CA Technologies (NASDAQ:CA) today reported financial results for
its fourth quarter and full fiscal year 2013, ended March 31,
2013.
FINANCIAL OVERVIEW
Fourth Quarter FY13 vs. FY12 Full Year FY13
vs. FY12 (dollars in millions, except share data)
FY13
FY12
%Change
%ChangeCC**
FY13 FY12
%Change
%ChangeCC**
Revenue $1,151 $1,188 (3%) (2%) $4,643
$4,814 (4%) (2%) GAAP Income from continuing
operations $242 $211 15% 17% $955
$938 2% 6% Non-GAAP Income from continuing
operations* $310 $264 17% 22% $1,169
$1,117 5% 8% GAAP Diluted EPS from continuing
operations $0.53 $0.45 18% 20% $2.07
$1.90 9% 13% Non-GAAP Diluted EPS from
continuing operations* $0.68 $0.56 21% 27%
$2.53 $2.27 11% 15% Cash Flow from
continuing operations $570 $776 (27%)
(23%) $1,408 $1,505 (6%) (6%)
* 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
“While we were able to achieve GAAP and non-GAAP diluted
earnings growth for the year, we know we can do better to drive new
sales and revenue performance,” said Mike Gregoire, CA Technologies
chief executive officer. “When I look at the significant assets at
CA Technologies, I believe there is an opportunity for us to
improve our performance by stronger focus on product innovation,
leveraging customer relationships and better execution in new
customer adoption.
“The traditional ways we’ve looked at systems, data,
applications and security are being challenged by disruptive
technologies like Mobility, Cloud, SaaS and Big Data. Businesses
have higher expectations from IT, demanding far greater speed and
agility and anytime, anywhere secure connectivity. These are areas
where CA has expertise and can help,” he continued. “To better meet
this customer demand, today we announced a plan and corresponding
charge of approximately $150 million for fiscal year 2014 that will
enable us to rebalance our resources to drive greater innovation
and collaboration in product development and greater efficiency and
better sales execution.”
REVENUE AND BOOKINGS
Fourth Quarter
About 63 percent of the Company’s revenue in the fourth quarter
came from North America, while 37 percent came from International
operations.
Total revenue year-over-year:
- Total revenue was $1.151 billion, down
2 percent in constant currency and 3 percent as reported.
- Total revenue backlog was $7.774
billion, down 7 percent in constant currency and 8 percent as
reported. The current portion of revenue backlog was $3.563
billion, down 3 percent in constant currency and 4 percent as
reported.
- North America revenue was $724 million,
down 3 percent in constant currency and as reported.
- International revenue was $427 million,
down 1 percent in constant currency and 3 percent as reported.
Bookings year-over-year:
- Total bookings in the fourth quarter
were $1.463 billion, down 4 percent in constant currency and 5
percent as reported.
- The Company renewed a total of 20
license agreements with incremental contract values in excess of
$10 million each, for an aggregate contract value of $744 million.
This total included one contract of more than $200 million with a
United States government agency. During the fourth quarter of
fiscal year 2012, the Company renewed a total of 27 license
agreements with incremental contract values in excess of $10
million each, for an aggregate contract value of $694 million.
- The weighted average duration of
subscription and maintenance bookings for the quarter was 3.78
years, compared with 3.41 years for the same period in fiscal year
2012.
- North America bookings were $986
million, up 11 percent in constant currency and 10 percent as
reported, in part because of the large government contract
mentioned above.
- International bookings were $477
million, down 24 percent in constant currency and 26 percent as
reported. International bookings in fiscal year 2012 were
positively affected by a large, multi-year contract with a
financial institution in Europe.
Full Year
About 63 percent of the Company’s full year revenue came from
North America, while 37 percent came from International
operations.
Total revenue year-over-year:
- Total revenue was $4.643 billion, down
2 percent in constant currency and 4 percent as reported. Full
fiscal year 2012 results benefited from a final license payment of
$39 million received in the third quarter of fiscal year 2012 that
will not recur.
- North America revenue was $2.925
billion, down 2 percent in constant currency and as reported.
- International revenue was $1.718
billion, down 1 percent in constant currency and 6 percent as
reported.
Bookings year-over-year:
- Total bookings were $4.114 billion,
down 11 percent in constant currency and 12 percent as
reported.
- North America bookings were $2.497
billion, down 13 percent in constant currency and as reported.
- International bookings were $1.617
billion, down 7 percent in constant currency and 10 percent as
reported.
EXPENSES AND MARGIN
Fourth Quarter
Year-over-year GAAP results:
- Fourth quarter GAAP earnings includes
an impairment of $55 million, or $0.11 per diluted share, related
to purchased software products.
