- First Quarter Revenue of $938
Million Under ASC 606 and $1,052 Million Under ASC 605
- First Quarter GAAP EPS of $0.40
Under ASC 606 and $0.62 Under ASC 605
- First Quarter Non-GAAP EPS of $0.54
Under ASC 606 and $0.76 Under ASC 605
- First Quarter Cash Flow From
Operations of $262 Million
CA Technologies (NASDAQ:CA) today reported financial results for
its first quarter fiscal 2019, which ended June 30, 2018.
As of April 1, 2018, CA Technologies adopted Accounting Standard
Codification 606 (ASC 606) using the modified retrospective method.
First quarter fiscal 2019 financial results are presented under ASC
606 and under ASC 605 for comparison to prior periods.
On July 11, 2018, CA Technologies entered into a definitive
agreement to be acquired by Broadcom, Inc. Due to the pending
acquisition, CA Technologies will not host a conference call to
discuss its first quarter results.
FINANCIAL OVERVIEW
(dollars in millions, except share data)
First Quarter
FY19 vs. FY18 FY19 FY19 FY18
% Change % Change CC* ASC
606 ASC 605 ASC 605 ASC
605 ASC 605 Revenue $938 $1,052
$1,025 3% 1% GAAP Net Income $166 $261
$178 47% 33% Non-GAAP Net Income* $229 $320
$256 25% 21% GAAP Diluted EPS $0.40
$0.62 $0.42 48% 33% Non-GAAP Diluted EPS*
$0.54 $0.76 $0.61 25% 20% Cash Flow
provided by Operations $262 $262 $298
(12)% (12)%
* Non-GAAP income, Non-GAAP earnings per share and CC or
Constant Currency are non-GAAP financial measures, as noted in
"Non-GAAP Financial Measures" below. A reconciliation of non-GAAP
financial measures to their comparable GAAP financial measures is
included in the tables following this news release.
REVENUE AND BOOKINGS
(dollars in millions)
First Quarter FY19 vs. FY18
FY19 % ofTotal FY19
% ofTotal FY18 %
ofTotal %Change
%Change CC* ASC 606
ASC 606 ASC 605 ASC 605
ASC 605 ASC 605 ASC 605
ASC 605 North America Revenue $600 64% $697
66% $690 67% 1% 1% International
Revenue $338 36% $355 34% $335
33% 6% 1% Total Revenue $938
$1,052 $1,025 3%
1%
*CC or Constant Currency is a non-GAAP financial measure, as
noted in "Non-GAAP Financial Measures" below. A reconciliation of
non-GAAP financial measures to their comparable GAAP financial
measures is included in the tables following this news release.
- Total bookings for the first quarter of
fiscal 2019 were $778 million.
EXPENSES, MARGIN AND EARNINGS PER SHARE
(dollars in millions)
First Quarter FY19 vs. FY18
FY19 FY19 FY18
%Change %Change CC**
GAAP ASC 606 ASC 605 ASC
605 ASC 605 ASC 605 Operating
Expenses Before Interest and Income Taxes $836 $833
$762 9% 10% Operating Income Before Interest and
Income Taxes $102 $219 $263 (17)% (24)%
Diluted EPS $0.40 $0.62 $0.42 48% 33%
Operating Margin 11% 21% 26%
Effective Tax Rate (102.4)% (31.2)% 25.2%
Non-GAAP*
Operating Expenses Before Interest and Income Taxes $625
$622 $642 (3)% (4)% Operating Income
Before Interest and Income Taxes $313 $430 $383
12% 9% Diluted EPS $0.54 $0.76 $0.61
25% 20% Operating Margin 33% 41% 37%
Effective Tax Rate 21.8%
22.0% 28.5%
*Refer to the discussion of Non-GAAP financial measures included
in this news release and the reconciliation of non-GAAP financial
measures to their comparable GAAP financial measures included in
the tables following this news release.
**CC or Constant Currency is a non-GAAP financial measure, as
noted in "Non-GAAP Financial Measures" below. A reconciliation of
non-GAAP financial measures to their comparable GAAP financial
measures is included in the tables following this news release.
- GAAP income tax benefit included a net
$98 million tax benefit relating to changes in the provisional
amounts for the US Tax Cuts and Jobs Act, enacted on December 22,
2017 ("US Tax Reform"). GAAP EPS was positively impacted by $0.23
from this US Tax Reform adjustment. Non-GAAP income tax expense
excluded the aforementioned tax benefit relating to US Tax
Reform.
