CA
$31.93
CA
($.21)
(.65%)
Earnings Details
3rd Quarter December 2016
Tuesday, January 24, 2017 4:05:03 PM
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Summary

CA Misses

CA (CA) reported 3rd Quarter December 2016 earnings of $0.62 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 $0.65 per share. Revenue fell 2.6% compared to the same quarter a year ago.

The company said it now expects fiscal 2017 non-GAAP earnings of $2.42 to $2.47 per share on revenue of $4.01 billion to $4.03 billion. The company's previous guidance was earnings of $2.49 to $2.54 per share on revenue of $4.03 billion to $4.07 billion and the current consensus earnings estimate is $2.51 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
$0.62
Earnings Whisper
$0.65
Consensus Estimate
$0.62
Reported Revenue
$1.01 Bil
Revenue Estimate
$1.01 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

CA Technologies Reports Third Quarter Fiscal Year 2017 Results

Third Quarter Revenue of $1,007 Million

--Third Quarter GAAP EPS of $0.50

--Third Quarter Non-GAAP EPS of $0.63

--Third Quarter Cash Flow From Continuing Operations of $517 Million

CA Technologies (CA) today reported financial results for its third quarter fiscal 2017, which ended December 31, 2016.

Mike Gregoire, CA Technologies Chief Executive Officer, said:

"I am pleased with the strong growth in cash flow from operations as well as the healthy operating margin and earnings per share we delivered in the third quarter. On a constant currency basis, our revenue in the quarter came in as expected. The cadence and quality of our product releases is improving and we are making progress across a number of strategic imperatives, but we still have work to do to achieve the level of sustainable growth we are targeting."

FINANCIAL OVERVIEW
(dollars in millions, except share data)
Third Quarter FY17 vs. FY16
FY17
FY16
% Change
% Change CC*
Revenue
$1,007
$1,034
(3)%
(2)%
GAAP Income from Continuing Operations
$208
$219
(5)%
(9)%
Non-GAAP Income from Continuing Operations*
$263
$268
(2)%
(3)%
GAAP Diluted EPS from Continuing Operations
$0.50
$0.52
(4)%
(8)%
Non-GAAP Diluted EPS from Continuing Operations*
$0.63
$0.63
0%
(2)%
Cash Flow provided by Continuing Operations
$517
$332
56%
57%

* 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)
Third Quarter FY17 vs. FY16
FY17
% of
FY16
% of
%
%
Total
Total
Change
Change
CC*
North America Revenue
$674
67%
$702
68%
(4)%
(4)%
International Revenue
$333
33%
$332
32%
0%
1%
Total Revenue
$1,007
$1,034
(3)%
(2)%
North America Bookings
$809
64%
$727
59%
11%
11%
International Bookings
$449
36%
$515
41%
(13)%
(12)%
Total Bookings
$1,258
$1,242
1%
2%
Current Revenue Backlog
$2,994
$3,030
(1)%
0%
Total Revenue Backlog
$7,005
$6,800
3%
4%

*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 revenue decreased due to decline in subscription and maintenance revenue, professional services revenue and software fees and other revenue.

Total bookings increased primarily due to an increase in enterprise solutions renewals, partially offset by decreases in mainframe solutions renewals and enterprise solutions new product sales.

The Company executed a total of 21 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $577 million. During the third quarter of fiscal 2016, 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 $593 million.

The weighted average duration of subscription and maintenance bookings for the quarter was 3.32 years, compared with 3.76 years for the same period in fiscal 2016.

