- Strong New Sales Performance Shows
Continued Strategic and Operational Progress
- Second Quarter Revenue of $1.079
Billion, Compared With $1.105 Billion Last Year
- Second Quarter GAAP EPS of $0.53 ,
Compared With $0.51 Last Year
- Second Quarter Non-GAAP EPS of
$0.65, Compared With $0.83 Last Year
- Second Quarter Cash Flow From
Continuing Operations of $66 Million, Compared With $73 Million
Last Year
CA Technologies (NASDAQ:CA) today reported financial results for
its second quarter fiscal 2015, ended September 30, 2014.
Mike Gregoire, CA Technologies Chief Executive Officer, made the
following comments:
“We are starting to see traction in the market as a result of
our efforts. Enterprise Solutions new sales were up for the second
consecutive quarter. We continued to see solid performance in
connection with renewals and we maintained financial discipline
across the business. Although we are pleased with this progress, we
remain focused on the work needed to drive sustained revenue
growth.
“The Application Economy is transforming business, creating new
opportunity and enormous complexity for our customers. CA provides
the software solutions businesses need to accelerate innovation,
secure applications and manage their rapidly growing IT portfolios
across multiple platforms. We are uniquely positioned to help our
customers build the new capabilities they need to grow and reduce
the complexity they need to manage, and have focused our business
on solving these problems.”
FINANCIAL OVERVIEW
(dollars in millions, except share data)
Second
Quarter FY15 vs. FY14 FY15 FY14
% Change
% ChangeCC**
Revenue $1,079 $1,105 (2)% (3)% GAAP Income
from Continuing Operations $235 $231 2% (5)%
Non-GAAP Income from Continuing Operations* $292 $375
(22)% (22)% GAAP Diluted EPS from Continuing Operations
$0.53 $0.51 4% (4)% Non-GAAP Diluted EPS from
Continuing Operations* $0.65 $0.83 (22)% (22)%
Cash Flow from Continuing Operations $66 $73 (10)%
(8)%
* Non-GAAP income and earnings per share are non-GAAP financial
measures, as noted in the discussion of non-GAAP results below. A
reconciliation of non-GAAP financial measures to their comparable
GAAP financial measures is included in the tables following this
news release.
**CC: Constant Currency
REVENUE AND BOOKINGS
(dollars in millions)
Second Quarter FY15 vs.
FY14 FY15
% ofTotal
FY14
% ofTotal
%Change
%Change CC**
North America Revenue $693 64% $715 65%
(3)% (3)% International Revenue $386 36% $390
35% (1)% (3)% Total Revenue $1,079
$1,105 (2)% (3)%
North America Bookings $552 74% $480
57% 15% 16% International Bookings $197 26%
$364 43% (46)% (45)% Total Bookings
$749 $844 (11)%
(11)% Current Revenue Backlog $3,230
$3,325 (3)% (1)% Total Revenue
Backlog $6,811 $7,153
(5)% (3)%
**CC: Constant Currency
- Total revenue declined primarily as a
result of a decrease in subscription and maintenance revenue, which
was largely due to a decrease in Mainframe Solutions revenue and,
to a lesser extent, a decrease in professional services
revenue.
- Total bookings decreased primarily due
to an expected year-over-year decrease in renewals from the timing
of the renewal portfolio within subscription and maintenance
bookings. This timing reflects the decrease in the value of
contracts generally available for renewal compared with year-ago
period. The decrease in subscription and maintenance bookings was
partially offset by an increase in professional services
bookings.
- The Company executed a total of 6
license agreements with incremental contract values in excess of
$10 million each, for an aggregate contract value of $217 million.
During the second quarter of fiscal 2014, the Company executed a
total of 12 license agreements with incremental contract values in
excess of $10 million each, for an aggregate contract value of $320
million.
- The weighted average duration of
subscription and maintenance bookings for the quarter was 3.10
years, compared with 3.32 years for the same period in fiscal
2014.
EXPENSES AND MARGIN
(dollars in millions)
Second Quarter FY15 vs. FY14 FY15 FY14
%Change %Change
CC** GAAP Operating Expenses Before Interest
and Income Taxes $759 $760 0% 2% Operating
Income Before Interest and Income Taxes $320 $345
(7)% (13)% Operating Margin 30% 31%
Effective Tax Rate 23.7% 30.4%
Non-GAAP*
Operating Expenses Before Interest and Income Taxes $650
$657 (1)% (2)% Operating Income Before Interest and
Income Taxes $429 $448 (4)% (4)% Operating
Margin 40% 41% Effective Tax
Rate 30.0% 13.8%
*A reconciliation of non-GAAP financial measures to their
comparable GAAP financial measures is included in the tables
following this news release. Year-over-year non-GAAP results
exclude purchased software and other intangibles amortization,
share-based compensation, capitalization (an add-back) and
amortization of internal software costs, Board approved workforce
rebalancing initiatives and certain other gains and losses. The
results also include gains and losses on hedges that mature within
the quarter, but exclude gains and losses on hedges that do not
mature within the quarter.
**CC: Constant Currency
- GAAP and non-GAAP second quarter
operating expenses were generally consistent compared with the
year-ago period. GAAP operating expenses included an impairment of
$13 million relating to capitalized software and other intangible
assets within the Enterprise Solutions segment. The Company expects
a year-over-year increase in the third quarter of fiscal 2015 for
selling and marketing expenses as a result of incremental expenses
associated with CA World ‘14.
- GAAP EPS in the second quarter of
fiscal 2015 was positively affected by $0.05, from a decrease
in the Company's GAAP effective tax rate. The Company recognized a
net discrete tax benefit of $19 million in the second quarter of
fiscal 2015. This net discrete tax benefit was primarily as a
result of the resolution of uncertain tax positions relating to
U.S. and non-U.S. jurisdictions.
