Guided Insights (don't ask what it means. It makes a point)

CSC announces Q3 FY2012 results and its shares jump almost 20%

2012-02-09T10:04:00.002Z

CSC today announced its Q3 FY2012 results and saw its stock price quickly jump by almost 20%.

Full details on

http://finance.yahoo.com/news/CSC-Reports-Third-Quarter-bw-1449181891.html?x=0&source=email_rt_mc&ifp=0

The earnings call was what we have come to expect from CSC. There were lots of confusing explanations about what the results would have been “without this impact and excluding that item” .

The results in themselves were mixed. There was a welcome increase in new business wins and good cash flow performance, but a year-on-year revenue decline. CSC’s margin performance, excluding the NHS and goodwill impairment, improved compared to the recent past. However, this cannot be taken as good news without understanding how it was achieved. CSC watchers are now painfully aware that many of the cost reductions which CEO Mike Laphen announced from 2008 onwards were in fact cuts in vital investments for the future.

CSC announced EPS (excluding the NHS write off and goodwill impairment), of $1.35 per share, compared to the latest analysts’ consensus of $0. 58. It looks good on the surface. However, $0.80 of the $1.35 EPS comes from a tax credit (sounds familiar??). Without this tax credit the EPS would have been $0.55 or just below the latest consensus and well below the consensus of 90 days ago.

The good news in the announcement was the absence of any more major shocks. There was a further goodwill write-off of $60million in Healthcare but this is minor compared to the $2.7billion goodwill write-off in Q2 FY2012 and the $1.5billion NHS write-off announced at the end of December. CSC says it has now written off all the goodwill relating to the Healthcare sector, but that there has been no write off of goodwill arising from the recent iSoft acquisition, It will be interesting to see if this is still the case in 12 months time.

The really good news for shareholders is that this was Mike Laphen’s last earnings call and that CFO Mike Mancuso is expecting to leave CSC in 3 months. We wonder how much of the 20% stock price increase is due to their departures and the nomination of Mike Lawrie as the new President and CEO.
We hope Mike Lawrie can quickly re-establish CSC’s credibility with the analyst and investor communities. CSC has declined to give any Q4 FY2012 earnings guidance. This is sensible. Mike Laphen’s habit of handing out unattainable financial targets to executives is well known within CSC. Mike Lawrie has inherited enough problems without also having to deal with any unattainable Q4 profit expectations set by his predecessor.

Prepared by Will Scarlett

CSC management exodus, another one on his way out?

2012-01-24T10:31:00.001Z

The next senior executive on his way out of CSC could be Andrew Mears, Corporate Vice President of Internal Audit.

Last week, CSC announced Peter Minan, currently a partner with KPMG, as Corporate Vice President of Internal Audit. There was no mention of Andrew Mears in the announcement(another 'disappearing'?) . This approach is often used by CSC to let people deduce that an executive is leaving the company, which makes us think Mears’ days at CSC may be numbered.

Mears was promoted to head up Corporate Internal Audit after a successful stint as European Controller. CSC did not replace him as Europe Controller, preferring to reduce costs without regard to the lack of control that losing such a post would mean. Thus one has to assume the removal of this role was approved at the highest levels within CSC.

We have seen the consequences of this ill-considered decision, which is one example of the systemic weakening of CSC’s Finance function in Europe. The Nordic accounting irregularities could not have reached anything close to $100million if there had been a European Controller monitoring unusual balance sheet movements. But there was no longer any European Controller monitoring the balance sheets. We assume nobody else was looking at them in much depth either, given how large the Nordic irregularities became before CSC realized something was wrong.

Maybe everyone would have been benefitted if Andrew Mears had never left CSC Europe Finance.

CSC – the beginning of a management exodus, but are the right people leaving?

2012-01-22T06:12:00.000Z

In our January 16 posting (“Senior managers exiting CSC”) we wrote about executive departures. So far, we have learned that:

Gary Mellor (President, COO Managed Services Sector (MSS) was told to leave CSC about 10 days ago. He was followed shortly after by Andy Williams, President, Managed Services Sector (MSS) EMEA, who was in charge of CSC’s UK and Nordic businesses. Williams joined CSC just a couple of years ago, replacing Nick Wilson who only stayed for about two years before leaving for Hewlett Packard.

Williams left days after CSC got a first view of its results for the quarter to December 2011. Could his sudden departure mean CSC is about to announce yet another disappointing quarter? Or has he failed to clean up the problems he inherited in Nordic? Or maybe he just hasn’t cleaned them up fast enough for the liking of CSC Corporate management. Andy Williams’ short stay at CSC begs the question of whether he was the right person for the job. But it also raises the question of what support he got from EMEA and Corporate management. We heard that he was frustrated by the assignment of unrealistic financial targets, and constant micro-management from above. Sounds familiar doesn’t it? CSC may now be regretting the actions which caused Keith Wilman, the successful former President of CSC UK, to quit CSC to pursue his career elsewhere in 2007!

Another senior executive on her way out of CSC is Kathleen Ramey, the Worldwide VP Finance for Managed Services Sector (MSS). Her departure has shocked many CSC employees because of her track record of success and the respect she enjoyed throughout the company. She was a 20+ year veteran who spent a number of years in Europe, including serving as VP Finance for CSC UK. We understand that Ms Ramey is another victim of problems in the Managed Services Sector.

