CA Technologies (NASDAQ:CA) today reported financial results for
its first quarter fiscal year 2014, ended June 30, 2013.
FINANCIAL OVERVIEW
First Quarter FY14 vs. FY13
(dollars in millions,except share
data)
FY14 FY13 % Change
% ChangeCC**
Revenue $1,128 $1,145 (1%) (1%) GAAP Net
Income $335 $240 40% 42% Non-GAAP Income* $357
$298 20% 21% GAAP Diluted EPS $0.73
$0.51 43% 47% Non-GAAP Diluted EPS* $0.78
$0.63 24% 25% Cash Flow from Operations $11
$183 (94%) (83%)
* 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
EXECUTIVE COMMENTARY
“I am pleased with our performance in the first quarter and the
start we made to fiscal year 2014,” said CA Technologies Chief
Executive Officer Mike Gregoire. “We did better than expected on
the revenue line and were able to capitalize on organizational
efficiencies, expense management and a tax benefit to drive
earnings growth. Our cash flow from operations was down, but that
was expected and we are confident in meeting our full year outlook
in all areas.
“We are beginning to make progress in driving efficiencies
across our business, getting traction in SaaS, Mobility and new
customer acquisition, as well as improving the overall
competitiveness of our products,” Gregoire said.
REVENUE AND BOOKINGS
First Quarter FY14 vs. FY13 (dollars in millions)
FY14
% ofTotal
FY13
% ofTotal
%Change
%ChangeCC**
North America Revenue $717 64% $726 63%
(1%) (1%) International Revenue $411 36% $419
37% (2%) 0% Total Revenue $1,128
$1,145 (1%) (1%) North America
Bookings $423 51% $326 59% 30%
30% International Bookings $401 49% $227 41%
77% 85% Total Bookings $824 $553
49% 53% Current Revenue Backlog $3,429
$3,527 (3%) (2%)
Total Revenue Backlog $7,385 $7,771
(5%) (4%)
**CC: Constant Currency
- During the quarter the Company saw a
significant increase in its mainframe renewals, and demand for its
mobile device management, Software-as-a-Service and Nimsoft
monitoring solutions.
- The Company executed a total of 9
license agreements with incremental contract values in excess of
$10 million each, for an aggregate contract value of $323 million.
During the first quarter of fiscal year 2013, the Company executed
a total of 4 license agreements with incremental contract values in
excess of $10 million each, for an aggregate contract value of $61
million.
- The weighted average duration of
subscription and maintenance bookings for the quarter was 3.10
years, compared with 2.79 years for the same period in fiscal year
2013.
EXPENSES AND MARGIN
First Quarter FY14 vs. FY13 (dollars in millions)
FY14
FY13
%Change
%ChangeCC**
GAAP
Operating Expenses Before Interestand
Income Taxes
$900 $764 18% 18%
Operating Income Before Interestand Income
Taxes
$228 $381 (40%)
(39%)
Operating Margin 20% 33%
Effective Tax Rate (54%) 35%
Non-GAAP*
Operating Expenses Before Interestand
Income Taxes
$702 $705
0%
0%
Operating Income Before Interestand Income
Taxes
$426 $440 (3%) (2%) Operating Margin 38%
38% Effective Tax Rate 14%
31%
*A reconciliation of non-GAAP financial measures to their
comparable GAAP financial measures is included in the tables
following this news release. Year-over-year non-GAAP results
exclude purchased software and other intangibles amortization,
share-based compensation, capitalization (an add-back) and
amortization of internal software costs, Board approved rebalancing
initiatives 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 on hedges that do not mature within
the quarter.
**CC: Constant Currency
- GAAP and non-GAAP EPS were positively
affected by $0.41 and $0.14, respectively, from the reduction in
the Company’s effective tax rate. The Company recognized a net
discrete tax benefit of approximately $181 million in the first
quarter of fiscal year 2014, primarily from the resolution of
uncertain tax positions upon the completion of the examination of
U.S. federal income tax returns for the fiscal years 2005, 2006 and
2007.