EXPENSES, MARGIN AND EARNINGS PER SHARE
(dollars in millions)
Third Quarter FY17 vs. FY16
FY17
FY16
%
%
Change
Change
CC**
GAAP
Operating Expenses Before Interest and Income Taxes
$699
$741
(6)%
(4)%
Operating Income Before Interest and Income Taxes
$308
$293
5%
2%
Diluted EPS from Continuing Operations
$0.50
$0.52
(4)%
(8)%
Operating Margin
31%
28%
Effective Tax Rate
28.8%
21.2%
Non-GAAP*
Operating Expenses Before Interest and Income Taxes
$623
$644
(3)%
(2)%
Operating Income Before Interest and Income Taxes
$384
$390
(2)%
(2)%
Diluted EPS from Continuing Operations
$0.63
$0.63
0%
(2)%
Operating Margin
38%
38%
Effective Tax Rate
28.5%
28.5%

*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 "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 and non-GAAP operating expenses decreased primarily due to favorable foreign exchange and a decline in legal settlement expense included within other (gains) expenses, net, and a decrease in commission expense as a result of the decline in total new product sales, partially offset by an increase in personnel-related costs as a result of severance actions during the third quarter of fiscal 2017.

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

GAAP EPS was negatively impacted by $0.05 from an increase in GAAP effective tax rate partially offset by a $0.03 impact from improvement in GAAP operating margin primarily due to an overall decrease in GAAP operating expenses.

SELECTED HIGHLIGHTS FROM THE QUARTER

At CA World last November, the Company announced a series of new solutions across its Agile, DevOps, Security and Mainframe portfolios, which included:

* A new identity-as-a-service solution to address identity and access management (IAM) needs for both on-premises and cloud-based applications.

* New DevOps capabilities with intelligent analytics and integrations for cloud services and virtual networks.

* Predictive analytics capabilities with machine learning for the mainframe.

* Enhancements to its leading SaaS solution purpose-built to scale agile practices.

CA Technologies added new cloud-enabled automation and orchestration capabilities across its portfolio and increased its reach into the European market with the acquisition of Automic Holding GmbH (Automic), a leader in business automation software. The deal, valued at approximately 600 million euros net of cash and cash equivalents acquired, closed earlier this month and complements the company’s organic innovation.

CA Technologies was positioned highest in the Gartner Leader’s Quadrant for Ability to Execute within the Full Life Cycle API Management Magic Quadrant. (1)

CA Technologies has been named a leader in the Gartner Integrated IT Portfolio Analysis Applications Magic Quadrant for the fifth consecutive year.(2)

CA Technologies has been named a leader in The Forrester Wave: API Management Solutions, Q4 2016.(3)

SEGMENT INFORMATION
(dollars in millions)
Third Quarter FY17 vs. FY16
Revenue
%
%
Operating Margin
Change
Change
CC*
FY17
FY16
FY17
FY16
Mainframe Solutions
$546
$554
(1)%
(1)%
61%
61%
Enterprise Solutions
$389
$398
(2)%
(2)%
14%
12%
Services
$72
$82
(12)%
(12)%
-4%
6%

*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.

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 declined primarily due to a decrease in revenue recognized on an upfront basis. Enterprise Solutions operating margin increased primarily due to an overall decrease in operating expenses.

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 the Company’s 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 for Services decreased primarily due to the overall decline in professional services revenue and an increase in personnel-related costs as a result of severance actions during the third quarter of fiscal 2017.

CASH FLOW FROM OPERATIONS

Cash flow from operations for the third quarter of fiscal 2017 was $517 million, versus $332 million in the year-ago period. Cash flow from operations increased compared with the year-ago period primarily due to an increase in cash collections, mainly from higher single installment collections, a decrease in vendor disbursements and payroll, and a decrease in other disbursements.

CAPITAL STRUCTURE

-- Cash and cash equivalents at December 31, 2016 were $2.828 billion.

With $1.950 billion in total debt outstanding and $139 million in notional pooling, the Company’s net cash position was $739 million.

Approximately 79% of the Company’s cash and cash equivalents were held by foreign subsidiaries outside the United States at December 31, 2016.

As of December 31, 2016, the Company was authorized to purchase $650 million of its common stock under its current stock repurchase program.

The Company distributed $107 million in dividends to shareholders during the third quarter of fiscal 2017.

The Company’s outstanding share count at December 31, 2016 was 413 million.

