CA Technologies (NASDAQ:CA) today reported financial results for
its third quarter of fiscal year 2013, ended December 31, 2012.
FINANCIAL OVERVIEW
Third Quarter FY13 vs. FY12 (in millions, except
share data)
FY13 FY12*** %
Change % Change CC** Revenue $ 1,195 $
1,263 (5 %) (4 %) GAAP Income from continuing
operations $ 251 $ 263 (5 %) (3 %) Non-GAAP
Income from continuing operations* $ 288 $ 319 (10 %)
(8 %) GAAP Diluted EPS from continuing operations $ 0.55
$ 0.54 2 % 4 % Non-GAAP Diluted EPS from
continuing operations* $ 0.63 $ 0.65 (3 %) (2
%) Cash Flow from continuing operations $ 566 $ 396
43 % 42 %
* Non-GAAP income and earnings per share are non-GAAP financial
measures, as noted in the discussion of non-GAAP results below. A
reconciliation of non-GAAP financial measures to their comparable
GAAP financial measures is included in the tables following this
news release.
**CC: Constant Currency
*** Third Quarter FY12 included a single license payment for $39
million in connection with a 2009 litigation settlement. In the
third quarter of fiscal year 2012, the payment added $39 million in
our Mainframe Solutions segment and in the software fees and other
line of revenue; approximately 2 percentage points to GAAP and
non-GAAP operating margin; GAAP and non-GAAP operating income of
$36 million; GAAP and non-GAAP EPS of $0.05; and cash flow from
continuing operations of $39 million.
EXECUTIVE COMMENTARY
“I am very pleased to be a part of the CA Technologies team,”
said CA Technologies CEO Mike Gregoire. “While we are encouraged by
improvements we saw in the business during our third quarter,
including increased demand for our Nimsoft, Infrastructure
Management and Service Virtualization offerings, we know that we
need to do more to accelerate innovation, gain market share and
better differentiate our solutions in the marketplace.
“We also know there is room for improvement in our cost of sales
and in the speed and intensity with which we pursue our
objectives,” he continued. “Over the next few months we will
perform a detailed diagnostic of where we are, and lay out a plan
on how to achieve our strategic and financial goals.”
REVENUE AND BOOKINGS
About 62 percent of the Company’s third quarter fiscal year 2013
revenue came from North America, while 38 percent came from
International operations.
Revenue year-over-year:
- Total revenue was $1.195 billion, down
4 percent in constant currency and 5 percent as reported. A $39
million single license payment the Company received in the third
quarter of fiscal year 2012 added 3 percentage points to the
decrease in the third quarter of fiscal year 2013 revenue.
- Total revenue backlog was $7.488
billion, down 8 percent in constant currency and 7 percent as
reported. The current portion of revenue backlog was $3.495
billion, down 2 percent in constant currency and as reported. The
Company continues to see a drop in backlog as contracts come off
the balance sheet prior to an expected increase in the fiscal year
2014 renewals.
- North America revenue was $745 million,
down 6 percent in constant currency and as reported. The single
license payment contributed 5 percentage points to this
decrease.
- International revenue was $450 million,
down 2 percent in constant currency and 5 percent as reported.
Bookings year-over-year:
- Total bookings in the third quarter
were $1.261 billion, down 2 percent in constant currency and as
reported. The single license payment in the third quarter of fiscal
year 2012 added 3 percentage points of decline to fiscal year 2013
total bookings. The Company executed a total of 18 license
agreements with incremental contract values in excess of $10
million each, for an aggregate contract value of $477 million.
During the third quarter of fiscal year 2012, the Company executed
a total of 12 license agreements with incremental contract values
in excess of $10 million each, for an aggregate contract value of
$452 million.
- The weighted average duration of
subscription and maintenance bookings for the quarter was 2.97
years, compared with 3.53 years for the same period in fiscal year
2012.
- North America bookings were $685
million, down 11 percent in constant currency and as reported. The
single license payment in the third quarter of fiscal year 2012
added 5 percentage points of decline from the year ago period.
- International bookings were $576
million, up 13 percent in constant currency and 11 percent as
reported.
EXPENSES AND MARGIN
Year-over-year GAAP results:
- Operating expenses, before interest and
income taxes, were $825 million, down 2 percent in constant
currency and 3 percent as reported.
- Operating income, before interest and
income taxes, was $370 million, down 10 percent in constant
currency and as reported.
- Operating margin was 31 percent, down 2
percentage points from the prior year period.
Year-over-year non-GAAP results exclude purchased software and
other intangibles amortization, share-based compensation, and
certain other gains and losses. The results also include gains and
losses on hedges that mature within the quarter, but exclude gains
and losses of hedges that do not mature within the quarter.
- Operating expenses, before interest and
income taxes, were $767 million, down 1 percent in constant
currency and 3 percent as reported. The decrease in operating
expenses was primarily due to lower general and administrative,
sales and marketing and product development costs, offset in part
by higher severance costs.
