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Sunday, May 22, 2022

Acquisition Brings in Dollars At Cost for Computer Sciences

From Wall Street to Main Street, the perceptions can seem worlds apart. Take Computer Sciences Corp.’s 2003 purchase of DynCorp, the world’s 13th largest private military contractor.


In Afghanistan, the company protects President Hamid Karzai. In Iraq, DynCorp employees are helping train and advise the Iraqi national police force.


But with hundreds of employees on the ground in battle-scarred areas, it wasn’t long before press reports were referring to DynCorp as “rent-a-cops” and “mercenaries.”


The worst blow has been a rash of deaths from its operations overseas. An Oct. 15 bomb in Baghdad killed at least three Dyncorp employees, injuring two with another presumed dead. The body of another man, who was working for Dyncorp as a bodyguard, was held for ransom after he was killed when his convoy was ambushed. The company will not disclose the number of employees who have been killed or injured on the job.


“It’s always difficult to lose fellow employees. However, everyone who goes overseas understands and is aware of the risk associated with the assignment,” said Mike Dickerson, a spokesman for El Segundo-based CSC.


CSC’s risk-taking has been rewarded handsomely on Wall Street, where its stock last week was closing in on a two-year high of $50 a share.


Not surprisingly, Wall Street has taken the employee death toll in stride, focusing instead on CSC’s improving financial performance.


“To some degree, I’ve been surprised that people haven’t speculated more in terms of the negative implications,” said A.G. Edwards analyst Timothy Willi. “They’ve had a number of employees lose their lives and it’s unfortunate but that’s part of the business.”


One large U.S. government award has been a five-year, $1.75 billion agreement with the State Department to provide personnel, logistics, management and construction services to support police and prison operations in Iraq and Afghanistan. The contract also includes protection of U.S. officials in Israel and U.N. missions in Bosnia.


DynCorp, based in Reston, Va., has provided police officers for operations in the Balkans and pilots for the U.S.-led war on drugs in South America. It also provided logistical equipment and training for rebel groups in southern Sudan, and was contracted to operate and maintain helicopters for the Australia-led U.N. mission in East Timor.


For the year ended April 2, CSC reported an 18 percent jump in net income to $519.4 million from $440.2 million in the previous fiscal year.


Revenues surged 30 percent to $14.7 billion from $11.3 billion in fiscal 2003. Much of that increase was driven by DynCorp.


The acquisition has helped CSC expand its services to federal agencies while lessening its reliance on piecemeal work. Nearly 80 percent of its revenues come from long-term contracts with commercial customers or the federal government.


In the 1980s, federal contracts made up as much as two-thirds of CSC’s revenues. It beefed up its professional services units in the 1990s to shift its business mix to IT and outsourcing contracts with large conglomerates and, to a lesser extent, the federal government. Now the revenue breakdown has been reversed again.


In the past year, revenues from the federal government and civil agencies have been the biggest drivers of growth. Today, the federal government accounts for 41 percent of overall revenues, compared with 29 percent in 2003.


Though CSC does not expect to get another 30 percent jump in revenue growth in 2005, it will benefit from the growing demands of the U.S. government, with increased spending in areas of defense, homeland security, civil agency modernization and education.


William Loomis, an analyst at Legg Mason Wood Walker, has a “buy” rating on the stock. He said that while CSC’s top line revenue growth has been aided by the DynCorp purchase, Wall Street favors the rebound in its commercial outsourcing business, particularly in Europe.


Strengthening IT outsourcing, driven by companies’ desire to reduce costs, helped boost CSC’s shares by 26 percent in the past year, to $49.75 as of Oct. 27.


Driving the growth was a 10-year, $2.4 billion contract to manage the IT operations of Royal Mail, Britain’s postal service, which involves taking over its data centers, data networks and 1,470 IT employees.


Last week, CSC landed a 10-year, $1.1 billion contract to manage Textron Inc.’s data center, network operations and technology help desk.


Analysts say CSC has capitalized on problems at IT competitor Electronic Data Systems Corp., which ran into trouble managing the U.S. Navy/Marine Corps intranet, prompting a credit downgrade and inquiry from the Securities and Exchange Commission.


“Overall, we think things are moving in the right direction at CSC,” Loomis wrote in a recent report.


Staff reporter Kate Berry can be reached at (323) 549-5225, ext. 228, or at

kberry@labusinessjournal.com

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