SELECTED HIGHLIGHTS FROM THE QUARTER
- CA Technologies was named a Leader in
the Gartner Magic Quadrant for Project Portfolio Management for the
second consecutive year. (1)(5)
- CA Technologies was named a Leader
in the Gartner Magic Quadrant for Full Life Cycle API
Management for the sixth consecutive time. (2)(3)(5)
- CA Technologies was named a Leader
in the Gartner Magic Quadrant for Enterprise Agile Planning Tools.
(4)(5)
SEGMENT INFORMATION
(dollars in millions)
First Quarter FY19 vs. FY18
Revenue %Change
%Change CC** Operating Margin
FY19* FY18 FY19*
FY18 Mainframe Solutions $553 $536 3%
1% 67% 65% Enterprise Solutions $425
$414 3% 1% 14% 8% Services $74
$75 (1)% (3)% 0% 1%
*The manner in which the Company measures and recognizes
revenues for segment reporting was not revised upon adoption of ASC
606. For segment reporting purposes, the Company follows its
previous ASC 605 policies, which recognizes software license
revenue ratably, except for sales of perpetual licenses on a
stand-alone basis, which are recognized at a point-in-time.
**CC or Constant Currency is a non-GAAP financial measure, as
noted in "Non-GAAP Financial Measures" below. A reconciliation of
non-GAAP financial measures to their comparable GAAP financial
measures is included in the tables following this news release.
CAPITAL STRUCTURE
- Cash and cash equivalents at
June 30, 2018 were $3.328 billion.
- With $2.780 billion in total debt
outstanding and $139 million in notional pooling, the Company’s net
cash position was $409 million.
- Approximately 48% of the Company’s cash
and cash equivalents were held by foreign subsidiaries outside the
United States at June 30, 2018.
- In the first quarter of fiscal 2019,
the Company repurchased 2.3 million shares of its common stock for
$80 million.
- As of June 30, 2018, the Company
was authorized to purchase $407 million of its common stock under
its current stock repurchase program. Pursuant to the terms of the
merger agreement with Broadcom, Inc, the Company may not continue
to repurchase shares without Broadcom Inc.’s consent.
- The Company distributed $107 million in
dividends to stockholders during the first quarter of fiscal
2019.
- The Company’s outstanding share count
at June 30, 2018 was approximately 413 million.
(1)
Gartner, Inc., “Magic Quadrant for Project
Portfolio Management, Worldwide,” Daniel B. Stang, Matt Light, May
29, 2018.
(2)
Gartner, Magic Quadrant for Full Life
Cycle API Management, by Paolo Malinverno and Mark O'Neill. April
30, 2018
(3)
In the 2009 & 2011 versions of the
report, CA Technologies is listed as Layer 7 since it acquired
Layer 7 in April 2013. This report was previously titled "Magic
Quadrant for Application Services Governance," "Magic Quadrant for
SOA Governance Technologies," and "Magic Quadrant for Integrated
SOA Governance Technology Sets."
(4)
Gartner, Magic Quadrant for Enterprise
Agile Planning Tools, by Keith James Mann, Thomas E. Murphy, Nathan
Wilson, and Mike West. April 23, 2018
(5)
The Gartner Report(s) described herein,
(the "Gartner Report(s)") represent(s) research opinion or
viewpoints published, as part of a syndicated subscription service,
by Gartner, Inc. ("Gartner"), and are not representations of fact.
Each Gartner Report speaks as of its original publication date (and
not as of the date of this Quarterly Report) and the opinions
expressed in the Gartner Report(s) are subject to change without
notice.
