• Revenue Decreases 2 Percent in Constant Currency and 3
Percent as Reported
• GAAP EPS Decreases 7 Percent in Constant Currency and as
Reported
• Non-GAAP EPS Grows 33 Percent in Constant Currency and as
Reported
• Cash Flow From Operations Decreases 24 Percent in Constant
Currency and as Reported
• Updates FY 2014 Outlook for Revenue, EPS and Operating
Margin
CA Technologies (NASDAQ:CA) today reported financial results for
its third quarter fiscal year 2014, ended December 31,
2013.
FINANCIAL OVERVIEW
(dollars in millions, except share data)
Third Quarter FY14 vs. FY13 FY14
FY13 % Change
% Change CC**
Revenue $ 1,163 $ 1,195 (3 )%
(2 )% GAAP Net Income $ 232 $ 251
(8 )% (9 )% Non-GAAP Income* $ 379
$ 286 33 % 33 % GAAP Diluted EPS
$ 0.51 $ 0.55 (7 )% (7 )%
Non-GAAP Diluted EPS* $ 0.84 $ 0.63 33
% 33 % Cash Flow from Operations $ 429
$ 566 (24 )% (24 )%
* 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
"CA Technologies delivered another solid performance in the
third quarter," said Mike Gregoire, CA Technologies chief executive
officer. "We outperformed on revenue and are pleased with our
renewals business and disciplined approach to cost control. We also
saw good traction with our recent acquisitions Layer 7 and Nolio,
which both had strong performances.
“While I’m encouraged by our performance in Q3, we need to
continue to improve our execution across development, marketing and
sales,” Gregoire continued. “Based on our results so far this year,
we expect our fiscal year 2015 revenue growth rate and non-GAAP
operating margin to be similar to fiscal year 2014.
“We are driving significant improvements in our products and
go-to-market, including the release of organic innovation such as
CA Cloud Storage for System z and the launch of a new ad campaign
in select airports around the world as well as online.
"With two months to go in the fiscal year, we are more focused
than ever on delivering great products, increasing market awareness
of CA and our capabilities, and accelerating the velocity of our
efforts to sell more software to more customers," Gregoire
concluded.
REVENUE AND BOOKINGS
(dollars in millions)
Third
Quarter FY14 vs. FY13 FY14 % of
Total FY13 % of
Total % Change
% Change CC** North America Revenue $ 729
63 % $ 745 62 %
(2 )% (2 )% International Revenue $ 434
37 % $ 450 38 % (4
)% (2 )% Total Revenue $ 1,163
$ 1,195 (3 )%
(2 )% North America Bookings $ 1,017
63 % $ 685 54 %
48 % 49 % International Bookings $ 586
37 % $ 576 46 % 2
% 2 % Total Bookings $ 1,603
$ 1,261 27 %
28 % Current Revenue Backlog $ 3,457
$ 3,495
(1 )% 0 % Total Revenue Backlog $ 7,634
$ 7,488
2 % 3 %
**CC: Constant Currency
- The increase in the Company's third
quarter bookings was positively affected by a year-over-year
increase in renewals, primarily driven by a four year contract
renewal with a large system integrator for more than $300
million.
- The Company executed a total of 17
license agreements with incremental contract values in excess of
$10 million each, for an aggregate contract value of $874 million.
During the third quarter of fiscal year 2013, 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.
- The weighted average duration of
subscription and maintenance bookings for the quarter was 3.68
years, compared with 2.97 years for the same period in fiscal year
2013.
EXPENSES AND MARGIN
(dollars in millions)
Third Quarter FY14 vs.
FY13 FY14 FY13
% Change % Change
CC** GAAP Operating Expenses Before Interest
and Income Taxes $ 829 $ 825
0 % 2 % Operating Income Before Interest and
Income Taxes $ 334 $ 370
(10 )% (11 )% Operating Margin 29 %
31 %
Effective Tax Rate 27 % 30 %
Non-GAAP*
Operating Expenses Before Interest and Income Taxes $
707 $ 771 (8 )%
(7 )% Operating Income Before Interest and Income Taxes $
456 $ 424 8 %
7 % Operating Margin 39 % 35 %
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 operating expenses
were positively affected by lower personnel costs, primarily within
selling and marketing.