- GAAP operating expenses in the first
quarter were adversely affected by approximately $120 million in
costs associated with the rebalancing actions announced on May 7,
2013, resulting in a negative impact of $0.17 on GAAP EPS.
- GAAP and non-GAAP operating expenses
were positively affected by lower personnel costs related to the
rebalancing actions and other operational efficiencies.
- In the first quarter of fiscal year
2013, the Company closed a transaction that assigned the rights to
certain intellectual property to a large technology company for $35
million. GAAP and non-GAAP EPS were positively affected by about
$0.05 each from the transaction.
- GAAP and non-GAAP operating margins in
the first quarter of fiscal year 2013 were positively affected by
the intellectual property rights assignment by 3 percentage points
each.
SEGMENT INFORMATION
Starting in the first quarter of fiscal year 2014, the measure
of segment expenses and segment profit was revised to treat all
costs of internal software development as segment expense in the
period the costs are incurred. As a result, the Company will add
back capitalized internal software costs and exclude amortization
of internally developed software costs previously capitalized from
segment expenses. Segment expenses also exclude the effects of the
Company’s fiscal year 2014 rebalancing plan. Prior period segment
expenses and profit information has been revised to present segment
profit and expenses on a consistent basis and is available in the
8-K filed today and in the Company’s supplemental financial
package, both of which are available at www.ca.com/invest.
First Quarter FY14 vs. FY13 Revenue
%Change
%ChangeCC**
Operating Margin (dollars in millions)
FY14
FY13 FY14
FY13 Mainframe Solutions $619 $628 (1%)
(1%) 61% 58% Enterprise Solutions $411 $426
(4%) (3%) 10% 16% Services $98
$91 8%
8%
8% 4%
**CC: Constant Currency
- Enterprise Solutions operating margin
in the first quarter of fiscal year 2013 was positively affected by
the intellectual property transaction mentioned above.
CASH FLOW FROM OPERATIONS
- Cash flow from operations in the first
quarter was $11 million, compared with $183 million in the prior
year. The decline year-over-year was due to a number of expected
factors including higher cash taxes, payments related to the
rebalancing actions and a reduction in capitalized software
development. Cash flow from operations also was negatively affected
by lower cash collections, including a decrease in single
installment collections. The prior year period also included the
positive impact from the intellectual property transaction.
CAPITAL STRUCTURE
- Cash, cash equivalents and investments
at June 30, 2013 were $2.461 billion.
- With $1.285 billion in total debt
outstanding and $138 million in notional pooling, the Company’s net
cash, cash equivalents and investments position was $1.038
billion.
- In the first quarter of fiscal year
2014, the Company repurchased 2 million shares of stock for $53
million.
- The Company is currently authorized to
repurchase an additional $452 million of common stock through
fiscal year 2014.
- During the first quarter of fiscal year
2014, the Company distributed $114 million in dividends to
shareholders.
- The Company’s outstanding share count
at June 30, 2013 was 451 million.
OUTLOOK FOR FISCAL YEAR 2014
The Company reaffirmed the following outlook, which represents
"forward-looking statements" (as defined below). It takes into
account the change in business practice regarding internally
developed software costs, the costs and payments associated with
the rebalancing initiative announced on May 7, 2013 and the
resolution of the U.S. tax matter mentioned above.
The Company expects the following:
- GAAP diluted earnings per share
decreases in a range of minus 11 percent to minus 6 percent in
constant currency. At June 30, 2013 exchange rates, this translates
to GAAP reported diluted earnings per share of $1.81 to $1.91.
- Non-GAAP diluted earnings per share
increases in a range of 16 percent to 20 percent in constant
currency. At June 30, 2013 exchange rates, this translates to
reported non-GAAP diluted earnings per share of $2.90 to
$3.00.
- Cash flow from operations decreases in
a range of minus 30 percent to minus 24 percent in constant
currency. At June 30, 2013 exchange rates, this translates to
reported cash flow from operations of $960 million to $1.04
billion.
- Total revenue outlook decreases in a
range of minus 4 percent to minus 2 percent in constant currency.
