VideoAt 66, Michael Mancuso didn't have to prove himself to anybody. After a career that spanned 22 years with General Electric, 7 years with United Technologies, and 14 years with General Dynamics (13 of them as CFO), he might have contented himself with "chasing a little white ball around the grass."
So what made him come out of retirement on December 1, 2008, in the teeth of a recession, to become CFO of Computer Sciences Corp.? After all, at that point CSC was a stumbling information-technology-services giant that had just settled a decade of unresolved tax years, was the target of a Securities and Exchange Commission probe involving the backdating of stock options, and had just relocated from Los Angeles to Falls Church, Virginia.
Of course, although he doesn't mention it, the pay might have helped lure him off the links: in the first four months of the 2009 fiscal year — which for CSC ended April 3 — Mancuso earned $480,459. But there was also the pleasure of working with a free hand. Stepping into a slot where the company's controller, Donald DeBuck, was acting as finance chief, and CEO Michael Laphen needed an experienced executive to step in and relieve him of some of the huge amount of day-to-day responsibilities he was assuming, Mancuso was welcomed with open arms. "There was immediate acceptance of my experience and background," he says. "The board is very receptive and happy to have a seasoned CFO in the position at a very critical time."
The company, which reported revenues of $16.2 billion for the 12 months ended July 3, "really needed somebody to come in and quickly assess the situation and start effecting changes to allow the other folks to focus on the things they're supposed to focus on, like attracting and acquiring new business," says Mancuso.
- Michael Mancuso, CFO, Computer Sciences Corp.
Things had become a tad unraveled, to say the least. Before Mancuso arrived, CSC had been forced to issue a number of financial restatements as a result of the tax-accounting issues — which, ironically, ended up adding to company earnings rather than diminishing them. It had also undergone an investigation concerning stock-option pricing that ultimately did not reveal any violations, and on July 19 the company received a favorable summary ruling on a shareholder suit on the issue that had been filed in 2006.
CSC had grown significantly in the years preceding that rough period, which lasted from 2006 to 2008, according to the finance chief. The company grew rapidly historically and grew internationally. "A lot of the problems they experienced were the result of rapid growth without the support and infrastructure growing along with the expansion of the company, which gave rise to a lot of accounting problems and issues that manifested themselves in that two-year period," he says.
Still, the company maintains "a significant sweet spot," according to Mancuso. That's particularly so in a period in which the nation appears ready to set about integrating its medical records electronically, he believes. In an extensive interview with CFO.com on September 18, the finance chief discussed health reform, as well as CSC's tax issues, his decision to freeze the company's U.S. pension plan, and much more. An edited version of the conversation follows.
How has the tax issue played out?
In 2008 the company resolved 10 open years with the Internal Revenue Service and with a number of foreign jurisdictions as well. The actual settlement from a CSC standpoint resulted in about a $2.25 improvement to earnings per share as a result of the resolution of the open years.
How did the company manage to boost EPS as a result of failing to resolve 10 open years of audits?
Normally, any company takes a position in a tax return on certain deductions on the premise that they will be successful. However, the accounting rules require that if it's more probable than not that you will have a tax liability, you must establish a reserve. The reserve is charged to income. But if you're successful in resolving the issue with the taxing authorities either at the reserve amount or anything less, that reserve amount is adjusted back into income. So over the 10-year period, the company had taken a very conservative posture relative to the outcome of some of these tax positions and was successful in their negotiation.
The result was a return to income of the amount of overprovision. Now when you consider the size of the company and the fact that it was 10 years, it's not too difficult to assume that $2.25 of earnings per share could be attributed to the settlement.
What's your relationship with the tax department been like?
Certainly I'm fully supportive of the efforts of Diane Rohleder [the company's senior vice president for tax] and her new team in making sure that she is provided with the necessary resources. That's not only to preclude any repeat of the events of the past but to be proactive in the tax-planning area. So we're investing in improved tax software. We're actively looking at our tax organization around the world in our various operating components to make sure that we have the proper skill set.
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