- GAAP and non-GAAP operating margins in
the third quarter were positively affected by a decrease in
personnel expenses. GAAP operating margin also was negatively
affected by a decrease in software capitalization.
- Non-GAAP EPS was positively affected by
$0.16 due to a lower effective tax rate. The Company
recognized a year-to-date net discrete tax benefit of approximately
$184 million in 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 fiscal years 2005, 2006 and
2007.
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 have been revised to present
segment profit and expenses on a consistent basis.
(dollars in millions)
Third Quarter FY14 vs. FY13 Revenue
% Change
%ChangeCC**
Operating Margin FY14
FY13 FY14
FY13 Mainframe Solutions $ 622 $
622 0 % 1 % 62 %
59 % Enterprise Solutions $ 447 $ 476
(6 )% (5 )% 15 %
11 % Services $ 94 $ 97 (3 )%
(4 )% 4 % 4 %
**CC: Constant Currency
- The increase in Mainframe Solutions
operating margin was primarily driven by a decrease in selling and
marketing expenses in the third quarter of fiscal year 2014.
- Enterprise Solutions revenue for the
third quarter of fiscal year 2014 decreased compared with the
year-ago period primarily due to lower new product sales in prior
periods. Enterprise Solutions operating margin for the third
quarter of fiscal year 2014 increased compared with the year-ago
period primarily as a result of a decrease in selling and marketing
expenses.
- The decrease in Services revenue was
primarily due to lower professional services engagements, including
those with government customers.
CASH FLOW FROM OPERATIONS
- Cash flow from operations in the third
quarter was $429 million, compared with $566 million in the prior
year. The decrease year-over-year was due to a decrease in cash
collections and a number of expected factors including higher cash
taxes, payments related to the rebalancing actions announced on May
7, 2013 and a reduction in capitalized software development costs,
offset by lower cash disbursements.
CAPITAL STRUCTURE
- Cash, cash equivalents and investments
at December 31, 2013 were $2.982 billion.
- With $1.772 billion in total debt
outstanding and $138 million in notional pooling, the Company’s net
cash, cash equivalents and investments position was $1.072
billion.
- In the third quarter of fiscal year
2014, the Company repurchased more than 4 million shares of stock
for $140 million.
- The Company is currently authorized to
repurchase an additional $167 million of common stock and expects
to complete the program by the end of fiscal year 2014.
- During the third quarter of fiscal year
2014, the Company distributed $113 million in dividends to
shareholders.
- The Company’s outstanding share count
at December 31, 2013 was 443 million.
CHANGE IN EXECUTIVE MANAGEMENT
Adam Elster, who led the Mainframe and Customer Success group
for the past two years, has been named Executive Vice President and
Group Executive, Worldwide Sales and Services, effective
immediately. He replaces George Fischer, who is leaving
the company after 20 years at CA (see separate press release for
details).
OUTLOOK FOR FISCAL YEAR 2014
The Company updated its fiscal year 2014 guidance for revenue,
GAAP and non-GAAP EPS, and GAAP and non-GAAP operating margin. The
following guidance contains "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:
- Total revenue to decrease in a range of
minus 2 percent to minus 1 percent in constant currency. Previous
guidance was a decrease of minus 3 percent to minus 2 percent. At
December 31, 2013 exchange rates, this translates to reported
revenue of $4.52 billion to $4.57 billion.
- GAAP diluted earnings per share to
range from minus 3 percent to 0 percent in constant currency.
Previous guidance was a decrease of minus 7 percent to minus 4
percent. At December 31, 2013 exchange rates, this translates
to reported GAAP diluted earnings per share of $2.01 to $2.08.
- Non-GAAP diluted earnings per share to
increase in a range of 21 percent to 24 percent in constant
currency. Previous guidance was an increase of 17 percent to 20
percent. At December 31, 2013 exchange rates, this translates
to reported non-GAAP diluted earnings per share of $3.05 to
$3.12.