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
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Non-GAAP Financial Measures
This news release, the accompanying tables and the additional
content that is available on the Company's website 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, net
income, and diluted earnings per share exclude the following items:
non-cash amortization of purchased software, internally developed
software and other intangible assets; share-based compensation
expense; charges relating to restructuring and rebalancing
initiatives that are large enough to require approval from the
Company's Board of Directors 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 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 operations, respectively. These tax rates are
determined based on an estimated effective full year tax rate, with
the effective tax rate for GAAP 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. The
non-GAAP effective tax rate is typically equal to the full year
GAAP effective tax rate, therefore no adjustment is required on an
annual basis. However, to minimize certain distortions that
otherwise would have resulted from applying this methodology to the
significant non-recurring impact on the Company’s tax expense from
enactment of the US Tax Reform in the third quarter of fiscal 2018,
such impact was recorded as a discrete item in second half of
fiscal 2018 and the first quarter of fiscal 2019 only for purposes
of the GAAP effective tax rate, but excluded from the non-GAAP
effective tax rate, which also yields different full-year effective
tax rates for the Company’s GAAP and non-GAAP results in fiscal
2018 and fiscal 2019. Non-GAAP diluted earnings per share also
excludes the impact of the US Tax Reform. Non-GAAP adjusted cash
flow from operations excludes payments associated with the
Board-approved rebalancing initiative, restructuring and other
payments. Non-GAAP free cash flow excludes purchases of property
and equipment. 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, 2018). Constant currency excludes the impacts from
the Company's hedging program. 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
Certain statements in this release (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 effect
of the announcement or pendency of the proposed acquisition by
Broadcom Inc. of the Company (the “Merger”) on the Company’s
business relationships, operating results and business; the failure
to complete the proposed Merger in a timely manner or at all and
the effects of such failure on the Company’s business, financial
condition, operating results and stock price; the limitations on
the Company’s ability to pursue alternative transactions pursuant
to the provisions of the merger agreement; the ability to achieve
success in the Company’s business strategy by, among other things,
ensuring that any new offerings address the needs of a rapidly
changing market while not adversely affecting the demand for the
Company’s traditional products or the Company’s profitability to an
extent greater than anticipated, enabling the Company’s sales force
to execute renewals within the Company’s existing customer base at
acceptable renewal rates, enabling the Company’s sales force to
expand relationships with the Company’s global customer base and
address opportunities with new customers (for example, in
geographic regions where the Company has underserved, or with chief
information security officers and chief development officers, who
have not been traditional customers) at levels sufficient to offset
any decline in revenue in the Company’s Mainframe Solutions segment
and in certain mature product lines in the Company’s Enterprise
Solutions segment, effectively managing the strategic shift in the
Company’s business model to increase sales through digital sales
forces and indirectly through the Company’s partners, as well as
provide additional Software as a Service offerings, offer
try-and-buy models and refocus the Company’s professional services
and education engagements on those engagements that are connected
to new product sales, without affecting the Company’s financial
performance to an extent greater than anticipated, and effectively
managing the Company’s pricing and other go-to-market strategies,
as well as improving the Company’s brand, technology and innovation
awareness in the marketplace; the failure to innovate or adapt to
technological changes or develop and introduce new software
products and services in a timely and market-accepted manner;
competition in product and service offerings and pricing; the
ability of the Company’s products to remain compatible with
ever-changing operating environments, platforms or third party
products; global economic factors or political events beyond the
Company’s control and other business and legal risks associated
with global operations; the failure to sell and renew license
agreement on a satisfactory basis; the failure to expand partner
programs and failure by the Company’s partners to leverage their
sales channels to drive revenue growth; the ability to retain and
attract qualified professionals; changes in generally accepted
accounting principles, which includes adoption of revenue
recognition requirements under Accounting Standards Codification
Topic 606; the ability to successfully integrate acquired companies
and products into the Company’s existing business; hacking or other
cybersecurity attacks on the Company’s data center, network and
software products, or the IT environments of the Company’s business
partners and customers; the ability to adequately manage, evolve
and protect the Company’s information systems, infrastructure and
processes; general economic conditions and credit constraints, or
unfavorable economic conditions in a particular region, business or
industry sector; risks associated with sales to government
customers; fluctuations in foreign exchange rates; discovery of
errors or omissions in the Company’s software products; the failure
to protect the Company’s intellectual property rights and source
code; 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 and/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 partners; potential tax liabilities; changes in
market conditions or the Company’s credit ratings; 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; the failure to
effectively execute on the Company’s announced restructuring
plans; successful and secure outsourcing of various functions to
third parties; the continued payment of dividends and repurchasing
of shares of the Company’s common stock; and other factors
described more fully in the Company’s filings with the United
States Securities and Exchange Commission, such as Quarterly
Reports on Form 10-Q and Annual Reports on
Form 10-K. We do not intend to update these forward-looking
statements, 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.
