Revenues by Segment
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
(in millions)
 
December 30, 2016
 
January 1, 2016
 
% Change
 
% Change at Constant Currency(1)
Global Business Services
 
$
3,130

 
$
2,696

 
16.1
 %
 
19.3
%
Global Infrastructure Services
 
2,588

 
2,603

 
(0.6
)%
 
2.5
%
Total Revenues
 
$
5,718

 
$
5,299

 
7.9
 %
 
11.1
%

(1) Selected references are made on a “constant currency basis” 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-U.S. 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.

Consolidated Segment Operating Income and Consolidated Segment Operating Margins by Segment
 
 
 
 
 
Three Months Ended
 
 
December 30, 2016
 
January 1, 2016
(in millions)
 
Consolidated Segment Operating Income
 
Consolidated Segment Operating Margin
 
Consolidated Segment Operating Income
 
Consolidated Segment Operating Margin
Global Business Services
 
$
113

 
10.8
%
 
$
101

 
11.4
%
Global Infrastructure Services
 
64

 
7.3
%
 
70

 
8.1
%
Consolidated Segment Commercial Operating Income
 
177

 
9.2
%
 
171

 
9.8
%
Corporate
 
(12
)
 
—

 
(23
)
 
—

Total Consolidated Segment Operating Income
 
$
165

 
8.6
%
 
$
148

 
8.5
%



Page 3



 
 
Nine Months Ended
 
 
December 30, 2016
 
January 1, 2016
(in millions)
 
Consolidated Segment Operating Income
 
Consolidated Segment Operating Margin
 
Consolidated Segment Operating Income
 
Consolidated Segment Operating Margin
Global Business Services
 
269

 
8.6
%
 
$
299

 
11.1
%
Global Infrastructure Services
 
86

 
3.3
%
 
187

 
7.2
%
Consolidated Segment Commercial Operating Income
 
355

 
6.2
%
 
486

 
9.2
%
Corporate
 
(40
)
 
—

 
(64
)
 
—

Total Consolidated Segment Operating Income
 
$
315

 
5.5
%
 
$
422

 
8.0
%




Page 4




Condensed Consolidated Statements of Operations
(preliminary and unaudited)

 
 
Three months ended
 
Nine months ended
(in millions, except per-share amounts)
 
December 30, 2016
 
January 1, 2016
 
December 30, 2016
 
January 1, 2016
 
 
 
 
 
 
 
 
 
Revenues
 
$
1,917

 
$
1,750

 
$
5,718

 
$
5,299

 
 
 
 
 
 
 
 
 
Costs of services (excludes depreciation and amortization and restructuring costs)
 
1,347

 
1,216

 
4,131

 
3,725

Selling, general and administrative (excludes depreciation and amortization and restructuring costs)
 
333

 
259

 
931

 
799

Depreciation and amortization
 
161

 
161

 
494

 
503

Restructuring costs
 
3

 
7

 
85

 
12

Interest expense
 
33

 
33

 
87

 
92

Interest income
 
(8
)
 
(8
)
 
(26
)
 
(26
)
Other (income) expense, net
 
(2
)
 
4

 
3

 
(3
)
Total costs and expenses
 
1,867

 
1,672

 
5,705

 
5,102

 
 
 
 
 
 
 
 
 
Income from continuing operations, before taxes
 
50

 
78

 
13

 
197

Income tax expense (benefit)
 
13

 
56

 
(25
)
 
17

Income from continuing operations
 
37

 
22

 
38

 
180

Income from discontinued operations, net of taxes
 
—

 
30

 
—

 
216

Net income
 
37

 
52

 
38

 
396

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

 
2

 
13

 
12

Net income attributable to CSC common stockholders
 
$
31

 
$
50

 
$
25

 
$
384

 
 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.22

 
$
0.16

 
$
0.18

 
$
1.29

Discontinued operations
 
—

 
0.20

 
—

 
1.49

 
 
$
0.22

 
$
0.36

 
$
0.18

 
$
2.78

Diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.21

 
$
0.15

 
$
0.17

 
$
1.27

Discontinued operations
 
—

 
0.20

 
—

 
1.45

 
 
$
0.21

 
$
0.35

 
$
0.17

 
$
2.72

 
 