- Cash flow from operations to decrease
in a range of minus 30 percent to minus 24 percent in constant
currency, unchanged from previous guidance. At December 31,
2013 exchange rates, this translates to reported cash flow from
operations of $960 million to $1.04 billion.
Outlook for cash flow from operations is being negatively
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 expenses 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 expects a full-year
GAAP operating margin of 25 percent and non-GAAP operating margin
of 37 percent, an increase of one point from previous guidance. The
Company expects a fiscal year 2014 GAAP and non-GAAP effective tax
rate of approximately 14 percent.
The Company anticipates approximately 439 million shares
outstanding at fiscal year 2014 year-end and weighted average
diluted shares outstanding of approximately 448 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 third 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, 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. For projections of non-GAAP
performance metrics for periods after fiscal year 2014, the Company
is unable to provide a reconciliation to the nearest GAAP
equivalent because the information is not available without
unreasonable effort.
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 expected to be
completed by the end of 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 © 2014 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:
2013 2012 2013
2012 Subscription and maintenance $ 951 $ 966 $ 2,840
$ 2,906 Professional services 94 97 289 283 Software fees and other
118 132 302 303
Total
revenue $ 1,163 $ 1,195 $ 3,431 $ 3,492
Expenses:
Costs of licensing and maintenance $ 79 $ 72 $ 223 $ 210 Cost of
professional services 88 92 264 266 Amortization of capitalized
software costs 72 66 214 197 Selling and marketing 293 331 834 953
General and administrative 95 96 277 304 Product development and
enhancements 149 120 429 368 Depreciation and amortization of other
intangible assets 40 39 113 120 Other (gains) expenses, net (1)
13 9 156 (14 )
Total expenses before
interest and income taxes $ 829 $ 825 $ 2,510 $ 2,404
Income before interest and income taxes $ 334 $ 370 $ 921 $ 1,088
Interest expense, net 15 12 39 33
Income before income taxes $ 319 $ 358 $ 882 $ 1,055 Income
tax expense 87 107 75 342
Net
income $ 232 $ 251 $ 807 $ 713
Basic income
per common share $ 0.52 $ 0.55 $ 1.78 $ 1.54
Basic weighted
average shares used in computation 446 452 448 458
Diluted income per common share $ 0.51 $ 0.55 $ 1.78 $ 1.53
Diluted weighted average shares used in computation 448 453
449 460
(1)
Other (gains) expenses, net includes approximately $12
million and $134 million of charges relating to the FY2014 Board
approved re-balancing initiative announced May 7, 2013, for the
three and nine month periods ending December 31, 2013,
respectively.
Table 2 CA
Technologies Condensed Consolidated Balance Sheets (in
millions) December 31, March 31, 2013
2013 (unaudited) Cash and cash equivalents $ 2,974 $ 2,593
Short-term investments 8 183 Trade accounts receivable, net 714 856
Deferred income taxes 338 346 Other current assets 156
148
Total current assets $ 4,190 $
4,126 Property and equipment, net $ 290 $ 311 Goodwill 5,922
5,871 Capitalized software and other intangible assets, net 1,129
1,231 Deferred income taxes 74 77 Other noncurrent assets, net
172 195
Total assets $ 11,777
$ 11,811 Current portion of long-term debt $
519 $ 16 Deferred revenue (billed or collected) 2,151 2,482
Deferred income taxes 13 12 Other current liabilities 854
1,031
Total current liabilities $ 3,537
$ 3,541 Long-term debt, net of current portion $ 1,253 $