- Non-GAAP EPS in the second quarter of
fiscal 2015 was negatively affected by $0.15 from an increase
in the Company's non-GAAP effective tax rate. The Company
recognized a net discrete tax benefit of approximately $181
million in the first quarter of fiscal 2014, which impacted
the non-GAAP effective tax rate for the second quarter of fiscal
2014. This net discrete tax benefit was primarily as a result of
the resolution of uncertain tax positions relating to U.S. and
non-U.S. jurisdictions.
SELECTED HIGHLIGHTS FROM THE QUARTER
- Customer traction for CA Technologies
innovations continued in the quarter.
- One of the world’s leading consumer
entertainment companies chose CA APM solutions to monitor
end-to-end performance of their on-line gaming platform.
- A French airline is now working with CA
Service Virtualization to increase the speed and stability of
application updates for their new mobile booking system.
- A large UK-based financial services
integrator signed a multi-million dollar transaction to leverage
CA's API Management solution to build a cloud based mobile platform
that allows third party financial service offerings, such as
mortgage and insurance products, to be provided to social
consumers.
- Solutions leadership:
- CA Technologies has been placed in the
leaders quadrant for its Data Center Infrastructure Management
(DCIM) solution by Gartner in their “Magic Quadrant for Data Center
Infrastructure Management Tools” report issued in September.
(1)
- CA API solutions were named a “leader”
by analyst firm Forrester in their report “The Forrester Wave™: API
Management Solutions, Q3 2014” in a report issued in September.
(2)
SEGMENT INFORMATION
(dollars in millions)
Second Quarter FY15 vs.
FY14 Revenue %Change
%ChangeCC**
Operating Margin FY15 FY14
FY15 FY14 Mainframe
Solutions $610 $624 (2)% (3)% 62%
63% Enterprise Solutions $378 $384 (2)%
(2)% 13% 12% Services $91 $97 (6)%
(8)% 2% 9%
**CC: Constant Currency
- Mainframe Solutions revenue decreased
compared with the year-ago period primarily due to insufficient
revenue from prior period new sales to offset the decline in
revenue contribution from renewals. Operating margin was generally
consistent compared with the year-ago period.
- Enterprise Solutions revenue decreased
compared with the year-ago period primarily due to a decrease in
revenue that is recognized on an up-front basis in the current
period. This decline was primarily due to an increase in the
percentage of our Enterprise Solutions new sales sold in connection
with renewals compared with the year-ago period. In addition,
within Enterprise Solutions, there was an unfavorable effect from
the decrease in revenue from certain mature product lines,
partially offset by an increase in revenue from recently acquired
products and sales of newly developed technologies. Enterprise
Solutions operating margin was generally consistent compared with
the year-ago period.
- Services revenue decreased compared
with the year-ago period primarily as a result of a decrease in the
size and number of services engagements during the first quarter of
fiscal 2015. Operating margin for our Services segment decreased
compared with the year-ago period as a result of a number of
factors, including the decrease in revenue and lower utilization
rates for services personnel due to the decrease in the number of
services engagements.
CASH FLOW FROM OPERATIONS
- Cash flow from operations for the
second quarter of fiscal 2015 was $66 million, versus $73 million
in the year ago period. Prior year cash flows included a tax refund
of $70 million that positively affected cash flows from operations
in the year-ago period. In the second quarter of fiscal 2015, there
was an increase in cash collections, primarily attributable to
higher single installment collections of $76 million.
CAPITAL STRUCTURE
- Cash, cash equivalents and investments
at September 30, 2014 were $3.193 billion.
- With $1.763 billion in total debt
outstanding and $139 million in notional pooling, the Company’s net
cash, cash equivalents and investments position was $1.291
billion.
- The Company is currently authorized to
purchase $950 million of its common stock under its current stock
repurchase program.
- The Company distributed $111 million in
dividends to shareholders.
- The Company’s outstanding share count
at September 30, 2014 was 440 million.
OUTLOOK FOR FISCAL YEAR 2015
The Company updated its fiscal year 2015 outlook, which
represents "forward-looking statements" (as defined below).
The Company expects the following:
- Total revenue to decrease in a range of
minus 2 percent to minus 1 percent in constant currency, unchanged
from previous guidance. At September 30, 2014 exchange rates,
this translates to reported revenue of $4.27 billion to $4.33
billion.
- GAAP diluted earnings per share from
continuing operations to decrease in a range of minus 12 percent to
minus 8 percent in constant currency, unchanged from previous
guidance. At September 30, 2014 exchange rates, this
translates to reported GAAP diluted earnings per share of $1.73 to
$1.80.
- Non-GAAP diluted earnings per share
from continuing operations to decrease in a range of minus 20
percent to minus 18 percent in constant currency. Previous guidance
was minus 21 to minus 19 percent in constant currency. At
September 30, 2014 exchange rates, this translates to reported
non-GAAP diluted earnings per share of $2.40 to $2.47.
- Cash flow from continuing operations to
increase in a range of 5 percent to 12 percent in constant
currency, unchanged from previous guidance. At September 30,
2014 exchange rates, this translates to reported cash flow from
continuing operations of $1.01 billion to $1.08 billion.
This outlook assumes no material acquisitions and a partial
currency hedge of operating income. The Company expects a full-year
GAAP operating margin of 27 percent, a decrease of one point from
previous guidance, and non-GAAP operating margin of 37 percent,
unchanged from previous guidance. The Company also expects to
return to a normalized full-year GAAP and non-GAAP effective tax
rate of approximately 30 percent, which would have a negative
impact on GAAP and non-GAAP diluted earnings per share from
continuing operations of approximately $0.43 and $0.59,
respectively.