At June 30, 2013 exchange rates, this translates to reported
revenue of $4.39 billion to $4.48 billion.
Outlook for cash flow from operations is being adversely
affected by costs associated with the rebalancing of resources
during the fiscal year, an increase in cash taxes, and an increase
in operating cash outflows relating to product development and
enhancements expense for fiscal year 2014. In fiscal year 2013,
cash flow from operations did not reflect $165 million of
capitalized software development costs that appeared as an
investment activity in our Statement of Cash Flows.
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 23 percent and non-GAAP
operating margin of 36 percent. The Company expects a fiscal year
2014 GAAP and non-GAAP effective tax rate of approximately 14
percent.
The Company anticipates approximately 437 million shares
outstanding at fiscal year 2014 year-end and weighted average
diluted shares outstanding of approximately 446 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 conference call and webcast that the Company will host at
5 p.m. ET today to discuss its unaudited first quarter results. The
webcast will be archived on the website. Individuals can access the
webcast, as well as the press release and supplemental financial
information at http://ca.com/invest or can 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, recoveries and certain costs associated with
derivative litigation matters and certain other gains and losses,
which include 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. The Company will expense
costs for internally developed software where development efforts
commenced in the first quarter of fiscal year 2014 and afterwards.
As a result, product development and enhancement expenses are
expected to increase in future periods as the amount capitalized
for internally developed software costs decreases. Due to this
change, the Company will also add back capitalized internal
software costs and exclude the amortization of internal software
costs from these non-GAAP metrics. Also beginning in the first
quarter of fiscal year 2014, the Company will exclude charges
relating to rebalancing initiatives that are large enough to
require approval from the Company's Board of Directors. 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 in
which 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 payments associated with the fiscal year 2014
Board-approved rebalancing initiative as described above,
capitalized software development costs as described above, and
restructuring and other payments. Free cash flow excludes purchases
of property and 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 the last day of our prior fiscal year (i.e., March 31,
2013, March 31, 2012 and March 31, 2011, respectively). 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 relating to the
future) 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
enable the Company to maintain and enhance its strong relationships
in its traditional customer base of large enterprises and 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,
application development and IT operations (DevOps),
Software-as-a-Service, mobile device management 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, evolve and protect
managerial and financial reporting 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 or omissions in the Company's
software products or documentation 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;
events or circumstances that would require us to record an
impairment charge relating to our goodwill or capitalized software
and other intangible asset balances; 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, workforce re-balancing and facility
consolidations; successful outsourcing of various functions to
third parties; 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
June 30,
Revenue:
2013
2012
Subscription and maintenance revenue $ 944 $ 977 Professional
services 98 91 Software fees and other 86 77
Total
revenue $ 1,128 $ 1,145
Expenses: Costs of licensing and
maintenance $ 71 $ 69 Cost of professional services 88 86
Amortization of capitalized software costs 69 64 Selling and
marketing 281 305 General and administrative 91 110 Product
development and enhancements 135 125 Depreciation and amortization
of other intangible assets 36 41
Other (gains) expenses, net (1)
129 (36)
Total expenses before interest and income
taxes $ 900 $ 764 Income before interest and income taxes $ 228
$ 381 Interest expense, net 11 11 Income before
income taxes $ 217 $ 370 Income tax (benefit) expense (118)
130
Net income $ 335 $ 240
Basic income per
common share $ 0.74 $ 0.51
Basic weighted average shares
used in computation 450 465
Diluted income per common
share $ 0.73 $ 0.51
Diluted weighted average shares used in
computation 451 467 (1) Other (gains) expenses, net
includes approximately $120 million of charges relating to the
FY2014 Board approved re-balancing initiative announced May 7,
2013, for the three month period ending June 30, 2013.
