- Results in-line with expectations;
demonstrated continued financial discipline; showed strong
performance in connection with renewals
- Adjusted to reflect arcserve as
discontinued operation;
- First Quarter Revenue of $1.069 Billion, Compared With
$1.095 Billion Last Year
- First Quarter GAAP EPS of $0.48, Compared With $0.72 Last
Year (prior year results positively impacted by $0.40 per share tax
benefit)
- First Quarter Non-GAAP EPS of $0.65, Compared With $0.76
Last Year (prior year results positively impacted by $0.14 per
share tax benefit)
- First Quarter Cash Flow From Continuing Operations of $166
Million, Compared With $3 Million Last Year (primarily due to lower
tax payments in current quarter)
CA Technologies (NASDAQ:CA) today reported financial results for
its first quarter fiscal 2015, ended June 30, 2014.
Mike Gregoire, CA Technologies Chief Executive Officer, made the
following comments:
“CA’s results for the first quarter are in-line with our
expectations, reflecting continued financial discipline and a
strong performance in connection with renewals, which contributed
to an uptick in Enterprise Solutions new sales. In addition, the
investment focus and new capabilities we established last year
allowed us to make important strategic progress in the quarter. We
launched a highly differentiated, CA-built SaaS solution in the IT
Service Management space with a powerful user experience and one of
the industry’s most attractive time-to-value offerings. And, we
announced the divestiture of the arcserve business, further
managing our portfolio and sharpening our focus.
“As we look ahead to the balance of FY2015, we know that there
is still much work ahead of us to build CA for growth. We will
continue to focus on our strengths, invest in key growth areas and
drive the level of execution needed to advance our business
strategy, serve our customers and deliver long-term value for our
shareholders.”
FINANCIAL OVERVIEW
Note: All financial results have been adjusted to reflect
the classification of the Company's arcserve data protection
business as a discontinued operation.
(dollars in millions, except share
data)
First Quarter FY15 vs. FY14 FY15
FY14 % Change % Change
CC** Revenue $1,069 $1,095 (2)% (3)% GAAP
Income from Continuing Operations $212 $330 (36)%
(35)% Non-GAAP Income from Continuing Operations* $289
$345 (16)% (17)% GAAP Diluted EPS from
Continuing Operations $0.48 $0.72 (33)% (34)%
Non-GAAP Diluted EPS from Continuing Operations* $0.65 $0.76
(14)% (15)% Cash Flow from Continuing Operations $166
$3 NM NM
* 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
REVENUE AND BOOKINGS
(dollars in millions)
First Quarter FY15 vs. FY14 FY15 % of
Total FY14 % of Total
% Change % Change
CC** North America Revenue $682 64% $701
64% (3)% (2)% International Revenue $387
36% $394 36% (2)% (4)% Total
Revenue $1,069 $1,095
(2)% (3)% North America Bookings $459
63% $410 52% 12% 11% International
Bookings $265 37% $386 48% (31)%
(32)% Total Bookings $724 $796
(9)% (10)% Current Revenue Backlog
$3,402 $3,371 1%
(1)% Total Revenue Backlog $7,330 $7,295
0% (1)%
**CC: Constant Currency
- The decrease in revenue was primarily
due to a decrease in subscription and maintenance revenue and a
decrease in professional services revenue.
- The decrease in bookings was primarily
due to lower year-over-year professional services bookings, due to
a decrease in the size and number of professional services
engagements, including non-core engagements with government
customers that are not directly related to our software product
sales.
- The Company executed a total of 8
license agreements with incremental contract values in excess of
$10 million each, for an aggregate contract value of $330 million.
During the first quarter of fiscal 2014, 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.
- The weighted average duration of
subscription and maintenance bookings for the quarter was 3.60
years, compared with 3.10 years for the same period in fiscal 2014,
primarily attributable to a contract renewal with a large financial
services company.
EXPENSES AND MARGIN
(dollars in millions)
First Quarter FY15 vs. FY14 FY15 FY14
% Change % Change
CC** GAAP Operating Expenses Before Interest
and Income Taxes $756 $876 (14)% (14)%
Operating Income Before Interest and Income Taxes $313 $219
43% 44% Operating Margin 29% 20%
Effective Tax Rate 29.1% (58.7)%
Non-GAAP*
Operating Expenses Before Interest and Income Taxes $642
$684 (6)% (6)% Operating Income Before Interest and
Income Taxes $427 $411 4% 3% Operating Margin
40% 38% Effective Tax Rate 30.0%
13.8%
*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 workforce
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 in the first
quarter of fiscal 2015 were negatively affected by $0.58 and $0.15,
respectively, from an increase in the Company's GAAP and non-GAAP
effective tax rates. The Company recognized a net discrete tax
benefit of approximately $181 million in the first quarter of
fiscal 2014, primarily from the resolution of uncertain tax
positions relating to U.S. and non-U.S. jurisdictions.
