- Company Updates EPS Guidance for
Fiscal 2015, Reaffirms Outlook for Revenue, Cash Flow and
Margin
- Third Quarter Revenue of $1.091
Billion, Compared With $1.128 Billion Last Year
- Third Quarter GAAP EPS of $0.49,
Compared With $0.50 Last Year
- Third Quarter Non-GAAP EPS of $0.67,
Compared With $0.81 Last Year
- Third Quarter Cash Flow From
Continuing Operations of $313 Million, Compared With $419 Million
Last Year
CA Technologies (NASDAQ:CA) today reported financial results for
its third quarter fiscal 2015, ended December 31, 2014.
Mike Gregoire, CA Technologies Chief Executive Officer,
said:
"Overall third quarter results provide further evidence that the
strategy we put in place and our focus on rigorous execution
continue to pay off. Although we saw a decline in third quarter
sales, we are on track for the full year.
"At CA World this past November, we showcased our unique
strength in serving customers in the Application Economy. The event
highlighted the full breadth and leadership of our solutions, as
well as our vision of the future, to thousands of customers and
partners, many of whom experienced CA’s expanded portfolio for the
first time.
"Looking ahead, while we do not expect fiscal 2016 total revenue
to grow in constant currency, we believe we are on track to
achieving our medium-term goals."
FINANCIAL OVERVIEW
(dollars in millions, except share data)
Third Quarter FY15 vs. FY14 FY15
FY14
% Change
% Change CC**
Revenue $1,091 $1,128 (3)% (1)% GAAP Income
from Continuing Operations $218 $225 (3)% 0%
Non-GAAP Income from Continuing Operations* $297 $366
(19)% (17)% GAAP Diluted EPS from Continuing Operations
$0.49 $0.50 (2)% 0% Non-GAAP Diluted EPS from
Continuing Operations* $0.67 $0.81 (17)% (16)%
Cash Flow from Continuing Operations $313 $419
(25)% (24)%
* Non-GAAP income and earnings per share are non-GAAP financial
measures, as noted in the discussion of non-GAAP results below. A
reconciliation of non-GAAP financial measures to their comparable
GAAP financial measures is included in the tables following this
news release.
**CC: Constant Currency
REVENUE AND BOOKINGS
(dollars in millions)
Third Quarter
FY15 vs. FY14 FY15 % ofTotal
FY14 % ofTotal
%Change %Change CC**
North America Revenue $709 65% $712 63%
0% 0% International Revenue $382 35% $416
37% (8)% (2)% Total Revenue $1,091
$1,128 (3)% (1)%
North America Bookings $615 58% $1,000
64% (39)% (38)% International Bookings $452
42% $565 36% (20)% (12)% Total
Bookings $1,067 $1,565
(32)% (29)%
Current Revenue Backlog $3,189
$3,399 (6)% (2)%
Total Revenue Backlog $6,685 $7,543
(11)% (8)%
**CC: Constant Currency
- Total revenue declined primarily as a
result of a decrease in subscription and maintenance revenue. There
was an unfavorable foreign exchange effect of $28 million during
the third quarter of fiscal 2015.
- The Company's third quarter total
bookings were negatively affected by a year-over-year decrease in
renewals due to the timing of the renewal portfolio within
subscription and maintenance bookings. This timing reflects the
lower value of contracts generally available for renewal compared
with year-ago period.
- In addition, there was a tough
year-over-year comparison from a four-year contract renewal with a
large systems integrator for more than $300 million in the year-ago
period.
- The Company executed a total of 18
license agreements with incremental contract values in excess of
$10 million each, for an aggregate contract value of $394 million.
During the third quarter of fiscal 2014, the Company executed a
total of 17 license agreements with incremental contract values in
excess of $10 million each, for an aggregate contract value of $874
million.
- The weighted average duration of
subscription and maintenance bookings for the quarter was 3.29
years, compared with 3.68 years for the same period in fiscal
2014.
EXPENSES AND MARGIN
(dollars in millions)
Third Quarter
FY15 vs. FY14 FY15 FY14
%Change %Change CC**
GAAP Operating Expenses Before Interest and Income
Taxes $773 $807 (4)% (2)% Operating Income
Before Interest and Income Taxes $318 $321 (1)%
2% Operating Margin 29% 28%
Effective Tax Rate 28.8% 26.5%
Non-GAAP* Operating Expenses Before Interest and
Income Taxes $680 $688 (1)% 1% Operating
Income Before Interest and Income Taxes $411 $440
(7)% (5)% Operating Margin 38% 39%
Effective Tax Rate 25.6% 13.9%
*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 third quarter
operating expenses were lower compared with the third quarter of
fiscal 2014 primarily as a result of the favorable effect of
foreign exchange, offset by the costs associated with CA World '14.