 
 
 
 
 
 
 
Cash dividend per common share
 
$
0.14

 
$
2.39

 
$
0.42

 
$
2.85

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
   Basic EPS
 
140.88

 
138.86

 
140.13

 
138.36

   Diluted EPS
 
144.81

 
141.57

 
143.80

 
141.39



Page 5




Selected Balance Sheet Data
(preliminary and unaudited)
 
 
As of
(in millions)
 
December 30, 2016
 
April 1, 2016
 
 
 
 
 
Assets
 
 
 
 
Cash and cash equivalents
 
$
1,111

 
$
1,178

Receivables, net
 
1,627

 
1,831

Prepaid expenses and other current assets
 
310

 
403

Total current assets
 
3,048

 
3,412

 
 
 
 
 
Intangible assets, net
 
1,784

 
1,328

Goodwill
 
1,780

 
1,277

Deferred income taxes, net
 
293

 
345

Property and equipment, net
 
917

 
1,025

Other assets
 
480

 
349

Total Assets
 
$
8,302

 
$
7,736

 
 
 
 
 
Liabilities
 
 
 
 
Short-term debt and current maturities of long-term debt
 
706

 
710

Accounts payable
 
367

 
341

Accrued payroll and related costs
 
270

 
288

Accrued expenses and other current liabilities
 
844

 
720

Deferred revenue and advance contract payments
 
453

 
509

Income taxes payable
 
16

 
40

Total current liabilities
 
2,656

 
2,608

 
 
 
 
 
Long-term debt, net of current maturities
 
2,217

 
1,934

Non-current deferred revenue
 
310

 
348

Deferred tax liabilities
 
181

 
181

Non-current income tax liabilities
 
183

 
175

Other liabilities
 
561

 
458

Total Liabilities
 
6,108

 
5,704

 
 
 
 
 
Total Equity
 
2,194

 
2,032

 
 
 
 
 
Total Liabilities and Equity
 
$
8,302

 
$
7,736



Page 6




Condensed Consolidated Statements of Cash Flows
(preliminary and unaudited)

 
 
Nine months ended
(in millions)
 
December 30, 2016
 
January 1, 2016
Cash flows from operating activities:
 
 
 
 
Net income
 
$
38

 
$
396

Adjustments to reconcile net loss income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
503

 
608

Pension & OPEB actuarial & settlement gains
 
—

 
(28
)
Stock-based compensation
 
56

 
28

Gain on dispositions
 
(1
)
 
(44
)
Unrealized foreign currency exchange loss
 
20

 
39

Other non-cash charges, net
 
16

 
(2
)
Changes in assets and liabilities, net of acquisitions and dispositions:
 
 
 
 
Decrease in assets
 
296

 
213

Decrease in liabilities
 
(123
)
 
(468
)
Net cash provided by operating activities
 
805

 
742

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment
 
(199
)
 
(277
)
Payments for outsourcing contract costs
 
(59
)
 
(74
)
Short-term investing
 
—

 
(71
)
Software purchased and developed
 
(124
)
 
(155
)
Payments for acquisitions, net of cash acquired
 
(434
)
 
(265
)
Business dispositions
 
—

 
37

Proceeds from sale of assets
 
26

 
67

Other investing activities, net
 
(35
)
 
8

Net cash used in investing activities
 
(825
)
 
(730
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Borrowings of commercial paper
 
1,667

 
821

Repayments of commercial paper
 
(1,562
)
 
(263
)
Borrowings under lines of credit
 
920

 
1,300

Repayment of borrowings under lines of credit
 
(773
)
 
(1,300
)
Debt borrowings
 
157

 
350

Debt repayments
 
(282
)
 
(819
)
Proceeds from stock options
 
47

 
72

Taxes paid related to net share settlements of stock-based compensation awards
 
(12
)
 
(28
)
Repurchase of common stock
 
—

 
(28
)
Dividend payments
 
(59
)
 
(409
)
Borrowings for CSRA spin transaction
 
—

 
1,508

Transfers of cash to CSRA upon spin
 
—

 
(1,440
)
Other financing activities, net
 
(31
)
 
—

Net cash provided by (used in) financing activities
 
72

 
(236
)
Effect of exchange rate changes on cash and cash equivalents
 
(119
)
 
(44
)
Net decrease in cash and cash equivalents
 
(67
)
 
(268
)
Cash and cash equivalents at beginning of year
 
1,178

 
2,098

Cash and cash equivalents at end of period
 
$
1,111

 
$
1,830



Page 7



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.