1,274 Deferred income taxes 89 120 Deferred revenue (billed or
collected) 893 975 Other noncurrent liabilities 315
451
Total liabilities $ 6,087 $ 6,361
Common stock $ 59 $ 59 Additional paid-in capital
3,590 3,593 Retained earnings 5,823 5,357 Accumulated other
comprehensive loss (185 ) (155 ) Treasury stock (3,597 )
(3,404 )
Total stockholders’ equity $ 5,690 $
5,450
Total liabilities and stockholders’ equity $
11,777 $ 11,811
Table 3 CA Technologies Condensed Consolidated
Statements of Cash Flows (unaudited) (in millions) Three Months
Ended
December 31, 2013
2012 Operating activities: Net
income $ 232 $ 251 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization 112
105 Deferred income taxes (16 ) 48 Provision for bad debts - 1
Share-based compensation expense 23 18 Asset impairments and other
non-cash items 5 3 Foreign currency transaction losses 1 - Changes
in other operating assets and liabilities, net of effect of
acquisitions: Increase in trade accounts receivable (126 ) (201 )
Increase in deferred revenue 151 257 Increase in taxes payable, net
23 57 Increase (decrease) in accounts payable, accrued expenses and
other 8 (48 ) Increase in accrued salaries, wages and commissions
14 47 Changes in other operating assets and liabilities 2
28
Net cash provided by operating
activities $ 429 $ 566
Investing
activities: Acquisitions of businesses, net of cash acquired,
and purchased software $ (2 ) $ (6 ) Purchases of property and
equipment (17 ) (9 ) Proceeds from sale of assets 12 - Capitalized
software development costs (4 ) (44 ) Purchases of short-term
investments, net - (29 ) Other investing activities (1 )
-
Net cash used in investing activities $ (12
) $ (88 )
Financing activities: Dividends paid $ (113 ) $
(114 ) Purchases of common stock (140 ) (77 ) Notional pooling
borrowings (repayments), net 4 (28 ) Debt repayments (4 ) (3 ) Debt
issuance costs (1 ) - Exercise of common stock options and other
19 -
Net cash used in financing
activities $ (235 ) $ (222 )
Net change in cash and cash
equivalents before effect of exchange rate
changes on cash
$ 182 $ 256 Effect of exchange rate changes on cash $ 2 $ 11
Increase in cash and cash equivalents $ 184 $ 267
Cash and cash equivalents at beginning of period $ 2,790
$ 2,086
Cash and cash equivalents at end of
period $ 2,974 $ 2,353
Table 4
CA Technologies Operating Segments (unaudited)
(dollars in millions) Three Months Ended December 31, 2013
Nine Months Ended December 31, 2013 Mainframe Enterprise Mainframe
Enterprise
Solutions(1)
Solutions(1)
Services(1)
Total
Solutions(1)
Solutions(1)
Services(1)
Total Revenue (2) $ 622 $ 447 $ 94 $ 1,163 $ 1,865 $ 1,277 $
289 $ 3,431 Expenses (3) 239 378
90 707 709 1,105
268 2,082 Segment profit $ 383 $
69 $ 4 $ 456 $ 1,156 $ 172 $ 21
$ 1,349 Segment operating margin 62 % 15 % 4 % 39 %
62 % 13 % 7 % 39 % Segment profit $ 456 $ 1,349 Less:
Purchased software amortization 29 88 Other intangibles
amortization 19 48 Software development costs capitalized (1 ) (32
) Internally developed software products amortization 43 126
Share-based compensation expense 23 64 Other (gains) expenses, net
(4) 9 134 Interest expense, net 15 39
Income before income taxes $ 319 $ 882
Three Months Ended December 31, 2012 Nine
Months Ended December 31, 2012 Mainframe Enterprise Mainframe
Enterprise
Solutions(1)
Solutions(1)
Services(1)
Total
Solutions(1)
Solutions(1)
Services(1)
Total Revenue (2) $ 622 $ 476 $ 97 $ 1,195 $ 1,869 $ 1,340 $
283 $ 3,492 Expenses (3) 253 425
93 771 764 1,191
269 2,224 Segment profit $ 369 $
51 $ 4 $ 424 $ 1,105 $ 149 $ 14
$ 1,268 Segment operating margin 59 % 11 % 4 % 35 %
59 % 11 % 5 % 36 % Segment profit $ 424 $ 1,268 Less:
