Wednesday, 16 December 2015

CSC's New Chairman.....No!!

CSC has announced the retirements of Rodney Chase and Erik Brynjolfsson from its Board of Directors. It all seems to be very sudden. The announcement was made yesterday and already today their names have disappeared from the CSC website. It's like the fate of those who became "non-persons" in George Orwell's "1984", it is as if they never existed.

We wonder why Mr Brynjolfsson retired. He is relatively young, he only joined CSC's Board in 2010 and he is an acknowledged international expert in his field.
However, we shed no tears over the departure of Chairman Rodney Chase. As a non-exec he would have been directly involved in the ill advised nomination of Michael W Laphen to the posts of President and Chairman. He also failed to act when it was clear that Michael Laphen was in denial about CSC's real situation when the company was being driven to the edge of the cliff. He seems to have been too "Laphen compatible" and we think applied the same approach to his responsibility to oversee Michael Lawrie.

So we welcome a change of Chairman, but are astounded that CSC has named Michael Lawrie to this role. We have seen nothing to suggest he is stepping down from his executive positions as President and CEO. So CSC goes back to concentrating power and authority in the hands of one person, as it did previously. This is poor Corporate governance, and takes CSC back to the construct that allowed Michael Laphen to bring the company to its knees. Our response to this is a clear NO! Has CSC learned nothing from the Laphen era??

The CSC announcement talks about the nomination of Bruce Churchill as Lead Independent Director being a demonstration of the company's commitment to Corporate governance. The nomination of an outside director as Chairman would have been a much greater show of commitment than increasing Mike Lawrie's omnipotence

Thursday, 12 November 2015

Netcracker to Nutscracker - Ouch!

Ignorance, dishonesty, incompetence or just greed at CSC? - The little boy seems to know.

A few days ago, an article on the website of “The Register” in the UK talked about a fine of $1.35 million which CSC had agreed to pay for using workers without security clearance on a US Department of Defense contract.  CSC paid up but protested its innocence.
The article read as if CSC has overlooked security clearances, had made some administrative error or had failed to follow due process. However the full story, as reported today by Allgov, is far more serious than just administrative oversights. 
We want to underline here that the incidents took place during the tenure of Michael Laphen as CSC’s CEO, before the arrival of Mike Lawrie and the current CSC senior management team.

Here is an extract of what Allgov reported:

Cost-Cutting Contractor Allowed Russian Programmers to Infect Pentagon Computers

A defense contractor working for the Department of Defense handed off part of a communications system upgrade to another company that hired Russian programmers to do the work—and who infected the system with viruses.
The fiasco began in 2008 with Computer Sciences Corporation, which had a $613 million contract with the Defense Information Systems Agency (DISA). The deal involved writing software for sensitive U.S. military communications systems that should have been handled only by U.S. workers with the necessary security clearances. Instead, Computer Sciences Corporation farmed out some of the work to subcontractor Netcracker Technology Corporation, a Massachusetts-based firm that hired programmers in Russia to write code for the project.

Another contractor, John C. Kingsley…..discovered the offshoring and informed Pentagon officials in 2011 what was happening, (warning that)  the Russian-made software made it possible for the Pentagon’s communications systems to be infected with viruses. He said Netcracker used the Russians because they worked for a third of the cost of U.S. programmers.

“On at least one occasion, numerous viruses were loaded onto the DISA network as a result of code written by the Russian programmers and installed on servers in the DISA secure system,” Kingsley said.

The US Justice Department still may pursue criminal charges against the companies.

(End of quote; Full details on

It almost defies belief that CSC could have farmed out this work to a company which then subcontracted to Russians. Why did CSC do this? What would cause somebody to potentially compromise the national security of their own country? Was it sloppiness? Was it incompetence? Was it the pressure to “make the numbers” at whatever cost?  Or was it simply greed, an opportunity to increase profits and thus increase management bonuses?

This is another unsavoury episode from the Laphen era, to put alongside massive write-offs, shareholder lawsuits, SEC 
investigations, customer disputes, accounting irregularities in many countries, flights of rendition, and the UK NHS fiasco.

The US Department of Justice is considering criminal charges against the company. This is unfortunate as it may just lead to another massive fine to be borne by the current shareholders.
We would much prefer to see criminal charges brought personally against the senior CSC executives who were responsible for running the company,  starting with Michael Laphen, those who were responsible for this particular business, and those who collected bonuses from the profits it yielded. Will they once more claim ignorance and incompetence,  saying they were totally unaware of the problem, as in the shareholder class action lawsuits arising from NHS?
How can it be that nothing of these events came to light until a whistleblower informed the Department of Justice in 2011?  How can one believe that nobody in CSC ever knew about it? Was nobody in CSC overseeing what Nutcracker was doing?
What about CSC’s non-executive directors of the time, who were being very well paid indeed to ensure oversight over the running of the company. Where were they when all this was happening? How about charges being brought against them for negligence?
Finally, what about the customers in all this?  If CSC does not pay sufficient attention to critical elements of national security, if nobody in CSC management sees major problems  (or sees them, but  keeps quiet about it) then how much trust can anybody put in CSC?