- Operating expenses, before interest and
income taxes, were $877 million, down 1 percent in constant
currency and as reported.
- Operating income, before interest and
income taxes, was $274 million, down 7 percent in constant currency
and 9 percent as reported.
- Operating margin was 24 percent, down a
percentage point from the prior year period.
Year-over-year non-GAAP results exclude purchased software and
other intangibles amortization, share-based compensation, and
certain other gains and losses. The results also include gains and
losses on hedges that mature within the quarter, but exclude gains
and losses of hedges that do not mature within the quarter.
- Operating expenses, before interest and
income taxes, were $767 million, down 6 percent in constant
currency and 5 percent as reported.
- Operating income, before interest and
income taxes, was $384 million, up 5 percent in constant currency
and 2 percent as reported.
- Operating margin was 33 percent, up a
percentage point from the previous year.
For the fourth quarter of fiscal year 2013, the Company’s
effective GAAP tax rate was 8 percent, compared with 27 percent in
the prior year. The Company’s effective non-GAAP tax
rate was 17 percent, down from 28 percent in the prior
year. GAAP and non-GAAP earnings per share were
positively affected by discrete tax items that are not expected to
recur, which added $0.11 to GAAP diluted earnings per share and
$0.09 to non-GAAP diluted earnings per share.
Full Year
Year-over-year GAAP results:
- GAAP earnings include an impairment of
$55 million, or $0.09 per diluted share, related to the above
mentioned purchased software products.
- Operating expenses, before interest and
income taxes, were $3.281 billion, down 3 percent in constant
currency and 4 percent as reported.
- Operating income, before interest and
income taxes, was $1.362 billion, up 1 percent in constant currency
and down 2 percent as reported.
- Operating margin was 29 percent, flat
with the previous year period.
Year-over-year non-GAAP results:
- Operating expenses, before interest and
income taxes, were $2.986 billion, down 4 percent in constant
currency and 6 percent as reported.
- Operating income, before interest and
income taxes, was $1.657 billion, up 3 percent in constant currency
and 1 percent as reported.
- The Company recorded a non-GAAP
operating margin of 36 percent, up 2 percentage points from fiscal
year 2012.
For the full year, the Company’s effective GAAP and non-GAAP tax
rate was 28 percent, compared with 31 percent in the prior year.
Full year GAAP and non-GAAP earnings per share were positively
affected by the discrete tax items mentioned above, which added
$0.09 to GAAP diluted earnings per share and $0.10 to non-GAAP
diluted earnings per share.
SEGMENT INFORMATION
Fourth Quarter
- Mainframe Solutions revenue was $620
million, down 1 percent in constant currency and as reported.
Operating expense was $261 million and operating profit was $359
million. Operating margin was 58 percent, up from 56 percent a year
ago.
- Enterprise Solutions revenue was $432
million, down 6 percent in constant currency and 7 percent as
reported. Operating expense was $417 million and operating profit
was $15 million. Operating margin was 3 percent, down from 5
percent a year ago.
- Services revenue was $99 million, up 6
percent in constant currency and as reported. Operating expense was
$89 million and operating profit was $10 million. Operating margin
was 10 percent, up from 6 percent a year ago.
Full Year
- Mainframe Solutions revenue was $2.489
billion, down 3 percent in constant currency and 5 percent as
reported. Full year fiscal 2012 results were positively affected by
a final license payment of $39 million in the third quarter that
did not recur. Operating expense was $1.016 billion and operating
profit was $1.473 billion. Operating margin was 59 percent, up from
56 percent a year ago.
- Enterprise Solutions revenue was $1.772
billion, down 1 percent in constant currency and 3 percent as
reported. Operating expense was $1.612 billion and operating profit
was $160 million. Operating margin was 9 percent, up a percentage
point from a year ago. Operating margin was positively affected by
an intellectual property transaction in the first quarter of fiscal
year 2013.
- Services revenue was $382 million, up 2
percent in constant currency and flat as reported. Operating
expense was $358 million and operating profit was $24 million.
Operating margin was 6 percent, flat from a year ago.
CASH FLOW FROM CONTINUING OPERATIONS
- Cash flow from continuing operations in
the fourth quarter was $570 million, compared with $776 million in
the prior year. The decline was primarily due to lower cash
collections.
- For the full year, cash flow from
continuing operations was $1.408 billion, compared with $1.505
billion in the prior fiscal year. Fiscal year 2013 results included
an increase in cash collections from single installment payments of
$193 million.
CAPITAL STRUCTURE
- Cash, cash equivalents and investments
at March 31, 2013, were $2.776 billion.