In addition, GAAP operating expenses were also positively affected
by a decrease in depreciation and amortization of other intangible
assets and capitalized software costs.
- Non-GAAP EPS in the third quarter of
fiscal 2015 was negatively affected by $0.10 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 third 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
- At CA World, the Company announced:
- New and expanded API management
solutions that accelerate mobile and web application delivery,
improve customer engagements with frictionless access, and open new
revenue channels and opportunities.
- New DevOps solutions and enhancements
that further unify IT development and operations teams to drive
faster and more effective development, deployment and management of
high-quality applications.
- The Management Cloud - a broad
portfolio of easy-to-use CA applications, delivered from the cloud,
that enable customers to make the right portfolio decisions,
deliver exceptional service experience and empower the modern,
mobile workforce.
- Technology alliance with Samsung that
expands CA Mobile API Gateway integration with Samsung KNOX offers
end-to-end app security, controlling access to the app and
API.
- Customer traction for CA Technologies
innovations continued in the quarter.
- A large U.S.-based telecommunications
company is using CA Mobile App Analytics and CA Application
Performance Management (APM) to monitor transactions from the
tablets in its local stores all the way back to its data
center.
- A large consumer electronics provider
selected CA API Management solution for its newly architected
ecommerce platform following a failure on Cyber Monday with its
previous ecommerce platform.
- Bestpay, the mobile payment platform of
China Telecom, selected CA to enable end-to-end IT infrastructure
management with products including CA Unified Infrastructure
Management (UIM) and CA APM.
- Solutions leadership:
- CA Technologies has been positioned by
Gartner, Inc. in the Leaders quadrant of the “Magic Quadrant for
Integrated IT Portfolio Analysis Applications” for the third year
in a row. (1)
SEGMENT INFORMATION
(dollars in millions)
Third Quarter
FY15 vs. FY14 Revenue %Change
%Change CC** Operating
Margin FY15 FY14
FY15 FY14 Mainframe Solutions $596 $622
(4)% (1)% 58% 61% Enterprise Solutions
$405 $412 (2)% 0% 14% 13%
Services $90 $94 (4)% (2)% 6%
4%
**CC: Constant Currency
- Mainframe Solutions revenue was lower
compared with the year-ago period primarily due to an unfavorable
foreign exchange effect and, to a lesser extent, insufficient
revenue from prior period new sales. Operating margin declined
primarily as a result of lower revenue and an increase in costs
associated with CA World '14.
- Enterprise Solutions revenue decreased
compared with the year-ago period primarily due to an unfavorable
foreign exchange effect. Enterprise Solutions operating margin
increased compared with the year-ago period primarily as a result
of lower commissions and personnel-related expenses, partially
offset by an increase in costs associated with CA World '14.
- Services revenue decreased compared
with the year-ago period primarily as a result of a decrease in the
size and number of services engagements as well as an unfavorable
foreign exchange effect. Operating margin was better as a result of
a reduction in personnel-related costs.
CASH FLOW FROM OPERATIONS
- Cash flow from operations for the third
quarter of fiscal 2015 was $313 million, versus $419 million in the
year ago period. Cash flow from operations decreased compared
with the year-ago period primarily due to smaller cash collections,
partially offset by lower income tax payments. In addition, there
was a favorable effect of lower cash payments associated with the
Company’s fiscal 2014 rebalancing plan.
CAPITAL STRUCTURE
- Cash, cash equivalents and investments
at December 31, 2014 were $2.683 billion.
- With $1.26 billion in total debt
outstanding and $138 million in notional pooling, the Company’s net
cash, cash equivalents and investments position was $1.285
billion.
- In the third quarter of fiscal 2015,
the Company repurchased 2.6 million shares of common stock for $75
million.
- As of December 31, 2014, the Company is
currently authorized to purchase $875 million of its common stock
under its current stock repurchase program.
- Effective January 2, 2015, the Company
entered into an agreement to repurchase $75 million of its common
stock to be delivered in March 2015.