- GAAP operating expenses include
approximately $9 million in costs associated with the Fiscal 2014
Rebalancing Plan, compared with $117 million in the first quarter
of fiscal 2014. This resulted in a positive impact of $0.39 on GAAP
EPS.
SELECTED HIGHLIGHTS FROM THE QUARTER
- Customer traction for CA innovations
continued in the quarter.
- A large financial services company is
incorporating the full suite of CA virtualization and automation
solutions to improve speed and quality of application
production.
- Together with a partner, CA signed a
multi-million dollar contract with a large government entity to
help improve the quality of a high-profile, consumer-facing
healthcare application.
- Tata Sky – India’s leading direct
broadcast television provider – selected CA Application Performance
Management, Nimsoft Monitoring and Workload Automation.
- Dillard’s – a US-based department store
chain – chose CA as the company-wide API solution.
- CA launched Cloud Service Management, a
CA-built solution that redefines SaaS in the segment by delivering
rapid time to value and a differentiated user-experience.
- Further strengthened the leadership
team: named Amit Chatterjee EVP, Enterprise Solutions and
Technology Group.
SEGMENT INFORMATION
(dollars in millions)
First Quarter FY15 vs. FY14 Revenue %
Change % Change CC**
Operating Margin FY15 FY14
FY15 FY14 Mainframe Solutions
$614 $619 (1)% (1)% 62% 61%
Enterprise Solutions $368 $378 (3)% (3)%
12% 7% Services $87 $98 (11)%
(11)% 6% 8%
**CC: Constant Currency
- The increase in Mainframe Solutions and
Enterprise Solutions operating margin in the first quarter of
fiscal 2015 was primarily a result of timing of selling and
marketing expenses and a reduction in personnel costs.
- The decrease in Enterprise Solutions
revenue for the first quarter of fiscal 2015 was primarily due to a
decrease in new product sales in the prior fiscal year.
- The decline in Services revenue was
primarily due to a decrease in the size and number of professional
services engagements including non-core engagements with government
customers that are not directly related to our software product
sales.
CASH FLOW FROM OPERATIONS
- Cash flow from operations in the first
quarter of fiscal 2015 was $166 million, compared with $3 million
in the prior year. The increase was primarily due to a decrease in
income tax payments.
CAPITAL STRUCTURE
- Cash, cash equivalents and investments
at June 30, 2014 were $3.255 billion.
- With $1.769 billion in total debt
outstanding and $140 million in notional pooling, the Company’s net
cash, cash equivalents and investments position was $1.346
billion.
- In the first quarter of fiscal 2015,
the Company repurchased 1.7 million shares of common stock for $50
million.
- The Company is currently authorized to
purchase $950 million of its common stock under its current stock
repurchase program.
- The Company distributed $111 million in
dividends to shareholders.
- The Company’s outstanding share count
at June 30, 2014 was 440 million.
OUTLOOK FOR FISCAL YEAR 2015
The Company reaffirmed the following outlook, which represents
"forward-looking statements" (as defined below). It takes into
account the effect of the definitive agreement to divest CA
arcserve data protection business announced on July 7, 2014.
The Company expects the following:
- Total revenue to decrease in a range of
minus 2 percent to minus 1 percent in constant currency. At
June 30, 2014 exchange rates, this translates to reported
revenue of $4.34 billion to $4.40 billion.
- GAAP diluted earnings per share from
continuing operations to decrease in a range of minus 12 percent to
minus 8 percent in constant currency. At June 30, 2014
exchange rates, this translates to reported GAAP diluted earnings
per share of $1.77 to $1.84.
- Non-GAAP diluted earnings per share
from continuing operations to decrease in a range of minus 21
percent to minus 19 percent in constant currency. At June 30,
2014 exchange rates, this translates to reported non-GAAP diluted
earnings per share of $2.42 to $2.49.
- Cash flow from continuing operations to
increase in a range of 5 percent to 12 percent in constant
currency. At June 30, 2014 exchange rates, this translates to
reported cash flow from continuing operations of $1.04 billion to
$1.11 billion.