- Operating income, before interest and
income taxes, was $428 million, down 9 percent in constant currency
and 10 percent as reported.
- Operating margin was 36 percent, down 2
percentage points from the prior year period.
The single license payment added $0.05 to GAAP and non-GAAP
earnings per share and 2 percentage points to GAAP and non-GAAP
operating margin in the third quarter of fiscal year 2012.
For the third quarter of fiscal year 2013, the Company’s
effective GAAP tax rate was 29.9 percent, compared with 34.9
percent in the prior year period. The Company’s effective non-GAAP
tax rate was 30.7 percent, compared with 31.5 percent in the prior
year period.
SEGMENT INFORMATION
- Mainframe Solutions revenue was $622
million, down 8 percent in constant currency and 9 percent as
reported. The single license payment in the third quarter of fiscal
2012 contributed 6 percentage points to the year-over-year decline.
Operating expense was $248 million and operating profit was $374
million. Operating margin was 60 percent, up 1 percentage point
from a year ago.
- Enterprise Solutions revenue was $476
million, flat in constant currency and as reported. Operating
expense was $426 million and operating profit was $50 million.
Operating margin was 11 percent, down 1 percentage point from a
year ago.
- Services revenue was $97 million, down
5 percent in constant currency and 6 percent as reported. Operating
expense was $93 million and operating profit was $4 million.
Operating margin was 4 percent, down 7 percentage points from a
year ago.
CASH FLOW FROM CONTINUING OPERATIONS
Cash flow from continuing operations in the third quarter was
$566 million, compared with $396 million in the prior year. The
quarter included an increase of $150 million in single installment
payments year-over-year, primarily attributable to one single
installment payment of more than $100 million.
CAPITAL STRUCTURE
- Cash, cash equivalents and investments
at Dec. 31, 2012 were $2.548 billion.
- With $1.301 billion in total debt
outstanding and a borrowing position of $140 million on the
Company’s notional pooling arrangement, the Company’s net cash,
cash equivalents and investments were $1.107 billion.
- During the quarter, the Company
repurchased 3.4 million shares in the market for approximately $75
million.
- The Company is currently authorized to
repurchase an additional $579 million of common stock through
fiscal year 2014.
- The Company’s outstanding share count
at Dec. 31, 2012 was 451 million.
- During the quarter, the Company
distributed $114 million in dividends.
BUSINESS HIGHLIGHTS
During the third quarter, the Company announced:
- Michael P. Gregoire’s election as the Company’s chief executive
officer and addition to the Company’s Board of Directors, and Bill
McCracken’s retirement as chief executive officer and Board member,
effective January 7, 2013.
- Adoption of a Stockholder Protection
Rights Agreement to replace the Company’s existing Rights
Agreement, which expired on November 30, 2012.
- That it placed fifth out of 500 in
Newsweek’s 2012 Green Rankings of U.S. companies, up from
ninth place last year. The Company ranked second in its
industry sector, information technology and services.
- That it has enhanced CA Nimsoft
Monitor with advanced network flow analysis, enabling customers to
visualize their IP traffic in ways that can assist them in
optimizing application service levels.
- New versions of CA IT Asset
Manager and CA Service Desk Manager which empower IT
organizations to work smarter, mitigate risk and deliver more value
to the business.
OUTLOOK FOR FISCAL YEAR 2013 Update
The Company reaffirmed its revenue and GAAP and non-GAAP
earnings per share from continuing operations and cash flow from
continuing operations guidance for fiscal year 2013. The following
guidance consists of "forward-looking statements" (as defined
below).
The Company expects the following:
- Total revenue growth in a range of
negative 3 percent to negative 1 percent in constant currency. At
Dec. 31, 2012 exchange rates, this translates to reported revenue
of $4.58 billion to $4.67 billion.
- GAAP diluted earnings per share from
continuing operations growth in constant currency in a range of 8
percent to 12 percent. At Dec. 31, 2012 exchange rates, this
translates to GAAP reported diluted earnings per share of $2.00 to
$2.08.
- Non-GAAP diluted earnings per share
from continuing operations growth in constant currency in a range
of 6 percent to 10 percent. At Dec. 31, 2012 exchange rates, this
translates to reported non-GAAP diluted earnings per share of $2.36
to $2.44.
- Cash flow from continuing operations
growth in a range of negative 8 percent to negative 4 percent in
constant currency. At Dec. 31, 2012 exchange rates, this translates
to reported cash flow from continuing operations of $1.39 billion
to $1.45 billion.
This outlook also assumes no material acquisitions and a partial
currency hedge of operating income. The Company continues to expect
a full-year GAAP operating margin of 30 percent and a non-GAAP
operating margin of 36 percent. The Company also continues to
expect an effective full-year GAAP and non-GAAP tax rate to come in
closer to the high-end of the 30 to 31 percent range provided at
the outset of the fiscal year.
The Company anticipates approximately 449 million shares
outstanding at fiscal year 2013 year end and weighted average
diluted shares outstanding of approximately 457 million for the
fiscal year.