As the holiday season is near book your tickets for a Nutcracker at your local theatre. Seeing this fairytale will be more fun than worrying about the CSC hours story.

by Littlejohn 

Thursday, 5 November 2015

CSC 2nd Quarter 2016 Results

CSC has announced its results for the second quarter of this financial year. The results are unsurprising consisting as they do of further declines in revenue across the board, adjusted’ results like EPS meeting expectations and cash flow improvements on previous quarter. The results are also unsurprising to Mike Lawrie who kept repeating that "this (revenue decline) was expected".  
Mr Lawrie and Paul Saleh are sounding more and more like their unlamented predecessors explaining that without this special item, that charge and the other unusual item, the results are so much better than they look. In doing so they seem to have overlooked that Generally Accepted Accounting Principles (GAAP) exist for a reason, which is to clearly report the performance of a company; not just to allow executives to explain what they think the results should have been. Mr Lawrie continues to see great things on the horizon, with next generation offerings, great growth in new markets and so on. Just as his predecessor Mike Laphen did in 2010 when he told us CSC had everything needed to succeed.
Note how the figures that matter, like how much revenue did CSC earn, the ones that are difficult to adjust, show a company getting smaller every quarter; while other financial figures that are adjusted for special events’ and currency’ show improvements. Strange that dont you think?

We did learn from Mr Lawrie that CSC businesses are now "orchestrators", whatever that means. It is a pity none of the analysts asked what it means. Perhaps it means CSCers are not players any more!

On this earnings call the analysts were even more docile than usual, and allowed Mr Lawrie to push many questions to "tomorrow", meaning the Investor Conference of 5 November.

All in all, the results seem to be smoke and mirrors produced to suit investors and not much else. In this respect Mr Lawrie has been very successful. He has managed to drive CSC's share price to a level that was unthinkable when he joined the company.
He has planned a split of the company (yet to happen and running late)  which will allow investors to hedge their bets for the future, and collect a large cash dividend to be paid out very soon. The share prices been kept long enough to allow all prudent investors to cash in a good return before reality hits, which it certainly will sooner or later.

He has achieved all this while presiding over the decline of a once great company. How does that return share holder value over the long term?

The above is really why there are so few new posts recently from Cassandra. There is really nothing more to say about CSC, as it should be obvious by now to all staff and potential customers that CSC is now a vehicle for asset stripping and stock ramping.

It is Déjà Vu all over again!

Thursday, 13 August 2015

Ground Hog Day ...... Or CSC 1 FY2016 Earnings Release

Many of our readers will have seen the film "Groundhog Day"
featuring Bill Murray and Andie McDowell.

A film in which cynical and unpleasant TV presentor keeps reliving 

the same day over and over again. Over time, this experience 

makes him a better person.

We are having our Groundhog Days with CSC Earnings Releases, 

but nothing is getting better in our opinion.

The latest Groundhog Day, on August 11, concerned Q1 FY 2016 

earnings. And we relived the past once more. EPS was $1.11, up 

8% and $0.10 over analysts' expectations. Operating Margin was up 

by 0.20%. Free Cash flow was $120 million for the quarter, up $50 

million, though one analyst said he thought this had more to do 

with CSC changing its definition of free cash flow, and less to do 

with superior operating performance.

But revenue was down 14.7% year on year, somd $50 million below expectations, and new business bookings were a lacklustre $3.2 billion. Mike Lawrie attributed this to "currency headwinds" and the fact that Q1 last fiscal year had an extra week, But do not be fooled, revenue is still declining at CSC, irrespective of Mr Lawrie's explanations.

Messrs Lawrie and Saleh did their usual job of talking up market changes,  next generation offerings, Cyber, Big Data, Mobility and so on. The only new news was the announcement that CSC is making two relatively small acquisitions to complement its portfolio of next generation offerings. Oh yes, and Mr Lawrie said he felt the US Federal Government market was in a phase of  "consolidation", by which we assumed that he meant that the plan is indeed to sell the new CSC US Public Sector Business. 

Once again, Wall Street's initial reaction was to buy CSC's story, as the share price jumped over 4%. We on the other hand remain very skeptical about the outlook for CSC.

