CA Technologies (NASDAQ:CA) today announced it is updating its
fiscal year 2014 outlook for GAAP and non-GAAP diluted earnings per
share, cash flow from continuing operations, and its GAAP and
non-GAAP effective tax rate following completion of an Internal
Revenue Service appeals process relating to the examination of its
federal income tax returns for fiscal years 2005, 2006 and
2007.
The Company now expects a fiscal year 2014 GAAP and non-GAAP
effective tax rate of approximately 14 percent. Previously the
Company expected a fiscal year 2014 GAAP and non-GAAP effective tax
rate of approximately 31 percent.
The Company said it expects to record a benefit of approximately
$165 million to $185 million to GAAP income in the first quarter of
fiscal year 2014 from the reversal of the previous accounting
accrual related to this matter. The benefit will affect non-GAAP
income over the course of fiscal year 2014.
The Company also expects to receive a cash refund of
approximately $70 million to $80 million by the end of the second
quarter of fiscal year 2014.
The Company previously disclosed the potentially favorable
resolution of the U.S. tax matter during its financial analyst
briefing on May 7, 2013.
The following outlook, which represents "forward-looking
statements" (as defined below), takes into account the adjustment
for internally developed software costs, the costs and payments
associated with a rebalancing charge announced on May 7, 2013 and
the resolution of the U.S. tax matter mentioned above.
The Company expects the following:
- GAAP diluted earnings per share decline
in constant currency in a range of minus 11 percent to minus 6
percent. At March 31, 2013 exchange rates, this translates to GAAP
reported diluted earnings per share of $1.84 to $1.94. Previous
outlook projected a decline in GAAP diluted earnings per share in
constant currency in a range of minus 29 percent to minus 25
percent.
- Non-GAAP diluted earnings per share
growth in constant currency in a range of 16 percent to 20 percent.
At March 31, 2013 exchange rates, this translates to reported
non-GAAP diluted earnings per share of $2.93 to $3.03. Previous
outlook projected a decline in non-GAAP diluted earnings per share
in constant currency in a range of minus 7 percent to minus 4
percent.
- Cash flow from continuing operations
decline in a range of minus 30 percent to minus 24 percent in
constant currency. At March 31, 2013 exchange rates, this
translates to reported cash flow from continuing operations of $970
million to $1.05 billion. Previous outlook projected a decline in
cash flow from continuing operations in a range of minus 35 percent
to minus 29 percent in constant currency.
- Total revenue outlook is unchanged and
projects a 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.
As it previously stated, 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 be adjusted for internally
developed software and also exclude the costs and payments
associated with a rebalancing charge.
Outlook for cash flow from continuing operations is being
adversely affected by costs associated with the rebalancing of
resources during the fiscal year, an expected increase in cash
taxes and an increase in cash outflows relating to product
development and enhancement expenses for fiscal 2014. In fiscal
year 2013, cash flow from continuing operations does not reflect
$165 million 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 continues to expect
a full-year GAAP operating margin of 23 percent and non-GAAP
operating margin of 36 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.
Slides presented at CA Technologies investor briefing on May 7,
2013 have been updated to reflect the impact of the U.S. tax matter
mentioned above and can be accessed at
http://ca.com/invest.
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.
CA Technologies Reconciliation of Revised
Projected GAAP Metrics to Revised Projected Non-GAAP Metrics
(unaudited) Fiscal Year
Ending
Revised Projected
Diluted EPS from Continuing Operations
March 31,
2014
Revised Projected GAAP diluted EPS from continuing
operations range $ 1.84 to $ 1.94 Non-GAAP adjustments, net
of taxes: Purchased software and other intangibles amortization
0.35 0.35 Rebalancing expense 0.29 0.29 Internally developed
software products, net (1) 0.26 0.26 Share-based compensation
0.19 0.19 Revised Projected non-GAAP diluted
EPS from continuing operations range $ 2.93 to $ 3.03
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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