CA
$31.05
CA
$.64
2.10%
Earnings Details
2nd Quarter September 2016
Thursday, October 27, 2016 4:05:13 PM
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Summary

CA Beats

CA (CA) reported 2nd Quarter September 2016 earnings of $0.68 per share on revenue of $1.0 billion. The consensus earnings estimate was $0.62 per share on revenue of $1.0 billion. The Earnings Whisper number was $0.64 per share. Revenue grew 1.3% on a year-over-year basis.

The company said it continues to expect fiscal 2017 non-GAAP earnings of $2.49 to $2.54 per share on revenue of $4.03 billion to $4.07 billion. The current consensus earnings estimate is $2.52 per share on revenue of $4.05 billion for the year ending March 31, 2017.

CA Inc is a provider of enterprise information technology (IT) software and solution. It develops and delivers software and services that help organizations manage and secure their IT infrastructures and deliver more flexible IT services.

Results
Reported Earnings
$0.68
Earnings Whisper
$0.64
Consensus Estimate
$0.62
Reported Revenue
$1.02 Bil
Revenue Estimate
$1.01 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

CA Technologies Reports Second Quarter Fiscal Year 2017 Results

Second Quarter Revenue of $1,018 Million

--Second Quarter GAAP EPS of $0.50

--Second Quarter Non-GAAP EPS of $0.67

--Second Quarter Cash Flow Used in Continuing Operations of $58 Million

CA Technologies (CA) today reported financial results for its second quarter fiscal 2017, which ended September 30, 2016.

Mike Gregoire, CA Technologies Chief Executive Officer, said:

"CA delivered solid second quarter results. We reported another quarter of revenue growth with strong margins and earnings, and we are making progress across a number of our key initiatives. Our product development and innovation engines are beginning to gain momentum, and we’re pleased with our improving customer experience metrics. At the same time, we recognize we still have work ahead of us. We continue to manage the business with thoughtful discipline, and I remain confident that we are moving the company in the right direction.

"At CA World next month we will welcome thousands of our customers and partners from around the globe. We look forward to demonstrating the transformational power of software, and the critical role it plays in driving today’s new business models and strategies."

FINANCIAL OVERVIEW

(dollars in millions, except share data)
Second Quarter FY17 vs. FY16
FY17
FY16
% Change
% Change CC*
Revenue
$1,018
$1,005
1%
2%
GAAP Income from Continuing Operations
$212
$172
23%
24%
Non-GAAP Income from Continuing Operations*
$283
$247
15%
13%
GAAP Diluted EPS from Continuing Operations
$0.50
$0.39
28%
31%
Non-GAAP Diluted EPS from Continuing Operations*
$0.67
$0.56
20%
18%
Cash Flow (used in) provided by Continuing Operations
($58)
$43
(235)%
(239)%

* Non-GAAP income, Non-GAAP earnings per share and CC or Constant Currency 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.

REVENUE AND BOOKINGS

(dollars in millions)
Second Quarter FY17 vs. FY16
FY17
% of
FY16
% of
%
%
Total
Total
Change
Change
CC*
North America Revenue
$690
68%
$677
67%
2%
2%
International Revenue
$328
32%
$328
33%
0%
1%
Total Revenue
$1,018
$1,005
1%
2%
North America Bookings
$479
66%
$1,173
85%
(59)%
(59)%
International Bookings
$250
34%
$210
15%
19%
18%
Total Bookings
$729
$1,383
(47)%
(47)%
Current Revenue Backlog
$2,945
$3,006
(2)%
(2)%
Total Revenue Backlog
$6,858
$6,614
4%
4%

*CC or Constant Currency is a non-GAAP financial measure, 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.

Total revenue increased as a result of an increase in software fees and other revenue, partially offset by decreases in professional services revenue and subscription and maintenance revenue. The increase in software fees and other revenue was primarily due to an increase in sales of enterprise solutions products recognized on an upfront basis and an increase in SaaS revenue, primarily from CA Agile Central products (acquired from Rally Software Development Corp. (Rally)).