Wednesday, 15 July 2015

Them that's got shall have,............a whole lot more

This very pertinent comment has been given its own posting in order to highlight the crucial points it makes.

Anonymous has left a new comment on your post "Progress Report":

While we are "discussing" whether or not we will be getting an almost zero salary increase and/or bonus, the Proxy Statement for this year's Stockholders Annual Meeting reveals some interesting numbers. Here are the total FY2015 compensation numbers for the 6 members of the CSC Executive Committee...

J. Michael Lawrie $15,353,880
Paul N. Saleh $4,492,392
Romil Bahl $5,304,472
Ashish Mahadwar $4,283,596
James R. Smith $3,047,853
Gary M. Budzinski $3,369,514

That's $36 Million split between 6 individuals. That is truly obscene when the workers are slaving away for a measly $500 - 1,000 annual salary increase or a $1,000 or $2,000 bonus.

My measly few hundred shares of CSC stock voted NO to reelecting ALL of the existing Board of Directors and an EMPHATIC NO to the 2016 proposed compensation which will get them even MORE.

Tuesday, 23 June 2015

Progress Report

Back in February 2012 The Cassandra Team put together an open letter to Mike Lawrie giving him our best wishes with a few pointers that he might like to consider for rebuilding CSC.

Was the advice any good?

Was any of the advice taken on board?

How do our readers think he is doing? 

The letter begins ..............

Dear Mike,

Congratulations on being elected President and CEO of CSC and our best wishes for every success.

As you get in-depth briefings and advice from Messrs Laphen, Mancuso and Chase, bear in mind that they carry more responsibility for CSC’s difficulties today than anybody else.  And if you follow their advice you will probably achieve the same result as they did, meaning abject failure. So we’d like to give you our advice based solely on our desire to see CSC succeed once more.

· Position your arrival as a major change in direction, culture and approach for CSC,  not as an evolution or some form of continuity with the past.  Harness the employees’ frustrations with the management style of the past 5 years to get their commitment and buy in to your vision of CSC. 

·  Set a clear strategic direction, communicate it then get the organization behind it.  If CSC has had a direction over the past 5 years it is a well kept secret. Boosting this quarter’s earnings or plugging the hole in this quarter’s profit is not a strategic direction.

·  Decide in which areas CSC will be world leader  and make the investments to support those decisions. CSC was recognized as a world leader in selected domains 10 years ago.  Today it is viewed as a “me too” player.  It has missed many market changes and opportunities in the past years due to its obsession with maximizing this quarter’s earnings at the expense of everything else, including investments in the future. 

·  Put the clienthis business needs and the CSC solution to these needs back at the center  of the management agenda. CSC has lost this. Internal debates, administration, cost cutting, inspection of 'numbers', organization models etc dominate the management agenda today which means the customer comes last and the employees nowhere.

· Decide your organizational and operating model and give senior executives the option of implementing it fully or leaving the company.   CSC has been going round and round this topic, especially in Europe, for years.  In theory there is one global organization per the Corporate model, but in reality there are local fiefdoms run by powerful barons. CSC must behave as one global organization, not as a franchise operation. 

·  Put small company values back into CSC, which  used to be a large company with the positive values of a small company. It was nimble, it could take decisions quickly. It could quickly deploy a top-class team of experts from all over the world to address a client opportunity. It could swiftly bring together executives of all levels, from technical expert to CEO, to address urgent client matters and take decisions while the competition was standing still. Today, CSC stands still, a small company with a heavy bureaucratic decision making process, (or often an “absence of decision” making  process) while nimbler competitors thrive. 

·  Change the “Tone at the Top” .   This phrase was used to describe the change needed in management attitudes in Nordic. But the most important and most needed change in the “tone at the top” is at the very top levels of CSC, to bring reality into line with the values the company claims to espouse. 

Why did no “whistle blower “ feel comfortable enough to warn CSC Corporate that they suspected something unusual was happening in Nordic when the irregularities started  long before they reached the $100million?  Did Messrs Laphen  or Mancuso ever ask themselves that question? Did they try to find out how other employees’ concerns, or allegations of inappropriate management behavior or actions had been handled in the past?  Did they ever try to see if there was a correlation between employees making complaints and leaving the company soon afterwards?

CSC should have one common set of behavioral standards, and the example must come from the top.  Credibility in management is destroyed when the executive decision makers grant exceptions from their own rules for themselves. 

Stop “killing the messengers” who try to raise issues or bad news.   This approach never solves the problem, it just encourages people to hide things from the management. If you can persuade employees to discuss their problems openly with you and your executive team you will have made a big step forward. Today many, many employees feel that “keeping their heads down” is their safest and best option.  

Get back to treating all employees with respect, including (or especially) those you must terminate.  