OUTLOOK FOR FISCAL YEAR 2017

The Company has updated its fiscal 2017 outlook. This guidance includes the acquisition of Automic, assumes no further material acquisitions, and contains "forward-looking statements" (as defined below).

The Company expects the following:*

Total revenue to be flat as reported and to increase in a range of flat to plus 1 percent in constant currency. Previous guidance was to increase in a range of flat to plus 1 percent as reported and in constant currency. At December 31, 2016 exchange rates, this translates to reported revenue of $4.01 billion to $4.03 billion.

GAAP diluted earnings per share from continuing operations to increase in a range of 1 percent to 4 percent as reported and flat to 2 percent in constant currency. Previous guidance was to increase in a range of 6 percent to 8 percent as reported and 2 percent to 5 percent in constant currency. At December 31, 2016 exchange rates, this translates to reported GAAP diluted earnings per share from continuing operations of $1.80 to $1.85.

Non-GAAP diluted earnings per share from continuing operations to be in a range of flat to plus 2 percent as reported and minus 2 percent to flat in constant currency. Previous guidance was to increase in a range of 2 percent to 5 percent as reported and 1 percent to 3 percent in constant currency. At December 31, 2016 exchange rates, this translates to reported non-GAAP diluted earnings per share from continuing operations of $2.42 to $2.47.

Cash flow from continuing operations to change in a range of minus 5 percent to minus 1 percent as reported and minus 3 percent to plus 1 percent in constant currency. Previous guidance was to change in a range of minus 3 percent to plus 1 percent as reported and in constant currency. At December 31, 2016 exchange rates, this translates to reported cash flow from continuing operations of $0.99 billion to $1.03 billion.

The Company expects a full-year GAAP operating margin of 28 percent and a full year non-GAAP operating margin of 37 percent, which translates to a 1-point decrease from previous guidance for both GAAP and non-GAAP operating margins.

