Saturday, 12 February 2011

Who's minding the store at CSC? part 2

CSC has told us that the impact of the accounting irregularities at CSC Nordics now has reached $80m. They inform us that the employees responsible have now left the company. Have they really??

The employees concerned in Nordic have no doubt left CSC. But what about the CSC executives with Corporate oversight responsibilities who failed to notice what was happening? Are they still with CSC?
It is hard to believe that responsibility for this begins and ends in Nordic. Here's why:

1. The irregularities seem to relate to deferred (outsourcing) contract expenses which were inappropriately capitalised on the balance sheet. But I cannot recall any major contract wins in Nordic announced by CSC over the past couple of years. Did nobody in CSC think it unusual that the deferred expenses on the balance sheet was increasing, without any significant contract wins? Or was nobody outside Nordic looking at the the balance sheet? What was the Finance function at European and Corporate Headquarters doing? Had they all been redeployed to travel and expense checking or had they been made redundant?

2. Good practice requires a budget be established for capitalised deferred expenses at the level of each contract, and that someone in the company monitor performance against the budget. Did nobody in CSC European and Corporate Headquarters question or even notice the variances against this budget? Or did CSC not attribute budgets to these costs?

3. Is CSC's senior management in Europe and Corporate so out of touch with business reality that they could not simply look at the financial statements of Nordic and say to themselves "Given my knowledge of the business, something just does not feel right about these numbers?". I would expect any good senior business or finance manager to be have such an instinct for the numbers.

4. I do not know CSC Nordic's revenue or profit. But CSC in its press release indicated that the Danish kronor made up 3% of its currency exposure. So let's assume Nordic revenue of 3% of about $16.5bn, which gives close to $500m. Let's assume profit before tax of 8%, which makes $40m for a year. These numbers are just guesses. But even allowing for a significant margin of error, it means the accounting irregularities in Nordic could account for over 1 year's or even 2 years' profit.......and nobody in CSC's management hierarchy noticed?

CSC tell us the people responsible for this problem have left the company. Would CSC tell us why their Corporate oversight functions failed to notice the irregularities in a small unit before they became significant to the Corporation and to its shareholders. And have these people also left the company?
posted by Littlejohn

Friday, 11 February 2011

Who's minding the store at CSC

What on earth is going on in a company that can allow 'mistakes' of $40,000,000 in a tiny subsidiary like CSC Nordics to double to $80,000,000 in the space of a few months.
As mentioned before these problems were known about within CSC in the mid-Summer of 2010 (when the fall guys were fired) but never got reported by them until November 2010. Now three months later in early February 2011 another $40,000,000 comes to light.

What's going on in the rest of subsidiaries?

Who's minding the store?

Thursday, 10 February 2011

CSC management reaps what it has sown

by Littlejohn - a guest contributor

The only surprise about CSC cutting its FY2011 earnings forecast is that anybody who follows the company could be surprised by it. In fact if analysts were doing more research about how the company is run and its people they might learn more than just by studying spreadsheets and the company's own propaganda. Here's why;

For some years now, CSC's Corporate management has imposed unachievable revenue and profit targets on its operating units without heed for market conditions, client needs, service delivery needs, investments needs and other support requirements. .

CSC's Corporate management refutes any news it does not like, such as an operating unit's inability or difficulty to meet budget. It rejects the input of the operating management with suggestions that the real problems are lack of commitment and effort. .

As operating performance falls below Corporate's unrealistic expectations. further arbitrary targets are assigned to business units, Operating management becomes disillusioned. Some decide to stop trying to tell the truth as they see it, as the Corporate management is only interested in hearing what it wants to hear.

Over these few years, investments in technology, service delivery, sales and staff development have been curtailed. Salaries are being reduced in the US. More attention is put into multi-layer micromanagement of costs than into generating sales. Revenue growth stalled some time ago. Now the costs barrel has been scraped to emptiness. CSC has no cushions left.

The lack of revenue growth, the inappropriate accounting issues in Nordic (now subject of an SEC investigation), this week's drop in earnings forecasts and CSC's high turnover of senior executives are all related. They are the results of CSC's current management ethos. Until this is changed, CSC will continue to decline and its share price significantly underperform expectations and competition.

Wednesday, 9 February 2011

CSC earnings in retreat and share price collapses

It should come as no surprise to any of our regular readers that CSC's results are getting worse. They have managed to get away with 'ensuring' earnings have held up over the last few years but after scrapping every barrel in sight and by not winning much new business which provides an opportunity to 'prepare' results in the best light, there is nowhere left to hide. As The Sage Of Omaha says "The tide has gone out and the naked swimmers can be seen."
Also the recent financial fiasco in Nordics, as well as managers leaving other subsidiaries rather than report the earnings that corporate wanted to see all adds up to a badly managed and badly led business.
We will remind readers that in very single country in Europe in the last few years every single finance chief has resigned, and also only one country chief is left. These do not point to a well managed company.

See latest international reports:-

CSC shares tumble after company cuts forecasts
Feb 9, 2011 3:58 PM GMT
By The Associated Press

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FALLS CHURCH, Va. (AP) — Shares of Computer Sciences Corp. tumbled more than 13 percent in morning trading Wednesday as the company cut its earnings-per-share and revenue forecasts for the full fiscal year.

The Falls Church, Va., information technology services provider reduced its full-year earnings-per-share forecast to $5.20 and its revenue forecast to $16.2 billion. Last quarter the CSC predicted full-year earnings of $5.35 to $5.45 per share on revenue of $16.5 billion to $17 billion.

The forecast fell below analysts' expectations, and CSC shares dropped $7.37 to $49.17. For the full year, analysts polled by FactSet had expected earnings of $5.37 per share on revenue of $16.54 billion.

Chairman and CEO Michael Laphen attributed the decrease to "the sluggish pace of new business awards" in its North American public sector, but said the company remains confident that its businesses will grow in line with longer-term projections.

The company also said Wednesday its fiscal third-quarter net income rose 14.7 percent on increased revenue from all of its business sectors.

For the three months ended Dec. 31, CSC said it made $242 million, or $1.54 per share, up from $211 million, or $1.36 per share, in the same period a year earlier.

Revenue was just over $4 billion for the quarter, up 1.4 percent from $3.95 billion in the year-ago quarter.

Analysts, on average, expected earnings for the quarter of $1.46 per share on revenue of $4.14 billion.

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