- The Company distributed $111 million in
dividends to shareholders.
- The Company’s outstanding share count
at December 31, 2014 was 438 million.
OUTLOOK FOR FISCAL YEAR 2015
The Company updated its fiscal year 2015 outlook for GAAP and
non-GAAP EPS. The following outlook contains "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 December 31, 2014 exchange rates,
this translates to reported revenue of $4.26 billion to $4.30
billion.
- GAAP diluted earnings per share from
continuing operations to be in the range of minus 7 percent to
minus 4 percent in constant currency. Previous guidance was in the
range of minus 12 percent to minus 8 percent in constant currency.
At December 31, 2014 exchange rates, this translates to
reported GAAP diluted earnings per share of $1.76 to $1.83.
- Non-GAAP diluted earnings per share
from continuing operations to be in the range of minus 17 percent
to minus 14 percent in constant currency. Previous guidance was in
the range of minus 20 percent to minus 18 percent in constant
currency. At December 31, 2014 exchange rates, this translates
to reported non-GAAP diluted earnings per share of $2.45 to
$2.52.
- Cash flow from continuing operations to
increase in the range of 5 percent to 12 percent in constant
currency, unchanged from previous guidance. At December 31,
2014 exchange rates, this translates to reported cash flow from
continuing operations of $1.00 billion to $1.07 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 and non-GAAP operating margin
of 37 percent, unchanged from previous guidance. The Company
expects a full-year GAAP and non-GAAP effective tax rate of
approximately 28 percent, a reduction from the previously expected
full-year GAAP and non-GAAP effective tax rate, which was
approximately 30 percent. When compared with fiscal year 2014, the
full-year GAAP and non-GAAP effective tax rate of approximately 28
percent has a negative impact on GAAP and non-GAAP diluted earnings
per share from continuing operations of approximately $0.38 and
$0.53, 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 third quarter results.
The webcast will be archived on the website. Individuals can access
the webcast, as well as the press release and supplemental
financial information at http://ca.com/invest or can listen to the call at
1-877-561-2748. The international participant number is
1-720-545-0044.
(1) Gartner, Inc., “Magic Quadrant for Integrated IT Portfolio
Analysis Applications,” Daniel B. Stang, Jim Duggan, November 18,
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.
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 © 2015 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 Nine Months Ended
December
31,
December
31,
Revenue:
2014
2013
2014
2013
Subscription and maintenance $ 892 $ 929 $ 2,709 $ 2,773
Professional services 90 94 268 289 Software fees and other
109 105 262 266
Total revenue $ 1,091 $
1,128 $ 3,239 $ 3,328
Expenses: Costs of licensing and
maintenance $ 74 $ 77 $ 217 $ 216 Cost of professional services 84
88 253 264 Amortization of capitalized software costs 62 69 204 204
Selling and marketing 283 281 782 798 General and administrative 90
95 269 277 Product development and enhancements 143 144 443 418
Depreciation and amortization of other intangible assets 31 40 99
113 Other expenses, net (1) 6 13 21 153
Total expenses before interest and income taxes $ 773 $ 807
$ 2,288 $ 2,443
Income from continuing operations before
interest and income taxes $ 318 $ 321 $ 951 $ 885 Interest
expense, net 12 15 38 39
Income from
continuing operations before income taxes $ 306 $ 306 $ 913 $
846 Income tax expense 88 81 248 60
Income from continuing operations $ 218 $ 225 $ 665 $ 786
Income from discontinued operations, net of income taxes $ 4 $ 7 $
30 $ 21
Net income $ 222 $ 232 $ 695 $ 807
Basic
income per common share: Income from continuing operations $
0.49 $ 0.50 $ 1.50 $ 1.74 Income from discontinued operations
0.01 0.01 0.07 0.04
Net income $
0.50 $ 0.51 $ 1.57 $ 1.78
Basic weighted average shares used in
computation 440 446 440 448
Diluted income per common
share: Income from continuing operations $ 0.49 $ 0.50 $ 1.49 $
1.73 Income from discontinued operations 0.01 0.01
0.07 0.04