Additional Information and Where to Find It
This communication is being made in respect of the proposed
transaction involving CA, Inc. and Broadcom Inc. In connection with
the proposed transaction, CA intends to file relevant materials
with the Securities and Exchange Commission (the “SEC”), including
a proxy statement on Schedule 14A. Promptly after filing its
definitive proxy statement with the SEC, CA will mail the
definitive proxy statement and a proxy card to each stockholder of
CA entitled to vote at the special meeting relating to the proposed
transaction. This communication is not a substitute for the proxy
statement or any other document that CA may file with the SEC or
send to its stockholders in connection with the proposed
transaction. BEFORE MAKING ANY VOTING DECISION, STOCKHOLDERS OF CA
ARE URGED TO READ THESE MATERIALS (INCLUDING ANY AMENDMENTS OR
SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS IN CONNECTION
WITH THE PROPOSED TRANSACTION THAT CA WILL FILE WITH THE SEC WHEN
THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT CA AND THE PROPOSED TRANSACTION. The definitive
proxy statement and other relevant materials in connection with the
proposed transaction (when they become available), and any other
documents filed by CA with the SEC, may be obtained free of charge
at the SEC’s website (http://www.sec.gov) or at CA’s website
(http://www.ca.com) or by contacting CA’s Investor Relations at
traci.tsuchiguchi@ca.com.
Participants in the Solicitation
CA and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from CA’s stockholders
with respect to the proposed transaction with Broadcom. Information
about CA’s directors and executive officers and their ownership of
CA’s common stock is set forth in CA’s proxy statement on Schedule
14A filed with the SEC on June 29, 2018, and CA’s Annual Report on
Form 10-K for the fiscal year ended March 31, 2018, which was filed
with the SEC on May 9, 2018. Additional information regarding the
potential participants, and their direct or indirect interests in
the proposed transaction, by security holdings or otherwise, will
be set forth in the definitive proxy statement and other materials
to be filed with SEC in connection with the proposed
transaction.
Copyright © 2018 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 June 30, 2018 2018 2017
Under Under Under ASC 606 ASC 605 ASC 605
Revenue: Software
licenses and maintenance $ 870 $ 978 $ 950 Professional services
68 74 75
Total revenue $ 938 $ 1,052 $
1,025
Expenses: Costs of licensing and maintenance $ 76 $ 76
$ 71 Cost of professional services 70 73 73 Amortization of
capitalized software costs 60 60 70 Selling and marketing 235 225
246 General and administrative 104 103 107 Product development and
enhancements 162 162 158 Depreciation and amortization of other
intangible assets 26 26 26 Other expenses, net (1) 103
108 11
Total expenses before interest and income
taxes $ 836 $ 833 $ 762
Income before interest and income
taxes $ 102 $ 219 $ 263 Interest expense, net 20
20 25
Income before income taxes $ 82 $ 199 $ 238
Income tax (benefit) expense (84) (62) 60
Net income $ 166 $ 261 $ 178
Basic income per
common share $ 0.40 $ 0.62 $ 0.42
Basic weighted average
shares used in computation 413 413 415
Diluted income
per common share $ 0.40 $ 0.62 $ 0.42
Diluted weighted
average shares used in computation 415 415 417 (1) Other
expenses, net for the three months ended June 30, 2018 includes
costs associated with the Fiscal 2019 Plan of $114 million.
As of April 1, 2018, CA Technologies adopted Accounting Standard
Codification 606 (ASC 606) using the modified retrospective method.
First quarter fiscal 2019 financial results are presented under ASC
606 and under previous accounting standard (ASC 605) for comparison
to prior periods.