CSC seems to have started dealing with senior executives whose performance is considered below expectations, we wonder if they are correctly identifying the executives responsible for the company’s failures?

Guy Hains - President EMEA, seems to escape all accountability for the Nordic irregularities and for the NHS project failure. Not only did they both happen on his watch as CSC’s President of Europe, but he also had more direct management involvement in them. We understand he was on CSC’s Board of Directors in Nordic at the time of the irregularities; he was the also the lead CSC executive on NHS NPfIT project team which included selecting the failed software supplier iSoft. The project that led to the single biggest write off that CSC has ever taken. How much bigger has a problem got to become and how much more involved has an executive got to be before he takes responsibility for the results?

Similarly no senior executive has been held accountable for the steady decline of the European Finance function (remember this is the function that has lost the leaders in every single country, even prior to these recent issues). European Finance deteriorated to the point where irregularities such as those in Nordic could occur in the first place, and then could go undetected for so long. This decline did not occur overnight. It has to be the result of years of executive mismanagement and an inability to retain many of the best Finance managers and leaders. Yet no action has been taken at either EMEA or Corporate Finance levels. Why not?

And are there more departures still to come?

A Look Back Three Years

2012-01-19T19:06:00.002Z

it is now three years since we started blogging about NHS IT and CSC and it is probably timely to look back at what was said at the time and see how matters have developed. Just look at this extract from Sunday, 8 February 2009

Why NHS IT Won't Work

Let's look at some basic facts about NHS to see there is anything there that explains why the IT Strategy has gone very wrong.
1. It is the largest single IT project anywhere in the world. And still is.
2. It is charting new waters and just like Starship Enterprise, goes where no one has gone before. This never arrived.

All the above tells us that this is going to be high risk, high spend, slow and very difficult. Yet as the single biggest project in the UK government the NHS IT is not reviewed regularly at any depth by the Cabinet. Thus our political leaders have let us down.

without a wholesale restructuring of NHS it looks like a recipe for failure .....

They (The Conservatives) also have the problem that Andrew Lansley MP, Shadow Health Secretary, has had a charisma bypass and is almost invisible to the public. What does he stand for? What will he do to improve matters when in power? Is he just waiting for Labour to fail and is keeping quiet because he has so little to add, confining himself to unambitious tinkering at the edges of NHS. This week his flagship programme to change NHS has been put on hold.

This package iSoft was originally designed to work within the precincts of a health practise and by all accounts worked quite well. The problem is the solutions providers, CSC and others, to base their solution on this product. ..... unfortunately as anyone with experience in IT will tell you, taking a small scale system and stretching it to a wider geography, across multiple locations, with hundreds, if not thousands, more users, is doomed to failure. As has happened.

In essence scaling iSoft up to mega health region size is rather like taking a tug boat design and turning it into an aircraft carrier. It might float but will it be fit for war?

.... there has been the problem that many of the iSoft founding management left as fast as they could once they cashed in the share options based on an inflated share price due to iSoft being part of NHS IT. Some of this management have been investigated for corruption.

The technical solution to all this is supposed to be Lorenzo. What odds am I offered that this will work on time too? How about 100-1? What a pity that no one took up this bet.

But surely the systems integrators with the NHS contracts can make it work? Unfortunately they have found out they have bitten off more than they can chew. As mentioned before Accenture a world class systems integrator has cut and run. Others will almost certainly follow soon. Indeed, Hitachi subsequently did just that.

Where does this all leave us? It leaves us with £18bln spent on IT that won't work or won't be used because the client has decided to buy elsewhere, and with NHS trusts who are going to commission their own solutions. This is now the case.

.. it would be cheaper to give each of NHS's 1,500,000 employees £10,000 each to buy their own IT to help do their job better, and leave £3bln spare for central work.

Further reading to show there are solutions to the NHS problem and that this blog is constructive can be found here or just by browing earlier postings:

http://www.blogger.com/blogger.g?blogID=4472090514183092051#editor/target=post;postID=4333736192079284195

http://cassandra-guidedinsights.blogspot.com/2009/03/how-nhs-can-do-better-more-thoughts-2.html

CSC – yet another lawsuit, yet another flagship project mess and yet another reason why the company won’t be acquired any time soon

2012-01-18T18:15:00.000Z

CSC was hit with another lawsuit on January 16.

The plaintiff alleges that the directors breached their fiduciary duty by failing to disclose alleged accounting and financial irregularities in the Managed Services Sector segment, primarily in the Nordic region, and Computer Sciences’ performance under its U.K. National Health Service agreement and alleged failure to maintain effective internal controls. Full details on:
http://www.pressreleasepoint.com/computer-sciences-corporation-investor-files-lawsuit-against-directors

And it has another failing healthcare megaproject

CSC has also been slammed for delays and overruns in a major Medicaid project in North Carolina.

As disclosed by “The Point” on January 15 a North Carolina state government audit estimates that cost overruns could reach $320 million and the project is significantly behind schedule. It also makes the point that some of these delays and cost overruns should have been foreseeable with a little more digging. In fact, they were foreseen.

http://www.thepilot.com/news/2012/jan/15/states-medicaid-computer-system-is-a-predictable/#

Amazingly, CSC uses this failing project as a public reference on its website, saying that

“For more than 30 years, CSC has been a trusted partner to state Medicaid agencies. North Carolina is the latest to count on us for its Medicaid Management Information System (MMIS)”. (source : http://www.csc.com/public_sector/ds/11254-mmis )

Is CSC management even aware of the reality of what is happening on the project or is it in denial again?