Total bookings decreased primarily due to a renewal with a large system integrator in excess of $500 million that occurred during the second quarter of fiscal 2016 and, to a lesser extent, a decrease in mainframe renewals.

The Company executed a total of 11 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $209 million. During the second quarter of fiscal 2016, the Company executed a total of 11 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $887 million, including the aforementioned large system integrator transaction.

The weighted average duration of subscription and maintenance bookings for the quarter was 2.99 years, compared with 4.46 years for the same period in fiscal 2016.

EXPENSES, MARGIN AND EARNINGS PER SHARE

(dollars in millions)
Second Quarter FY17 vs. FY16
FY17
FY16
%
%
Change
Change
CC**
GAAP
Operating Expenses Before Interest and Income Taxes
$698
$746
(6)%
(6)%
Operating Income Before Interest and Income Taxes
$320
$259
24%
25%
Diluted EPS from Continuing Operations
$0.50
$0.39
28%
31%
Operating Margin
31%
26%
Effective Tax Rate
30.7%
30.4%
Non-GAAP*
Operating Expenses Before Interest and Income Taxes
$608
$648
(6)%
(5)%
Operating Income Before Interest and Income Taxes
$410
$357
15%
13%
Diluted EPS from Continuing Operations
$0.67
$0.56
20%
18%
Operating Margin
40%
36%
Effective Tax Rate
28.5%
28.4%

*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, 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 or Constant Currency is a non-GAAP financial measure, 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.

GAAP and non-GAAP operating expenses decreased primarily due to decreases in personnel-related costs as a result of lower headcount and transaction costs associated with the fiscal 2016 acquisitions of Rally and Xceedium, Inc. (Xceedium) that occurred during the second quarter of fiscal 2016, partially offset by an increase in legal settlement expense related to a litigation matter reflected in other expenses, net. This increase in legal settlement expense is attributable to the Company entering into an agreement-in-principle to settle the previously disclosed litigation brought against the Company by the Department of Justice (DOJ) and an individual plaintiff relating to certain claims under the Company’s General Services Administration (GSA) schedule contract with the government. The settlement, which is for $45 million and admits no wrongdoing, is subject to the negotiation and execution of a definitive settlement agreement, and approval by the United States District Court.

GAAP operating expenses were also affected by lower amortization expenses of capitalized software and other intangible assets.

GAAP EPS was positively impacted by $0.10 from an improvement in GAAP operating margin primarily due to an overall decrease in GAAP operating expenses.

Non-GAAP EPS was positively impacted by $0.07 from an improvement in non-GAAP operating margin primarily due to an overall decrease in non-GAAP operating expenses.

SELECTED HIGHLIGHTS FROM THE QUARTER

CA Technologies has been positioned by Gartner, Inc. in the Leaders quadrant of its inaugural "Magic Quadrant for Application Release Automation." (1)

CA Technologies was named a Leader in the "The Forrester Wave(TM): Application Performance Management, Q3 2016." (2)

CA Technologies extended its DevOps portfolio with the acquisition of BlazeMeter, a leader in open source-based continuous application performance testing. BlazeMeter will seamlessly integrate with CA’s Continuous Delivery solutions to further improve testing efficiency and accelerate the deployment of applications. The deal closed earlier this month.

SEGMENT INFORMATION

(dollars in millions)
Second Quarter FY17 vs. FY16
Revenue
%
%
Operating Margin
Change
Change
CC*
FY17
FY16
FY17
FY16
Mainframe Solutions
$550
$554
(1)%
(1)%
62%
62%
Enterprise Solutions
$393
$368
7%
8%
18%
3%
Services
$75
$83
(10)%
(9)%
3%
5%

*CC or Constant Currency is a non-GAAP financial measure, 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.