Purchased software amortization 26 80 Other intangibles
amortization 14 41 Software development costs capitalized (44 )
(122 ) Internally developed software products amortization 40 117
Share-based compensation expense 18 62 Other (gains) expenses, net
(4) - 2 Interest expense, net 12 33
Income before income taxes $ 358 $ 1,055 (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 application performance management,
infrastructure management, 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 hedging 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 December 31, Nine Months Ended December 31, % Increase
% Increase % Increase (Decrease) in % Increase (Decrease) in
(Decrease) Constant (Decrease) Constant 2013 2012 in $ US
Currency (1)
2013 2012 in $ US
Currency (1)
Bookings $ 1,603 $ 1,261 27 % 28 % $ 3,304 $ 2,651 25
% 26 %
Revenue: North America $ 729 $ 745 (2 )% (2 )%
$ 2,177 $ 2,201 (1 )% (1 )% International 434 450 (4
)% (2 )% 1,254 1,291 (3 )% (1 )% Total revenue $
1,163 $ 1,195 (3 )% (2 )% $ 3,431 $ 3,492 (2 )% (1 )%
Revenue: Subscription and maintenance $ 951 $ 966 (2 )% (1
)% $ 2,840 $ 2,906 (2 )% (2 )% Professional services 94 97 (3 )% (4
)% 289 283 2 % 2 % Software fees and other 118 132
(11 )% (8 )% 302 303 0 % 2 % Total revenue $ 1,163 $
1,195 (3 )% (2 )% $ 3,431 $ 3,492 (2 )% (1 )%
Segment
Revenue: Mainframe solutions $ 622 $ 622 0 % 1 % $ 1,865 $
1,869 0 % 0 % Enterprise solutions 447 476 (6 )% (5 )% 1,277 1,340
(5 )% (4 )% Services 94 97 (3 )% (4 )% 289 283 2 % 2 %
Total expenses before interest and income taxes: Total
non-GAAP (2) $ 707 $ 771 (8 )% (7 )% $ 2,082 $ 2,224 (6 )% (5 )%
Total GAAP 829 825 0 % 2 % 2,510 2,404 4 % 5 % (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 Nine Months Ended
December
31, December 31, 2013
2012 2013
2012 GAAP net income $ 232 $ 251
$ 807 $ 713 GAAP income tax expense 87 107 75 342 Interest expense,
net 15 12 39 33
GAAP income before interest and income taxes $ 334 $
370 $ 921 $ 1,088 GAAP operating margin (% of
revenue) (1) 29 % 31 % 27 % 31 % Non-GAAP adjustments to
expenses: Costs of licensing and maintenance (2) $ 1 $ 1 $ 3 $ 2
Cost of professional services (2) 1 1 3 3 Amortization of
capitalized software costs (3) 72 66 214 197 Selling and marketing
(2) 8 6 23 24 General and administrative (2) 8 6 20 21 Product
development and enhancements (4) 4 (40 ) (17 ) (110 ) Depreciation
and amortization of other intangible assets (5) 19 14 48 41 Other
(gains) expenses, net (6) 9 -
134 2 Total Non-GAAP adjustment to operating
expenses $ 122 $ 54 $ 428 $ 180
Non-GAAP income before interest and income taxes $ 456 $ 424 $
1,349 $ 1,268 Non-GAAP operating margin (% of revenue) (7) 39 % 35
% 39 % 36 % Interest expense, net 15 12 39 33 GAAP
income tax expense 87 107 75 342 Non-GAAP adjustment to income tax
expense (8) (25 ) 19 109
37 Non-GAAP income tax expense $ 62 $ 126 $
184 $ 379 Non-GAAP income $ 379 $ 286 $
1,126 $ 856 (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) For the three month periods ending December 31, 2013 and
2012, non-GAAP adjustment consists of $29 million and $26 million
of purchased software amortization and $43 million and $40 million
of internally developed software products amortization,
respectively. For the nine month periods ending December 31, 2013
and 2012, non-GAAP adjustment consists of $88 million and $80
million of purchased software amortization and $126 million and
$117 million of internally developed software products
amortization, respectively. (4) For the three month periods
ending December 31, 2013 and 2012, non-GAAP adjustment consists of
$5 million and $4 million of share-based compensation and ($1)