- With $1.290 billion in total debt
outstanding and $136 million in notional pooling, the Company’s net
cash, cash equivalents and investments position was $1.350
billion.
- In the fourth quarter, the Company
repurchased approximately 3 million shares of stock for
approximately $74 million.
- During the first quarter of fiscal
2013, the Company successfully completed its Accelerated Share
Repurchase (ASR) agreement with the receipt of 3.7 million common
shares. Subsequent to the completion of the ASR, the Company
repurchased 20 million shares in the market for approximately $495
million for the fiscal year.
- The Company is currently authorized to
repurchase $505 million of common stock through fiscal year
2014.
- During the fourth quarter, the Company
distributed $114 million in dividends to shareholders. During the
fiscal year, the Company distributed $463 million in dividends to
shareholders.
- The Company said its Board of Directors
remains committed to delivering on the Company’s $2.5 billion
capital allocation plan announced in 2012 that includes share
repurchases and the $1.00 per share annual dividend.
- The Company’s outstanding share count
at March 31, 2013 was 448 million.
CHARGE TO REBALANCE RESOURCES WITH BUSINESS
PRIORITIES
The Company also announced it would be taking a charge of
approximately $150 million in FY 2014 to rebalance its resources to
better align with its business priorities. It said the charge would
cover the termination of approximately 1,200 employees worldwide
and the consolidation of development sites into centralized
development hubs. A majority of the personnel actions are expected
to be completed by the end of the first quarter of fiscal year
2014.
The Company said it expects to backfill a majority of the
positions over the next 12 months with new employees with skills
that will enable the Company to better focus its resources on
priority products and market segments. The consolidation of
development sites into development hubs will promote collaboration
and agile development. The Company also plans to further streamline
its sales structure to eliminate overlays while maintaining its
focus on its existing enterprise and enterprise growth customer
segments.
BUSINESS HIGHLIGHTS
During the fourth quarter:
- Mike Gregoire assumed the role of chief
executive officer and became a member of the Company’s Board of
Directors.
- The Company acquired Nolio Ltd. a
recognized leader in continuous application delivery with a strong
and growing international base of large enterprise and service
provider customers.
- The Company announced CA Nimsoft
Service Desk 7, the latest version of its flagship SaaS service
management solution.
- The Company announced an Identity and
Access Management (IAM) solution that integrates with SAP®
solutions for governance, risk and compliance (GRC) to help reduce
the risk of fraud and manage access compliance. Through a
partnership agreement with Greenlight Technologies, CA’s IAM
capabilities are integrated with the SAP Access Control
application.
OUTLOOK FOR FISCAL YEAR 2014
The Company provided its outlook for fiscal year 2014. The
Company expects its product offerings and go-to-market strategy
will evolve in future periods and that these product offerings will
become available at more frequent intervals than in historical
release cycles. The Company also expects a more extensive adoption
of agile development methodologies, which are characterized by a
more dynamic development process. The Company expects this will
result in commencing capitalization much later in the development
life cycle. 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, beginning in the first quarter of fiscal year 2014,
the Company will expense research and development costs for
internally developed products as they are incurred. The fiscal year
2014 outlook for non-GAAP measures will also exclude the costs and
payments associated with the rebalancing charge the Company
announced today.
The following outlook, which represents "forward-looking
statements" (as defined below), takes into account both the
adjustment for internally developed software costs and the costs
and payments associated with the rebalancing charge discussed
above.
The Company expects the following:
- Total revenue decrease in a range of
minus 4 percent to minus 2 percent in constant currency. At March
31, 2013 exchange rates, this translates to reported revenue of
$4.43 billion to $4.52 billion.
- GAAP diluted earnings per share decline
in constant currency in a range of minus 29 percent to minus 25
percent. At March 31, 2013 exchange rates, this translates to GAAP
reported diluted earnings per share of $1.48 to $1.56.
- Non-GAAP diluted earnings per share
decline in constant currency in a range of minus 7 percent to minus
4 percent. At March 31, 2013 exchange rates, this translates to
reported non-GAAP diluted earnings per share of $2.35 to
$2.43.
- Cash flow from continuing operations
decline in a range of minus 35 percent to minus 29 percent in
constant currency. At March 31, 2013 exchange rates, this
translates to reported cash flow from continuing operations of $900
million to $980 million.
Outlook for cash flow from continuing operations is being
adversely affected by costs associated with the above mentioned
rebalancing of resources, an expected increase in cash taxes and an
increase in cash outflows relating to product development and
enhancement expenses for fiscal 2014. In FY 2013, cash flow from
continuing operations does not reflect $165M of capitalized
software development costs that appears 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 23 percent and non-GAAP operating margin
of 36 percent. The Company also expects an effective full-year GAAP
and non-GAAP tax rate, before the potential favorable effect of an
expected resolution of a U.S. federal tax appeal, of about 31
percent.