And why we think CSC won’t be acquired any time soon

There are simply too many risks to CSC’s business which cannot be quantified right now.

How much will the Class Action lawsuits cost? What will be the outcome of the SEC investigations into the accounting irregularities?

What will be the outcome of the NHS IT project situation and how much will that cost CSC? What about the other distressed major projects like the North Carolina Medicaid? What might they cost? Given these problems in the healthcare industry, can CSC justify the carrying value of the iSoft goodwill on the balance sheet? Are there any more bad projects under the surface? (Danish Customs and Tax??). CSC has withdrawn its earnings guidance, so there may be more bad surprises to come in the financial results.

The potential magnitude of all these risks will likely dissuade anybody interested in acquiring CSC, or at least cause them to wait for some more clarity.

posted by Littlejohn

Senior Managers Exiting CSC

2012-01-16T21:20:00.001Z

News is reaching us of more and more managers (Presidents and Vice Presidents) leaving CSC recently. Also the list of company officers, a significant role, have mysteriously changed.. Why would that be?
These seemingly arbitrary changes, which leave large gaps in the organisation, are rather like those that that happen in Banana Republics in South America where 'disappearing' people is common. Who is next? When are they next? If you are senior in CSC beware the late night knock on the door or phone call.
Meanwhile Laphen and co are comfortably riding out their tenure ready for the massive pay offs coming their way in a few months.

What is the plan for the staff, employees, and customers, and the investors? Who is running the place?

Watch this space for more news later this week.

By the way, this loss of senior people is nothing new in CSC. Read this post from 2010
http://cassandra-guidedinsights.blogspot.com/2010/11/senior-people-continue-to-exit.html

Earlier posts also mentioned that CSC lost over a short period the financial leads in every country in Europe. It seems extraordinary that there is such a high turnover, particularly in the back office finance functions. One wonders why that may be.

comment posted on WikiCSCleaks
Anonymous said...

Andy Williams marched out of the offices last friday...

His laptop not with forensics in the uk re the reporting issues

19 January 2012 08:40

Posted by Thenewsgroup

Is CSC heading for the cliff edge?

2011-12-29T06:46:00.000Z

We wrote in our November 11 posting on this blog (CSC posts a loss – a massive one) that we had serious reservations about CSC’s EPS guidance given the risks and uncertainties it is carrying. However, we did not expect a $1.6billion write-off arising from the NHS contract and yet there is still no assurance that CSC has put all the bad news behind it.

This must call into question the future and maybe even the survival of CSC.

What will its clients think of the events of the past 9 months, and of this latest unexpected large write-off? Will they question the long-term viability of the company? Will they feel confident that CSC will have the funds to make the investments needed to win and deliver the long-term client contracts which have been its strengths for so long?

Or will clients and potential customers think it more prudent to award such contracts to other companies in view of their doubts and the uncertainties surrounding CSC’s future?

Lack of confidence in a corporation’s future can become a self-fulfilling prophesy if major customers decide not to risk being dependent on a company which is viewed as shaky. This will cause a drop in new business which then further undermines confidence in the company.

CSC needs to secure the confidence of its client base before it goes over that cliff edge.

posted by Littlejohn

CSC warns of a $1.5bn write-off and withdraws its EPS guidance

2011-12-27T22:14:00.002Z

Yet more bad news for CSC shareholders!

We recently wrote about CSC’s “failing fundamentals” and it has not taken long to get another of these shocks which are becoming the norm for CSC.

Today, CSC disclosed in a regulatory filing that it may have to write off all of its $1.5bn investment in the troubled NHS contract. It also withdrew its earnings guidance to Wall Street and saw its share price immediately fall by 8% .

Details are given in the Wall St Journal:

http://online.wsj.com/article/BT-CO-20111227-704387.html

and also in PC World:

http://www.pcworld.com/businesscenter/article/247053/uk_ehealth_system_could_cost_csc_us15b_writeoff.html

and in PCAdvisor : which highlights the arrogance of CSC management who are quoted as stating that "government has no right to cancel the contract".

http://www.pcadvisor.co.uk/news/small-business/3324007/csc-government-has-no-right-cancel-nhs-it-contract/?olo=rss

Recently CSC’s Q2 FY12 earnings call and its 10Q SEC filing of November 9 referenced risks relating to the NHS report, but did not the impression there could be a massive write-off in just a few weeks time. Was this why Messrs Laphen and Mancuso’s answers and comments during the earnings call seemed so evasive?

Will CSC now tell us :

1. Why has the NHS situation seemingly deteriorated so significantly since CSC gave an update on November 9? Were Messrs Laphen and Mancuso overly optimistic in their assessment of the situation at the earnings call? Or were they out of touch with the reality of the situation? Or were they misleading investors and the government of the UK?

2. In view of this collapse of the NHS contract, what is the real value of the iSoft acquisition and of the Lorenzo software today? Can we expect further goodwill write-offs due to reductions in their underlying value?

3. The many people and journalists who over the past 3 years warned that NHS was doomed to failure are being proved correct. Why were the warnings ignored for so long by CSC management?

4. Why is no CSC executive being held accountable for the NHS failure? Why is the European President who was personally responsible for the NHS still in place?