Net income $ 0.50 $ 0.51 $ 1.56 $
1.77
Diluted weighted average shares used in computation 441
448 441 449 (1) Other expenses, net consists of costs
associated with the FY2014 Board approved rebalancing initiative
(the Fiscal 2014 Plan), certain foreign exchange derivative hedging
gains and losses, and other miscellaneous costs. For the nine month
period ending December 31, 2013, costs associated with the Fiscal
2014 Plan were $131 million. 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)
December 31, March 31, 2014 2014 (unaudited) Cash and cash
equivalents $ 2,683 $ 3,252 Trade accounts receivable, net 669 800
Deferred income taxes 327 315 Other current assets 161
192
Total current assets $ 3,840 $ 4,559
Property and equipment, net $ 264 $ 295 Goodwill 5,809 5,922
Capitalized software and other intangible assets, net 815 1,063
Deferred income taxes 73 59 Other noncurrent assets, net 114
118
Total assets $ 10,915 $ 12,016 Current
portion of long-term debt $ 8 $ 514 Deferred revenue (billed or
collected) 1,992 2,419 Deferred income taxes 6 9 Other current
liabilities 858 980
Total current liabilities
$ 2,864 $ 3,922 Long-term debt, net of current portion $
1,252 $ 1,252 Deferred income taxes 48 67 Deferred revenue (billed
or collected) 761 872 Other noncurrent liabilities 254
333
Total liabilities $ 5,179 $ 6,446 Common
stock $ 59 $ 59 Additional paid-in capital 3,610 3,610 Retained
earnings 6,180 5,818 Accumulated other comprehensive loss (333)
(171) Treasury stock (3,780) (3,746)
Total
stockholders’ equity $ 5,736 $ 5,570
Total liabilities and
stockholders’ equity $ 10,915 $ 12,016
Table 3
CA Technologies
Condensed Consolidated Statements of
Cash Flows
(unaudited)
(in millions)
Three Months Ended
December
31,
2014
2013
Operating activities from continuing operations: Net income
$ 222 $ 232 Income from discontinued operations (4)
(7) Income from continuing operations $ 218 $ 225 Adjustments to
reconcile income from continuing operations to net cash provided by
operating activities: Depreciation and amortization 93 109 Deferred
income taxes (13) (16) Share-based compensation expense 23 23 Asset
impairments and other non-cash items 1 5 Foreign currency
transaction (gains) losses (2) 1 Changes in other operating assets
and liabilities, net of effect of acquisitions: Increase in trade
accounts receivable (172) (126) Increase in deferred revenue 52 151
Increase in taxes payable, net 76 23 (Decrease) increase in
accounts payable, accrued expenses and other (16) 8 Increase in
accrued salaries, wages and commissions 17 14 Changes in other
operating assets and liabilities 36 2
Net cash
provided by operating activities - continuing operations $ 313
$ 419
Investing activities from continuing operations:
Acquisitions of businesses, net of cash acquired, and purchased
software $ (20) $ (2) Purchases of property and equipment (12) (17)
Proceeds from sale of assets - 12 Capitalized software development
costs - (4) Other investing activities - (1)
Net
cash used in investing activities - continuing operations $
(32) $ (12)
Financing activities from continuing operations:
Dividends paid $ (111) $ (113) Purchases of common stock (75) (140)
Notional pooling borrowings, net 25 4 Debt repayments (502) (4)
Debt issuance costs - (1) Exercise of common stock options and
other 11 19
Net cash used in financing activities
- continuing operations $ (652) $ (235) Effect of exchange rate
changes on cash $ (125) $ 2
Net change in cash and cash
equivalents - continuing operations $ (496) $ 174 Cash (used
in) provided by operating activities - discontinued operations $
(14) $ 10
Net effect of discontinued operations on cash and cash
equivalents $ (14) $ 10
(Decrease) increase in cash and cash
equivalents $ (510) $ 184
Cash and cash equivalents at
beginning of period $ 3,193 $ 2,790
Cash and cash
equivalents at end of period $ 2,683 $ 2,974 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 December 31, 2014 Nine Months Ended
December 31, 2014
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1)
Total
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1)
Total
Revenue (2)
$ 596 $ 405 $ 90 $ 1,091 $ 1,820 $ 1,151 $ 268 $ 3,239 Expenses (3)
248 347 85 680 717 999