The Company anticipates approximately 432 million shares
outstanding at fiscal year 2014 year-end and weighted average
diluted shares outstanding of approximately 441 million for the
fiscal year.
To enable fiscal year 2014 guidance for non-GAAP financial
measures to be compared to full year results for prior fiscal
years, the Company is providing full fiscal year 2012 and 2013
results for non-GAAP operating margin and diluted earnings per
share adjusted for internally developed software as described
above. The Company will also be providing a revised non-GAAP
adjusted cash flow from continuing operations metric during fiscal
2014, which is additionally adjusted for both the amount of
capitalized software development and the payments associated with
the rebalancing charge. The Company will also be providing results
for fiscal years 2012 and 2013 for this metric. These non-GAAP
adjusted measures are provided in the Company’s supplemental
financial information, at http://ca.com/invest.
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 live webcast that the Company will host at 4:30 p.m. ET
today to discuss its unaudited fourth quarter results. The webcast
will be archived on the website. Individuals can access the
webcast, as well as the press release, presentation slides 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 and certain other gains and losses, which
includes the gains and losses since inception of hedges that mature
within the quarter, but exclude gains and losses of hedges that do
not mature within the quarter. In fiscal year 2011, non-GAAP income
also excludes recoveries and certain costs associated with
derivative litigation matters. Beginning in the first quarter of
fiscal year 2014, the Company will expense all costs for internally
developed software in the period incurred and add back the
amortization expense for internally developed software products
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 such items arise and the
effective tax rate for non-GAAP generally allocating the impact of
discrete items pro rata to the fiscal year's remaining reporting
periods. Adjusted cash flow from operations excludes restructuring
and other payments. Beginning in the first quarter of fiscal year
2014, the Company will also adjust this metric for both the amount
of capitalized software development and the payments associated
with rebalancing initiatives that are large enough to require
approval from the Company’s Board of Directors. Free cash flow
excludes purchases of property, equipment and capitalized software
development costs. We present constant currency information to
provide a framework for assessing how our underlying businesses
performed excluding the effect of foreign currency rate
fluctuations. To present this information, current and comparative
prior period results for entities reporting in currencies other
than U.S. dollars are converted into U.S. dollars at the exchange
rate in effect on the last day of our prior fiscal year (i.e.,
March 31, 2012, March 31, 2011 and March 31, 2010, 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 Fiscal Year Ended
March 31,
March 31,
Revenue
2013
2012
2013
2012
Subscription and maintenance revenue $ 952 $ 986 $ 3,858 $ 4,021
Professional services 99 93 382 382 Software fees and other
100 109 403 411
Total revenue $ 1,151 $ 1,188 $ 4,643 $
4,814
Expenses Costs of licensing and maintenance $
74 $ 79 $ 284 $ 286 Cost of professional services 88 87 354 357
Amortization of capitalized software costs (1) 122 61 319 225
Selling and marketing 323 356 1,276 1,394 General and
administrative 101 131 405 462 Product development and enhancements
122 126 490 510 Depreciation and amortization of other intangible
assets 38 42 158 176 Other (gains) expenses, net 9
5 (5 ) 15
Total expenses
before interest and income taxes $ 877 $ 887 $
3,281 $ 3,425 Income from continuing operations
before interest and income taxes $ 274 $ 301 $ 1,362 $ 1,389
Interest expense, net 11 11 44
35 Income from continuing operations before
income taxes $ 263 $ 290 $ 1,318 $ 1,354 Income tax expense
21 79 363 416
Income from continuing operations $ 242 $ 211 $ 955 $ 938
Income from discontinued operations, net of income taxes -
- - 13
Net
income $ 242 $ 211 $ 955 $ 951
Basic income per share Income from continuing
operations $ 0.53 $ 0.45 $ 2.07 $ 1.91 Income from discontinued
operations - - -
0.03 Net income $ 0.53 $ 0.45 $ 2.07 $
1.94 Basic weighted average shares used in computation 449
466 456 486
Diluted income per share Income from
continuing operations $ 0.53 $ 0.45 $ 2.07 $ 1.90 Income from
discontinued operations - - -
0.03 Net income $ 0.53 $ 0.45 $
2.07 $ 1.93 Diluted weighted average shares used in
computation 450 467 457 487 (1) Amortization of capitalized
software costs includes an impairment of $55 million relating to
purchased software products, for the three and twelve month periods
ending March 31, 2013.