Table 2 CA Technologies
Condensed Consolidated Balance Sheets (in millions)
June 30, March 31, 2018 2018 2018 Under Under Under
ASC 606 ASC 605 ASC 605 (unaudited) (unaudited) Cash and cash
equivalents $ 3,328 $ 3,328 $ 3,405 Trade accounts receivable, net
525 523 793 Contract assets 797 - - Other current assets 112
164 210
Total current assets $ 4,762 $ 4,015 $
4,408 Property and equipment, net 222 222 237 Goodwill 6,792
6,792 6,804 Capitalized software and other intangible assets, net
1,044 1,044 1,111 Deferred income taxes 121 336 346 Contract assets
117 - - Contract costs 408 - - Other noncurrent assets, net
128 145 154
Total assets $ 13,594 $ 12,554 $
13,060 Current portion of long-term debt $ 270 $ 270 $ 269
Deferred revenue and advanced payments 1,108 2,070 2,289 Other
current liabilities 776 653 763
Total
current liabilities $ 2,154 $ 2,993 $ 3,321 Long-term
debt, net of current portion 2,510 2,510 2,514 Deferred income
taxes 179 105 111 Deferred revenue and advanced payments 481 738
820 Other noncurrent liabilities 409 299 399
Total liabilities $ 5,733 $ 6,645 $ 7,165 Common
stock $ 59 $ 59 $ 59 Additional paid-in capital 3,699 3,699 3,744
Retained earnings 9,134 7,125 6,971 Accumulated other comprehensive
loss (440) (383) (290) Treasury stock (4,591) (4,591)
(4,589)
Total stockholders’ equity $ 7,861 $ 5,909 $
5,895
Total liabilities and stockholders’ equity $ 13,594 $
12,554 $ 13,060 As of April 1, 2018, CA Technologies adopted
Accounting Standard Codification 606 (ASC 606) using the modified
retrospective method. First quarter fiscal 2019 financial results
are presented under ASC 606 and under previous accounting standard
(ASC 605) for comparison to prior periods.
Table 3 CA
Technologies Condensed Consolidated Statements of Cash
Flows (unaudited) (in millions) Three Months
Ended June 30, 2018 2018 2017 Under Under Under ASC
606 ASC 605 ASC 605
Operating activities: Net income $ 166 $
261 $ 178 Adjustments to reconcile net income to net cash provided
by operating activities: Depreciation and amortization 86 86 96
Deferred income taxes (3 ) (1 ) 5 Provision for bad debts - (1 ) 2
Share-based compensation expense 33 33 32 Other non-cash items 3 3
1 Foreign currency transaction (gains) losses (5 ) 1 1 Changes in
other operating assets and liabilities, net of effect of
acquisitions: Decrease in trade accounts receivable 262 257 308
Increase in contract assets (6 ) - - Decrease in contract costs 11
- - Decrease in deferred revenue (148 ) (260 ) (172 ) Decrease in
taxes payable, net (179 ) (159 ) (56 ) Increase (decrease) in
accounts payable, accrued expenses and other 44 45 (5 ) Decrease in
accrued salaries, wages and commissions (36 ) (36 ) (102 ) Changes
in other operating assets and liabilities, net 34
33 10
Net cash provided by operating
activities $ 262 $ 262 $ 298
Investing
activities: Acquisitions of businesses, net of cash acquired,
and purchased software $ (25 ) $ (25 ) $ (6 ) Purchases of property
and equipment (12 ) (12 ) (12 )
Net cash
used in investing activities $ (37 ) $ (37 ) $ (18 )
Financing activities: Dividends paid $ (107 ) $ (107 ) $
(107 ) Purchases of common stock (80 ) (80 ) - Notional pooling
borrowings (repayments), net 24 24 (18 ) Debt repayments (4 ) (4 )
(5 ) Debt issuance costs - - (3 ) Exercise of common stock options
14 14 1 Payments related to tax withholding for share-based
compensation (37 ) (37 ) (31 ) Other financing activities (9
) (9 ) (3 )
Net cash used in financing
activities (199 ) (199 ) (166 ) Effect of exchange rate changes
on cash, cash equivalents and restricted cash (104 )
(104 ) 88
(Decrease) increase in cash, cash
equivalents and restricted cash $ (78 ) $ (78 ) $ 202
Cash,
cash equivalents and restricted cash at beginning of period
3,407 3,407 2,772
Cash, cash equivalents and restricted cash at end of period
$ 3,329 $ 3,329 $ 2,974 As of April 1, 2018,
CA Technologies adopted Accounting Standard Codification 606 (ASC
606) using the modified retrospective method. First quarter fiscal
2019 financial results are presented under ASC 606 and under
previous accounting standard (ASC 605) for comparison to prior
periods.