256 1,972
Segment profit $ 348 $ 58 $ 5 $ 411
$ 1,103 $ 152 $ 12 $ 1,267
Segment operating margin 58% 14%
6% 38% 61% 13% 4% 39%
Segment profit $ 411 $ 1,267
Less: Purchased software amortization 28 87 Other
intangibles amortization 14 45 Software development costs
capitalized - - Internally developed software products amortization
34 117 Share-based compensation expense 23 65 Other expenses, net
(4) (6) 2 Interest expense, net 12 38
Income from
continuing operations before income taxes $ 306 $ 913
Three Months Ended December 31, 2013
Nine Months Ended December 31, 2013
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1)
Total Revenue (2) $ 622 $ 412 $ 94 $ 1,128 $ 1,865 $ 1,174 $
289 $ 3,328 Expenses (3) 241 357 90 688
716 1,045 268 2,029
Segment
profit $ 381 $ 55 $ 4 $ 440 $ 1,149 $ 129 $ 21 $ 1,299
Segment operating margin 61% 13% 4% 39% 62% 11% 7% 39%
Segment profit $ 440 $ 1,299
Less: Purchased
software amortization 28 87 Other intangibles amortization 19 48
Software development costs capitalized (1) (32) Internally
developed software products amortization 41 117 Share-based
compensation expense 23 63 Other expenses, net (4) 9 131 Interest
expense, net 15 39
Income from continuing
operations before income taxes $ 306 $ 846 (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 December 31, Nine Months Ended December
31, 2014 2013
% Increase(Decrease)in $ US
% Increase(Decrease)in ConstantCurrency
(1)
2014 2013
% Increase(Decrease)in $ US
% Increase(Decrease)in ConstantCurrency
(1)
Bookings $ 1,067 $ 1,565 (32)% (29)% $ 2,540 $ 3,205
(21)% (19)%
Revenue: North America $ 709 $ 712 0% 0%
$ 2,084 $ 2,128 (2)% (2)% International 382 416 (8)%
(2)% 1,155 1,200 (4)% (3)% Total revenue $ 1,091 $
1,128 (3)% (1)% $ 3,239 $ 3,328 (3)% (2)%
Revenue:
Subscription and maintenance $ 892 $ 929 (4)% (1)% $ 2,709 $ 2,773
(2)% (2)% Professional services 90 94 (4)% (2)% 268 289 (7)% (7)%
Software fees and other 109 105 4% 5% 262
266 (2)% (1)% Total revenue $ 1,091 $ 1,128 (3)% (1)% $
3,239 $ 3,328 (3)% (2)%
Segment Revenue: Mainframe
solutions $ 596 $ 622 (4)% (1)% $ 1,820 $ 1,865 (2)% (2)%
Enterprise solutions 405 412 (2)% 0% 1,151 1,174 (2)% (1)% Services
90 94 (4)% (2)% 268 289 (7)% (7)%
Total expenses before
interest and income taxes: Total non-GAAP (2) $ 680 $ 688 (1)%
1% $ 1,972 $ 2,029 (3)% (2)% Total GAAP 773 807 (4)% (2)% 2,288
2,443 (6)% (5)% (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 U.S. dollars are converted into U.S. 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 Nine Months Ended
December
31,
December
31,
2014
2013
2014
2013
GAAP net income $ 222 $ 232 $ 695 $ 807 GAAP income from
discontinued operations, net of income taxes (4) (7)
(30) (21) GAAP income from continuing operations $
218 $ 225 $ 665 $ 786 GAAP income tax expense (benefit) 88 81 248
60 Interest expense, net 12 15 38 39
GAAP income from continuing operations before interest and income
taxes $ 318 $ 321 $ 951 $ 885 GAAP operating margin (% of revenue)
(1) 29% 28% 29% 27% Non-GAAP adjustments to expenses: Costs
of licensing and maintenance (2) $ 2 $ 1 $ 4 $ 3 Cost of
professional services (2) 1 1 3 3 Amortization of capitalized
software costs (3) 62 69 204 204 Selling and marketing (2) 8 8 23
22 General and administrative (2) 8 8 21 20 Product development and
enhancements (4) 4 4 14 (17) Depreciation and amortization of other
intangible assets (5) 14 19 45 48 Other expenses, net (6)
(6) 9 2 131 Total Non-GAAP adjustment to
operating expenses $ 93 $ 119 $ 316 $ 414 Non-GAAP income from
continuing operations before interest and income taxes $ 411 $ 440
$ 1,267 $ 1,299 Non-GAAP operating margin (% of revenue) (7) 38%
39% 39% 39% Interest expense, net 12 15 38 39 GAAP income
tax expense (benefit) 88 81 248 60 Non-GAAP adjustment to income
tax expense (benefit) (8) 14 (22) 103
114 Non-GAAP income tax expense $ 102 $ 59 $ 351 $ 174 Non-GAAP
income from continuing operations $ 297 $ 366 $ 878 $ 1,086
(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 December 31, 2014 and 2013,
non-GAAP adjustment consists of $28 million and $28 million of
purchased software amortization and $34 million and $41 million of
internally developed software products amortization, respectively.