The Company anticipates approximately 436 million shares
outstanding at fiscal 2015 year-end and weighted average diluted
shares outstanding of approximately 440 million for the fiscal
year.
Webcast
This news release and the accompanying tables should be read in
conjunction with additional content that is available on the
Company’s website, including a supplemental financial package, as
well as a conference call and webcast that the Company will host at
5:00 p.m. ET today to discuss its unaudited second 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.
(1) Gartner, Inc., “Magic Quadrant for Data Center
Infrastructure Management Tools” by Jay E. Pultz, David J.
Cappuccio, April Adams, Federico De Silva, Naveen Mishra, Henrique
Cecci, Rakesh Kumar, September 22, 2014.
Gartner does not endorse any vendor, product or service depicted
in its research publications, and does not advise technology users
to select only those vendors with the highest ratings or other
designation. Gartner research publications consist of the opinions
of Gartner's research organization and should not be construed as
statements of fact. Gartner disclaims all warranties, expressed or
implied, with respect to this research, including any warranties of
merchantability or fitness for a particular purpose.
(2) Forrester Research Inc., “The Forrester Wave™: API
Management Solutions, Q3 2014, September 29, 2014.”
The Forrester Wave is copyrighted by Forrester Research, Inc.
Forrester and Forrester Wave are trademarks of Forrester Research,
Inc. The Forrester Wave is a graphical representation of
Forrester's call on a market and is plotted using a detailed
spreadsheet with exposed scores, weightings, and comments.
Forrester does not endorse any vendor, product, or service depicted
in the Forrester Wave. Information is based on best available
resources. Opinions reflect judgment at the time and are subject to
change.
About CA Technologies
CA Technologies (NASDAQ: CA) creates software that fuels
transformation for companies and enables them to seize the
opportunities of the application economy. Software is at the heart
of every business in every industry. From planning, to development,
to management and security, CA is working with companies worldwide
to change the way we live, transact, and communicate – across
mobile, private and public cloud, distributed and mainframe
environments. Learn more at www.ca.com.
Follow CA Technologies
- Twitter
- Social Media Page
- Press Releases
- Blogs
Non-GAAP Financial Measures
This news release, the accompanying tables and the additional
content that is available on the Company's website, including a
supplemental financial package, include certain financial measures
that exclude the impact of certain items and therefore have not
been calculated in accordance with U.S. generally accepted
accounting principles (GAAP). Non-GAAP metrics for operating
expenses, operating income, operating margin, income from
continuing operations and diluted earnings per share exclude the
following items: share-based compensation expense; non-cash
amortization of purchased software and other intangible assets;
charges relating to rebalancing initiatives that are large enough
to require approval from the Company's Board of Directors, fiscal
2007 restructuring costs and certain other gains and losses, which
include the gains and losses since inception of hedges that mature
within the quarter, but exclude gains and losses of hedges that do
not mature within the quarter. The Company began expensing costs
for internally developed software where development efforts
commenced in the first quarter of fiscal 2014. As a result, product
development and enhancement expenses are expected to increase in
future periods as the amount capitalized for internally developed
software costs decreases. Due to this change, the Company also adds
back capitalized internal software costs and excludes amortization
of internally developed software costs previously capitalized from
these non-GAAP metrics. The effective tax rate on GAAP and non-GAAP
income from operations is the Company's provision for income taxes
expressed as a percentage of pre-tax GAAP and non-GAAP income from
continuing operations, respectively. These tax rates are determined
based on an estimated effective full year tax rate, with the
effective tax rate for GAAP generally including the impact of
discrete items in the period in which such items arise and the
effective tax rate for non-GAAP generally allocating the impact of
discrete items pro rata to the fiscal year's remaining reporting
periods. Adjusted cash flow from operations excludes payments
associated with the fiscal 2014 Board-approved rebalancing
initiative as described above, capitalized software development
costs as described above, and restructuring and other payments.
Free cash flow excludes purchases of property and equipment and
capitalized software development costs. The Company presents
constant currency information to provide a framework for assessing
how the Company's underlying businesses performed excluding the
effect of foreign currency rate fluctuations. To present this
information, current and comparative prior period results for
entities reporting in currencies other than U.S. dollars are
converted into U.S. dollars at the exchange rate in effect on the
last day of the Company's prior fiscal year (i.e., March 31, 2014,
March 31, 2013 and March 31, 2012, respectively). Constant currency
excludes the impacts from the Company's hedging program. The
constant currency calculation for annualized subscription and
maintenance bookings is calculated by dividing the subscription and
maintenance bookings in constant currency by the weighted average
subscription and maintenance duration in years. These non-GAAP
financial measures may be different from non-GAAP financial
measures used by other companies. Non-GAAP financial measures
should not be considered as a substitute for, or superior to,
measures of financial performance prepared in accordance with GAAP.
By excluding these items, non-GAAP financial measures facilitate
management's internal comparisons to the Company's historical
operating results and cash flows, to competitors' operating results
and cash flows, and to estimates made by securities analysts.
Management uses these non-GAAP financial measures internally to
evaluate its performance and they are key variables in determining
management incentive compensation. The Company believes these
non-GAAP financial measures are useful to investors in allowing for
greater transparency of supplemental information used by management
in its financial and operational decision-making. In addition, the
Company has historically reported similar non-GAAP financial
measures to its investors and believes that the inclusion of
comparative numbers provides consistency in its financial
reporting. Investors are encouraged to review the reconciliation of
the non-GAAP financial measures used in this news release to their
most directly comparable GAAP financial measures, which are
attached to this news release.