This outlook assumes no material acquisitions and a partial
currency hedge of operating income. The Company expects a full-year
GAAP operating margin of 28 percent and non-GAAP operating margin
of 37 percent. The Company also expects to return to a normalized
full-year GAAP and non-GAAP effective tax rate of approximately 30
percent, which results in a negative impact to GAAP and non-GAAP
diluted earnings per share from continuing operations of
approximately $0.43 and $0.59, respectively.
The Company anticipates approximately 436 million shares
outstanding at fiscal 2015 year-end and weighted average diluted
shares outstanding of approximately 441 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
5:00 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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Social Media Page
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, include 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: share-based compensation expense; non-cash
amortization of purchased software and other intangible assets;
charges relating to rebalancing initiatives that are large enough
to require approval from the Company's Board of Directors, fiscal
2007 restructuring costs 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 began expensing costs
for internally developed software where development efforts
commenced in the first quarter of fiscal 2014. 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 also adds
back capitalized internal software costs and excludes amortization
of internally developed software costs previously capitalized from
these non-GAAP metrics. 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 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. The Company presents
constant currency information to provide a framework for assessing
how the Company's 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 the Company's prior fiscal year (i.e., March 31, 2014,
March 31, 2013 and March 31, 2012, 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 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 managing the Company's sales force to
enable the Company to maintain and enhance its strong relationships
in its traditional customer base and to increase penetration and
accelerate growth in customer segments and geographic regions where
the Company currently may not have a strong presence or the Company
has underserved, enabling the sales force to sell new products,
improving the Company's brand, technology and innovation awareness
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
innovate and/or 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 of the Company's products to
remain compatible with ever-changing operating environments,
platforms or third party products; the ability to successfully
integrate acquired companies and products into the Company's
existing business; the ability to adequately manage, evolve and
protect the Company's information systems, infrastructure and
processes; risks associated with sales to government customers;
breaches of the Company's data center, network and software
products, and the IT environments of the Company's vendors and
customers; 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; events or circumstances that would require
the Company to record an impairment charge relating to the
Company's goodwill or capitalized software and other intangible
assets balances; access to software licensed from third parties;
risks associated with the use of software from open source code
sources; 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; potential tax
liabilities; 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
rebalancing and facilities consolidations; successful and secure
outsourcing of various functions to third parties; 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 the Company's 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 © 2014 CA, Inc. All Rights Reserved. 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:
2014
2013
Subscription and maintenance $ 909 $ 922 Professional services 87
98 Software fees and other 73 75
Total
revenue $ 1,069 $ 1,095
Expenses: Costs of
licensing and maintenance $ 72 $ 68 Cost of professional services
81 88 Amortization of capitalized software costs 67 66 Selling and
marketing 246 269 General and administrative 92 91 Product
development and enhancements 150 132 Depreciation and amortization
of other intangible assets 34 36 Other expenses, net (1) 14
126
Total expenses before interest and income
taxes $ 756 $ 876
Income from continuing operations
before interest and income taxes $ 313 $ 219 Interest expense,
net 14 11
Income from continuing operations
before income taxes $ 299 $ 208 Income tax expense (benefit)
87 (122 )
Income from continuing operations $
212 $ 330 Income from discontinued operations, net of income taxes
$ 5 $ 5
Net income $ 217 $ 335
Basic
income per common share: Income from continuing operations $
0.48 $ 0.72 Income from discontinued operations 0.01
0.01
Net income $ 0.49 $ 0.73
Basic
weighted average shares used in computation 440 450
Diluted income per common share: Income from continuing
operations $ 0.48 $ 0.72 Income from discontinued operations
0.01 0.01
Net income $ 0.49 $ 0.73
Diluted weighted average shares used in computation 441 451
(1) Other expenses, net includes approximately $9
million and $117 million of charges relating to the FY2014 Board
approved rebalancing initiative (the Fiscal 2014 Plan), for the
three month periods ending June 30, 2014 and June 30, 2013,
respectively. Prior year results have been adjusted to
reflect the discontinued operations associated with the sale of CA
ERwin Data Modeling and CA arcserve data protection businesses.