Table 2 CA Technologies Condensed Consolidated
Balance Sheets (in millions) June 30,
March 31, 2013 2013 (unaudited) Cash and cash equivalents $ 2,461 $
2,593 Short-term investments - 183 Trade accounts receivable, net
537 856 Deferred income taxes 383 346 Other current assets
243 148
Total current assets $ 3,624 $ 4,126
Property and equipment, net $ 298 $ 311 Goodwill 5,916 5,871
Capitalized software and other intangible assets, net 1,293 1,231
Deferred income taxes 75 77 Other noncurrent assets, net 160
195
Total assets $ 11,366 $ 11,811 Current
portion of long-term debt $ 14 $ 16 Deferred revenue (billed or
collected) 2,230 2,482 Deferred income taxes 12 12 Other current
liabilities 823 1,031
Total current
liabilities $ 3,079 $ 3,541 Long-term debt, net of
current portion $ 1,271 $ 1,274 Deferred income taxes 165 120
Deferred revenue (billed or collected) 899 975 Other noncurrent
liabilities 322 451
Total liabilities $ 5,736
$ 6,361 Common stock $ 59 $ 59 Additional paid-in capital
3,546 3,593 Retained earnings 5,578 5,357 Accumulated other
comprehensive loss (198) (155) Treasury stock (3,355)
(3,404)
Total stockholders’ equity $ 5,630 $ 5,450
Total
liabilities and stockholders’ equity $ 11,366 $ 11,811
Table 3 CA Technologies Condensed Consolidated
Statements of Cash Flows (unaudited) (in millions)
Three Months Ended
June 30,
2013
2012
Operating activities: Net income $ 335 $ 240
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 105 105
Provision for deferred income taxes (48) 25 Provision for bad debts
2 1 Share-based compensation expense 20 23 Asset impairments and
other non-cash items 2 1 Foreign currency transaction (gains)
losses (1) 12 Changes in other operating assets and liabilities,
net of effect of acquisitions: Decrease in trade accounts
receivable 316 398 Decrease in deferred revenue (317) (394)
Decrease in taxes payable, net (338) (93) Increase in accounts
payable, accrued expenses and other 8 18 Decrease in accrued
salaries, wages and commissions (38) (141) Changes in other
operating assets and liabilities (35) (12)
Net
cash provided by operating activities $ 11 $ 183
Investing
activities: Acquisitions of businesses, net of cash acquired,
and purchased software $ (122) $ (5) Purchases of property and
equipment (13) (22) Capitalized software development costs (25)
(36) Maturities of short-term investments 184 - Other investing
activities - 2
Net cash provided by (used in)
investing activities $ 24 $ (61)
Financing activities:
Dividends paid $ (114) $ (119) Purchases of common stock (49) (86)
Debt (repayments) borrowings, net (2) 5 Debt issuance costs (1) -
Exercise of common stock options and other 28 17
Net cash used in financing activities $ (138) $ (183)
Net change in cash and cash equivalents
before effect of exchange ratechanges on cash
$ (103) $ (61) Effect of exchange rate changes on cash $ (29) $
(77)
Decrease in cash and cash equivalents $ (132) $ (138)
Cash and cash equivalents at beginning of period $ 2,593 $
2,679
Cash and cash equivalents at end of period $ 2,461 $
2,541
Table 4 CA Technologies Operating
Segments (unaudited) (dollars in millions)
Three Months Ended June 30, 2013
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total Revenue (2) $ 619 $ 411 $ 98 $ 1,128
Expenses (3) 242 370 90 702 Segment
profit $ 377 $ 41 $ 8 $ 426 Segment operating margin 61% 10% 8% 38%
Segment profit $ 426 Less: Purchased software amortization
28 Other intangibles amortization 14 Software development costs
capitalized (23) Internally developed software products
amortization 41 Share-based compensation expense 20 Other (gains)
expenses, net (4) 118 Interest expense, net 11 Income before
income taxes $ 217 Three Months Ended June 30, 2012
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total Revenue (2) $ 628 $ 426 $
91 $ 1,145 Expenses (3) 261 357 87 705
Segment profit $ 367 $ 69 $ 4 $ 440 Segment operating margin 58%
16% 4% 38% Segment profit $ 440 Less: Purchased software
amortization 27 Other intangibles amortization 14 Software
development costs capitalized (36) Internally developed software
products amortization 37 Share-based compensation expense 23 Other
(gains) expenses, net (4) (6) Interest expense, net 11
Income before income taxes $ 370 (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 Next Generation
Mainframe Management 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: reducing costs and improving operational
efficiency, sustaining critical skills through modernized and
simplified management, and increasing innovation and 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, application
delivery, 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 and general and
administrative costs. 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 includes
charges relating to the FY2014 Board approved re-balancing
initiative announced May 7, 2013, certain foreign exchange
derivative gains and losses, and other miscellaneous costs.