Table 2 CA Technologies
Condensed Consolidated Balance Sheets (in millions)
March 31, March 31, 2013 2012 (unaudited) Cash and
cash equivalents $ 2,593 $ 2,679 Short-term investments 183 - Trade
accounts receivable, net 856 902 Deferred income taxes 346 231
Other current assets 148 153
Total
current assets $ 4,126 $ 3,965 Property and equipment,
net $ 311 $ 386 Goodwill 5,871 5,856 Capitalized software and other
intangible assets, net 1,231 1,389 Deferred income taxes 77 151
Other noncurrent assets, net 195 250
Total assets $ 11,811 $ 11,997 Current
portion of long-term debt $ 16 $ 14 Deferred revenue (billed or
collected) 2,482 2,658 Deferred income taxes 12 14 Other current
liabilities 1,031 1,065
Total
current liabilities $ 3,541 $ 3,751 Long-term debt, net
of current portion $ 1,274 $ 1,287 Deferred income taxes 120 44
Deferred revenue (billed or collected) 975 972 Other noncurrent
liabilities 451 546
Total
liabilities $ 6,361 $ 6,600 Common stock $
59 $ 59 Additional paid-in capital 3,593 3,491 Retained earnings
5,357 4,865 Accumulated other comprehensive loss (155 ) (108 )
Treasury stock (3,404 ) (2,910 )
Total
stockholders’ equity $ 5,450 $ 5,397
Total
liabilities and stockholders’ equity $ 11,811 $ 11,997
Table 3 CA Technologies Condensed
Consolidated Statements of Cash Flows (unaudited) (in millions)
Three Months Ended
March 31,
2013
2012
Operating activities from continuing operations: Income from
continuing operations $ 242 $ 211
Adjustments to reconcile income from
continuing operations to net cash provided by operating
activities:
Depreciation and amortization 160 103 Provision for deferred income
taxes (33 ) (94 ) Provision for bad debts 3 2 Share-based
compensation expense 16 28 Asset impairments and other non-cash
items 6 5 Foreign currency transaction (gains) losses (3 ) 12
Changes in other operating assets and liabilities, net of effect of
acquisitions: Increase in trade accounts receivable (70 ) (57 )
Increase in deferred revenue 292 486 Decrease in taxes payable, net
(130 ) (13 ) Increase in accounts payable, accrued expenses and
other 43 40 Increase in accrued salaries, wages and commissions 24
53 Changes in other operating assets and liabilities 20
-
Net cash provided by operating activities
- continuing operations $ 570 $ 776
Investing
activities from continuing operations: Acquisitions of
businesses, net of cash acquired, and purchased software $ (58 ) $
(14 ) Purchases of property and equipment (9 ) (19 ) Capitalized
software development costs (43 ) (43 ) Proceeds from investments,
net - 182 Other investing activities (1 ) (1 )
Net
cash (used in) provided by investing activities - continuing
operations $ (111 ) $ 105
Financing activities from
continuing operations: Dividends paid $ (114 ) $ (117 )
Purchases of common stock, including accelerated share repurchase
(72 ) (500 ) Debt (repayments) borrowings, net (4 ) 8 Exercise of
common stock options and other 5 26
Net cash used in financing activities - continuing
operations $ (185 ) $ (583 )
Net change in cash and cash equivalents
before effect of exchange rate changes on cash - continuing
operations
$ 274 $ 298 Effect of exchange rate changes on cash $
(34 ) $ 29 Cash used in operating activities - discontinued
operations - (6 )
Increase in cash and cash
equivalents $ 240 $ 321
Cash and cash equivalents at
beginning of period $ 2,353 $ 2,358
Cash and
cash equivalents at end of period $ 2,593 $ 2,679
Table 4 CA Technologies Operating
Segments (unaudited) (dollars in millions) Three
Months Ended March 31, 2013 Fiscal Year Ended March 31, 2013
Mainframe
Enterprise
Mainframe
Enterprise
Solutions (1)
Solutions (1)
Services (1) Total
Solutions (1)
Solutions (1)
Services (1) Total Revenue (2) $ 620 $ 432 $ 99 $
1,151 $ 2,489 $ 1,772 $ 382 $ 4,643 Expenses
(3) 261 417 89
767 1,016 1,612
358 2,986 Segment profit
$ 359 $ 15 $ 10 $ 384 $
1,473 $ 160 $ 24 $ 1,657
Segment operating margin 58 % 3 % 10 % 33 % 59 % 9 % 6 % 36 %
Segment profit $ 384 $ 1,657 Less: Purchased software