Mainframe Solutions revenue declined primarily due to insufficient revenue from prior period new sales to offset the decline in revenue contribution from renewals.

Enterprise Solutions revenue increased primarily due to an increase in software fees and other revenue as described above. Operating margin increased primarily due to the transaction costs associated with the fiscal 2016 acquisitions of Rally and Xceedium that occurred during the second quarter of fiscal 2016.

Services revenue decreased primarily due to a decline in professional services engagements from prior periods. This decline in professional services engagements is a result of several factors including our products being easier to install and manage, an increase in the use of partners for services engagements and the completion of non-strategic projects during previous periods. Operating margin decreased primarily due to the overall decline in professional services revenue.

CASH FLOW FROM OPERATIONS

Cash flow used in operations for the second quarter of fiscal 2017 was $58 million, versus cash flow provided by operations of $43 million in the year-ago period. Cash flow from operations decreased compared with the year-ago period primarily due to a decrease in cash collections, as a result of lower single installment collections, and an increase in income tax payments, partially offset by a decrease in vendor disbursements and payroll.

CAPITAL STRUCTURE

-- Cash and cash equivalents at September 30, 2016 were $2.585 billion.

With $1.95 billion in total debt outstanding and $139 million in notional pooling, the Company’s net cash position was $496 million.

In the second quarter of fiscal 2017, the Company repurchased 1.5 million shares of common stock for $50 million.

As of September 30, 2016, the Company is currently authorized to purchase $650 million of its common stock under its current stock repurchase program.

-- The Company distributed $107 million in dividends to shareholders.

The Company’s outstanding share count at September 30, 2016 was 413 million.

OUTLOOK FOR FISCAL YEAR 2017

The Company updated its fiscal 2017 outlook for cash flow from continuing operations. This guidance update reflects the anticipated settlement of legal matters related to the agreement-in-principle for the GSA litigation described above. The following outlook contains "forward-looking statements" (as defined below) and assumes no material acquisitions.

The Company expects the following:*

Total revenue to increase in a range of flat to plus 1 percent as reported and in constant currency, unchanged from previous guidance. At September 30, 2016 exchange rates, this translates to reported revenue of $4.03 billion to $4.07 billion.

GAAP diluted earnings per share from continuing operations to increase in a range of 6 percent to 8 percent as reported and 2 percent to 5 percent in constant currency, unchanged from previous guidance. At September 30, 2016 exchange rates, this translates to reported GAAP diluted earnings per share from continuing operations of $1.88 to $1.93.

Non-GAAP diluted earnings per share from continuing operations to increase in a range of 2 percent to 5 percent as reported and 1 percent to 3 percent in constant currency, unchanged from previous guidance. At September 30, 2016 exchange rates, this translates to reported non-GAAP diluted earnings per share from continuing operations of $2.49 to $2.54.

Cash flow from continuing operations to change in a range of minus 3 percent to plus 1 percent as reported and in constant currency. At September 30, 2016 exchange rates, this translates to reported cash flow from continuing operations of $1.01 billion to $1.05 billion. Previous guidance was to increase in a range of 2 percent to 6 percent as reported and 1 percent to 5 percent in constant currency.

The Company expects a full-year GAAP operating margin of 29 percent and non-GAAP operating margin of 38 percent, unchanged from previous guidance.

The Company also expects a full-year GAAP and non-GAAP effective tax rate of between 28 percent and 29 percent, unchanged from previous guidance.

The Company anticipates approximately 411 million shares outstanding at fiscal 2017 year-end and weighted average diluted shares outstanding of approximately 414 million for the fiscal year.

*In the outlook section, certain non-material differences between growth rates and translated dollar amounts may arise from impact of rounding.