Cautionary Statement Regarding Forward-Looking
Statements
The declaration and payment of future dividends is subject to
the determination of the Company's Board of Directors, in its sole
discretion, after considering various factors, including the
Company's financial condition, historical and forecast operating
results, and available cash flow, as well as any applicable laws
and contractual covenants and any other relevant factors. The
Company's practice regarding payment of dividends may be modified
at any time and from time to time.
Repurchases under the Company's stock repurchase program are
expected to be made with cash on hand and may be made from time to
time, subject to market conditions and other factors, in the open
market, through solicited or unsolicited privately negotiated
transactions or otherwise. The program does not obligate the
Company to acquire any particular amount of common stock, and it
may be modified or suspended at any time at the Company's
discretion.
Certain statements in this communication (such as statements
containing the words "believes," "plans," "anticipates," "expects,"
"estimates," "targets" and similar expressions relating to the
future) constitute "forward-looking statements" that are based upon
the beliefs of, and assumptions made by, the Company's management,
as well as information currently available to management. These
forward-looking statements reflect the Company's current views with
respect to future events and are subject to certain risks,
uncertainties, and assumptions. A number of important factors could
cause actual results or events to differ materially from those
indicated by such forward-looking statements, including: the
ability to achieve success in the Company's strategy by, among
other things, effectively managing the Company's sales force to
enable the Company to maintain and enhance its strong relationships
in its traditional customer base and to increase penetration and
accelerate growth in customer segments and geographic regions where
the Company currently may not have a strong presence or the Company
has underserved, enabling the sales force to sell new products,
improving the Company's brand, technology and innovation awareness
in the marketplace and ensuring the Company's set of cloud
computing, application development and IT operations (DevOps),
Software-as-a-Service, mobile device management and other new
offerings address the needs of a rapidly changing market, while not
adversely affecting the demand for the Company's traditional
products or its profitability; global economic factors or political
events beyond the Company's control; general economic conditions
and credit constraints, or unfavorable economic conditions in a
particular region, industry or business sector; the failure to
innovate and/or adapt to technological changes and introduce new
software products and services in a timely manner; competition in
product and service offerings and pricing; the failure to expand
partner programs; the ability to retain and attract adequate
qualified personnel; the ability of the Company's products to
remain compatible with ever-changing operating environments,
platforms or third party products; the ability to successfully
integrate acquired companies and products into the Company's
existing business; the ability to adequately manage, evolve and
protect the Company's information systems, infrastructure and
processes; risks associated with sales to government customers;
breaches of the Company's data center, network and software
products, and the IT environments of the Company's vendors and
customers; discovery of errors or omissions in the Company's
software products or documentation and potential product liability
claims; the failure to protect the Company's intellectual property
rights and source code; events or circumstances that would require
the Company to record an impairment charge relating to the
Company's goodwill or capitalized software and other intangible
assets balances; access to software licensed from third parties;
risks associated with the use of software from open source code
sources; third-party claims of intellectual property infringement
or royalty payments; fluctuations in the number, terms and duration
of the Company's license agreements as well as the timing of orders
from customers and channel partners; the failure to renew large
license transactions on a satisfactory basis; potential tax
liabilities; changes in market conditions or the Company's credit
ratings; fluctuations in foreign currencies; the failure to
effectively execute the Company's workforce reductions, workforce
rebalancing and facilities consolidations; successful and secure
outsourcing of various functions to third parties; and other
factors described more fully in the Company's filings with the
Securities and Exchange Commission. Should one or more of these
risks or uncertainties occur, or should the Company's assumptions
prove incorrect, actual results may vary materially from those
described herein as believed, planned, anticipated, expected,
estimated, targeted or similarly expressed in a forward-looking
manner. The Company assumes no obligation to update the information
in this communication, except as otherwise required by law. Readers
are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
Copyright © 2014 CA, Inc. All Rights Reserved. All other
trademarks, trade names, service marks, and logos referenced herein
belong to their respective companies.
Table 1 CA Technologies Consolidated
Statements of Operations (unaudited) (in millions, except per
share amounts) Three Months
Ended Six Months Ended
September
30,
September
30,
Revenue:
2014
2013
2014
2013
Subscription and maintenance $ 908 $ 922 $ 1,817 $ 1,844
Professional services 91 97 178 195 Software fees and other
80 86 153 161
Total revenue $ 1,079 $
1,105 $ 2,148 $ 2,200
Expenses: Costs of licensing and
maintenance $ 71 $ 71 $ 143 $ 139 Cost of professional services 88
88 169 176 Amortization of capitalized software costs 75 69 142 135
Selling and marketing 253 248 499 517 General and administrative 87
91 179 182 Product development and enhancements 150 142 300 274
Depreciation and amortization of other intangible assets 34 37 68
73 Other expenses, net (1) 1 14 15 140
Total expenses before interest and income taxes $ 759 $ 760
$ 1,515 $ 1,636
Income from continuing operations before
interest and income taxes $ 320 $ 345 $ 633 $ 564 Interest
expense, net 12 13 26 24
Income from
continuing operations before income taxes $ 308 $ 332 $ 607 $
540 Income tax expense (benefit) 73 101 160
(21)
Income from continuing operations $ 235 $ 231 $
447 $ 561 Income from discontinued operations, net of income taxes
$ 21 $ 9 $ 26 $ 14
Net income $ 256 $ 240 $ 473 $ 575
Basic income per common share: Income from continuing
operations $ 0.53 $ 0.51 $ 1.01 $ 1.24 Income from discontinued
operations 0.05 0.02 0.06 0.03
Net
income $ 0.58 $ 0.53 $ 1.07 $ 1.27
Basic weighted average
shares used in computation 440 448 440 449
Diluted
income per common share: Income from continuing operations $
0.53 $ 0.51 $ 1.00 $ 1.23 Income from discontinued operations
0.05 0.02 0.06 0.03
Net income $
0.58 $ 0.53 $ 1.06 $ 1.26
Diluted weighted average shares used
in computation 441 450 441 450 (1) For the three
months periods ending September 30, 2014 and 2013, other expenses,
net includes approximately $12 million and $2 million of charges
relating to the FY2014 Board approved rebalancing initiative (the
Fiscal 2014 Plan), respectively. For the six month periods ending
September 30, 2014 and 2013, other expenses, net includes
approximately $21 million and $119 million of charges relating to
the FY2014 Board approved rebalancing initiative (the Fiscal 2014
Plan), respectively. Prior year results have been adjusted
to reflect the discontinued operations associated with the CA ERwin
Data Modeling and CA arcserve data protection businesses.