Earlier this month, we said that

The major financial uncertainties surrounding CSC (shareholder lawsuits, SEC investigations, customer disputes, NHS etc) would scare off any buyer.

Today’s announcement by CSC just underlined this point.

CSC – no takeover as its “fundamentals are failing” and a credit rating downgrade

2011-12-15T19:03:00.000Z

Jim Kramer’s “Lightning Round” of December 13 suggested that the hoped-for take-over of CSC won’t happen as its “fundamentals are failing”. I agree. The major financial uncertainties surrounding the company (shareholder lawsuits, SEC investigations, customer disputes, NHS etc) would scare off any buyer unless they could acquire at a rock bottom price low enough to cover all of the related risks. I can’t see the shareholders agreeing to sell at bottom price, so CSC is likely to remain independent for a while.

http://seekingalpha.com/article/313736-cramer-s-lightning-round-could-be-tough-sliding-for-cummins-12-13-11?ifp=0&source=email_porfolio

Meantime, Morningstar has downgraded its credit rating of CSC by two notches from A- to BBB, its second downgrade this year, citing the high uncertainties, falling margins and a deteriorating cash situation. CSC has issued $500m debt this fiscal year but has $1billion of debt falling due in 2013.

http://torontostar.morningstar.ca/globalhome/industry/news.asp?articleid=450108

Morningstar points out that CSC has certain advantages, including its long-standing relationships with large clients. Historically one of CSC’s differentiators was its reputation for reasonableness in its dealings. It consistently tried to do “the right thing” by clients in handling disagreements and disputes. Bringing in lawyers and quoting the letter of its contract was a last resort rather than an opening gambit. However, reports of its stance in its dispute with the UK NHS suggest that CSC is changing its ethos to a harder approach of “compliance with the letter of the contract”. If this is correct, CSC’s relations with long-term clients could follow the same downward direction as its relations with many of its employees.

To the above can be added J P Morgan’s rating of “Five Stocks To Absolutely Avoid” as discussed here in The Street:-

http://www.thestreet.com/_yahoo/story/11344021/1/5-stocks-to-absolutely-avoid-jpmorgan-warns.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

While it is interesting to note that many analysts, who by the way are paid, mega-bucks and have enormous resources and tools at their disposa; for getting their advice right, are finally spotting the “Blindingly Obvious” as per the great sage Basil Fawlty, Cassandra has shown through detailed and in-depth analysis and reporting, see posting in June 2011, that this has been a stock to avoid. However, it is better late than never, as at long last the long suffering investors whether pension holders, or indeed CSC’s 0wn employees who are sitting on value less stock options will perhaps see some action to correct what has been a dire and long lasting situation.

Posted by Long John and Friends

The Times Newspaper of London Blasts CSC

2011-12-12T12:05:00.000Z

With due thanks to Tony Collins and the Campaign4Change team>

CSC criticised again in The Times

Posted on December 9, 2011 | Leave a comment

By Tony Collins
The Times has followed up its three pages of coverage of the NPfIT yesterday with an article in which the chair of the Public Accounts Committee, Labour MP Margaret Hodge, criticises one of the programme’s main suppliers CSC.
Hodge tells The Times she was surprised to learn that CSC was hoping for a revised NHS deal – worth about £2bn – after it failed to deliver fully functional software to any of 166 NHS trusts in England.
CSC has said in a filing to the US Securities and Exchange Commission that, based on events to date, it does not does not anticipate that the NHS will terminate its contract.
CSC gave a series of reasons in its SEC filing why the UK Government may retain CSC and its NPfIT contracts, though it conceded that the outcome of its talks with the Department of Health, is uncertain.
CSC also said it has cured or is in the process of curing the alleged events of default. It asserted that failures and breaches of contract on the part of NHS have caused delays and issues; and it said that if the NHS wrongfully terminated the contract on the basis of alleged material breach, CSC could recover substantial damages.
Hodge told The Times:
“Any private sector company that cares so little about the public interest that they are prepared to extract this kind of money from the public purse should not be given the right to work for the Government again.
“If they are going to take such a private sector attitude to it that they don’t give a toss about the public interest they should be treated like a cowboy builder.”
CSC says it has made a significant investment in developing systems for the NHS and has demonstrated a strong and continuing commitment to improving the quality of healthcare in England. It says it has a demonstrable track record of successful and widescale delivery to NHS within the National Programme and beyond.
The Times also reported that Christine Connelly, the Department of Health’s former CIO, was bought a £416 first-class train ticket for a visit to a hospital at Morecambe, and was flown to San Francisco and Seattle at a business-class rate costing £8,278.80.
American “cowboys” blamed for NHS fiasco – The Times
CSC confident on £2bn deal says The Times

CSC grants senior executive bonuses for just turning up and try cover it up

2011-12-01T21:14:00.001Z

One of our correspondents has alerted us to an interesting development in CSC’s executive compensation approach which the company has tried to keep quiet about.

In the past, this blog has published details of CSC’s remuneration policies, whereby its top executives were handsomely rewarded for non-performance. As CSC declined further, this philosophy became “executives’ rewards for failure”.

The SEC 10Q filing relating to the quarter to 30 September 2011 disclosed a new concept… further rewards for two senior executives without any link at all to performance or achievements.

Peter Allen (Acting President, Managed Services Sector and President, Global Sales and Marketing) and William Deckelman (Vice President, General Counsel and Secretary) have been granted a special bonus of a full year’s base salary. What they have to achieve to receive this award is……..nothing, except to be with CSC on 1 September 2012.