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 Application Release
Automation," Colin Fletcher, David Paul Williams, Laurie F. Wurster,
August 1, 2016.
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.
(2) Forrester Research, Inc., "The Forrester Wave(TM): Application
Performance Management, Q3 2016," September 22, 2016

About CA Technologies

CA Technologies (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: non-cash amortization of purchased software, internally developed software and other intangible assets; share-based compensation expense; charges relating to 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 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. 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. Non-GAAP adjusted cash flow from operations excludes payments associated with the fiscal 2014 Board-approved rebalancing initiative as described above and 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, 2016, March 31, 2015 and March 31, 2014, 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 by the Company 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 forecasted 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 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 news 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 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 accelerate growth of sales to new customers and expand sales with existing customers, including sales outside of the Company’s renewal cycle and to a broadening set of purchasers outside of traditional information technology operations (with such growth and expansion at levels sufficient to offset any decline in revenue and/or sales 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 develop more easily installed software, provide additional SaaS offerings 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 and introduce new software products and services in a timely 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 non-U.S. operations; the failure to expand partner programs and sales of the Company’s solutions by the Company’s partners; the ability to retain and attract qualified professionals; general economic conditions and credit constraints, or unfavorable economic conditions in a particular region, business or industry sector; the ability to successfully integrate acquired companies and products into the Company’s existing business; risks associated with sales to government customers; breaches of the Company’s data center, network, as well as the Company’s software products, and the IT environments of the Company’s vendors and customers; the ability to adequately manage, evolve and protect the Company’s information systems, infrastructure and processes; the failure to renew license transactions on a satisfactory basis; fluctuations in foreign exchange rates; 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; 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; 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; potential tax liabilities; changes in market conditions or the Company’s credit ratings; changes in generally accepted accounting principles; 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 other 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 the forward-looking information described herein as believed, planned, anticipated, expected, estimated, targeted or similarly identified. 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.