Page 8



•
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:
 
 
Three months ended
 
Nine months ended
(in millions)
 
December 30, 2016
 
January 1, 2016
 
December 30, 2016
 
January 1, 2016
Consolidated segment adjusted operating income
 
$
216

 
$
190

 
$
520

 
$
494

Restructuring costs
 
(12
)
 
(25
)
 
(94
)
 
(45
)
Transaction and integration-related costs
 
(39
)
 
(15
)
 
(111
)
 
(17
)
Certain overhead costs
 
—

 
(12
)
 
—

 
(48
)
U.S. Pension and OPEB
 
—

 
10

 
—

 
38

Consolidated segment operating income
 
165

 
148

 
315

 
422

Corporate G&A
 
(92
)
 
(60
)
 
(237
)
 
(181
)
Pension and OPEB actuarial and settlement gains (losses)
 
—

 
19

 
(1
)
 
19

Interest expense
 
(33
)
 
(33
)
 
(87
)
 
(92
)
Interest income
 
8

 
8

 
26

 
26

Other income (expense), net
 
2

 
(4
)
 
(3
)
 
3

Income from continuing operations, before taxes
 
$
50

 
$
78

 
$
13

 
$
197

 
 
 
 
 
 
 
 
 
Consolidated segment adjusted operating margin
 
11.3
%
 
10.9
%
 
9.1
%
 
9.3
%
Consolidated segment operating margin
 
8.6
%
 
8.5
%
 
5.5
%
 
8.0
%


Page 9



Earnings Before Interest and Taxes and Adjusted Earnings Before Interest and Taxes

A reconciliation of EBIT and adjusted EBIT to net income is as follows:
 
 
Three months ended
 
Nine months ended
(in millions)
 
December 30, 2016
 
January 1, 2016
 
December 30, 2016
 
January 1, 2016
Adjusted EBIT
 
$
185

 
$
147

 
$
411

 
$
380

Restructuring costs
 
(12
)
 
(25
)
 
(94
)
 
(45
)
Transaction and integration-related costs
 
(98
)
 
(26
)
 
(243
)
 
(36
)
Certain overhead costs
 
—

 
(22
)
 
—

 
(88
)
U.S. Pension and OPEB
 
—

 
10

 
—

 
38

SEC settlement-related items
 
—

 
—

 
—

 
(5
)
Pension and OPEB actuarial and settlement gains
 
—

 
19

 
—

 
19

EBIT
 
$
75

 
$
103

 
$
74

 
$
263

Interest expense
 
(33
)
 
(33
)
 
(87
)
 
(92
)
Interest income
 
8

 
8

 
26

 
26

Income tax (expense) benefit
 
(13
)
 
(56
)
 
25

 
(17
)
Income from continuing operations
 
$
37

 
$
22

 
$
38

 
$
180

Income from discontinued operations, net of taxes
 
—

 
30

 
—

 
216

Net income
 
$
37

 
$
52

 
$
38

 
$
396

 
 
 
 
 
 
 
 
 
Adjusted EBIT margin
 
9.7
%
 
8.4
%
 
7.2
%
 
7.2
%
EBIT margin
 
3.9
%
 
5.9
%
 
1.3
%
 
5.0
%

Adjusted Free Cash Flow
(preliminary and unaudited)

A reconciliation of net cash provided by operating activities to adjusted free cash flow is as follows:
 
 
Three months ended
 
Nine Months Ended
(in millions)
 
December 30, 2016
 
January 1, 2016
 
December 30, 2016
 
January 1, 2016
Net cash provided by operating activities
 
$
563

 
$
258

 
$
805

 
$
742

Net cash used in investing activities(1)
 
(78
)
 
(198
)
 
(756
)
 
(679
)
Acquisitions, net of cash acquired
 
—

 
29

 
434

 
265

Business dispositions
 
—

 
(3
)
 