Details of the awards can be found in CSC’s 10Q filing

http://www.faqs.org/sec-filings/111109/COMPUTER-SCIENCES-CORP_10-Q/ex10_35.htm

http://www.faqs.org/sec-filings/111109/COMPUTER-SCIENCES-CORP_10-Q/ex10_34.htm

Additionally it is interesting to learn that CEO Michael Laphen wanted Messrs Allen and Deckelman to keep quiet about this bonus. He wrote to them :

“You are encouraged to keep the existence of this Award confidential. You may of course discuss it with your direct management, family and financial planner, but you are required to refrain from discussing it with any other current or former CSC employee”.

Life as a CSC employee is difficult right now, but its top management is certainly looking after itself and making sure the tough times are kept as far from its executive suites as possible.

CSC takeover rumors again, but let’s not get excited yet

2011-11-17T16:20:00.000Z

The Wall St Journal (WSJ) today reported fresh rumors about a possible buy-out of CSC,

http://blogs.wsj.com/deals/2011/11/15/kicking-the-tires-on-csc-could-a-buyout-happen-this-time/

The rumors involve private equity institutions as potential acquirers. This may seem like an opportunity from heaven for the long-suffering CSC shareholders, but let’s not get excited yet.

There were similar rumors a few years ago and CSC is said to have refused bids of around $60 per share in the belief that remaining independent would generate greater shareholder value.

Things are different today. CSC’s market capitalization is only about 40% of what it was when these bids are said to have occurred. The company has a weaker market position than 5 years ago. It has lost ground in terms of market and technology positioning. It has become a vanilla-flavored “me too” player, overtaken by many competitors. It has a weak top management team.

A private equity buyer would de-list CSC from the NY Stock Exchange. This could be an excellent move, as it would give CSC the opportunity and breathing space to address the strategic issues it faces without being hampered by the need to publish quarterly earnings.

But before we get that far, there are two key questions. First, how much would an acquirer be willing to pay for CSC? The issues noted in the previous paragraph, allied to CSC’s poor financial performance, will have a negative impact on the price. So we should not expect a large premium over the current share price.

But more important could be the uncertainties surrounding CSC. What will be the outcome of the class action lawsuits? What will be the outcome of the SEC investigations which now include Australia? What will be the outcome of the UK NHS IT discussions? In the US the Federal and Commercial infrastructures are intertwined and relaint on one another. How can a possible suitor unravel these if they intend to break up the company as has been rumoured? What are the prospects of the Public Sector business in the current economic climate? How many of CSC’s executives are capable of doing what is needed to turn the company round? Can employee morale and enthusiasm, see http://wikicscleaks.blogspot.com/ be re-kindled to the levels needed for a successful transformation? These are uncertainties that could make an acquirer “kick the tires” to use the WSJ expression…. then decide the risks are too great and to withdraw at least until the outcomes of these situations are clearer.

CSC…….What a difference a week makes

2011-11-15T18:53:00.000Z

One week ago, just ahead of its Q2 FY12 earnings conference, CSC stock price was almost $33.

So what differences have we seen arising from the Q2 FY2012 results and the unconvincing performances of Messrs Laphen and Mancuso at the earnings conference? Here are three differences one week has made:

· The share price has slipped again, this time by almost 25% to below $26.

· The Bloomberg index of the analysts’ target price for CSC stock over 12 months has slipped to $29.85

· CSC’s credit rating has been put on negative watch by S&P, who are not convinced by CSC’s earnings guidance for the rest of FY2012.

Things have to be quite bad for a financial writer to quote the impending departure of Mike Laphen (and hopefully his management philosophy with him) as a reason for optimism. For full details of Stephen D Simpson’s article, which describes why CSC has problems “left, right and center” can be found on:

http://stocks.investopedia.com/stock-analysis/2011/Computer-Sciences--Uncertain-Value-With-Certain-Problems-CSC-IBM-ACN-CTSH-DELL-XRX-CACI1114.aspx?partner=YahooSA#axzz1dmE9bVrt

The departure of CFO Mike Mancuso is also overdue, even ignoring his performance at the earnings call and the fact that the analysts now seem to be skeptical of anything he says. How can a company keep a CFO who has presided over 5 profit warnings/earnings misses, two major cases of intentional accounting irregularities, an SEC investigation, an Audit Committee investigation, class action lawsuits and having to inform the SEC that the company’s financial reporting could not be relied upon? And all this in a period of less than 3 years. Perhaps CSC’s Board of Directors has decided it needs to continue with Mancuso because there is no internal candidate with the skills to handle the position on an interim basis and because it feels the new CEO must be part of the selection process for a permanent CFO.

CSC also needs to signal a change in its approach to and re-establishment of its credibility with the analyst community. It should begin by appointing an experienced Head of Investor Relations with a track record of success and credibility in the role. VP of Investor Relations Bryan Brady’s problems in the area of interpersonal skills came through clearly last week, as well as his seeming not to have adequately prepared Messrs Laphen and Mancuso for the conference. When the company is in struggling, it does not help to have self-inflicted difficulties with the analyst community.

CSC’s $2.7billion Goodwill impairment charge – why it matters.

2011-11-12T10:19:00.000Z

CSC wrote off almost $2.7billion of goodwill in Q2 FY12.