Table 2 CA Technologies Condensed
Consolidated Balance Sheets (in millions)
September 30, March 31, 2014 2014 (unaudited) Cash and cash
equivalents $ 3,193 $ 3,252 Trade accounts receivable, net 511 800
Deferred income taxes 328 315 Other current assets 199
192
Total current assets $ 4,231 $
4,559 Property and equipment, net $ 278 $ 295 Goodwill 5,811
5,922 Capitalized software and other intangible assets, net 869
1,063 Deferred income taxes 67 59 Other noncurrent assets, net
116 118
Total assets $ 11,372
$ 12,016 Current portion of long-term debt $
510 $ 514 Deferred revenue (billed or collected) 1,957 2,419
Deferred income taxes 6 9 Other current liabilities 817
980
Total current liabilities $ 3,290 $
3,922 Long-term debt, net of current portion $ 1,253 $ 1,252
Deferred income taxes 45 67 Deferred revenue (billed or collected)
779 872 Other noncurrent liabilities 262 333
Total liabilities $ 5,629 $ 6,446
Common stock $ 59 $ 59 Additional paid-in capital 3,588
3,610 Retained earnings 6,069 5,818 Accumulated other comprehensive
loss (255 ) (171 ) Treasury stock (3,718 ) (3,746 )
Total stockholders’ equity $ 5,743 $ 5,570
Total liabilities and stockholders’ equity $ 11,372
$
12,016
Table 3 CA Technologies
Condensed Consolidated Statements of Cash Flows (unaudited)
(in millions) Three Months Ended
September
30,
2014
2013
Operating activities from continuing operations: Net income
$ 256 $ 240 Income from discontinued operations (21 )
(9 ) Income from continuing operations $ 235 $ 231 Adjustments to
reconcile income from continuing operations to net cash provided by
operating activities: Depreciation and amortization 109 106
Deferred income taxes (29 ) (11 ) Provision for bad debts 2 3
Share-based compensation expense 22 20 Asset impairments and other
non-cash items (1 ) 2 Foreign currency transaction losses 3 3
Changes in other operating assets and liabilities, net of effect of
acquisitions: Decrease (increase) in trade accounts receivable 12
(57 ) Decrease in deferred revenue (212 ) (263 ) (Decrease)
increase in taxes payable, net (59 ) 68 (Decrease) increase in
accounts payable, accrued expenses and other 8 4 Increase
(decrease) in accrued salaries, wages and commissions 18 (33 )
Changes in other operating assets and liabilities (42 )
-
Net cash provided by operating activities -
continuing operations $ 66 $ 73
Investing
activities from continuing operations: Acquisitions of
businesses, net of cash acquired, and purchased software $ (1 ) $
(3 ) Purchases of property and equipment (13 ) (22 ) Capitalized
software development costs - (10 ) Purchases of short-term
investments - (9 )
Net cash used in
investing activities - continuing operations $ (14 ) $ (44 )
Financing activities from continuing operations: Dividends
paid $ (111 ) $ (114 ) Purchases of common stock - (151 ) Notional
pooling borrowings (repayments), net 45 (32 ) Debt (repayments)
borrowings, net (3 ) 494 Debt issuance costs - (3 ) Exercise of
common stock options and other 2 27
Net cash (used in) provided by financing activities - continuing
operations $ (67 ) $ 221 Effect of exchange rate changes on
cash $ (186 ) $ 65
Net change in cash and cash
equivalents - continuing operations $ (201 ) $ 315 Cash (used
in) provided by operating activities - discontinued operations $
(31 ) $ 14 Cash provided by investing activities - discontinued
operations 170 -
Net effect of
discontinued operations on cash and cash equivalents $ 139
$ 14
(Decrease) increase in cash and cash
equivalents $ (62 ) $ 329
Cash and cash equivalents at
beginning of period $ 3,255 $ 2,461
Cash and
cash equivalents at end of period $ 3,193 $ 2,790
Prior year results have been adjusted to reflect the
discontinued operations associated with the CA ERwin Data Modeling
and CA arcserve data protection businesses.