amortization (4) 83 163 Other intangibles amortization 13 54
Share-based compensation expense 16 78 Other (gains) expenses, net
(5) (2 ) - Interest expense, net 11
44 Income from continuing operations
before income taxes $ 263 $
1,318 Three Months Ended March 31, 2012 Fiscal
Year Ended March 31, 2012
Mainframe
Enterprise
Mainframe
Enterprise
Solutions (1)
Solutions (1)
Services (1) Total
Solutions (1)
Solutions (1)
Services (1) Total Revenue (2) $ 629 $ 466 $ 93 $ 1,188 $
2,612 $ 1,820 $ 382 $ 4,814 Expenses (3) 279
445
87 811
1,140 1,668 359
3,167 Segment profit $ 350 $ 21 $ 6
$ 377 $ 1,472 $ 152 $ 23
$ 1,647 Segment operating margin 56 % 5
% 6 % 32 % 56 % 8 % 6 % 34 % Segment profit $ 377 $ 1,647
Less: Purchased software amortization 27 103 Other intangibles
amortization 15 65 Share-based compensation expense 28 89 Other
(gains) expenses, net (5) 6 1 Interest expense, net
11 35 Income from
continuing operations before income taxes $ 290
$ 1,354 (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, general and
administrative costs and amortization of the cost of internally
developed software. Allocated segment costs primarily include
indirect selling and marketing costs and general and administrative
costs that are not directly attributable to a specific segment. The
basis for allocating shared and indirect costs between the
Mainframe Solutions and Enterprise Solutions segments is dependent
on the nature of the cost being allocated and is either in
proportion to segment revenues or in proportion to the related
direct cost category. Expenses for the Services segment consist
only of direct costs and there are no allocated or indirect costs
for the Services segment. (4) Purchased software
amortization includes an impairment of $55 million relating to
purchased software products, for the three and twelve month periods
ending March 31, 2013. (5) Other (gains) expenses, net
consists of other unallocated costs including foreign exchange
derivative (gains) losses, and other miscellaneous costs.
Table 5 CA Technologies Constant Currency
Summary (unaudited) (dollars in millions) Three
Months Ended March 31, Fiscal Year Ended March 31,
% Increase
% Increase
% Increase
(Decrease)
% Increase
(Decrease)
(Decrease)
in Constant
(Decrease)
in Constant
2013 2012
in $ US
Currency (1)
2013 2012
in $ US
Currency (1)
Bookings $ 1,463 $ 1,542 (5 %) (4 %) $ 4,114 $ 4,663
(12 %) (11 %)
Revenue: North America $ 724 $ 748 (3
%) (3 %) $ 2,925 $ 2,990 (2 %) (2 %) International 427
440 (3 %) (1 %) 1,718
1,824 (6 %) (1 %) Total revenue $ 1,151 $ 1,188 (3 %) (2 %)
$ 4,643 $ 4,814 (4 %) (2 %)
Revenue: Subscription and
maintenance $ 952 $ 986 (3 %) (3 %) $ 3,858 $ 4,021 (4 %) (2 %)
Professional services 99 93 6 % 6 % 382 382 0 % 2 % Software fees
and other 100 109 (8 %) (7 %)
403 411 (2 %) (1 %) Total revenue $ 1,151 $
1,188 (3 %) (2 %) $ 4,643 $ 4,814 (4 %) (2 %)
Segment
Revenue: Mainframe solutions $ 620 $ 629 (1 %) (1 %) $ 2,489 $
2,612 (5 %) (3 %) Enterprise solutions 432 466 (7 %) (6 %) 1,772
1,820 (3 %) (1 %) Services 99 93 6 % 6 % 382 382 0 % 2 %
Total expenses before interest and income taxes: Total
non-GAAP (2) $ 767 $ 811 (5 %) (6 %) $ 2,986 $ 3,167 (6 %) (4 %)
Total GAAP (3) 877 887 (1 %) (1 %) 3,281 3,425 (4 %) (3 %) (1)
Constant currency information is presented to provide a
framework for assessing how our underlying businesses performed
excluding the effect of foreign currency rate fluctuations. To
present this information, current and comparative prior period
results for entities reporting in currencies other than US dollars
are converted into US dollars at the exchange rate in effect on
March 31, 2012, which was the last day of our prior fiscal year.
Constant currency excludes the impacts from the Company's hedging
program. (2) Refer to Table 7 for a reconciliation of total
expenses before interest and income taxes to total non-GAAP
operating expenses. (3) Total GAAP expenses include an
impairment of $55 million relating to purchased software products,
for the three and twelve month periods ending March 31, 2013.