Table 4 CA Technologies Operating
Segments (unaudited) (dollars in millions) Three
Months Ended June 30, 2018 2017
Revenue by segment:
Mainframe Solutions $ 553 $ 536 Enterprise Solutions 425 414
Services 74 75
Total segment revenue $
1,052 $ 1,025 Impact of segment policies that differ from
U.S. GAAP (1) (114 ) -
Total consolidated
revenue $ 938 $ 1,025
Segment profit:
Mainframe Solutions $ 370 $ 349 Enterprise Solutions 60 33 Services
- 1
Total segment profit $ 430 $
383 Impact of segment policies that differ from U.S. GAAP (1) (117
) -
Less unallocated amounts: Purchased software
amortization 55 58 Other intangibles amortization 10 10 Internally
developed software products amortization 5 12 Share-based
compensation expense 33 32 Other expenses, net (2) 108 8 Interest
expense, net 20 25
Income before income
taxes $ 82 $ 238 (1)
The manner in which the Company measures
and recognizes revenues and expenses, including commissions, for
segment reporting was not revised upon adoption of ASC 606. For
segment reporting purposes, commissions are expensed in the period
earned by the employee.
(2) Other expenses, net for the three months ended June 30,
2018 consists of costs associated with the Fiscal 2019 Plan of $114
million, certain foreign exchange derivative hedging gains and
losses, and other miscellaneous costs. Other expenses, net for the
three months ended June 30, 2017 consists of costs associated with
certain foreign exchange derivative hedging gains and losses, and
other miscellaneous costs.
Table 5 CA Technologies
Constant Currency Summary (unaudited) (dollars in millions)
Three Months Ended June
30, 2018 2018 2017 % Increase
(Decrease)
in $ US
% Increase(Decrease)in ConstantCurrency
(1)
Under Under Under Under Under ASC 606 ASC 605 ASC 605 ASC
605 ASC 605
Revenue: North America $ 600 $ 697 $ 690
1% 1% International 338 355 335 6% 1% Total
revenue $ 938 $ 1,052 $ 1,025 3% 1%
Revenue: Software
licenses and maintenance $ 870 $ 978 $ 950 3% 1% Professional
services 68 74 75 (1)% (3)% Total revenue $
938 $ 1,052 $ 1,025 3% 1%
Segment Revenue: Mainframe
solutions $ 440 $ 553 $ 536 3% 1% Enterprise solutions 430 425 414
3% 1% Services 68 74 75 (1)% (3)%
Total expenses before
interest and income taxes: Total GAAP $ 836 $ 833 $ 762 9% 10%
Total non-GAAP (2) 625 622 642 (3)% (4)% (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, 2018, 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. Certain non-material
differences may arise versus actual from impact of rounding.
As of April 1, 2018, CA Technologies adopted Accounting Standard
Codification 606 (ASC 606) using the modified retrospective method.
First quarter fiscal 2019 financial results are presented under ASC
606 and under previous accounting standard (ASC 605) for comparison
to prior periods.
Table 6 CA Technologies
Reconciliation of Select GAAP Measures to Non-GAAP Measures
(unaudited) (dollars in millions) Three Months
Ended June 30, 2018 2018 2017 Under Under Under ASC 606 ASC 605 ASC
605 GAAP net income $ 166 $ 261 $ 178 GAAP income tax
(benefit) expense (84) (62) 60 Interest expense, net 20
20 25 GAAP income before interest and income taxes $
102 $ 219 $ 263 GAAP operating margin (% of revenue) (1) 11% 21%
26% Non-GAAP adjustments to expenses: Costs of licensing and
maintenance (2) $ 2 $ 2 $ 2 Cost of professional services (2) 1 1 1
Amortization of capitalized software costs (3) 60 60 70 Selling and
marketing (2) 10 10 10 General and administrative (2) 12 12 12
Product development and enhancements (2) 8 8 7 Depreciation and
amortization of other intangible assets (4) 10 10 10 Other
expenses, net (5) 108 108 8 Total Non-GAAP
adjustment to operating expenses $ 211 $ 211 $ 120 Non-GAAP income
before interest and income taxes $ 313 $ 430 $ 383 Non-GAAP
operating margin (% of revenue) (6) 33% 41% 37% Interest
expense, net 20 20 25 GAAP income tax (benefit) expense (84) (62)
60 Non-GAAP adjustment to income tax expense (7) 50 54 42 Non-GAAP
adjustment US Tax Reform (8) 98 98 - Non-GAAP
income tax expense $ 64 $ 90 $ 102 Non-GAAP net income $ 229 $ 320
$ 256 (1) GAAP operating margin is calculated by dividing
GAAP income before interest and income taxes by total revenue
(refer to Table 1 for total revenue). (2) Non-GAAP
adjustment consists of share-based compensation. (3) For the
three month periods ending June 30, 2018 and 2017, non-GAAP
adjustment consists of $55 million and $58 million of purchased
software amortization and $5 million and $12 million of internally
developed software products amortization, respectively. (4)
Non-GAAP adjustment consists of other intangibles amortization.