Table 2 CA Technologies Condensed
Consolidated Balance Sheets (in millions)
June 30, March 31, 2014 2014
(unaudited) Cash and cash equivalents $ 3,255 $ 3,252 Trade
accounts receivable, net 553 800 Deferred income taxes 336 315
Other current assets 154 192
Total
current assets $ 4,298 $ 4,559 Property and equipment,
net $ 291 $ 295 Goodwill 5,922 5,922 Capitalized software and other
intangible assets, net 978 1,063 Deferred income taxes 58 59 Other
noncurrent assets, net 119 118
Total
assets $ 11,666 $ 12,016 Current portion
of long-term debt $ 515 $ 514 Deferred revenue (billed or
collected) 2,205 2,419 Deferred income taxes 7 9 Other current
liabilities 835 980
Total current
liabilities $ 3,562 $ 3,922 Long-term debt, net of
current portion $ 1,254 $ 1,252 Deferred income taxes 67 67
Deferred revenue (billed or collected) 805 872 Other noncurrent
liabilities 310 333
Total
liabilities $ 5,998 $ 6,446 Common stock $
59 $ 59 Additional paid-in capital 3,566 3,610 Retained earnings
5,924 5,818 Accumulated other comprehensive loss (161 ) (171 )
Treasury stock (3,720 ) (3,746 )
Total
stockholders’ equity $ 5,668 $ 5,570
Total
liabilities and stockholders’ equity $ 11,666 $ 12,016
Table 3 CA Technologies
Condensed Consolidated Statements of Cash Flows (unaudited)
(in millions) Three Months Ended
June 30,
2014
2013
Operating activities from continuing operations: Net income
$ 217 $ 335 Income from discontinued operations (5 )
(5 ) Income from continuing operations $ 212 $ 330
Adjustments to reconcile income from
continuing operations to net cash provided
by operating activities: Depreciation and amortization 101 102
Deferred income taxes (20 ) (48 ) Provision for bad debts (1 ) 2
Share-based compensation expense 20 20 Asset impairments and other
non-cash items 1 2 Foreign currency transaction gains - (1 )
Changes in other operating assets and liabilities, net of effect of
acquisitions: Decrease in trade accounts receivable 251 316
Decrease in deferred revenue (285 ) (317 ) Increase (decrease) in
taxes payable, net 17 (338 ) (Decrease) increase in accounts
payable, accrued expenses and other (30 ) 8 Decrease in accrued
salaries, wages and commissions (97 ) (38 ) Changes in other
operating assets and liabilities (3 ) (35 )
Net
cash provided by operating activities - continuing operations $
166 $ 3
Investing activities from continuing
operations: Acquisitions of businesses, net of cash acquired,
and purchased software $ (11 ) $ (122 ) Purchases of property and
equipment (21 ) (13 ) Capitalized software development costs - (25
) Maturities of short-term investments - 184
Net cash (used in) provided by
investing activities - continuing operations
$ (32 ) $ 24
Financing activities from continuing
operations: Dividends paid $ (111 ) $ (114 ) Purchases of
common stock (50 ) (49 ) Notional pooling borrowings, net 11 2 Debt
repayments (2 ) (4 ) Debt issuance costs - (1 ) Exercise of common
stock options and other 12 28
Net
cash used in financing activities - continuing operations $
(140 ) $ (138 )
Net change in cash and cash equivalents
before effect of exchange rate changes on
cash - continuing operations
$ (6 ) $ (111 ) Effect of exchange rate changes on cash $ 1 $ (29 )
Cash provided by operating activities - discontinued operations $ 8
$ 8
Increase (decrease) in cash and cash
equivalents $ 3 $ (132 )
Cash and cash equivalents at
beginning of period $ 3,252 $ 2,593
Cash and
cash equivalents at end of period $ 3,255 $ 2,461
Prior year results have been adjusted to reflect the
discontinued operations associated with the sale of CA ERwin Data
Modeling and CA arcserve data protection businesses.