For both the nine month periods ending December 31, 2014 and 2013,
non-GAAP adjustment consists of $87 million of purchased software
amortization and $117 million of internally developed software
products amortization. (4) For the three and nine month
periods ending December 31, 2014, non-GAAP adjustment consists of
$4 million and $14 million of share-based compensation,
respectively. For the three and nine month periods ending December
31, 2013, non-GAAP adjustment consists of $5 million and $15
million of share-based compensation and ($1) million and ($32)
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 Nine Months Ended
December
31,
December
31,
Operating
Expenses
2014
2013
2014
2013
Total expenses before interest and income taxes $ 773 $ 807
$ 2,288 $ 2,443 Non-GAAP operating adjustments: Purchased
software amortization 28 28 87 87 Other intangibles amortization 14
19 45 48 Software development costs capitalized - (1) - (32)
Internally developed software products amortization 34 41 117 117
Share-based compensation 23 23 65 63 Other expenses, net (1)
(6) 9 2 131 Total non-GAAP operating
adjustment $ 93 $ 119 $ 316 $ 414 Total non-GAAP operating
expenses $ 680 $ 688 $ 1,972 $ 2,029 Three Months
Ended Nine Months Ended
December
31,
December
31,
Diluted EPS from
Continuing Operations
2014
2013
2014
2013
GAAP diluted EPS from continuing operations $ 0.49 $ 0.50 $
1.49 $ 1.73 Non-GAAP adjustments, net of taxes: Purchased
software amortization 0.05 0.04 0.14 0.18 Other intangibles
amortization 0.02 0.03 0.08 0.10 Software development costs
capitalized - - - (0.07) Internally developed software products
amortization 0.05 0.06 0.19 0.24 Share-based compensation 0.04 0.04
0.11 0.13 Other expenses, net (1) (0.01) 0.02 - 0.27 Non-GAAP
effective tax rate adjustments (2) 0.03 0.12
(0.04) (0.19) Total non-GAAP adjustment $ 0.18 $ 0.31 $ 0.48
$ 0.66 Non-GAAP diluted EPS from continuing operations $
0.67 $ 0.81 $ 1.97 $ 2.39 (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 Nine Months Ended
December 31,
2014
December 31,
2014
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income
taxes (1) $ 318 $ 411 $ 951 $ 1,267 Interest expense, net 12
12 38 38 Income from continuing operations
before income taxes $ 306 $ 399 $ 913 $ 1,229 Statutory tax
rate 35% 35% 35% 35% Tax at statutory rate $ 107 $ 140 $ 320
$ 430 Adjustments for discrete and permanent items (2) (19)
(38) (72) (79) Total tax expense $ 88 $ 102 $
248 $ 351 Effective tax rate (3) 28.8% 25.6% 27.2% 28.6%
Three Months Ended Nine Months Ended
December 31,
2013
December 31,
2013
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income
taxes (1) $ 321 $ 440 $ 885 $ 1,299 Interest expense, net 15
15 39 39 Income from continuing operations
before income taxes $ 306 $ 425 $ 846 $ 1,260 Statutory tax
rate 35% 35% 35% 35% Tax at statutory rate $ 107 $ 149 $ 296
$ 441 Adjustments for discrete and permanent items (2) (26)
(90) (236) (267) Total tax (benefit) expense $
81 $ 59 $ 60 $ 174 Effective tax rate (3) 26.5% 13.9% 7.1%
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
$ 1.76 to $ 1.83 Non-GAAP adjustments, net of taxes:
Purchased software amortization 0.17 0.17 Other intangibles
amortization 0.10 0.10 Internally developed software products
amortization 0.25 0.25 Share-based compensation 0.14 0.14 Other
expenses, net (1) 0.03 0.03 Total non-GAAP adjustment $ 0.69 $ 0.69
Projected non-GAAP diluted EPS from continuing operations
range $ 2.45 to $ 2.52
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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