Copyright (C) 2016 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:
2016
2015
2016
2015
Subscription and maintenance
$
824
$
832
$ 1,650
$
1,668
Professional services
75
83
152
162
Software fees and other
119
90
215
152
Total revenue
$ 1,018
$ 1,005
$ 2,017
$
1,982
Expenses:
Costs of licensing and maintenance
$
66
$
70
$
134
$
136
Cost of professional services
73
78
148
149
Amortization of capitalized software costs
59
67
125
127
Selling and marketing
235
248
477
474
General and administrative
84
99
172
189
Product development and enhancements
136
151
284
287
Depreciation and amortization of other intangible assets
18
29
38
56
Other expenses, net
27
4
27
1
Total expenses before interest and income taxes
$
698
$
746
$ 1,405
$
1,419
Income from continuing operations before interest and income taxes
$
320
$
259
$
612
$
563
Interest expense, net
14
12
29
21
Income from continuing operations before income taxes
$
306
$
247
$
583
$
542
Income tax expense
94
75
173
163
Income from continuing operations
$
212
$
172
$
410
$
379
Income from discontinued operations, net of income taxes
$
-
$
2
$
-
$
7
Net income
$
212
$
174
$
410
$
386
Basic income per common share:
Income from continuing operations
$
0.50
$
0.39
$
0.98
$
0.86
Income from discontinued operations
-
-
-
0.02
Net income
$
0.50
$
0.39
$
0.98
$
0.88
Basic weighted average shares used in computation
414
436
414
436
Diluted income per common share:
Income from continuing operations
$
0.50
$
0.39
$
0.98
$
0.86
Income from discontinued operations
-
-
-
0.02
Net income
$
0.50
$
0.39
$
0.98
$
0.88
Diluted weighted average shares used in computation
415
437
415
437
Table 2
CA Technologies
Condensed Consolidated Balance Sheets
(in millions)
September 30,
March 31,
2016
2016
(unaudited)
Cash and cash equivalents
$
2,585
$
2,812
Trade accounts receivable, net
445
625
Other current assets
148
124
Total current assets
$
3,178
$
3,561
Property and equipment, net
$
222
$
242
Goodwill
6,083
6,086
Capitalized software and other intangible assets, net
662
795
Deferred income taxes
422
407
Other noncurrent assets, net
120
113
Total assets
$
10,687
$
11,204
Current portion of long-term debt
$
4
$
6
Deferred revenue (billed or collected)
1,790
2,197
Other current liabilities
614
691
Total current liabilities
$
2,408
$
2,894
Long-term debt, net of current portion
$
1,946
$
1,947
Deferred income taxes
3
3
Deferred revenue (billed or collected)
580
737
Other noncurrent liabilities
221
245
Total liabilities
$
5,158
$
5,826
Common stock
$
59
$
59
Additional paid-in capital
3,652
3,664
Retained earnings
6,771
6,575
Accumulated other comprehensive loss
(435)
(416)
Treasury stock
(4,518)
(4,504)
Total stockholders’ equity
$
5,529
$
5,378
Total liabilities and stockholders’ equity
$
10,687
$
11,204
Table 3
CA Technologies
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions)
Three Months Ended
September 30,
2016
2015
Operating activities from continuing operations:
Net income
$
212
$
174
Income from discontinued operations
-
(2)
Income from continuing operations
$
212
$
172
Adjustments to reconcile income from continuing operations to net
cash provided
by operating activities:
Depreciation and amortization
77
96
Deferred income taxes
(14)
(18)
Provision for bad debts
1
-
Share-based compensation expense
25
23
Other non-cash items
2
-
Foreign currency transaction losses
1
3
Changes in other operating assets and liabilities, net of effect of
acquisitions:
(Increase) decrease in trade accounts receivable
(17)
3
Decrease in deferred revenue
(317)
(257)
Decrease in taxes payable, net
(45)
(25)
Increase in accounts payable, accrued expenses and other
11
24
Increase in accrued salaries, wages and commissions
18
17
Changes in other operating assets and liabilities
(12)
5
Net cash (used in) provided by operating activities - continuing
$
(58)
$
43
operations
Investing activities from continuing operations:
Acquisitions of businesses, net of cash acquired, and purchased
$
-
$
(610)
software
Purchases of property and equipment
(8)
(10)
Proceeds from sale of short-term investments
-
48