Prior year segment results have been adjusted for internally
developed software.
Table 5 CA Technologies
Constant Currency Summary (unaudited) (dollars in millions)
Three Months Ended June 30, 2013 2012
% Increase(Decrease)in $ US
% Increase(Decrease)in ConstantCurrency
(1)
Bookings $ 824 $ 553 49% 53%
Revenue:
North America $ 717 $ 726 (1%) (1%) International 411
419 (2%) 0% Total revenue $ 1,128 $ 1,145 (1%) (1%)
Revenue: Subscription and maintenance $ 944 $ 977 (3%) (3%)
Professional services 98 91 8% 8% Software fees and other 86
77 12% 13% Total revenue $ 1,128 $ 1,145 (1%) (1%)
Segment Revenue: Mainframe solutions $ 619 $ 628 (1%) (1%)
Enterprise solutions 411 426 (4%) (3%) Services 98 91 8% 8%
Total expenses before interest and
incometaxes:
Total non-GAAP (2) $ 702 $ 705 0% 0% Total GAAP 900 764 18% 18%
(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, 2013, 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. Prior year non-GAAP results have been
adjusted for internally developed software. 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
June 30,
2013
2012
GAAP net income $ 335 $ 240 GAAP income tax (benefit) expense (118)
130 Interest expense, net 11 11 GAAP income before
interest and income taxes $ 228 $ 381 GAAP operating margin (% of
revenue) (1) 20% 33% Non-GAAP adjustments to expenses: Costs
of licensing and maintenance (2) $ 1 $ - Cost of professional
services (2) 1 1 Amortization of capitalized software costs (3) 69
64 Selling and marketing (2) 7 10 General and administrative (2) 6
8 Product development and enhancements (4) (18) (32) Depreciation
and amortization of other intangible assets (5) 14 14 Other (gains)
expenses, net (6) 118 (6) Total Non-GAAP adjustment
to operating expenses $ 198 $ 59 Non-GAAP income before interest
and income taxes $ 426 $ 440 Non-GAAP operating margin (% of
revenue) (7) 38% 38% Interest expense, net 11 11 GAAP income
tax (benefit) expense (118) 130 Non-GAAP adjustment to income tax
(benefit) expense (8) 176 1 Non-GAAP income tax
expense $ 58 $ 131 Non-GAAP income $ 357 $ 298 (1) GAAP
operating margin is calculated by dividing GAAP income 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 $28 million and $27 million of purchased software amortization
and $41 million and $37 million of internally developed software
products amortization for the three month period ending June 30,
2013 and 2012, respectively. (4) Non-GAAP adjustment
consists of $5 million and $4 million of share-based compensation
and ($23) million and ($36) million of software development costs
capitalized for the three month period ending June 30, 2013 and
2012, respectively. (5) Non-GAAP adjustment consists of
other intangibles amortization. (6) Non-GAAP adjustment
consists of charges relating to the FY2014 Board approved
re-balancing initiative announced May 7, 2013 and certain other
gains and losses, including gains and losses since inception of
hedges that mature within the quarter, but excludes gains and
losses of hedges that do not mature within the quarter. (7)
Non-GAAP operating margin is calculated by dividing non-GAAP income
before interest and income taxes by total revenue (refer to Table 1
for total revenue). (8) The full year non-GAAP income tax
expense is different from GAAP income tax expense because of the
difference in non-GAAP income 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. Prior year non-GAAP results have
been adjusted for internally developed software. 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
June 30,
Operating
Expenses
2013
2012
Total expenses before interest and income taxes $ 900 $ 764
Non-GAAP operating adjustments: Purchased software
amortization 28 27 Other intangibles amortization 14 14 Software
development costs capitalized (23) (36) Internally developed