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 Fiscal Year Ended
March 31,
March 31,
2013
2012
2013
2012
GAAP net income $ 242 $ 211 $ 955 $ 951 GAAP income from
discontinued operations, net of income taxes -
- - (13 ) GAAP income from continuing
operations $ 242 $ 211 $ 955 $ 938 GAAP income tax expense 21 79
363 416 Interest expense, net 11 11
44 35 GAAP income from continuing
operations before interest and income taxes $ 274 $ 301
$ 1,362 $ 1,389
GAAP operating margin (% of
revenue)(1)
24 % 25 % 29 % 29 % Non-GAAP adjustments to expenses: Costs
of licensing and maintenance(2) $ 1 $ 1 $ 3 $ 3 Cost of
professional services(2) 1 1 4 4 Amortization of capitalized
software costs(3) 83 27 163 103 Selling and marketing(2) 7 11 31 36
General and administrative(2) 2 10 23 27 Product development and
enhancements(2) 5 5 17 19 Depreciation and amortization of other
intangible assets(4) 13 15 54 65
Other (gains) expenses, net(5)
(2 ) 6 - 1 Total
Non-GAAP adjustment to operating expenses $ 110 $ 76
$ 295 $ 258 Non-GAAP income from continuing
operations before interest and income taxes $ 384 $ 377 $ 1,657 $
1,647
Non-GAAP operating margin (% of
revenue)(6)
33 % 32 % 36 % 34 % Interest expense, net 11 11 44 35 GAAP
income tax expense 21 79 363 416 Non-GAAP adjustment to income tax
expense(7) 42 23 81
79 Non-GAAP income tax expense $ 63 $ 102
$ 444 $ 495 Non-GAAP income from continuing
operations $ 310 $ 264 $ 1,169 $ 1,117
(1) GAAP operating margin is calculated by dividing GAAP
income from continuing operations before interest and income taxes
by total revenue (refer to Table 1 for total revenue). (2)
Non-GAAP adjustment consists of share-based compensation.
(3) Non-GAAP adjustment consists of purchased software
amortization, which includes an impairment of $55 million relating
to purchased software products, for the three and twelve month
periods ending March 31, 2013. (4) Non-GAAP adjustment
consists of other intangibles amortization. (5) Non-GAAP
adjustment consists of other miscellaneous costs including gains
and losses since inception of hedges that mature within the
quarter, but excludes gains and losses of hedges that do not mature
within the quarter. (6) Non-GAAP operating margin is
calculated by dividing non-GAAP income from continuing operations
before interest and income taxes by total revenue (refer to Table 1
for total revenue). (7) The full year non-GAAP income tax
expense is different from GAAP income tax expense because of the
difference in non-GAAP income from continuing operations before
income taxes. On an interim basis, this difference would also
include a difference in the impact of discrete and permanent items
where for GAAP purposes the effect is recorded in the period such
items arise, but for non-GAAP such items are recorded pro rata to
the fiscal year's remaining reporting periods. Refer to the
discussion of non-GAAP financial measures included in the
accompanying press release for additional information.
Certain non-material differences may arise versus actual from
impact of rounding.
Table 7 CA Technologies
Reconciliation of GAAP to Non-GAAP Operating Expenses and
Diluted Earnings per Share (unaudited) (in millions, except per
share amounts) Three Months Ended Fiscal Year
Ended
March 31,
March 31,
Operating
Expenses
2013
2012
2013
2012
Total expenses before interest and income taxes $ 877 $ 887
$ 3,281 $ 3,425 Non-GAAP operating adjustments: Purchased
software amortization (1) 83 27 163 103 Other intangibles
amortization 13 15 54 65 Share-based compensation 16 28 78 89 Other
(gains) expenses, net (2) (2 ) 6 -
1 Total non-GAAP operating adjustment $ 110
$ 76 $ 295 $ 258 Total non-GAAP
operating expenses $ 767 $ 811 $ 2,986 $ 3,167
Three Months Ended Fiscal Year Ended
March 31, March 31,
Diluted EPS from
Continuing Operations
2013 2012 2013
2012 GAAP diluted EPS from continuing
operations $ 0.53 $ 0.45 $ 2.07 $ 1.90 Non-GAAP adjustments,
net of taxes: Purchased software and other intangibles amortization
(1) 0.18 0.06 0.34 0.24 Share-based compensation 0.04 0.04 0.12
0.13 Other (gains) expenses, net (2) - 0.01 - - Non-GAAP effective
tax rate adjustments (3) (0.07 ) - -
- Non-GAAP diluted EPS from continuing
operations $ 0.68 $ 0.56 $ 2.53 $ 2.27
(1) Non-GAAP adjustment consists of purchased software
amortization, which includes an impairment of $55 million relating
to purchased software products, for the three and twelve month
periods ending March 31, 2013. (2) Non-GAAP adjustment
consists of other miscellaneous costs 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. (3) The non-GAAP effective tax rate is equal to the
full year GAAP effective tax rate, therefore no adjustment is
required on an annual basis. On an interim basis, the difference in
non-GAAP income tax expense and GAAP income tax expense relates to
the difference in non-GAAP income from continuing operations before
income taxes, and includes a difference in the impact of discrete
and permanent items where for GAAP purposes the effect is recorded
in the period such items arise but for non-GAAP purposes such items
are recorded pro rata to the fiscal year's remaining reporting
periods. Refer to the discussion of non-GAAP financial
measures included in the accompanying press release for additional
information. Certain non-material differences may arise
versus actual from impact of rounding.