Net cash used in investing activities - continuing operations
$
(8)
$
(572)
Financing activities from continuing operations:
Dividends paid
$
(107)
$
(110)
Purchases of common stock
(50)
(65)
Notional pooling borrowings, net
7
13
Debt borrowings, net
-
399
Debt issuance costs
-
(3)
Exercise of common stock options
13
-
Other financing activities
-
5
Net cash (used in) provided by financing activities - continuing
$
(137)
$
239
operations
Effect of exchange rate changes on cash
$
12
$
(70)
Net change in cash and cash equivalents - continuing operations
$
(191)
$
(360)
Cash provided by operating activities - discontinued operations
$
-
$
2
Net effect of discontinued operations on cash and cash equivalents
$
-
$
2
Decrease increase in cash and cash equivalents
$
(191)
$
(358)
Cash and cash equivalents at beginning of period
$
2,776
$
2,816
Cash and cash equivalents at end of period
$
2,585
$
2,458
Table 4
CA Technologies
Operating Segments
(unaudited)
(dollars in millions)
Three Months Ended September 30, 2016
Six Months Ended September 30, 2016
Mainframe
Enterprise
Services (1)
Total
Mainframe
Enterprise
Services (1)
Total
Solutions (1)
Solutions (1)
Solutions (1)
Solutions (1)
Revenue (2)
$
550
$
393
$
75
$ 1,018
$
1,101
$
764
$
152
$
2,017
Expenses (3)
211
324
73
608
419
648
148
1,215
Segment profit
$
339
$
69
$
2
$
410
$
682
$
116
$
4
$
802
Segment operating margin
62%
18%
3%
40%
62%
15%
3%
40%
Segment profit
$
410
$
802
Less:
Purchased software amortization
38
81
Other intangibles amortization
4
9
Internally developed software products amortization
21
44
Share-based compensation expense
25
54
Other expenses, net (4)
2
2
Interest expense, net
14
29
Income from continuing operations before income taxes
$
306
$
583
Three Months Ended September 30, 2015
Six Months Ended September 30, 2015
Mainframe
Enterprise
Services (1)
Total
Mainframe
Enterprise
Services (1)
Total
Solutions (1)
Solutions (1)
Solutions (1)
Solutions (1)
Revenue (2)
$
554
$
368
$
83
$ 1,005
$
1,114
$
706
$
162
$
1,982
Expenses (3)
212
357
79
648
423
647
150
1,220
Segment profit
$
342
$
11
$
4
$
357
$
691
$
59
$
12
$
762
Segment operating margin
62%
3%
5%
36%
62%
8%
7%
38%
Segment profit
$
357
$
762
Less:
Purchased software amortization
39
67
Other intangibles amortization
14
25
Internally developed software products amortization
28
60
Share-based compensation expense
23
45
Other (gains) expenses, net (4)
(6)
2
Interest expense, net
12
21
Income from continuing operations before income taxes
$
247
$
542
(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 (gains) expenses, net 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 September 30,
Six Months Ended September 30,
2016
2015
% Increase
% Increase
2016
2015
% Increase
% Increase
(Decrease)
(Decrease)
(Decrease)
(Decrease)
in $ US
in Constant
in $ US
in Constant
Currency (1)
Currency (1)
Bookings
$
729
$ 1,383
(47)%
(47)%
$ 2,082
$ 2,045
2%
2%
Revenue:
North America
$
690
$
677
2%
2%
$ 1,359
$ 1,329
2%
2%
International
328
328
0%
1%
658
653
1%
2%
Total revenue
$ 1,018
$ 1,005
1%
2%
$ 2,017
$ 1,982
2%
2%
Revenue:
Subscription and maintenance
$
824
$
832
(1)%
(1)%
$ 1,650
$ 1,668
(1)%
(1)%
Professional services
75
83
(10)%
(9)%
152
162
(6)%
(6)%
Software fees and other
119
90
32%
34%
215
152
41%
43%
Total revenue
$ 1,018
$ 1,005
1%
2%
$ 2,017
$ 1,982
2%
2%
Segment Revenue:
Mainframe solutions
$
550
$
554
(1)%
(1)%
$ 1,101
$ 1,114
(1)%
(1)%
Enterprise solutions
393
368
7%
8%
764
706
8%
9%
Services
75
83
(10)%
(9)%
152
162
(6)%
(6)%
Total expenses before interest and income
taxes:
Total non-GAAP (2)
$
608
$
648
(6)%
(5)%
$ 1,215
$ 1,220
0%
1%
Total GAAP
698
746
(6)%
(6)%
1,405
1,419
(1)%
0%
(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, 2016, 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.
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,
2016
2015
2016
2015
GAAP net income
$
212
$
174
$
410
$
386
GAAP income from discontinued operations, net of income taxes
-
(2)
-
(7)
GAAP income from continuing operations
$
212
$
172
$
410
$
379
GAAP income tax expense
94
75
173
163
Interest expense, net
14
12
29
21