Table 4 CA Technologies Operating Segments
(unaudited) (dollars in millions)
Three Months Ended June 30, 2014
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total Revenue (2) $ 614 $ 368 $ 87 $ 1,069
Expenses (3) 235 325 82
642
Segment profit $ 379 $ 43 $
5 $ 427
Segment operating margin 62 % 12 % 6 %
40 %
Segment profit $ 427
Less: Purchased
software amortization 28 Other intangibles amortization 15 Software
development costs capitalized - Internally developed software
products amortization 39 Share-based compensation expense 20 Other
expenses, net (4) 12 Interest expense, net 14
Income from continuing operations before income taxes $ 299
Three Months Ended June
30, 2013
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total Revenue (2) $ 619 $ 378 $ 98 $ 1,095
Expenses (3) 243 351 90
684
Segment profit $ 376 $ 27 $
8 $ 411
Segment operating margin 61 % 7 % 8 %
38 %
Segment profit $ 411
Less: Purchased
software amortization 28 Other intangibles amortization 14 Software
development costs capitalized (23 ) Internally developed software
products amortization 38 Share-based compensation expense 20 Other
expenses, net (4) 115 Interest expense, net 11
Income from continuing operations before income taxes $ 208
(1) The Company’s Mainframe Solutions and
Enterprise Solutions segments comprise its software business
organized by the nature of the Company’s software offerings and the
platform on which the products operate. The Services segment
comprises product implementation, consulting, customer education
and customer training, including those directly related to the
Mainframe Solutions and Enterprise Solutions software that the
Company sells to its customers. (2) The Company regularly
enters into a single arrangement with a customer that includes
mainframe solutions, enterprise solutions and services. The amount
of contract revenue assigned to operating 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 operating segment is then recognized in a manner
consistent with the revenue recognition policies the Company
applies to the customer contract for purposes of preparing the
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 and non-segment specific direct 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 of cost of professional services and other
direct costs included within selling and marketing and general and
administrative expenses. There are no allocated or indirect costs
for the Services segment. (4) Other expenses, net includes
charges relating to the FY2014 Board approved rebalancing
initiative (the Fiscal 2014 Plan), certain foreign exchange
derivative hedging gains and losses, and other miscellaneous costs.
Prior year results have been adjusted to reflect the
discontinued operations associated with the sale of CA ERwin Data
Modeling and CA arcserve data protection businesses.
Table 5 CA Technologies Constant Currency
Summary (unaudited) (dollars in millions)
Three Months Ended
June 30, 2014 2013 % Increase
(Decrease)
in $ US
% Increase(Decrease)in ConstantCurrency
(1)
Bookings $ 724 $ 796 (9 )% (10 )%
Revenue: North America $ 682 $ 701 (3 )% (2 )% International
387 394 (2 )% (4 )% Total revenue $ 1,069 $ 1,095 (2
)% (3 )%
Revenue: Subscription and maintenance $ 909
$ 922 (1 )% (2 )% Professional services 87 98 (11 )% (11 )%
Software fees and other 73 75 (3 )% (3 )% Total
revenue $ 1,069 $ 1,095 (2 )% (3 )%
Segment Revenue:
Mainframe solutions $ 614 $ 619 (1 )% (1 )% Enterprise solutions
368 378 (3 )% (3 )% Services 87 98 (11 )% (11 )%
Total
expenses before interest and income taxes: Total non-GAAP (2) $
642 $ 684 (6 )% (6 )% Total GAAP 756 876 (14 )% (14 )% (1)
Constant currency information is presented to provide a
framework for assessing how the Company's 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, 2014, which was the last day of the 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
results have been adjusted to reflect the discontinued operations
associated with the sale of CA ERwin Data Modeling and CA arcserve
data protection businesses. 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,
2014
2013
GAAP net income $ 217 $ 335 GAAP income from discontinued
operations, net of income taxes (5 ) (5 ) GAAP income
from continuing operations $ 212 $ 330 GAAP income tax expense
(benefit) 87 (122 ) Interest expense, net 14
11 GAAP income from continuing operations before interest
and income taxes $ 313 $ 219 GAAP operating margin (%
of revenue) (1) 29 % 20 % Non-GAAP adjustments to expenses:
Costs of licensing and maintenance (2) $ 1 $ 1 Cost of professional
services (2) 1 1 Amortization of capitalized software costs (3) 67
66 Selling and marketing (2) 7 7 General and administrative (2) 6 6
Product development and enhancements (4) 5 (18 ) Depreciation and
amortization of other intangible assets (5) 15 14 Other expenses,
net (6) 12 115 Total Non-GAAP
adjustment to operating expenses $ 114 $ 192 Non-GAAP
income from continuing operations before interest and income taxes
$ 427 $ 411 Non-GAAP operating margin (% of revenue) (7) 40 % 38 %
Interest expense, net 14 11 GAAP income tax expense
(benefit) 87 (122 ) Non-GAAP adjustment to income tax expense
(benefit) (8) 37 177 Non-GAAP income
tax expense $ 124 $ 55 Non-GAAP income from
continuing operations $ 289 $ 345 (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 $28 million and $28 million of
purchased software amortization and $39 million and $38 million of
internally developed software products amortization for the three
month periods ending June 30, 2014 and 2013, respectively.
(4) Non-GAAP adjustment consists of $5 million of share-based
compensation for the three month period ending June 30, 2014.
Non-GAAP adjustment consists of $5 million of share-based
compensation and ($23) million of software development costs
capitalized for the three month period ending June 30, 2013.