Webcast
This news release and the accompanying tables should be read in
conjunction with additional content that is available on the
Company’s website, including a supplemental financial package, as
well as a webcast that the Company will host at 5 p.m. ET today to
discuss its unaudited third quarter results. The webcast will be
archived on the website. Individuals can access the webcast, as
well as this press release and supplemental financial information,
at http://ca.com/invest or listen to the call at 1-877-561-2748.
The international participant number is 1-720-545-0044.
About CA Technologies
CA Technologies (NASDAQ: CA) provides IT management solutions
that help customers manage and secure complex IT environments to
support agile business services. Organizations leverage CA
Technologies software and SaaS solutions to accelerate innovation,
transform infrastructure and secure data and identities, from the
data center to the cloud. Learn more about CA Technologies at
www.ca.com.
Follow CA Technologies
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- Press Releases
Non-GAAP Financial Measures
This news release, the accompanying tables and the additional
content that is available on the Company's website, including a
supplemental financial package, includes certain financial measures
that exclude the impact of certain items and therefore have not
been calculated in accordance with U.S. generally accepted
accounting principles (GAAP). Non-GAAP metrics for operating
expenses, operating income, operating margin, income from
continuing operations and diluted earnings per share exclude the
following items: non-cash amortization of purchased software and
other intangibles, share-based compensation, fiscal year 2007
restructuring costs and certain other gains and losses, which
includes the gains and losses since inception of hedges that mature
within the quarter, but exclude gains and losses of hedges that do
not mature within the quarter. In fiscal year 2011, non-GAAP income
also excludes recoveries and certain costs associated with
derivative litigation matters. The effective tax rate on GAAP and
non-GAAP income from operations is the Company's provision for
income taxes expressed as a percentage of pre-tax GAAP and non-GAAP
income from continuing operations, respectively. These tax rates
are determined based on an estimated effective full year tax rate,
with the effective tax rate for GAAP generally including the impact
of discrete items in the period such items arise and the effective
tax rate for non-GAAP generally allocating the impact of discrete
items pro rata to the fiscal year's remaining reporting periods.
Adjusted cash flow from operations excludes restructuring and other
payments. Free cash flow excludes purchases of property, equipment
and capitalized software development costs. We present constant
currency information to provide a framework for assessing how our
underlying businesses performed excluding the effect of foreign
currency rate fluctuations. To present this information, current
and comparative prior period results for entities reporting in
currencies other than U.S. dollars are converted into U.S. dollars
at the exchange rate in effect on March 31, 2012, which was the
last day of our prior fiscal year. Constant currency excludes the
impacts from the Company's hedging program. The constant currency
calculation for annualized subscription and maintenance bookings is
calculated by dividing the subscription and maintenance bookings in
constant currency by the weighted average subscription and
maintenance duration in years. These non-GAAP financial measures
may be different from non-GAAP financial measures used by other
companies. Non-GAAP financial measures should not be considered as
a substitute for, or superior to, measures of financial performance
prepared in accordance with GAAP. By excluding these items,
non-GAAP financial measures facilitate management's internal
comparisons to the Company's historical operating results and cash
flows, to competitors' operating results and cash flows, and to
estimates made by securities analysts. Management uses these
non-GAAP financial measures internally to evaluate its performance
and they are key variables in determining management incentive
compensation. The Company believes these non-GAAP financial
measures are useful to investors in allowing for greater
transparency of supplemental information used by management in its
financial and operational decision-making. In addition, the Company
has historically reported similar non-GAAP financial measures to
its investors and believes that the inclusion of comparative
numbers provides consistency in its financial reporting. Investors
are encouraged to review the reconciliation of the non-GAAP
financial measures used in this news release to their most directly
comparable GAAP financial measures, which are attached to this news
release.
Cautionary Statement Regarding Forward-Looking
Statements
The declaration and payment of future dividends is subject to
the determination of the Company's Board of Directors, in its sole
discretion, after considering various factors, including the
Company's financial condition, historical and forecast operating
results, and available cash flow, as well as any applicable laws
and contractual covenants and any other relevant factors. The
Company's practice regarding payment of dividends may be modified
at any time and from time to time.
Repurchases under the Company's stock repurchase program are
expected to be made with cash on hand and may be made from time to
time, subject to market conditions and other factors, in the open
market, through solicited or unsolicited privately negotiated
transactions or otherwise. The program, which is authorized through
the fiscal year ending March 31, 2014, does not obligate the
Company to acquire any particular amount of common stock, and it
may be modified or suspended at any time at the Company's
discretion.