million and ($44) million of software development costs
capitalized, respectively. For the nine month periods ending
December 31, 2013 and 2012, non-GAAP adjustment consists of $15
million and $12 million of share-based compensation and ($32)
million and ($122) million of software development costs
capitalized, 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 Nine Months Ended
December
31, December 31,
Operating
Expenses
2013 2012
2013 2012
Total expenses before interest and income taxes $ 829 $ 825
$ 2,510 $ 2,404 Non-GAAP operating adjustments: Purchased
software amortization 29 26 88 80 Other intangibles amortization 19
14 48 41 Software development costs capitalized (1 ) (44 ) (32 )
(122 ) Internally developed software products amortization 43 40
126 117 Share-based compensation 23 18 64 62 Other (gains)
expenses, net (1) 9 - 134
2 Total non-GAAP operating adjustment $ 122 $
54 $ 428 $ 180 Total non-GAAP operating
expenses $ 707 $ 771 $ 2,082 $ 2,224
Three Months Ended Nine Months Ended
December
31, December 31,
Diluted
EPS
2013 2012
2013 2012
GAAP diluted EPS $ 0.51 $ 0.55 $ 1.78 $ 1.53 Non-GAAP
adjustments, net of taxes: Purchased software amortization 0.05
0.04 0.18 0.12 Other intangibles amortization 0.03 0.02 0.10 0.06
Software development costs capitalized - (0.06 ) (0.07 ) (0.18 )
Internally developed software products amortization 0.07 0.06 0.25
0.17 Share-based compensation 0.04 0.03 0.13 0.09 Other (gains)
expenses, net (1) 0.01 - 0.27 - Non-GAAP effective tax rate
adjustments (2) 0.13 (0.01 ) (0.16 )
0.05 Total non-GAAP adjustment $ 0.33 $ 0.08
$ 0.70 $ 0.31 Non-GAAP diluted EPS $
0.84 $ 0.63 $ 2.48 $ 1.84 (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 Nine
Months Ended
December 31, 2013 December 31,
2013 GAAP Non-GAAP
GAAP Non-GAAP Income before
interest and income taxes (1) $ 334 $ 456 $ 921 $ 1,349 Interest
expense, net 15 15 39
39 Income before income taxes $ 319 $ 441 $ 882 $
1,310 Statutory tax rate 35 % 35 % 35 % 35 % Tax at
statutory rate $ 112 $ 154 $ 309 $ 459 Adjustments for discrete and
permanent items (2) (25 ) (92 ) (234 )
(275 ) Total tax expense $ 87 $ 62 $ 75 $ 184 Effective tax
rate (3) 27.3 % 14.1 % 8.5 % 14.0 % Three Months Ended Nine
Months Ended
December 31, 2012 December 31,
2012 GAAP Non-GAAP
GAAP Non-GAAP Income before
interest and income taxes (1) $ 370 $ 424 $ 1,088 $ 1,268 Interest
expense, net 12 12 33
33 Income before income taxes $ 358 $ 412 $ 1,055 $
1,235 Statutory tax rate 35 % 35 % 35 % 35 % Tax at
statutory rate $ 125 $ 144 $ 369 $ 432 Adjustments for discrete and
permanent items (2) (18 ) (18 ) (27 )
(53 ) Total tax expense $ 107 $ 126 $ 342 $ 379 Effective
tax rate (3) 29.9 % 30.6 % 32.4 % 30.7 % (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
$ 2.01 to $ 2.08 Non-GAAP adjustments, net of taxes:
Purchased software amortization 0.22 0.22 Other intangibles
amortization 0.12 0.12 Software development costs capitalized (0.07
) (0.07 ) Internally developed software products amortization 0.32
0.32 Share-based compensation 0.16 0.16 Other (gains) expenses, net
(1) 0.29 0.29 Total non-GAAP adjustment
$ 1.04 $ 1.04 Projected non-GAAP diluted EPS
range $ 3.05 to $ 3.12
Fiscal Year Ending
Projected Operating
Margin
March 31, 2014
Projected GAAP operating margin 25 % 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) 3 %
Total non-GAAP operating adjustment 12 % Projected non-GAAP
operating margin 37 % (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.
CA TechnologiesJennifer Hallahan, 212-415-6924Public
Relationsjennifer.hallahan@ca.comorJonathan Doros,
212-415-6870Investor Relationsjonathan.doros@ca.com
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