Here is CEO Mike Laphen’s explanation at the November 9 earnings call:

“We have taken a noncash goodwill impairment charge (….). In our estimation, a key contributor to this charge is the fact that our stock price, which has been under pressure from both market declines and the uncertainties surrounding the MSS challenges, depending CSC investigation, the NHS program and U.S. federal budget deficits. Although we expect these uncertainties eventually to be resolved, our low stock price has persisted for a sufficient period to create a discontinuity between market price and the book value. And it is this discontinuity that necessitates the adjustment to goodwill”.

This explanation focuses on the financial approach, as if the charge is driven by unavoidable accounting requirements and market factors outside CSC’s control . It does not explain what the impairment charge means in a business layman’s terms. Here is another way of looking at it:

Over the years, CSC has acquired a number of businesses whose goodwill values (*) totalled $4.5 billion , which is broadly what CSC paid for them. CSC’s management of these acquired businesses has reduced the goodwill values to some $1.8billion based on the company’s best assessment of the situation today. CSC hopes to improve this situation in the future , but for now it is obliged to write off the $2.7billion goodwill value it has destroyed.

Management’s poor performance has driven CSC’s share price to the point where the market value of the goodwill of CSC in total stands at $3.4billion (**) today. Continuing to value goodwill of just one part of CSC (ie those businesses which came to the company via acquisition) at $4.5billion would be absurd. Thus the need for a $2.7billion impairment charge to reduce goodwill relating to acquired businesses to a more realistic $1.8billion.

(*) Goodwill can be defined as the underlying value of the intangible assets of a business, including their capabilities, know-how, intellectual property, employee skills, client base, future earnings potential etc

(**) Being CSC market capitalization less its net tangible assets

posted by Littlejohn

CSC Posts a loss - a massive one

2011-11-11T09:48:00.001Z

Good Will Accounting

CSC in its latest quarter reporting has posted a loss due to 'annual review of Goodwill' a catch all for anything the management want to book to to keep the results up. But time has run out on them. Read on.

CSC Q2 FY12 earnings call– The problem is us. We have missed their thinking.

CSC produced its fourth consecutive earnings shock in their Q2 FY12 call of November 9. Not that you would have understood that from the comments of CEO Mike Laphen and CFO Mike Mancuso which confused me and seemed to confuse the investment analysts too. One analyst talked about “more confusing signals from you guys”. Another asked for clarification on a key point and was told by Mike Mancuso that he had “missed their thinking”. CSC seems to be in a mess, maybe this is simply because I have also “missed their thinking”.

CSC reported a second-quarter net loss of $2.88 billion, or $18.56 a share, including goodwill impairment and claims settlement charges totaling almost $3billion. This blog commented on the claims settlement in our posting of 26 August 2011 . The Goodwill impairment charge is described as a non-cash charge driven by CSC’s market capitalization level, an accounting thing, not really a business thing. We shall make a separate blog posting on this topic later.

CSC said that, excluding those items and costs related to the ISoft acquisition, they made a profit for Q2 FY12 of 94-cents a share, beating the 68-cent analyst estimates, based on 1% year-on-year revenue growth. This explanation is about as convincing as Mike Laphen’s grasp of reality. Reality is that CSC posted a loss of $2.88billion. The goodwill impairment and claims settlement charges are due to and under the responsibility of CSC management. They are not one-off items beyond their control. CSC also announced that the accounting irregularity disease in CSC Nordic has now spread to Australia and that the SEC investigation has been extended to that country.

Mike Laphen gave his well-worn speech about how the company is poised for great success, they just have to solve a few one-off problems. He talked about being “encouraged” by the new business wins in the commercial sector. He said “ Our strategic repositioning and the investments we had made to our sales and go-to-market capabilities over the last year are now delivering solid results”. I am not sure anybody believes his speeches of “success just around corner” after the events of the past 12 months. I do not. Even CSC’s self-declared 94-cents per share earnings equated to a pre-tax profit margin below 3% with just 1% revenue growth. Hardly “solid results”.

CSC also dropped its FY2012 earnings guidance from $4.70 - $4.80 per share to $4.05 - $4.10 per share. Here again, I seem to “miss their thinking” and judging by their questions, so did some of the analysts on the call.

· I am not convinced that it is right to continue to assume the high levels of NHS revenue and margin for Q3 and Q4 as outlined in a framework Memorandum of Understanding (MoU) which has not been signed and for which CEO Mike Laphen admitted there is "no assurance" that an agreement with the NHS will be reached soon.

· CSC talks about seeing market softness in Germany, which is Europe’s strongest economy. What about the potential risks in UK, France and Italy given their sovereign debt issues, economic austerity measures and the Euro crisis?

· How will CSC climb to an EPS of $1.40 in Q4, given the factors above and the well known risks in the US Federal sector ?

So it was another thoroughly miserable day for CSC shareholders. A few years ago CSC was talking about double-digit future revenue growth as the reason for remaining independent and turning down $60 per share acquisition offers. Earlier this year the shareholders started to wonder if we would see the days of $60 per share again. Today we wonder if anybody would be interested in buying CSC at any price given its present condition.