Certain statements in this communication (such as statements
containing the words "believes," "plans," "anticipates," "expects,"
"estimates," "targets" and similar expressions) constitute
"forward-looking statements" that are based upon the beliefs of,
and assumptions made by, the Company's management, as well as
information currently available to management. These
forward-looking statements reflect the Company's current views with
respect to future events and are subject to certain risks,
uncertainties, and assumptions. A number of important factors could
cause actual results or events to differ materially from those
indicated by such forward-looking statements, including: the
ability to achieve success in the Company's strategy by, among
other things, effectively rebalancing the Company's sales force to
increase penetration in growth markets and with large enterprises
that have not historically been significant customers, enabling the
sales force to sell new products, improving the Company's brand in
the marketplace and ensuring the Company's set of cloud computing,
Software-as-a-Service and other new offerings address the needs of
a rapidly changing market, while not adversely affecting the demand
for the Company's traditional products or its profitability; global
economic factors or political events beyond the Company's control;
general economic conditions and credit constraints, or unfavorable
economic conditions in a particular region, industry or business
sector; the failure to adapt to technological changes and introduce
new software products and services in a timely manner; competition
in product and service offerings and pricing; the failure to expand
partner programs; the ability to retain and attract adequate
qualified personnel; the ability to integrate acquired companies
and products into existing businesses; the ability to adequately
manage and evolve financial reporting and managerial systems and
processes; the ability of the Company's products to remain
compatible with ever-changing operating environments; breaches of
the Company's software products and the Company's and customers'
data centers and IT environments; discovery of errors in the
Company's software and potential product liability claims; the
failure to protect the Company's intellectual property rights and
source code; risks associated with sales to government customers;
access to software licensed from third parties; risks associated
with the use of software from open source code sources; access to
third-party code and specifications for the development of code;
third-party claims of intellectual property infringement or royalty
payments; fluctuations in the number, terms and duration of the
Company's license agreements as well as the timing of orders from
customers and channel partners; the failure to renew large license
transactions on a satisfactory basis; changes in market conditions
or the Company's credit ratings; fluctuations in foreign
currencies; the failure to effectively execute the Company's
workforce reductions; successful outsourcing of various functions
to third parties; events or circumstances that would require us to
record a goodwill impairment charge; potential tax liabilities;
acquisition opportunities that may or may not arise; and other
factors described more fully in the Company's filings with the
Securities and Exchange Commission. Should one or more of these
risks or uncertainties occur, or should our assumptions prove
incorrect, actual results may vary materially from those described
herein as believed, planned, anticipated, expected, estimated,
targeted or similarly expressed in a forward-looking manner. The
Company assumes no obligation to update the information in this
communication, except as otherwise required by law. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
Copyright © 2013 CA, Inc. All Rights Reserved. One CA Plaza,
Islandia, N.Y. 11749. All other trademarks, trade names, service
marks, and logos referenced herein belong to their respective
companies.
Table 1 CA Technologies Consolidated Statements of
Operations (unaudited) (in millions, except per share amounts)
Three Months Ended Nine Months Ended
December
31,
December
31,
Revenue
2012
2011
2012
2011
Subscription and maintenance revenue $ 966 $ 1,006 $ 2,906 $ 3,035
Professional services 97 103 283 289 Software fees and other
132 154 303 302
Total revenue $
1,195 $ 1,263 $ 3,492 $ 3,626
Expenses Costs of
licensing and maintenance $ 72 $ 69 $ 210 $ 207 Cost of
professional services 92 91 266 270 Amortization of capitalized
software costs 66 59 197 164 Selling and marketing 331 342 953
1,038 General and administrative 96 113 304 331 Product development
and enhancements 120 126 368 384 Depreciation and amortization of
other intangible assets 39 44 120 134 Other (gains) expenses, net
9 6 (14 ) 10
Total expenses before
interest and income taxes $ 825 $ 850 $ 2,404 $ 2,538
Income from continuing operations before interest and income taxes
$ 370 $ 413 $ 1,088 $ 1,088 Interest expense, net 12
9 33 24 Income from continuing operations
before income taxes $ 358 $ 404 $ 1,055 $ 1,064 Income tax expense
107 141 342 337
Income from
continuing operations $ 251 $ 263 $ 713 $ 727 Income from
discontinued operations, net of income taxes - -
- 13
Net income $ 251 $ 263 $ 713
$ 740
Basic income per share Income from
continuing operations $ 0.55 $ 0.54 $ 1.54 $ 1.46 Income from
discontinued operations - - -
0.03 Net income $ 0.55 $ 0.54 $ 1.54 $ 1.49 Basic weighted
average shares used in computation 452 483 458 492
Diluted income per share Income from continuing operations $
0.55 $ 0.54 $ 1.53 $ 1.46 Income from discontinued operations
- - - 0.02 Net income $ 0.55 $