Table 4 CA Technologies Operating
Segments (unaudited) (dollars in millions)
Three Months Ended September 30, 2014 Six Months Ended
September 30, 2014
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1)
Total
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total Revenue (2) $ 610 $ 378 $
91 $ 1,079 $ 1,224 $ 746 $ 178 $ 2,148 Expenses (3) 234
327 89 650 469 652 171
1,292
Segment profit $ 376 $ 51 $ 2 $ 429 $ 755 $ 94
$ 7 $ 856
Segment operating margin 62% 13% 2% 40% 62% 13% 4%
40%
Segment profit $ 429 $ 856
Less: Purchased
software amortization 31 59 Other intangibles amortization 16 31
Software development costs capitalized - - Internally developed
software products amortization 44 83 Share-based compensation
expense 22 42 Other expenses, net (4) (4) 8 Interest expense, net
12 26
Income from continuing operations before
income taxes $ 308 $ 607 Three Months
Ended September 30, 2013 Six Months Ended September 30, 2013
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total Revenue (2) $ 624 $ 384 $ 97 $ 1,105 $
1,243 $ 762 $ 195 $ 2,200 Expenses (3) 232 337
88 657 475 688 178 1,341
Segment profit $ 392 $ 47 $ 9 $ 448 $ 768 $ 74 $ 17 $ 859
Segment operating margin 63% 12% 9% 41% 62% 10% 9% 39%
Segment profit $ 448 $ 859
Less: Purchased
software amortization 31 59 Other intangibles amortization 15 29
Software development costs capitalized (8) (31) Internally
developed software products amortization 38 76 Share-based
compensation expense 20 40 Other expenses, net (4) 7 122 Interest
expense, net 13 24
Income from continuing
operations before income taxes $ 332 $ 540 (1) The
Company’s Mainframe Solutions and Enterprise Solutions segments
comprise its software business organized by the nature of the
Company’s software offerings and the platform on which the products
operate. The Services segment comprises product implementation,
consulting, customer education and customer training, including
those directly related to the Mainframe Solutions and Enterprise
Solutions software that the Company sells to its customers.
(2) The Company regularly enters into a single arrangement with a
customer that includes mainframe solutions, enterprise solutions
and services. The amount of contract revenue assigned to operating
segments is generally based on the manner in which the proposal is
made to the customer. The software product revenue is assigned to
the Mainframe Solutions and Enterprise Solutions segments based on
either: (1) a list price allocation method (which allocates a
discount in the total contract price to the individual products in
proportion to the list price of the product); (2) allocations
included within internal contract approval documents; or (3) the
value for individual software products as stated in the customer
contract. The price for the implementation, consulting, education
and training services is separately stated in the contract and
these amounts of contract revenue are assigned to the Services
segment. The contract value assigned to each operating segment is
then recognized in a manner consistent with the revenue recognition
policies the Company applies to the customer contract for purposes
of preparing the Consolidated Financial Statements. (3)
Segment expenses include costs that are controllable by segment
managers (i.e., direct costs) and, in the case of the Mainframe
Solutions and Enterprise Solutions segments, an allocation of
shared and indirect costs (i.e., allocated costs). Segment-specific
direct costs include a portion of selling and marketing costs,
licensing and maintenance costs, product development costs and
general and administrative costs. Allocated segment costs primarily
include indirect and non-segment specific direct selling and
marketing costs and general and administrative costs that are not
directly attributable to a specific segment. The basis for
allocating shared and indirect costs between the Mainframe
Solutions and Enterprise Solutions segments is dependent on the
nature of the cost being allocated and is either in proportion to
segment revenues or in proportion to the related direct cost
category. Expenses for the Services segment consist of cost of
professional services and other direct costs included within
selling and marketing and general and administrative expenses.
There are no allocated or indirect costs for the Services segment.
(4) Other expenses, net includes charges relating to the
FY2014 Board approved rebalancing initiative (the Fiscal 2014
Plan), certain foreign exchange derivative hedging gains and
losses, and other miscellaneous costs. Prior year results
have been adjusted to reflect the discontinued operations
associated with the CA ERwin Data Modeling and CA arcserve data
protection businesses.
Table 5 CA
Technologies Constant Currency Summary (unaudited)
(dollars in millions) Three Months Ended
September 30, Six Months Ended September 30, 2014
2013
% Increase(Decrease)in $ US
% Increase(Decrease)in ConstantCurrency
(1)
2014 2013
% Increase(Decrease)in $ US
% Increase(Decrease)in ConstantCurrency
(1)
Bookings $ 749 $ 844 (11)% (11)% $ 1,473 $ 1,640
(10)% (10)%
Revenue: North America $ 693 $ 715 (3)%
(3)% $ 1,375 $ 1,416 (3)% (3)% International 386 390
(1)% (3)% 773 784 (1)% (3)% Total revenue $ 1,079 $
1,105 (2)% (3)% $ 2,148 $ 2,200 (2)% (3)%
Revenue:
Subscription and maintenance $ 908 $ 922 (2)% (2)% $ 1,817 $ 1,844
(1)% (2)% Professional services 91 97 (6)% (8)% 178 195 (9)% (9)%
Software fees and other 80 86 (7)% (6)% 153
161 (5)% (5)% Total revenue $ 1,079 $ 1,105 (2)% (3)% $
2,148 $ 2,200 (2)% (3)%
Segment Revenue: Mainframe
solutions $ 610 $ 624 (2)% (3)% $ 1,224 $ 1,243 (2)% (2)%
Enterprise solutions 378 384 (2)% (2)% 746 762 (2)% (2)% Services
91 97 (6)% (8)% 178 195 (9)% (9)%
Total expenses before interest and
incometaxes:
Total non-GAAP (2) $ 650 $ 657 (1)% (2)% $ 1,292 $ 1,341 (4)% (4)%
Total GAAP 759 760 0% 2% 1,515 1,636 (7)% (7)% (1) Constant
currency information is presented to provide a framework for
assessing how the Company's underlying businesses performed
excluding the effect of foreign currency rate fluctuations. To
present this information, current and comparative prior period
results for entities reporting in currencies other than US dollars
are converted into US dollars at the exchange rate in effect on
March 31, 2014, which was the last day of the prior fiscal year.