CSC non-executive directors must stand up and be counted. They must ask themselves what is the value to the company of continuing with Messrs Laphen and Mancuso at the helm even in the immediate term. The company is in crisis. They are not equipped to deal with it. Their already damaged credibility was not enhanced by their performance at the Earnings Conference. The prospect of another 12 months of their leadership is not reassuring.

posted by Littlejohn

CSC Class Action Continues

2011-10-27T19:21:00.000+01:00

The class action filed against CSC continues. Those who have something to say that may be enlightening might want to contact the lead law firm filing the case Labaton Sucharow.
Contact details are:

http://www.labaton.com/en/contact/

Labaton Sucharow LLP 140 Broadway New York, NY 10005		tel: 212-907-0700 toll-free: 888-753-2796 fax: 212-818-0477 email: info@labaton.com toll-free settlement helpline: 888-219-6877 email: settlementquestions@labaton.com
300 Delaware Avenue Suite 1225 Wilmington, DE 19801		tel: 302-573-2540 fax: 302-573-2529

Mike Laphen's rewards for failure at CSC

2011-10-22T22:10:00.003+01:00

CEO Mike Laphen's massive lifetime rewards for failure at CSC

Mike Laphen's departure from CSC is overdue given the disastrous results of his period of "leadership", but he is being royally rewarded for his repeated failures.

CSC has submitted an 8K filing to the SEC outling the terms of his departure and the Succession Agreement it has signed with him.

Mr Laphen will receive:

� earned base salary, annual bonus for a completed fiscal year, and benefits under the Company's employee benefit plans for all of FY2012

� a pro-rated annual incentive award for FY2012,
� a severance payment of two times the sum of (i) base salary plus (ii) target annual incentive award estimated at $6.75 million
� COBRA premiums for 18 months following the Retirement Date.
Mr. Laphen will be also entitled to retirement benefits resulting in an estimated annuity of $81,000 per month for life

Full details of the SEC filing are disclosed on http://biz.yahoo.com/e/111019/csc8-k.html

And no, it is not a typo. He really will get $81,000 per month for the rest of his life.

Shareholders have seen the value of their investment drop by 50% during Mr Laphen's tenure. Employees have lost their jobs or had their salaries reduced during this time.

So there are no prizes for guessing their views on Mr Laphen's severance package, unless they think a cost of around $40million for his departure is good value for CSC.

posted by Littlejohn

CSC Denmark Heading For Disaster

2011-10-15T19:55:00.000+01:00

>CSC (Denmark) heading for disaster?

That is the headline of the Danish Computerworld publication of October 14th, describing CSC Denmark's financial situation as "disastrous" with an accumulated deficit of over US $65million, a solvency ratio below 3% and no profits for the past 5 years.

The article also refers to a rift between the management and the employees, the recent strike action and the alleged accounting irregularities. Additionally the flagship Tax and Customs project is in big trouble with a government official saying that CSC is wilfully hiding the true state of the project from the customer, Shades of CSC's failed NHS project in the UK??.

The full Computerworld article can be found on:

http://news.idg.no/cw/art.cfm?id=1ABD24E7-1A64-6A71-CEF94934B345CB91

CSC could take away the concerns about the financial viability of their Denmark operation by simply injecting fresh capital. So why are they not doing this? Are they not prepared to stand behind their Danish subsidiary and guarantee its viability?

To misquote Marcellus in Shakespeare's Hamlet "Something seems rotten in the state of CSC Denmark".

NHS IT Programme according to Times of London

2011-10-06T19:49:00.003+01:00

The Times on 23 September had the headline “Connecting to Nowhere”.
It said:

“The comically misnamed Connecting for Health will continue to honour its contracts with big companies and to swallow taxpayers’ money for some time to come: up to £11bn on current estimates. The figure demonstrates the truly egregious scale of the previous Government’s incompetence on this issue: this vast sum seems to have been committed irrevocably, even though the project has never achieved its objectives.
“The story is a dismal catalogue of naivity, ambition and spinelessness. NHS managers and officials …were [not] brave enough to question the direction of travel at crucial moments when IBM and Lockheed pulled out of the project early on. Whitehall was sold a grand vision by consultants, software and technology companies charging grandiose fees. It signed contracts that appear to have been impossible to break when the promised land did not appear. Yet no one seems responsible. No one has been sacked. Most of the officials involved have long moved on…
“There have been spectacular failures in the private sector too. But businesses, with tighter controls on spending, tend to halt things earlier if they are going wrong. Many prefer off-the-shelf systems such as SAP or Oracle, which are tried and tested. They know that it is cheaper to adapt their processes, not the software.
“This newspaper is in favour of serious investment in technology, which could play an important part in economic growth. The NHS debacle has done enormous damage to this country’s reputation for expertise in IT systems. The lessons for the future are clear. Governments must hire people who can make informed and responsible procurement decisions. Patients, in every way, are going to end up paying the price.”

Russ Owen MSS Chief at CSC new role

2011-10-02T12:05:00.003+01:00

One of our commentators has found the full text of Russ Owen's 'role change'. We think it worth giving this information, which is all in the public domain, a post to itself.

http://phx.corporate-ir.net/phoenix.zhtml?c=109974&p=IROL-secToc&TOC=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDAwMjMwODItMTEtMDAwMDgxL3RvYy9wYWdl&ListAll=1

Did CSC fraudently conceal from investors the true state of the NHS contract?

2011-10-02T11:37:00.004+01:00

CSC is facing a (or is it another?) class action lawsuit which alleges that its Board fraudulently concealed from investors the true situation of the NHS contract.