0.54 $ 1.53 $ 1.48 Diluted weighted average shares used in
computation 453 484 460 493
Table 2 CA
Technologies Condensed Consolidated Balance Sheets (in
millions) December 31, March 31, 2012 2012
(unaudited) Cash and cash equivalents $ 2,353 $ 2,679 Short-term
investments 195 - Trade accounts receivable, net 786 902 Deferred
income taxes 326 231 Other current assets 143
153
Total current assets $ 3,803 $ 3,965
Property and equipment, net $ 339 $ 386 Goodwill 5,856 5,856
Capitalized software and other intangible assets, net 1,296 1,389
Deferred income taxes 21 151 Other noncurrent assets, net
243 250
Total assets $ 11,558 $
11,997 Current portion of long-term debt $ 19 $ 14
Deferred revenue (billed or collected) 2,234 2,658 Deferred income
taxes 14 14 Other current liabilities 1,074
1,065
Total current liabilities $ 3,341 $ 3,751
Long-term debt, net of current portion $ 1,282 $ 1,287
Deferred income taxes 44 44 Deferred revenue (billed or collected)
957 972 Other noncurrent liabilities 521 546
Total liabilities $ 6,145 $ 6,600
Common stock $ 59 $ 59 Additional paid-in capital 3,582
3,491 Retained earnings 5,229 4,865 Accumulated other comprehensive
loss (119 ) (108 ) Treasury stock (3,338 ) (2,910 )
Total stockholders’ equity $ 5,413 $ 5,397
Total liabilities and stockholders’ equity $ 11,558 $
11,997
Table 3 CA Technologies
Condensed Consolidated Statements of Cash Flows (unaudited)
(in millions) Three Months Ended
December
31,
2012
2011
Operating activities from continuing operations: Income from
continuing operations $ 251 $ 263
Adjustments to reconcile income from
continuing operations to net cash provided by operating
activities:
Depreciation and amortization 105 103 Provision for deferred income
taxes 48 (45 ) Provision for bad debts 1 (3 ) Share-based
compensation expense 18 20 Asset impairments and other non-cash
items 3 6 Foreign currency transaction gains - (3 ) Changes in
other operating assets and liabilities, net of effect of
acquisitions: Increase in trade accounts receivable (201 ) (243 )
Increase in deferred revenue 257 94 Increase in taxes payable, net
57 182 Decrease in accounts payable, accrued expenses and other (48
) (44 ) Increase in accrued salaries, wages and commissions 47 26
Changes in other operating assets and liabilities 28
40
Net cash provided by operating activities -
continuing operations $ 566 $ 396
Investing
activities from continuing operations: Acquisitions of
businesses, net of cash acquired, and purchased software $ (6 ) $
(4 ) Purchases of property and equipment (9 ) (13 ) Capitalized
software development costs (44 ) (41 ) Purchases of investments,
net (29 ) (2 )
Net cash used in investing
activities - continuing operations $ (88 ) $ (60 )
Financing
activities from continuing operations: Dividends paid $ (114 )
$ (25 ) Purchases of common stock (77 ) (200 ) Debt (repayments)
borrowings, net (31 ) 58 Exercise of common stock options and other
- 1
Net cash used in financing
activities - continuing operations $ (222 ) $ (166 )
Net
change in cash and cash equivalents before effect of exchange
rate
changes on cash - continuing
operations
$ 256 $ 170 Effect of exchange rate changes on cash $
11 $ (11 ) Cash provided by (used in) operating activities -
discontinued operations - (4 )
Increase in
cash and cash equivalents $ 267 $ 155
Cash and cash
equivalents at beginning of period $ 2,086 $ 2,203
Cash and cash equivalents at end of period $ 2,353
$ 2,358
Table 4 CA Technologies
Operating Segments (unaudited) (dollars in millions)
Three
Months Ended December 31, 2012 Nine Months Ended December 31, 2012
Mainframe Solutions (1) Enterprise Solutions (1)
Services(1)
Total Mainframe Solutions (1) Enterprise Solutions (1)
Services(1)
Total Revenue (2) $ 622 $ 476 $ 97 $ 1,195 $ 1,869 $ 1,340 $
283 $ 3,492 Expenses (3) 248 426
93 767 755 1,195
269 2,219 Segment profit $ 374 $
50 $ 4 $ 428 $ 1,114 $ 145 $ 14
$ 1,273 Segment operating margin 60 % 11 % 4 % 36 %
60 % 11 % 5 % 36 % Segment profit $ 428 $ 1,273 Less:
Purchased software amortization 26 80 Other intangibles
amortization 14 41 Share-based compensation expense 18 62 Other
(gains) expenses, net (4) - 2 Interest expense, net 12
33 Income from continuing operations before
income taxes $ 358 $ 1,055 Three Months Ended
December 31, 2011 Nine Months Ended December 31, 2011 Mainframe
Solutions (1) Enterprise Solutions (1)
Services(1)
Total Mainframe Solutions (1) Enterprise Solutions (1)
Services(1)
Total Revenue (2) $ 682 $ 478 $ 103 $ 1,263 $ 1,983 $ 1,354
$ 289 $ 3,626 Expenses (3) 277 419
92 788 861 1,223
272 2,356 Segment profit $ 405
$ 59 $ 11 $ 475 $ 1,122 $ 131
$ 17 $ 1,270 Segment operating margin 59 % 12
% 11 % 38 % 57 % 10 % 6 % 35 % Segment profit $ 475 $ 1,270
Less: Purchased software amortization 27 76 Other intangibles
amortization 16 50 Share-based compensation expense 20 61 Other
(gains) expenses, net (4) (1 ) (5 ) Interest expense, net 9
24 Income from continuing operations before
income taxes $ 404 $ 1,064 (1) •
Mainframe Solutions – Our Mainframe Solutions segment addresses the
mainframe market and is focused on making significant investments
in order to be innovative in key management disciplines across our
broad portfolio of products. Ongoing development is guided by
customer needs, our cross-enterprise management philosophy and our
Mainframe 2.0 strategy, which offers management capabilities
designed to appeal to the next generation of mainframe staff while
also offering productivity improvements to today’s mainframe
experts. Our mainframe business assists customers by addressing
three major challenges: lowering costs, providing high service
levels by sustaining critical workforce skills and increasing
agility to help deliver on business goals.