GAAP income from continuing operations before interest and income
$
320
$
259
$
612
$
563
taxes
GAAP operating margin (% of revenue) (1)
31%
26%
30%
28%
Non-GAAP adjustments to expenses:
Costs of licensing and maintenance (2)
$
1
$
1
$
3
$
3
Cost of professional services (2)
1
1
2
2
Amortization of capitalized software costs (3)
59
67
125
127
Selling and marketing (2)
9
8
19
16
General and administrative (2)
8
9
19
16
Product development and enhancements (2)
6
4
11
8
Depreciation and amortization of other intangible assets (4)
4
14
9
25
Other expenses (gains), net (5)
2
(6)
2
2
Total Non-GAAP adjustment to operating expenses
$
90
$
98
$
190
$
199
Non-GAAP income from continuing operations before interest and
$
410
$
357
$
802
$
762
income taxes
Non-GAAP operating margin (% of revenue) (6)
40%
36%
40%
38%
Interest expense, net
14
12
29
21
GAAP income tax expense
94
75
173
163
Non-GAAP adjustment to income tax expense (7)
19
23
48
48
Non-GAAP income tax expense
$
113
$
98
$
221
$
211
Non-GAAP income from continuing operations
$
283
$
247
$
552
$
530
(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, 2016 and 2015,
non-GAAP adjustment consists of $38 million and $39 million of
purchased software amortization and $21 million and $28 million of
internally developed software products amortization, respectively.
For the six month periods ending September 30, 2016 and 2015,
non-GAAP adjustment consists of $81 million and $67 million of
purchased software amortization and $44 million and $60 million of
internally developed software products amortization, respectively.
(4)
Non-GAAP adjustment consists of other intangibles amortization.
(5)
Non-GAAP adjustment consists gains and losses since inception of
hedges that mature within the quarter, but excludes gains and losses
of hedges that do not mature within the quarter.
(6)
Non-GAAP operating margin is calculated by dividing non-GAAP income
from continuing operations before interest and income taxes by total
revenue (refer to Table 1 for total revenue).
(7)
The full year non-GAAP income tax expense is different from GAAP
income tax expense because of the difference in non-GAAP income from
continuing operations before income taxes. On an interim basis, this
difference would also include a difference in the impact of discrete
and permanent items where for GAAP purposes the effect is recorded
in the period such items arise, but for non-GAAP such items are
recorded pro rata to the fiscal year’s remaining reporting periods.
Refer to the discussion of non-GAAP financial measures included in
the accompanying press release for additional information.
Certain non-material differences may arise versus actual from impact
of rounding.
Table 7
CA Technologies
Reconciliation of GAAP to Non-GAAP
Operating Expenses and Diluted Earnings per Share
(unaudited)
(in millions, except per share amounts)
Three Months Ended
Six Months Ended
September 30,
September 30,
Operating Expenses
2016
2015
2016
2015
Total expenses before interest and income taxes
$
698
$
746
$
1,405
$
1,419
Non-GAAP operating adjustments:
Purchased software amortization
38
39
81
67
Other intangibles amortization
4
14
9
25
Internally developed software products amortization
21
28
44
60
Share-based compensation
25
23
54
45
Other expenses (gains), net (1)
2
(6)
2
2
Total non-GAAP operating adjustment
$
90
$
98
$
190
$
199
Total non-GAAP operating expenses
$
608
$
648
$
1,215
$
1,220
Three Months Ended
Six Months Ended
September 30,
September 30,
Diluted EPS from Continuing Operations
2016
2015
2016
2015
GAAP diluted EPS from continuing operations
$
0.50
$
0.39
$
0.98
$
0.86
Non-GAAP adjustments:
Purchased software amortization
0.09
0.09
0.19
0.15
Other intangibles amortization
0.01
0.03
0.02
0.06
Internally developed software products amortization
0.05
0.06
0.10
0.13
Share-based compensation
0.06
0.05
0.13
0.10
Other expenses (gains), net (1)
-
(0.01)
-
0.01
Tax effect of non-GAAP adjustments
(0.06)
(0.07)
(0.13)
(0.14)
Non-GAAP effective tax rate adjustments (2)
0.02
0.02
0.02
0.03
Total non-GAAP adjustment
$
0.17
$
0.17
$
0.33
$
0.34