—

 
(37
)
Short-term investments
 
—

 
71

 
—

 
71

Payments on capital leases and other long-term asset financings
 
(24
)
 
(24
)
 
(119
)
 
(135
)
Payments on separation and other transaction costs
 
55

 
11

 
198

 
71

Payments on special restructuring costs
 
24

 
66

 
85

 
117

SEC settlement-related payments
 
—

 
—

 
—

 
187

Sale of accounts receivables
 
(241
)
 
(63
)
 
(241
)
 
(239
)
Certain overhead costs
 
—

 
22

 
—

 
22

Adjusted free cash flow
 
$
299

 
$
169

 
$
406

 
$
385


(1) Excludes capital expenditures financed through CSC Finco and other investments.


Page 10



Consolidated Segment Adjusted Operating Income and Consolidated Segment Adjusted Operating Margin

A reconciliation of consolidated segment operating income to consolidated segment adjusted operating income is as follows:
 
 
Three months ended December 30, 2016
(in millions)
 
Consolidated segment operating income
 
Restructuring costs
 
Transaction and integration-related costs
 
Consolidated segment adjusted operating income
 
Consolidated segment adjusted operating margin
Global Business Services
 
$
113

 
$
(6
)
 
$
(20
)
 
$
139

 
13.3
%
Global Infrastructure Services
 
64

 
(6
)
 
(18
)
 
88

 
10.1
%
Total Commercial
 
177

 
(12
)
 
(38
)
 
227

 
11.8
%
Corporate and Eliminations
 
(12
)
 
—

 
(1
)
 
(11
)
 
—

Total
 
$
165

 
$
(12
)
 
$
(39
)
 
$
216

 
11.3
%

 
 
Nine months ended December 30, 2016
(in millions)
 
Operating income
 
Restructuring costs
 
Transaction and integration-related costs
 
Consolidated segment adjusted operating income
 
Consolidated segment adjusted operating margin
Global Business Services
 
$
269

 
$
(28
)
 
$
(57
)
 
$
354

 
11.3
%
Global Infrastructure Services
 
86

 
(66
)
 
(53
)
 
205

 
7.9
%
Total Commercial
 
355

 
(94
)
 
(110
)
 
559

 
9.8
%
Corporate and Eliminations
 
(40
)
 
—

 
(1
)
 
(39
)
 
—

Total
 
$
315

 
$
(94
)
 
$
(111
)
 
$
520

 
9.1
%

 
 
Three months ended January 1, 2016
(in millions)
 
Operating income
 
Certain overhead costs
 
U.S. Pension and OPEB
 
Restructuring costs
 
Transaction and integration-related costs
 
Consolidated segment adjusted operating income
 
Consolidated segment adjusted operating margin
Global Business Services
 
$
101

 
—

 
3

 
(15
)
 
(3
)
 
$
116

 
13.1
%
Global Infrastructure Services
 
70

 
—

 
7

 
(9
)
 
(7
)
 
79

 
9.1
%
Total Commercial
 
171

 
—

 
10

 
(24
)
 
(10
)
 
195

 
11.1
%
Corporate and Eliminations
 
(23
)
 
(12
)
 
—

 
(1
)
 
(5
)
 
(5
)
 
—

Total
 
$
148

 
$
(12
)
 
$
10

 
$
(25
)
 
$
(15
)
 
$
190

 
10.9
%

 
 
Nine months ended January 1, 2016
(in millions)
 
Operating income
 
Certain overhead costs
 
U.S. Pension and OPEB
 
Restructuring costs
 
Transaction and integration-related costs
 
Consolidated Segment Adjusted Operating Income
 
Consolidated Segment Adjusted Operating Margin
Global Business Services
 
$
299

 
—

 
11

 
(27
)
 
(4
)
 
$
319

 
11.8
%
Global Infrastructure Services
 
187

 
—

 
27

 
(17
)
 
(8
)
 
185

 
7.1
%
Total Commercial
 
486

 
—

 
38

 
(44
)
 
(12
)
 
504

 
9.5
%
Corporate and Eliminations
 
(64
)
 
(48
)
 
—

 
(1
)
 
(5
)
 