• Enterprise Solutions – Our Enterprise
Solutions segment includes products that operate on non-mainframe
platforms, such as service assurance, security (identity and access
management), service and portfolio management, virtualization and
service automation, SaaS, and cloud offerings. Our offerings help
customers address their regulatory compliance demands, privacy
needs, and internal security policies. Enterprise Solutions also
focuses on delivering growth to the Company in the form of new
customer acquisitions and revenue, while leveraging non-traditional
routes-to-market and delivery models.
• Services – Our Services segment offers
implementation, consulting, education and training services to
customers, which is intended to promote a seamless customer
experience and to increase the value that customers realize from
our solutions.
(2) We regularly enter into a single arrangement with a
customer that includes Mainframe Solutions segment software
products, Enterprise Solutions segment software products and
Services. The amount of contract revenue assigned to segments is
generally based on the manner in which the proposal is made to the
customer. The software product revenue is assigned to the Mainframe
Solutions and Enterprise Solutions segments based on either: (1) a
list price allocation method (which allocates a discount in the
total contract price to the individual products in proportion to
the list price of the product); (2) allocations included within
internal contract approval documents; or (3) the value for
individual software products as stated in the customer contract.
The price for the implementation, consulting, education and
training services is separately stated in the contract and these
amounts of contract revenue are assigned to the Services segment.
The contract value assigned to each segment is then recognized in a
manner consistent with the revenue recognition policies we apply to
the customer contract for purposes of preparing the Condensed
Consolidated Financial Statements. (3) Segment expenses
include costs that are controllable by segment managers (i.e.,
direct costs) and, in the case of the Mainframe Solutions and
Enterprise Solutions segments, an allocation of shared and indirect
costs (i.e., allocated costs). Segment-specific direct costs
include a portion of selling and marketing costs, licensing and
maintenance costs, product development costs, general and
administrative costs and amortization of the cost of internally
developed software. Allocated segment costs primarily include
indirect selling and marketing costs and general and administrative
costs that are not directly attributable to a specific segment. The
basis for allocating shared and indirect costs between the
Mainframe Solutions and Enterprise Solutions segments is dependent
on the nature of the cost being allocated and is either in
proportion to segment revenues or in proportion to the related
direct cost category. Expenses for the Services segment consist
only of direct costs and there are no allocated or indirect costs
for the Services segment. (4) Other (gains) expenses, net
consists of other unallocated costs including foreign exchange
derivative (gains) losses, and other miscellaneous costs.
Table 5 CA Technologies Constant Currency
Summary (unaudited) (dollars in millions)
Three Months Ended
December 31, Nine Months Ended December 31, 2012 2011
% Increase(Decrease)in $ US
% Increase(Decrease)in ConstantCurrency
(1)
2012 2011
% Increase(Decrease)in $ US
% Increase(Decrease)in ConstantCurrency
(1)
Bookings $ 1,261 $ 1,284 (2 %) (2 %) $ 2,651 $ 3,121
(15 %) (14 %)
Revenue: North America $ 745 $ 791 (6
%) (6 %) $ 2,201 $ 2,242 (2 %) (1 %) International 450
472 (5 %) (2 %) 1,291 1,384 (7 %) (1 %) Total
revenue $ 1,195 $ 1,263 (5 %) (4 %) $ 3,492 $ 3,626 (4 %) (1 %)
Revenue: Subscription and maintenance $ 966 $ 1,006
(4 %) (3 %) $ 2,906 $ 3,035 (4 %) (2 %) Professional services 97
103 (6 %) (5 %) 283 289 (2 %) 1 % Software fees and other
132 154 (14 %) (14 %) 303 302 0 % 1 % Total
revenue $ 1,195 $ 1,263 (5 %) (4 %) $ 3,492 $ 3,626 (4 %) (1 %)
Segment Revenue: Mainframe solutions $ 622 $ 682 (9
%) (8 %) $ 1,869 $ 1,983 (6 %) (3 %) Enterprise solutions 476 478 0
% 0 % 1,340 1,354 (1 %) 1 % Services 97 103 (6 %) (5 %) 283 289 (2
%) 1 %
Total expenses before interest and income
taxes: Total non-GAAP (2) $ 767 $ 788 (3 %) (1 %) $ 2,219 $
2,356 (6 %) (3 %) Total GAAP 825 850 (3 %) (2 %) 2,404 2,538 (5 %)
(3 %) (1) Constant currency information is presented
to provide a framework for assessing how our underlying businesses
performed excluding the effect of foreign currency rate
fluctuations. To present this information, current and comparative
prior period results for entities reporting in currencies other
than US dollars are converted into US dollars at the exchange rate
in effect on March 31, 2012, which was the last day of our prior
fiscal year. Constant currency excludes the impacts from the
Company's hedging program. (2) Refer to Table 7 for a
reconciliation of total expenses before interest and income taxes
to total non-GAAP operating expenses. Certain non-material
differences may arise versus actual from impact of rounding.