Table 8 CA
Technologies Effective Tax Rate Reconciliation GAAP
and Non-GAAP (unaudited) (dollars in millions)
Three Months Ended Fiscal Year Ended
March 31,
2013
March 31,
2013
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income taxes
(1) $ 274 $ 384 $ 1,362 $ 1,657 Interest expense, net 11
11 44 44 Income
from continuing operations before income taxes $ 263 $ 373 $ 1,318
$ 1,613 Statutory tax rate 35 % 35 % 35 % 35 % Tax at
statutory rate $ 92 $ 131 $ 461 $ 565 Adjustments for discrete and
permanent items (2) (71 ) (68 ) (98 )
(121 ) Total tax expense $ 21 $ 63 $ 363 $ 444 Effective tax
rate (3) 8.0 % 16.9 % 27.5 % 27.5 % Three Months
Ended Fiscal Year Ended
March 31,
2012
March 31,
2012
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income
taxes (1) $ 301 $ 377 $ 1,389 $ 1,647 Interest expense, net
11 11 35 35 Income
from continuing operations before income taxes $ 290 $ 366 $ 1,354
$ 1,612 Statutory tax rate 35 % 35 % 35 % 35 % Tax at
statutory rate $ 102 $ 128 $ 474 $ 564 Adjustments for discrete and
permanent items (2) (23 ) (26 ) (58 )
(69 ) Total tax expense $ 79 $ 102 $ 416 $ 495 Effective tax
rate (3) 27.2 % 27.9 % 30.7 % 30.7 % (1) Refer to Table 6
for a reconciliation of income from continuing operations before
interest and income taxes on a GAAP basis to income from continuing
operations before interest and income taxes on a non-GAAP basis.
(2) The effective tax rate for GAAP generally includes the
impact of discrete and permanent items in the period such items
arise, whereas the effective tax rate for non-GAAP generally
allocates the impact of such items pro rata to the fiscal year's
remaining reporting periods. (3) The effective tax rate on
GAAP and non-GAAP income from continuing operations is the
Company's provision for income taxes expressed as a percentage of
GAAP and non-GAAP income from continuing operations before income
taxes, respectively. The non-GAAP effective tax rate is equal to
the full year GAAP effective tax rate. On an interim basis, the
effective tax rates are determined based on an estimated effective
full year tax rate after the adjustments for the impacts of certain
discrete items (such as changes in tax rates, reconciliations of
tax returns to tax provisions and resolutions of tax
contingencies). Refer to the discussion of non-GAAP
financial measures included in the accompanying press release for
additional information. Certain non-material differences may
arise versus actual from impact of rounding.
Table 9
CA Technologies Reconciliation of Projected GAAP Metrics
to Projected Non-GAAP Metrics (unaudited) Fiscal
Year Ending
Projected Diluted
EPS from Continuing Operations
March 31,
2014
Projected GAAP diluted EPS from continuing operations
range $ 1.48 to $ 1.56 Non-GAAP adjustments, net of taxes:
Purchased software and other intangibles amortization 0.28 0.28
Rebalancing expense 0.23 0.23 Internally developed software
products, net (1) 0.21 0.21 Share-based compensation 0.15
0.15 Projected non-GAAP diluted EPS from continuing
operations range $ 2.35 to $ 2.43 Fiscal Year Ending
Projected Operating
Margin
March 31,
2014
Projected GAAP operating margin 23% Non-GAAP
adjustments: Purchased software and other intangibles amortization
4% Rebalancing expense 4% Internally developed software products,
net (1) 3% Share-based compensation 2%
Projected non-GAAP operating margin
36%
(1) Beginning in the first quarter of fiscal year 2014, the
Company will expense all costs for internally developed software in
the period incurred, and add back the amortization expense for
internally developed software products from these non-GAAP
metrics.
Refer to the discussion of non-GAAP financial measures included
in the accompanying press release for additional information.
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