(10
)
 
—

Total
 
$
422

 
$
(48
)
 
$
38

 
$
(45
)
 
$
(17
)
 
$
494

 
9.3
%



Page 11



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:
 
 
Three months ended December 30, 2016
(in millions, except per-share amounts)
 
As reported
 
Restructuring costs
 
Transaction and integration-related costs
 
Non-GAAP results
 
 
 
 
 
 
 
 
 
Costs of services (excludes depreciation and amortization and restructuring costs)
 
$
1,347

 
$
—

 
$
—

 
$
1,347

 
 
 
 
 
 
 
 
 
Selling, general and administrative (excludes depreciation and amortization, restructuring costs and transaction costs)
 
333

 
—

 
(78
)
 
255

 
 
 
 
 
 
 
 
 
Income from continuing operations, before taxes
 
50

 
(12
)
 
(109
)
 
171

Income tax (benefit) expense
 
13

 
(4
)
 
(31
)
 
48

Income from continuing operations
 
37

 
(8
)
 
(78
)
 
123

 
 
 
 
 
 
 
 
 
Net income
 
37

 
(8
)
 
(78
)
 
123

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

 
—

 
—

 
6

Net income attributable to CSC common stockholders
 
$
31

 
$
(8
)
 
$
(78
)
 
$
117

 
 
 
 
 
 
 
 
 
Effective Tax Rate
 
26.0
%
 
 
 
 
 
28.1
%
 
 
 
 
 
 
 
 
 
Basic EPS from continuing operations
 
$
0.22

 
$
(0.06
)
 
$
(0.55
)
 
$
0.83

Diluted EPS from continuing operations
 
$
0.21

 
$
(0.06
)
 
$
(0.54
)
 
$
0.81

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
Basic EPS
 
140.88

 
140.88

 
140.88

 
140.88

Diluted EPS
 
144.81

 
144.81

 
144.81

 
144.81



Page 12



 
 
Nine months ended December 30, 2016
(in millions, except per-share amounts)
 
As reported
 
Restructuring costs
 
Transaction and integration-related costs
 
Non-GAAP results
 
 
 
 
 
 
 
 
 
Costs of services (excludes depreciation and amortization and restructuring costs)
 
4,131

 
$
—

 
$
—

 
$
4,131

 
 
 
 
 
 
 
 
 
Selling, general and administrative (excludes depreciation and amortization, restructuring costs and transaction costs)
 
931

 
—

 
(187
)
 
744

 
 
 
 
 
 
 
 
 
Income from continuing operations, before taxes
 
13

 
(94
)
 
(257
)
 
364

Income tax (benefit) expense
 
(25
)
 
(22
)
 
(74
)
 
71

Income from continuing operations
 
38

 
(72
)
 
(183
)
 
293

 
 
 
 
 
 
 
 
 
Net income
 
38

 
(72
)
 
(183
)
 
293

Less: net income attributable to noncontrolling interest, net of tax
 
13

 
—

 
—

 
13

Net income attributable to CSC common stockholders
 
$
25

 
$
(72
)
 
$
(183
)
 
$
280

 
 
 
 
 
 
 
 
 
Effective Tax Rate
 
(192.3
)%
 
 
 
 
 
19.5
%
 
 
 
 
 
 
 
 
 
Basic EPS from continuing operations
 
$
0.18

 
$
(0.51
)
 
$
(1.31
)
 
$
2.00

Diluted EPS from continuing operations
 
$
0.17

 
$
(0.50
)
 
$
(1.27
)
 
$
1.95

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
Basic EPS
 
140.13

 
140.13

 
140.13

 
140.13

Diluted EPS
 
143.80

 
143.80

 
143.80

 
143.80

 
 
Three months ended January 1, 2016
(in millions, except per-share amounts)
 
As reported
 
Certain overhead costs
 
U.S. Pension and OPEB
 
Restructuring costs
 
Transaction and integration-related costs
 
Pension and OPEB actuarial and settlement gains
 
Tax adjustment
 
Non-GAAP results
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs of services (excludes depreciation and amortization and restructuring costs)
 
$
1,216

 
$
(7
)
 
$
8

 
$
—

 
$
(5
)
 