(5) Other expenses, net for the three months ended June 30,
2018 consists of costs associated with the Fiscal 2019 Plan of $114
million, certain foreign exchange derivative hedging gains and
losses, and other miscellaneous costs. Other expenses, net for the
three months ended June 30, 2017 consists of costs associated with
certain foreign exchange derivative hedging gains and losses, and
other miscellaneous costs. (6) Non-GAAP operating margin is
calculated by dividing non-GAAP income before interest and income
taxes by total revenue (refer to Table 1 for total revenue).
(7) The full year non-GAAP income tax expense is different from
GAAP income tax expense because of the difference in non-GAAP
income before income taxes. On an interim basis, this difference
would also include a difference in the impact of discrete and
permanent items where for GAAP purposes the effect is recorded in
the period such items arise, but for non-GAAP such items are
recorded pro rata to the fiscal year's remaining reporting periods.
(8) The Company’s tax expense from enactment of the US Tax
Reform in the third quarter of fiscal 2018 was recorded as a
discrete item in second half of fiscal 2018 and the first quarter
of fiscal 2019 only for purposes of the GAAP income tax expense,
and was excluded from the non-GAAP income tax expense. Refer
to the discussion of non-GAAP financial measures included in the
accompanying press release for additional information.
Certain non-material differences may arise versus actual from
impact of rounding. As of April 1, 2018, CA Technologies
adopted Accounting Standard Codification 606 (ASC 606) using the
modified retrospective method. First quarter fiscal 2019 financial
results are presented under ASC 606 and under previous accounting
standard (ASC 605) for comparison to prior periods.
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 June 30, 2018 2018 2017 Under Under Under
Operating
Expenses
ASC 606 ASC 605 ASC 605 Total expenses before interest and
income taxes $ 836 $ 833 $ 762 Non-GAAP operating
adjustments: Purchased software amortization 55 55 58 Other
intangibles amortization 10 10 10 Internally developed software
products amortization 5 5 12 Share-based compensation 33 33 32
Restructuring expense 114 114 - Other (gains) expenses, net (1)
(6) (6) 8 Total non-GAAP operating adjustment
$ 211 $ 211 $ 120 Total non-GAAP operating expenses $ 625 $
622 $ 642 Three Months Ended June 30, 2018 2018 2017
Under Under Under
Diluted
EPS
ASC 606 ASC 605 ASC 605 GAAP diluted EPS $ 0.40 $ 0.62 $
0.42 Non-GAAP adjustments: Purchased software amortization
0.13 0.13 0.14 Other intangibles amortization 0.02 0.02 0.02
Internally developed software products amortization 0.01 0.01 0.03
Share-based compensation 0.08 0.08 0.08 Restructuring expense 0.27
0.27 - Other (gains) expenses, net (1) (0.01) (0.01) 0.02 Tax
effect of non-GAAP adjustments (0.09) (0.09) (0.07) Non-GAAP
effective tax rate adjustments (2) (0.27) (0.27)
(0.03) Total non-GAAP adjustment $ 0.14 $ 0.14 $ 0.19
Non-GAAP diluted EPS $ 0.54 $ 0.76 $ 0.61 (1) Other
expenses, net consists of costs associated with certain foreign
exchange derivative hedging gains and losses, and other
miscellaneous costs. (2)
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 operations, respectively. These tax rates are
determined based on an estimated effective full year tax rate, with
the effective tax rate for GAAP including the impact of discrete
items in the period in which such items arise and the effective tax
rate for non-GAAP allocating the impact of discrete items pro rata
to the fiscal year's remaining reporting periods. The non-GAAP
effective tax rate is typically equal to the full year GAAP
effective tax rate, therefore no adjustment is required on an
annual basis. However, to minimize certain distortions that
otherwise would have resulted from applying this methodology to the
significant non-recurring impact on the Company’s tax expense from
enactment of the US Tax Reform in the third quarter of fiscal 2018,
such impact was recorded as a discrete item in second half of
fiscal 2018 and the first quarter of fiscal 2019 only for purposes
of the GAAP effective tax rate, but excluded from the non-GAAP
effective tax rate, which also yields different full-year effective
tax rates for the Company’s GAAP and non-GAAP results in fiscal
2018 and fiscal 2019.