Table 6 CA Technologies Reconciliation of Select
GAAP Measures to Non-GAAP Measures (unaudited) (dollars in
millions) Three Months Ended
Nine Months Ended
December
31,
December
31,
2012
2011
2012
2011
GAAP net income $ 251 $ 263 $ 713 $ 740 GAAP income from
discontinued operations, net of income taxes -
- - (13 ) GAAP income from continuing
operations $ 251 $ 263 $ 713 $ 727 GAAP income tax expense 107 141
342 337 Interest expense, net 12 9
33 24 GAAP income from continuing
operations before interest and income taxes $ 370 $ 413
$ 1,088 $ 1,088 GAAP operating margin (% of
revenue) (1) 31 % 33 % 31 % 30 % Non-GAAP adjustments to
expenses: Costs of licensing and maintenance(2) $ 1 $ - $ 2 $ 2
Cost of professional services(2) 1 1 3 3 Amortization of
capitalized software costs(3) 26 27 80 76 Selling and marketing(2)
6 9 24 25 General and administrative(2) 6 5 21 17 Product
development and enhancements(2) 4 5 12 14 Depreciation and
amortization of other intangible assets(4) 14 16 41 50 Other
(gains) expenses, net (5) - (1 ) 2
(5 ) Total Non-GAAP adjustment to operating expenses
$ 58 $ 62 $ 185 $ 182 Non-GAAP income
from continuing operations before interest and income taxes $ 428 $
475 $ 1,273 $ 1,270 Non-GAAP operating margin (% of revenue) (6) 36
% 38 % 36 % 35 % Interest expense, net 12 9 33 24 GAAP
income tax expense 107 141 342 337 Non-GAAP adjustment to income
tax expense(7) 21 6 39
56 Non-GAAP income tax expense $ 128 $ 147
$ 381 $ 393 Non-GAAP income from continuing
operations $ 288 $ 319 $ 859 $ 853
(1) GAAP operating margin is calculated by dividing
GAAP income from continuing operations before interest and income
taxes by total revenue (refer to Table 1 for total revenue).
(2) Non-GAAP adjustment consists of share-based compensation.
(3) Non-GAAP adjustment consists of purchased software
amortization. (4) Non-GAAP adjustment consists of other
intangibles amortization. (5) Non-GAAP adjustment consists
of other miscellaneous costs including gains and losses since
inception of hedges that mature within the quarter, but exclude
gains and losses of hedges that do not mature within the quarter.
(6) Non-GAAP operating margin is calculated by dividing
non-GAAP income from continuing operations before interest and
income taxes by total revenue (refer to Table 1 for total revenue).
(7) The full year non-GAAP income tax expense is different
from GAAP income tax expense because of the difference in non-GAAP
income from continuing operations before income taxes. On an
interim basis, this difference would also include a difference in
the impact of discrete and permanent items where for GAAP purposes
the effect is recorded in the period such items arise, but for
non-GAAP such items are recorded pro rata to the fiscal year's
remaining reporting periods. Refer to the discussion of
non-GAAP financial measures included in the accompanying press
release for additional information. Certain non-material
differences may arise versus actual from impact of rounding.