Constant currency excludes the impacts from the Company's hedging
program. (2) Refer to Table 7 for a reconciliation of total
expenses before interest and income taxes to total non-GAAP
operating expenses. Prior year results have been adjusted to
reflect the discontinued operations associated with the CA ERwin
Data Modeling and CA arcserve data protection businesses.
Certain non-material differences may arise versus actual from
impact of rounding.
Table 6 CA
Technologies Reconciliation of Select GAAP Measures to
Non-GAAP Measures (unaudited) (dollars in millions)
Three Months Ended Six Months Ended
September
30,
September
30,
2014
2013
2014
2013
GAAP net income $ 256 $ 240 $ 473 $ 575 GAAP income from
discontinued operations, net of income taxes (21) (9)
(26) (14) GAAP income from continuing operations $
235 $ 231 $ 447 $ 561 GAAP income tax expense (benefit) 73 101 160
(21) Interest expense, net 12 13 26 24
GAAP income from continuing operations before interest and income
taxes $ 320 $ 345 $ 633 $ 564 GAAP operating margin (% of revenue)
(1) 30% 31% 29% 26% Non-GAAP adjustments to expenses: Costs
of licensing and maintenance (2) $ 1 $ 1 $ 2 $ 2 Cost of
professional services (2) 1 1 2 2 Amortization of capitalized
software costs (3) 75 69 142 135 Selling and marketing (2) 8 7 15
14 General and administrative (2) 7 6 13 12 Product development and
enhancements (4) 5 (3) 10 (21) Depreciation and amortization of
other intangible assets (5) 16 15 31 29 Other expenses, net (6)
(4) 7 8 122 Total Non-GAAP adjustment
to operating expenses $ 109 $ 103 $ 223 $ 295 Non-GAAP income from
continuing operations before interest and income taxes $ 429 $ 448
$ 856 $ 859 Non-GAAP operating margin (% of revenue) (7) 40% 41%
40% 39% Interest expense, net 12 13 26 24 GAAP income tax
expense (benefit) 73 101 160 (21) Non-GAAP adjustment to income tax
expense (benefit) (8) 52 (41) 89 136
Non-GAAP income tax expense $ 125 $ 60 $ 249 $ 115 Non-GAAP income
from continuing operations $ 292 $ 375 $ 581 $ 720 (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) For the
three month periods ending September 30, 2014 and 2013, non-GAAP
adjustment consists of $31 million and $31 million of purchased
software amortization and $44 million and $38 million of internally
developed software products amortization, respectively. For the six
month periods ending September 30, 2014 and 2013, non-GAAP
adjustment consists of $59 million and $59 million of purchased
software amortization and $83 million and $76 million of internally
developed software products amortization, respectively. (4)
For the three and six month periods ending September 30, 2014,
non-GAAP adjustment consists of $5 million and $10 million of
share-based compensation, respectively. For the three and six month
periods ending September 30, 2013, non-GAAP adjustment consists of
$5 million and $10 million of share-based compensation and ($8)
million and ($31) 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
rebalancing initiative (the Fiscal 2014 Plan) and certain other
gains and losses, including gains and losses since inception of
hedges that mature within the quarter, but excludes gains and
losses of hedges that do not mature within the quarter. (7)
Non-GAAP operating margin is calculated by dividing non-GAAP income
from continuing operations before interest and income taxes by
total revenue (refer to Table 1 for total revenue). (8) The
full year non-GAAP income tax expense is different from GAAP income
tax expense because of the difference in non-GAAP income from
continuing operations before income taxes. On an interim basis,
this difference would also include a difference in the impact of
discrete and permanent items where for GAAP purposes the effect is
recorded in the period such items arise, but for non-GAAP such
items are recorded pro rata to the fiscal year's remaining
reporting periods. Refer to the discussion of non-GAAP
financial measures included in the accompanying press release for
additional information. Prior year results have been
adjusted to reflect the discontinued operations associated with the
CA ERwin Data Modeling and CA arcserve data protection businesses.
Certain non-material differences may arise versus actual
from impact of rounding.
Table 7 CA
Technologies Reconciliation of GAAP to Non-GAAP
Operating Expenses and Diluted Earnings per Share
(unaudited) (in millions, except per share amounts)
Three Months Ended Six Months Ended
September
30,
September
30,
Operating
Expenses
2014
2013
2014
2013
Total expenses before interest and income taxes $ 759 $ 760
$ 1,515 $ 1,636 Non-GAAP operating adjustments: Purchased
software amortization 31 31 59 59 Other intangibles amortization 16
15 31 29 Software development costs capitalized - (8) - (31)
Internally developed software products amortization 44 38 83 76
Share-based compensation 22 20 42 40 Other expenses, net (1)
(4) 7 8 122 Total non-GAAP operating
adjustment $ 109 $ 103 $ 223 $ 295 Total non-GAAP operating
expenses $ 650 $ 657 $ 1,292 $ 1,341 Three Months
Ended Six Months Ended
September
30,
September
30,
Diluted EPS from
Continuing Operations
2014
2013
2014
2013
GAAP diluted EPS from continuing operations $ 0.53 $ 0.51 $
1.00 $ 1.23 Non-GAAP adjustments, net of taxes: Purchased
software amortization 0.05 0.05 0.10 0.14 Other intangibles
amortization 0.02 0.02 0.05 0.07 Software development costs
capitalized - (0.01) - (0.07) Internally developed software
products amortization 0.08 0.06 0.14 0.17 Share-based compensation
0.04 0.03 0.07 0.09 Other expenses, net (1) (0.01) 0.01 0.01 0.28
Non-GAAP effective tax rate adjustments (2) (0.06)
0.16 (0.07) (0.33) Total non-GAAP adjustment $ 0.12 $
0.32 $ 0.30 $ 0.35 Non-GAAP diluted EPS from continuing
operations $ 0.65 $ 0.83 $ 1.30 $ 1.58 (1) Non-GAAP
adjustment consists of charges relating to the FY2014 Board
approved rebalancing initiative (the Fiscal 2014 Plan) and certain
other gains and losses, including gains and losses since inception
of hedges that mature within the quarter, but excludes gains and
losses of hedges that do not mature within the quarter. (2)
The non-GAAP effective tax rate is equal to the full year GAAP
effective tax rate, therefore no adjustment is required on an
annual basis. On an interim basis, the difference in non-GAAP
income tax expense and GAAP income tax expense relates to the
difference in non-GAAP income from continuing operations before
income taxes, and includes a difference in the impact of discrete
and permanent items where for GAAP purposes the effect is recorded
in the period such items arise but for non-GAAP purposes such items
are recorded pro rata to the fiscal year's remaining reporting
periods. Refer to the discussion of non-GAAP financial
measures included in the accompanying press release for additional
information. Prior year results have been adjusted to
reflect the discontinued operations associated with the CA ERwin
Data Modeling and CA arcserve data protection businesses.