(5) Non-GAAP adjustment consists of other intangibles amortization.
(6) Non-GAAP adjustment consists of charges relating to the
FY2014 Board approved rebalancing initiative (the Fiscal 2014 Plan)
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 from continuing operations 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 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. Prior year results have
been adjusted to reflect the discontinued operations associated
with the sale of CA ERwin Data Modeling and CA arcserve data
protection businesses. 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
2014
2013
Total expenses before interest and income taxes $ 756 $ 876
Non-GAAP operating adjustments: Purchased software
amortization 28 28 Other intangibles amortization 15 14 Software
development costs capitalized - (23 ) Internally developed software
products amortization 39 38 Share-based compensation 20 20 Other
expenses, net (1) 12 115 Total non-GAAP
operating adjustment $ 114 $ 192 Total
non-GAAP operating expenses $ 642 $ 684
Three Months Ended
June 30,
Diluted EPS from
Continuing Operations
2014
2013
GAAP diluted EPS from continuing operations $ 0.48 $ 0.72
Non-GAAP adjustments, net of taxes: Purchased software
amortization 0.04 0.10 Other intangibles amortization 0.03 0.05
Software development costs capitalized - (0.08 ) Internally
developed software products amortization 0.06 0.13 Share-based
compensation 0.03 0.07 Other expenses, net (1) 0.02 0.40 Non-GAAP
effective tax rate adjustments (2) (0.01 ) (0.63 )
Total non-GAAP adjustment $ 0.17 $ 0.04
Non-GAAP diluted EPS from continuing operations $ 0.65 $
0.76 (1) Non-GAAP adjustment consists of
charges relating to the FY2014 Board approved rebalancing
initiative (the Fiscal 2014 Plan) 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 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. Prior
year results have been adjusted to reflect the discontinued
operations associated with the sale of CA ERwin Data Modeling and
CA arcserve data protection businesses. 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,
2014
GAAP
Non-GAAP
Income from continuing operations before interest and income
taxes (1) $ 313 $ 427 Interest expense, net 14
14 Income from continuing operations before income taxes $
299 $ 413 Statutory tax rate 35 % 35 % Tax at
statutory rate $ 105 $ 145 Adjustments for discrete and permanent
items (2) (18 ) (21 ) Total tax expense $ 87 $ 124
Effective tax rate (3) 29.1 % 30.0 % Three Months
Ended
June 30,
2013
GAAP
Non-GAAP
Income from continuing operations before interest and income
taxes (1) $ 219 $ 411 Interest expense, net 11
11 Income from continuing operations before income taxes $
208 $ 400 Statutory tax rate 35 % 35 % Tax at
statutory rate $ 73 $ 140 Adjustments for discrete and permanent
items (2) (195 ) (85 ) Total tax (benefit) expense $
(122 ) $ 55 Effective tax rate (3) (58.7 )% 13.8 %
(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. Prior year results have been
adjusted to reflect the discontinued operations associated with the
sale of CA ERwin Data Modeling and CA arcserve data protection
businesses. 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 from Continuing Operations
March 31,
2015
Projected GAAP diluted EPS from continuing operations range
$ 1.77 to $ 1.84 Non-GAAP adjustments, net of taxes:
Purchased software amortization 0.18 0.18 Other intangibles
amortization 0.09 0.09 Internally developed software products
amortization 0.22 0.22 Share-based compensation 0.14 0.14 Other
expenses, net (1) 0.02 0.02 Total non-GAAP adjustment
$ 0.65 $ 0.65 Projected non-GAAP diluted EPS from continuing
operations range $ 2.42 to $ 2.49 Fiscal Year Ending
Projected Operating
Margin
March 31,
2015
Projected GAAP operating margin 28 % Non-GAAP
operating adjustments: Purchased software amortization 3 % Other
intangibles amortization 1 % Internally developed software products
amortization 3 % Share-based compensation 2 % Other expenses, net
(1) 0 % Total non-GAAP operating adjustment 9 % Projected
non-GAAP operating margin 37 % (1) Non-GAAP
adjustment consists of charges relating to the FY2014 Board
approved rebalancing initiative (the Fiscal 2014 Plan).
Refer to the discussion of non-GAAP financial measures included in
the accompanying press release for additional information.
CA TechnologiesJennifer Hallahan, 212-415-6924Public
Relationsjennifer.hallahan@ca.comorJonathan
Doros, 212-415-6870Investor Relationsjonathan.doros@ca.com
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