Non-GAAP diluted EPS from continuing operations
$
0.67
$
0.56
$
1.31
$
1.20
(1)
Other expenses (gains), net consists of costs associated with
certain foreign exchange derivative hedging gains and losses, and
other miscellaneous costs.
(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.
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, 2016
September 30, 2016
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income taxes (1)
$
320
$
410
$
612
$
802
Interest expense, net
14
14
29
29
Income from continuing operations before income taxes
$
306
$
396
$
583
$
773
Statutory tax rate
35%
35%
35%
35%
Tax at statutory rate
$
107
$
139
$
204
$
271
Adjustments for discrete and permanent items (2)
(13)
(26)
(31)
(50)
Total tax expense
$
94
$
113
$
173
$
221
Effective tax rate (3)
30.7%
28.5%
29.7%
28.6%
Three Months Ended
Six Months Ended
September 30, 2015
September 30, 2015
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income taxes (1)
$
259
$
357
$
563
$
762
Interest expense, net
12
12
21
21
Income from continuing operations before income taxes
$
247
$
345
$
542
$
741
Statutory tax rate
35%
35%
35%
35%
Tax at statutory rate
$
86
$
121
$
190
$
259
Adjustments for discrete and permanent items (2)
(11)
(23)
(27)
(48)
Total tax expense
$
75
$
98
$
163
$
211
Effective tax rate (3)
30.4%
28.4%
30.1%
28.5%
(1)
Refer to Table 6 for a reconciliation of income from continuing
operations before interest and income taxes on a GAAP basis to
income from continuing operations before interest and income taxes
on a non-GAAP basis.
(2)
The effective tax rate for GAAP generally includes the impact of
discrete and permanent items in the period such items arise, whereas
the effective tax rate for non-GAAP generally allocates the impact
of such items pro rata to the fiscal year’s remaining reporting
periods.
(3)
The effective tax rate on GAAP and non-GAAP income from continuing
operations is the Company’s provision for income taxes expressed as
a percentage of GAAP and non-GAAP income from continuing operations
before income taxes, respectively. The non-GAAP effective tax rate
is equal to the full year GAAP effective tax rate. On an interim
basis, the effective tax rates are determined based on an estimated
effective full year tax rate after the adjustments for the impacts
of certain discrete items (such as changes in tax rates,
reconciliations of tax returns to tax provisions and resolutions of
tax contingencies).
Refer to the discussion of non-GAAP financial measures included in
the accompanying press release for additional information.
Certain non-material differences may arise versus actual from impact
of rounding.
Table 9
CA Technologies
Reconciliation of Projected GAAP Metrics to Projected Non-GAAP
Metrics
(unaudited)
Fiscal Year Ending
Projected Diluted EPS from Continuing
March 31, 2017
Operations
Projected GAAP diluted EPS from continuing operations range
$
1.88
to
$
1.93
Non-GAAP adjustments:
Purchased software amortization
0.37
0.37
Other intangibles amortization
0.03
0.03
Internally developed software products amortization
0.19
0.19
Share-based compensation
0.26
0.26
Tax effect of non-GAAP adjustments
(0.24)
(0.24)
Total non-GAAP adjustment
$
0.61
$
0.61
Projected non-GAAP diluted EPS from continuing operations range
$
2.49
to
$
2.54
Fiscal Year Ending
Projected Operating Margin
March 31, 2017
Projected GAAP operating margin
29%
Non-GAAP operating adjustments:
Purchased software amortization
4%
Other intangibles amortization
0%
Internally developed software products amortization
2%
Share-based compensation
3%
Total non-GAAP operating adjustment
9%
Projected non-GAAP operating margin
38%
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.

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SOURCE: CA Technologies

CA Technologies
Darlan Monterisi, 646-826-6071
Corporate Communications
darlan.monterisi@ca.com
or
Jennifer DiClerico, 212-415-6997
Corporate Communications
jennifer.diclerico@ca.com
or
Traci Tsuchiguchi, 650-534-9814
Investor Relations
traci.tsuchiguchi@ca.com
or
Robert Lung, 212-415-6908
Investor Relations
robert.lung@ca.com