·  Introduce a CSC website that reflects your vision and ambitions for CSC.      After all, the website is the company’s window onto the world. The current website has no sparkle, no excitement and does not make the reader want to look inside it. It is the website you would expect from an administrative organization. In that respect it reflects well what CSC is today. Make it represent the CSC you want in 2017.  

We would like to repeat our best wishes for success. The value of our holding in CSC over the past 18 months reminds us that we have got literally thousands of reasons to want to see a successful and thriving CSC. 

Good luck !

The Cassandra Team

Tuesday, 2 June 2015

Finally, an analyst gives a business view of CSC

While some of the spreadsheet-focused financial analysts continue to upgrade their outlook for CSC,  Adam Hartung writes a business analysis in the Forbes magazine, that shows just how wrong they are.

It is quite damning.

We have had comments from a number of current and former CSC insiders on the Forbes article. Many different slants and perspectives, but an overwhelming majority said they think Forbes has got it right.

There is nothing more we need say about it; the article speaks for itself.

Friday, 29 May 2015

Nemesis in the guise of the SEC stirs

The New York Times has reported that the SEC settlement with CSC relating to its accounting irregularities may be voided due to disagreements within the SEC.

Details on:

The article says that the SEC officials who are opposing the settlement may withdraw their disagreement in return for proceedings being brought against a former Controller of the company. This Financial Controller is not named. I may be wrong, wasn't Donald G DeBuck CSC's Corporate Controller at the time of the accounting irregularities?

Whoever the Controller involved is, it seems incredible that there could be SEC proceedings against him or her while the CEO and CFO at the time, Michael Laphen and Michael Mancuso escape punishment. What happened to the concept that "the buck stops at the top"??

Whatever; I cannot imagine Mike Lawrie is too pleased by the prospect of this SEC investigation reopening. 

Wednesday, 20 May 2015

“Smoke gets in your eyes” or CSC Q4 FY2015 earnings

CSC announced its Q4 FY2015 earnings and held its Analyst Conference Call on May 19, a week later than in previous years. 

We had wondered why the delay, and found out yesterday, as the earnings announcement itself was overshadowed by the other news Mike Lawrie had for us. 

This posting looks solely at Q4 FY2015 earningsAnd it was “back to the future” once again with earnings beating Wall Street profit expectations (after adjusting for this unusual item and that one-off impact), allied to accelerating revenue declines.   

Non-GAAP earnings per share, excluding exceptional items, one-offs and the like, came in at $1.26, compared with Wall Street consensus of $1.20 and actual earnings of  $1.16 for Q4 FY14.   Without the unusual and/or one-time itemsEPS for the quarter was only $0.06.  

Back in the latter days of Mike Laphen’s tenure as CEO, as the quality of CSC’s profits deteriorated, we saw earnings announcements with more and more reconciliations and explanations of  “adjusting for this unusual  item and that one-off impact”.  Are we heading in that direction again? 

There was nothing remarkable about the Q4 FY2015 earnings announcement, just a worrying set of numbers. Profits are maintained by continued cutting of costs and laying-off more and more skilled technical staff.  

Revenue for Q4 FY2015 was a different story. While the US Public Sector remained almost flat with Q4 FY2014, the commercial revenue decline is accelerating, being 17% down on Q4 FY2014 in constant currency.  Neither of the two segments of commercial revenue (Global Business Solutions and Global Infrastructure Services) achieved $1 billion revenue for the quarter.    

The operating margins of Business Solutions for Q4 FY2015 were satisfactory at 13.5%,  while Infrastructure Services showed an operating loss of just over 5% for the quarter.   Mike Lawrie’s  explanation of the reasons for this loss (“price-downs, restructurings and contract completions”) is plausible but not comforting for the future. These underlying issues have been heading in CSC’s direction for quite some time and will not just go away. It is hard to see how things will improve substantially unless Mike Lawrie’s optimism about the positive impact of next generation offerings turns out to be well-founded (for once?). 

Lastly, new business bookings for Q4 FY2015 were anaemic at $3.4billion, down a massive 20% on Q4 FY2014

Thus it looks like CSC can only maintain profitability by cutting loose old loss making accounts, which many would see as sensible. However, the problem is CSC does not appear to be able to turn badly performing accounts or services into profitable ones - it just gives up on them - or indeed sell new profitable services. Anyone can slash and burn and leave the wounded to the wolves. It takes imagination to create and grow something. We see nothing about the results or announcements of yet more lay offs that will change that view.

Cutting through the smoke and one-offs,  our major “take away” from the earnings announcement is heightened concern about the continuing, indeed accelerating, revenue declines.  

prepared by Littlejohn