According to an article in The Guardian, a respected UK broadsheet newspaper, CSC knew as early as May 2008, through reports and testing, that the Lorenzo package was "dysfunctional and undeliverable". It states that a member of the CSC project review team wrote directly to CEO Michael W Laphen telling him that the project was on a "death march".

Full details on

http://www.guardian.co.uk/technology/2011/oct/02/csc-sued-by-investors-nhs-contract?newsfeed=true

Will CSC tell us exactly what action Mr Laphen took when he received this news?

CSC Loses yet another Global President

2011-09-18T18:51:00.001+01:00

If you read the CSC web site and look up the list of global management there is an interesting omission from the normal list of roles. The one that is missing is that of Corporate Vice President for HR. Until last month this role was held by Denise Peppard who seems to have vanished. Why after just 16 months at CSC has Ms Peppard left? Why has not public statement been made about this loss of a very person at a very significant time for CSC? Did she jump? Was she pushed? Did she see the bullying and micro-management we have reported on, and gave up?

Given that earlier this month Russ Owen the President of MSS was removed from his post at CSC (see earlier post), and that Denise Peppard has ‘disappeared’ from CSC, have Stalinist type purges started at CSC? Who is next?

As has been well established CSC has been mismanaged for years, with services being criticised across the globe, with significant figures like the Prime Minister of the United Kingdom, Mr. David Cameron, saying they will not do business with the company. As profitability is in decline, the share price collapses, and staff complain about lack of training and investment, see WikiCSCleaks blog, it is all looking rather like Stalin and his Politburo has taken over CSC. But Stalin never had to worry about investors and shareholders. However, they seem to be rallying and are about to make their presence felt. Watch the news on 22^nd September for latest developments when the Class Action suit is filed.

Is CSC heading for another quarter of poor results?

2011-09-17T20:27:00.000+01:00

In removing Russ Owen from his position as President of CSC's Managed Services Sector (MSS), Mike Laphen has sent a message to the organization that he will not tolerate failure from anybody..... except from himself of course.

If Mr Owen was removed solely because of the Q1 (June 30) results,but the rest of the financial year's outlook is acceptable, why wait two months then act in September?. His removal in September suggests he has been unable to get the fiscal year outlook back on track.

Interestingly Mr Owen 'stood down' on September 16, just when CSC buiness units submit their last Q2 (Sept 30) financial forecast to Corporate headquarters. Could his fate have been sealed by his submitting a profit forecast below what Mike Laphen wanted?.

These factors suggest that CSC's Q2 (to September 30) results for the MSS sector could well be poor, as they were in Q1. Will there be any tax credits or other one-off financial accounting credits to recover the situation this time?

The whole Outsourcing/MSS industry sector has been experiencing profitability pressure for some years now as it matures and commoditizes. CSC has consistently cut and/or deferred planned and needed service delivery and technology investments to protect "this quarter's profit", but each time at the cost of mortgaging its future a bit more. Perhaps CSC's disappointing results are now reflecting the consequences of this approach. Maybe this is where the rubber hits the road, or where something more unpleasant hits the fan.

Russ Owen President for Managed Services takes the blame at CSC

2011-09-16T20:08:00.000+01:00

CSC has just announced that Russ Owen is the scapegoat for its Q1 profitability issue. See below announcement from Mike Laphen.

No doubt Owen must bear his share of the responsibility for CSC's problems, but he was in a difficult position given Mike Laphen's propensity for micro-meddling and his continual cancellation of investments in the Managed Services sector over the years.

Mike Laphen needed to divert attention from his major contribution to CSC's mess and this is what we see. .

It is unfortunate Mr Laphen felt the need to use the phrase "Russ Owen will... step down" just to make sure everyone understands he has been fired from the job. Given Russ Owen's long service and all he has contributed to CSC, it would have been nice to have used a more elegant phrase. But elegance and dignified treatment of employees has never been something Mike Laphen has been noted for.

From:	Mike Laphen - Chairman President and CEO
To:	CSC Employees
Date:	16.09.2011 16:44
Subject:	Leadership Change in Managed Services Sector

Today we announced that Russ Owen, who has led our Managed Services Sector (MSS), will step down as President of MSS, and assume the role of President, Strategic Account Development, effective immediately. In this capacity, Russ will focus on strengthening service performance and quality in specific accounts.

Peter Allen, in addition to leading Global Sales and Marketing, will assume the role of acting President of MSS, responsible for CSC’s Managed Services practices, including World Sourcing, Applications, Global Infrastructure and Enterprise Services, Market and Product Strategy, and Cloud and Software Services. As we advance CSC’s position in the global IT services market, MSS will play an important role by growing our applications business and ensuring service and delivery commitments and excellence.

Peter, who has also formerly served as group President of Strategy and Business Development for MSS, brings extensive expertise across the full spectrum of IT services. His intimate knowledge of our clients and the IT marketplace is a valuable asset as we bring greater innovation and competitive advantage to our accounts, and deliver on our profitability and growth goals.

Regards

Another CSC project in trouble due to poor performance

2011-09-16T15:02:00.000+01:00

NHS IT is not CSC's only public sector project in trouble. The US Air Force plans to halt a multimillion-dollar computer modernization project being handled by CSC because of poor performance by the company,

Further details on http://www.daytondailynews.com/business/jobs-in-jeopardy-after-air-force-plans-to-halt-multimillion-project-1252611.html

Another one to add to CSC's growing list of issues and failures!!