$
16

 
$
—

 
$
1,228

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative (excludes depreciation and amortization and restructuring costs)
 
259

 
(15
)
 
2

 
—

 
(15
)
 
3

 
—

 
234

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations, before taxes
 
78

 
(22
)
 
10

 
(25
)
 
(28
)
 
19

 
—

 
124

Income tax expense
 
56

 
(8
)
 
4

 
(8
)
 
(9
)
 
6

 
50

 
21

Income from continuing operations
 
22

 
(14
)
 
6

 
(17
)
 
(19
)
 
13

 
(50
)
 
103

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
52

 
(14
)
 
6

 
(17
)
 
(19
)
 
13

 
(50
)
 
133

Less: net income attributable to noncontrolling interest, net of tax
 
2

 
—

 
—

 
—

 
—

 
—

 
—

 
2

Net income attributable to CSC common stockholders
 
$
50

 
$
(14
)
 
$
6

 
$
(17
)
 
$
(19
)
 
$
13

 
$
(50
)
 
$
131

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective Tax Rate
 
71.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
16.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS from continuing operations
 
$
0.16

 
$
(0.10
)
 
$
0.04

 
$
(0.12
)
 
$
(0.14
)
 
$
0.09

 
$
(0.36
)
 
$
0.74

Diluted EPS from continuing operations
 
$
0.15

 
$
(0.10
)
 
$
0.04

 
$
(0.12
)
 
$
(0.13
)
 
$
0.09

 
$
(0.35
)
 
$
0.73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
138.86

 
138.86

 
138.86

 
138.86

 
138.86

 
138.86

 
138.86

 
138.86

Diluted EPS
 
141.57

 
141.57

 
141.57

 
141.57

 
141.57

 
141.57

 
141.57

 
141.57


Page 13



 
 
Nine months ended January 1, 2016
(in millions, except per-share amounts)
 
As reported
 
Certain overhead costs
 
U.S. Pension and OPEB
 
Restructuring costs
 
Transaction and integration-related costs
 
Pension and OPEB actuarial and settlement gains
 
SEC settlement-related items
 
Tax adjustment
 
Non-GAAP results
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs of services (excludes depreciation and amortization and restructuring costs)
 
$
3,725

 
$
(41
)
 
$
32

 
$
—

 
$
(5
)
 
$
16

 
$
—

 
$
—

 
$
3,727

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative (excludes depreciation and amortization and restructuring costs)
 
799

 
(47
)
 
6

 
—

 
(25
)
 
3

 
(5
)
 
—

 
731

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations, before taxes
 
197

 
(88
)
 
38

 
(45
)
 
(38
)
 
19

 
(5
)
 
—

 
316

Income tax expense
 
17

 
(34
)
 
15

 
(14
)
 
(13
)
 
6

 
(2
)
 
(10
)
 
69

Income from continuing operations
 
180

 
(54
)
 
23

 
(31
)
 
(25
)
 
13

 
(3
)
 
10

 
247

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
396

 
(54
)
 
23

 
(31
)
 
(25
)
 
13

 
(3
)
 
10

 
463

Less: net income attributable to noncontrolling interest, net of tax
 
12

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
12

Net income attributable to CSC common stockholders
 
$
384

 
$
(54
)
 
$
23

 
$
(31
)
 
$
(25
)
 
$
13

 
$
(3
)
 
$
10

 
$
451

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective Tax Rate
 
8.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS from continuing operations
 
$
1.29

 
$
(0.39
)
 
$
0.17

 
$
(0.22
)
 
$
(0.18
)
 
$
0.09

 
$
(0.02
)
 
$
0.07

 
$
1.78

Diluted EPS from continuing operations
 
$
1.27

 
$
(0.38
)
 
$
0.16

 
$
(0.22
)
 
$
(0.18
)
 
$
0.09

 
$
(0.02
)
 
$
0.07

 
$
1.74

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
138.36

 
138.36

 
138.36

 
138.36

 
138.36

 
138.36

 
138.36

 
138.36

 
138.36

Diluted EPS
 
141.39

 
141.39

 
141.39

 
141.39

 
141.39

 
141.39

 
141.39

 
141.39

 
141.39



Page 14