Table 7 CA Technologies Reconciliation of GAAP to
Non-GAAP Operating Expenses and Diluted Earnings per
Share (unaudited) (in millions, except per share amounts)
Three Months Ended Nine Months
Ended
December
31,
December
31,
Operating
Expenses
2012
2011
2012
2011
Total expenses before interest and income taxes $ 825 $ 850
$ 2,404 $ 2,538 Non-GAAP operating adjustments: Purchased
software amortization 26 27 80 76 Other intangibles amortization 14
16 41 50 Share-based compensation 18 20 62 61 Other (gains)
expenses, net (1) - (1 ) 2 (5 )
Total non-GAAP operating adjustment $ 58 $ 62 $ 185 $
182 Total non-GAAP operating expenses $ 767 $
788 $ 2,219 $ 2,356 Three Months Ended
Nine Months Ended
December
31,
December
31,
Diluted EPS from
Continuing Operations
2012
2011
2012
2011
GAAP diluted EPS from continuing operations $ 0.55 $ 0.54 $
1.53 $ 1.46 Non-GAAP adjustments, net of taxes: Purchased
software and other intangibles amortization 0.06 0.06 0.18 0.18
Share-based compensation 0.03 0.03 0.09 0.08 Other (gains)
expenses, net (1) - - - - Non-GAAP effective tax rate adjustments
(2) (0.01 ) 0.02 0.05 (0.01 )
Non-GAAP diluted EPS from continuing operations $ 0.63
$ 0.65 $ 1.85 $ 1.71 (1) Non-GAAP
adjustment consists of other miscellaneous costs including gains
and losses since inception of hedges that mature within the
quarter, but exclude gains and losses of hedges that do not mature
within the quarter. (2) The non-GAAP effective tax rate is
equal to the full year GAAP effective tax rate, therefore no
adjustment is required on an annual basis. On an interim basis, the
difference in non-GAAP income tax expense and GAAP income tax
expense relates to the difference in non-GAAP income from
continuing operations before income taxes, and includes a
difference in the impact of discrete and permanent items where for
GAAP purposes, the effect is recorded in the period such items
arise but for non-GAAP purposes, such items are recorded pro rata
to the fiscal year's remaining reporting periods. Refer to
the discussion of non-GAAP financial measures included in the
accompanying press release for additional information.
Certain non-material differences may arise versus actual from
impact of rounding.
Table 8 CA Technologies
Effective Tax Rate Reconciliation GAAP and Non-GAAP
(unaudited) (dollars in millions)
Three Months Ended Nine Months Ended
December 31,
2012
December 31,
2012
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income
taxes (1) $ 370 $ 428 $ 1,088 $ 1,273 Interest expense, net 12 12
33 33 Income from continuing operations before income taxes $ 358 $
416 $ 1,055 $ 1,240 Statutory tax rate 35% 35% 35% 35%
Tax at statutory rate $ 125 $ 146 $ 369 $ 434 Adjustments
for discrete and permanent items (2) (18) (18) (27) (53) Total tax
expense $ 107 $ 128 $ 342 $ 381 Effective tax rate (3) 29.9%
30.7% 32.4% 30.7% Three Months Ended Nine Months Ended
December 31,
2011
December 31,
2011
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income
taxes (1) $ 413 $ 475 $ 1,088 $ 1,270 Interest expense, net 9 9 24
24 Income from continuing operations before income taxes $ 404 $
466 $ 1,064 $ 1,246 Statutory tax rate 35% 35% 35% 35%
Tax at statutory rate $ 141 $ 163 $ 372 $ 436 Adjustments
for discrete and permanent items (2) - (16) (35) (43) Total tax
expense $ 141 $ 147 $ 337 $ 393 Effective tax rate (3) 34.9%
31.5% 31.7% 31.5% (1) Refer to Table 6 for a
reconciliation of income from continuing operations before interest
and income taxes on a GAAP basis to income from continuing
operations before interest and income taxes on a non-GAAP basis.
(2) The effective tax rate for GAAP generally includes the
impact of discrete and permanent items in the period such items
arise, whereas the effective tax rate for non-GAAP generally
allocates the impact of such items pro rata to the fiscal year's
remaining reporting periods. (3) The effective tax rate on
GAAP and non-GAAP income from continuing operations is the
Company's provision for income taxes expressed as a percentage of
GAAP and non-GAAP income from continuing operations before income
taxes, respectively. The non-GAAP effective tax rate is equal to
the full year GAAP effective tax rate. On an interim basis, the
effective tax rates are determined based on an estimated effective
full year tax rate after the adjustments for the impacts of certain
discrete items (such as changes in tax rates, reconciliations of
tax returns to tax provisions and resolutions of tax
contingencies). Refer to the discussion of non-GAAP
financial measures included in the accompanying press release for
additional information. Certain non-material differences may
arise versus actual from impact of rounding.
Table 9
CA Technologies Reconciliation of Projected GAAP Earnings
per Share to Projected Non-GAAP Earnings per Share
(unaudited) Fiscal Year Ending
Projected Diluted
EPS from Continuing Operations
March 31,
2013
Projected GAAP diluted EPS from continuing operations range
$ 2.00 to $ 2.08 Non-GAAP adjustments, net of taxes:
Purchased software and other intangibles amortization 0.24 0.24
Share-based compensation 0.12 0.12 Projected
non-GAAP diluted EPS from continuing operations range $ 2.36 to $
2.44
Refer to the discussion of non-GAAP financial measures included
in the accompanying press release for additional information.
Table 10 CA Technologies Reconciliation of
Projected GAAP Operating Margin to Projected Non-GAAP
Operating Margin (unaudited) Fiscal Year Ending
Projected Operating
Margin
March 31,
2013
Projected GAAP operating margin 30% Non-GAAP
adjustments, net of taxes: Purchased software and other intangibles
amortization 4% Share-based compensation 2% Projected
non-GAAP operating margin 36%
Refer to the discussion of non-GAAP financial measures included
in the accompanying press release for additional information.
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