Refer to the discussion of non-GAAP financial measures
included in the accompanying press release for additional
information. Certain non-material differences may arise
versus actual from impact of rounding. As of April 1, 2018,
CA Technologies adopted Accounting Standard Codification 606 (ASC
606) using the modified retrospective method. First quarter fiscal
2019 financial results are presented under ASC 606 and under
previous accounting standard (ASC 605) for comparison to prior
periods.
Table 8 CA Technologies Effective Tax
Rate Reconciliation GAAP and Non-GAAP (unaudited)
(dollars in millions) Three Months Ended June 30,
2018 Under Under ASC 606 ASC 606
GAAP
Non-GAAP
Income before interest and income taxes (1) $ 102 $ 313
Interest expense, net 20 20 Income before income
taxes $ 82 $ 293 Statutory tax rate 21.00% 21.00% Tax
at statutory rate $ 17 $ 62 Adjustments for discrete and permanent
items (2) (101) (96) US Tax Reform Adjustment (2) -
98 Total tax (benefit) expense $ (84) $ 64 Effective tax
rate (2) (102.44)% 21.84% Three Months Ended June 30, 2018
Under Under ASC 605 ASC 605
GAAP
Non-GAAP
Income before interest and income taxes (1) $ 219 $ 430
Interest expense, net 20 20 Income before income
taxes $ 199 $ 410 Statutory tax rate 21.00% 21.00%
Tax at statutory rate $ 42 $ 86 Adjustments for discrete and
permanent items (2) (104) (94) US Tax Reform Adjustment (2)
- 98 Total tax (benefit) expense $ (62) $ 90
Effective tax rate (2) (31.16)% 21.95% Three Months Ended
June 30, 2017 Under Under ASC 605 ASC 605
GAAP
Non-GAAP
Income before interest and income taxes (1) $ 263 $ 383
Interest expense, net 25 25 Income before income
taxes $ 238 $ 358 Statutory tax rate 35.00% 35.00%
Tax at statutory rate $ 83 $ 125 Adjustments for discrete and
permanent items (2) (23) (23) Total tax expense $ 60
$ 102 Effective tax rate (2) 25.21% 28.49% (1) Refer
to Table 6 for a reconciliation of income before interest and
income taxes on a GAAP basis to income before interest and income
taxes on a non-GAAP basis. (2) The effective tax rate 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 operations, respectively. These tax rates are
determined based on an estimated effective full year tax rate, with
the effective tax rate for GAAP including the impact of discrete
items in the period in which such items arise and the effective tax
rate for non-GAAP allocating the impact of discrete items pro rata
to the fiscal year's remaining reporting periods. The non-GAAP
effective tax rate is typically equal to the full year GAAP
effective tax rate, therefore no adjustment is required on an
annual basis. However, to minimize certain distortions that
otherwise would have resulted from applying this methodology to the
significant non-recurring impact on the Company’s tax expense from
enactment of the US Tax Reform in the third quarter of fiscal 2018,
such impact was recorded as a discrete item in second half of
fiscal 2018 and the first quarter of fiscal 2019 only for purposes
of the GAAP effective tax rate, but excluded from the non-GAAP
effective tax rate, which also yields different full-year effective
tax rates for the Company’s GAAP and non-GAAP results in fiscal
2018 and fiscal 2019. Refer to the discussion of non-GAAP
financial measures included in the accompanying press release for
additional information. Certain non-material differences may
arise versus actual from impact of rounding. As of April 1,
2018, CA Technologies adopted Accounting Standard Codification 606
(ASC 606) using the modified retrospective method. First quarter
fiscal 2019 financial results are presented under ASC 606 and under
previous accounting standard (ASC 605) for comparison to prior
periods.
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version on businesswire.com: https://www.businesswire.com/news/home/20180806005604/en/
CA TechnologiesJennifer DiClericoCorporate Communications(212)
415-6997jennifer.diclerico@ca.comorTraci TsuchiguchiInvestor
Relations(650) 534-9814traci.tsuchiguchi@ca.comorStefan
PutyeraInvestor Relations(631) 342-4710stefan.putyera@ca.com
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