software products amortization 41 37 Share-based compensation 20 23
Other (gains) expenses, net (1) 118 (6) Total
non-GAAP operating adjustment $ 198 $ 59 Total non-GAAP
operating expenses $ 702 $ 705 Three Months Ended
June 30,
Diluted
EPS
2013
2012
GAAP diluted EPS $ 0.73 $ 0.51 Non-GAAP adjustments,
net of taxes: Purchased software amortization 0.09 0.04 Other
intangibles amortization 0.05 0.02 Software development costs
capitalized (0.08) (0.05) Internally developed software products
amortization 0.14 0.05 Share-based compensation 0.07 0.03 Other
(gains) expenses, net (1) 0.40 (0.01) Non-GAAP effective tax rate
adjustments (2) (0.62) 0.04 Total non-GAAP adjustment
$ 0.05 $ 0.12 Non-GAAP diluted EPS $ 0.78 $ 0.63 (1)
Non-GAAP adjustment consists of charges relating to the FY2014
Board approved re-balancing initiative announced May 7, 2013 and
certain other gains and losses, including gains and losses since
inception of hedges that mature within the quarter, but excludes
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 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. Prior
year non-GAAP results have been adjusted for internally developed
software. 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
June 30,
2013
GAAP
Non-GAAP
Income before interest and income taxes (1) $ 228 $ 426
Interest expense, net 11 11 Income before income
taxes $ 217 $ 415 Statutory tax rate 35% 35% Tax at
statutory rate $ 76 $ 145 Adjustments for discrete and permanent
items (2) (194) (87) Total tax (benefit) expense $
(118) $ 58 Effective tax rate (3) -54.4% 14.0% Three
Months Ended
June 30,
2012
GAAP
Non-GAAP
Income before interest and income taxes (1) $ 381 $ 440
Interest expense, net 11 11 Income before income
taxes $ 370 $ 429 Statutory tax rate 35% 35% Tax at
statutory rate $ 130 $ 150 Adjustments for discrete and permanent
items (2) - (19) Total tax expense $ 130 $ 131
Effective tax rate (3) 35.1% 30.5% (1) Refer to Table 6 for
a reconciliation of income before interest and income taxes on a
GAAP basis to income 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 is the Company's provision for
income taxes expressed as a percentage of GAAP and non-GAAP income
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. Prior year non-GAAP results have
been adjusted for internally developed software. Certain
non-material differences may arise versus actual from impact of
rounding.
Table 9 CA Technologies
Reconciliation of Projected GAAP Metrics to Projected Non-GAAP
Metrics (unaudited) Fiscal Year
Ending
Projected Diluted
EPS
March 31,
2014
Projected GAAP diluted EPS range $ 1.81 to $ 1.91
Non-GAAP adjustments, net of taxes: Purchased software amortization
0.27 0.27 Other intangibles amortization 0.09 0.09 Software
development costs capitalized (0.05) (0.06) Internally developed
software products amortization 0.32 0.33 Share-based compensation
0.17 0.17 Other (gains) expenses, net (1) 0.29 0.29 Total non-GAAP
adjustment $ 1.09 $ 1.09 Projected non-GAAP diluted EPS
range $ 2.90 to $ 3.00 Fiscal Year Ending
Projected Operating
Margin
March 31,
2014
Projected GAAP operating margin 23% Non-GAAP
operating adjustments: Purchased software amortization 3% Other
intangibles amortization 1% Software development costs capitalized
(1%) Internally developed software products amortization 4%
Share-based compensation 2% Other (gains) expenses, net (1) 4%
Total non-GAAP operating adjustment 13% Projected non-GAAP
operating margin 36% (1) Non-GAAP adjustment consists of
charges relating to the FY2014 Board approved re-balancing
initiative announced May 7, 2013. Refer to the discussion of
non-GAAP financial measures included in the accompanying press
release for additional information.
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