Certain non-material differences may arise versus actual from
impact of rounding.
Table 8 CA Technologies
Effective Tax Rate Reconciliation GAAP and Non-GAAP
(unaudited) (dollars in millions) Three Months
Ended Six Months Ended
September 30,
2014
September 30,
2014
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income
taxes (1) $ 320 $ 429 $ 633 $ 856 Interest expense, net 12
12 26 26 Income from continuing operations
before income taxes $ 308 $ 417 $ 607 $ 830 Statutory tax
rate 35% 35% 35% 35% Tax at statutory rate $ 108 $ 146 $ 212
$ 291 Adjustments for discrete and permanent items (2) (35)
(21) (52) (42) Total tax expense $ 73 $ 125 $
160 $ 249 Effective tax rate (3) 23.7% 30.0% 26.4% 30.0%
Three Months Ended Six Months Ended
September 30,
2013
September 30,
2013
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income
taxes (1) $ 345 $ 448 $ 564 $ 859 Interest expense, net 13
13 24 24 Income from continuing operations
before income taxes $ 332 $ 435 $ 540 $ 835 Statutory tax
rate 35% 35% 35% 35% Tax at statutory rate $ 116 $ 152 $ 189
$ 292 Adjustments for discrete and permanent items (2) (15)
(92) (210) (177) Total tax (benefit) expense $
101 $ 60 $ (21) $ 115 Effective tax rate (3) 30.4% 13.8%
(3.9)% 13.8% (1) Refer to Table 6 for a reconciliation of
income from continuing operations before interest and income taxes
on a GAAP basis to income from continuing operations before
interest and income taxes on a non-GAAP basis. (2) The
effective tax rate for GAAP generally includes the impact of
discrete and permanent items in the period such items arise,
whereas the effective tax rate for non-GAAP generally allocates the
impact of such items pro rata to the fiscal year's remaining
reporting periods. (3) The effective tax rate on GAAP and
non-GAAP income from continuing operations is the Company's
provision for income taxes expressed as a percentage of GAAP and
non-GAAP income from continuing operations before income taxes,
respectively. The non-GAAP effective tax rate is equal to the full
year GAAP effective tax rate. On an interim basis, the effective
tax rates are determined based on an estimated effective full year
tax rate after the adjustments for the impacts of certain discrete
items (such as changes in tax rates, reconciliations of tax returns
to tax provisions and resolutions of tax contingencies).
Refer to the discussion of non-GAAP financial measures included in
the accompanying press release for additional information.
Prior year results have been adjusted to reflect the discontinued
operations associated with the CA ERwin Data Modeling and CA
arcserve data protection businesses. Certain non-material
differences may arise versus actual from impact of rounding.
Table 9
CA Technologies Reconciliation of Projected GAAP Metrics
to Projected Non-GAAP Metrics (unaudited)
Fiscal Year Ending
Projected Diluted
EPS from Continuing Operations
March 31,
2015
Projected GAAP diluted EPS from continuing operations
range $ 1.73 to $ 1.80 Non-GAAP adjustments, net of taxes:
Purchased software amortization 0.17 0.17 Other intangibles
amortization 0.09 0.09 Internally developed software products
amortization 0.24 0.24 Share-based compensation 0.14 0.14 Other
expenses, net (1) 0.03 0.03 Total non-GAAP adjustment
$ 0.67 $ 0.67 Projected non-GAAP diluted EPS from continuing
operations range $ 2.40 to $ 2.47 Fiscal Year Ending
Projected Operating
Margin
March 31,
2015
Projected GAAP operating margin 27% Non-GAAP
operating adjustments: Purchased software amortization 3% Other
intangibles amortization 1% Internally developed software products
amortization 4% Share-based compensation 2% Other expenses, net (1)
0% Total non-GAAP operating adjustment 10% Projected
non-GAAP operating margin 37% (1) Non-GAAP adjustment
consists of charges relating to the FY2014 Board approved
rebalancing initiative (the Fiscal 2014 Plan). Refer to the
discussion of non-GAAP financial measures included in the
accompanying press release for additional information.
CA TechnologiesJennifer Hallahan, (212) 415-6924Public
Relationsjennifer.hallahan@ca.comorJonathan Doros, (212)
415-6870Investor Relationsjonathan.doros@ca.com
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