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 413 million shares outstanding at fiscal 2017 year-end and weighted average diluted shares outstanding of approximately 415 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 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 Magic Quadrant for Full Life Cycle API Management,
Paolo Malinverno and Mark O’Neill, October 27, 2016.
(2)
Gartner Magic Quadrant for Integrated IT Portfolio Analysis
Applications, Daniel Stang and Stefan Van Der Zijden, November 22,
2016.
(1)(2)
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.
(3)
The Forrester Wave(TM): API Management Solutions, Q4 2016, by
Randy Heffner with Christopher Mines and Amanda LeClair, November
14, 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) 2017 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:
2016
2015
2016
2015
Subscription and maintenance
$
817
$
828
$ 2,467
$
2,496
Professional services
72
82
224
244
Software fees and other
118
124
333
276
Total revenue
$ 1,007
$ 1,034
$ 3,024
$
3,016
Expenses:
Costs of licensing and maintenance
$
68
$
73
$
202
$
209
Cost of professional services
74
75
222
224
Amortization of capitalized software costs
57
65
182
192
Selling and marketing
270
277
747
751
General and administrative
85
90
257
279
Product development and enhancements
144
133
428
420
Depreciation and amortization of other intangible assets
18
27
56
83
Other (gains) expenses, net
(17)
1
10
2
Total expenses before interest and income taxes
$
699
$
741
$ 2,104
$
2,160
Income from continuing operations before interest and income taxes
$
308
$
293
$
920
$
856
Interest expense, net
16
15
45
36
Income from continuing operations before income taxes
$
292
$
278
$
875
$
820
Income tax expense
84
59
257
222
Income from continuing operations
$
208
$
219
$
618
$
598
Income from discontinued operations, net of income taxes
$
-
$
4
$
-
$
11
Net income
$
208
$
223
$
618
$
609
Basic income per common share:
Income from continuing operations
$
0.50
$
0.52
$
1.48
$
1.37
Income from discontinued operations
-
0.01
-
0.03
Net income
$
0.50
$
0.53
$
1.48
$
1.40
Basic weighted average shares used in computation
413
420
414
431
Diluted income per common share:
Income from continuing operations
$
0.50
$
0.52
$
1.47
$
1.37
Income from discontinued operations
-
0.01
-
0.03
Net income
$
0.50
$
0.53
$
1.47
$
1.40
Diluted weighted average shares used in computation
414
421
415
432
Table 2
CA Technologies
Condensed Consolidated Balance Sheets
(in millions)
December 31,
March 31,
2016
2016
(unaudited)
Cash and cash equivalents
$
2,828
$
2,812
Trade accounts receivable, net
555
625
Other current assets
136
124
Total current assets
$
3,519
$
3,561
Property and equipment, net
$
219
$
242
Goodwill
6,118
6,086
Capitalized software and other intangible assets, net
627
795
Deferred income taxes
426
407
Other noncurrent assets, net
113
113
Total assets
$
11,022
$
11,204
Current portion of long-term debt
$
4
$
6
Deferred revenue (billed or collected)
1,917
2,197
Other current liabilities
698
691
Total current liabilities
$
2,619
$
2,894
Long-term debt, net of current portion
$
1,946
$
1,947
Deferred income taxes
8
3
Deferred revenue (billed or collected)
651
737
Other noncurrent liabilities
222
245
Total liabilities
$
5,446
$
5,826
Common stock
$
59
$
59
Additional paid-in capital
3,678
3,664
Retained earnings
6,872
6,575
Accumulated other comprehensive loss
(518)
(416)
Treasury stock
(4,515)
(4,504)
Total stockholders’ equity
$
5,576
$
5,378
Total liabilities and stockholders’ equity
$
11,022
$
11,204
Table 3
CA Technologies
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions)
Three Months Ended
December 31,
2016
2015
Operating activities from continuing operations:
Net income
$
208
$
223
Income from discontinued operations
-
(4 )
Income from continuing operations
$
208
$
219
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation and amortization
75
92
Deferred income taxes
(9 )
(25 )
Provision for bad debts
1
(1 )
Share-based compensation expense
26
25
Other non-cash items
1
1
Foreign currency transaction gains
(4 )
(1 )
Changes in other operating assets and liabilities, net of effect of
acquisitions:
Increase in trade accounts receivable
(119 )
(181 )
Increase in deferred revenue
230
143
Increase in taxes payable, net
61
51
Decrease in accounts payable, accrued expenses and other
(6 )
(41 )
Increase in accrued salaries, wages and commissions
35
23
Changes in other operating assets and liabilities
18
27
Net cash provided by operating activities - continuing operations
$
517
$
332
Investing activities from continuing operations:
Acquisitions of businesses, net of cash acquired, and purchased
$
(47 )
$
(1 )
software
Purchases of property and equipment
(14 )
(11 )
Other investing activities
(1 )
-
Net cash used in investing activities - continuing operations
$
(62 )
$
(12 )
Financing activities from continuing operations:
Dividends paid
$
(107 )
$
(105 )
Purchases of common stock
-
(590 )
Notional pooling borrowings, net
15
10
Debt (repayments) borrowings, net
(1 )
298
Debt issuance costs
-
(1 )
Exercise of common stock options
-
1
Other financing activities
-
(5 )
Net cash used in financing activities - continuing operations
$
(93 )
$
(392 )
Effect of exchange rate changes on cash
$
(119 )
$
(37 )
Net change in cash and cash equivalents - continuing operations
$
243
$
(109 )
Cash provided by operating activities - discontinued operations
$
-
$
4
Net effect of discontinued operations on cash and cash equivalents
$
-
$
4
Increase (decrease) in cash and cash equivalents
$
243
$
(105 )
Cash and cash equivalents at beginning of period
$ 2,585
$ 2,458
Cash and cash equivalents at end of period
$ 2,828
$ 2,353
Table 4
CA Technologies
Operating Segments
(unaudited)
(dollars in millions)
Three Months Ended December 31, 2016
Nine Months Ended December 31, 2016
Mainframe
Enterprise
Services (1)
Total
Mainframe
Enterprise
Services (1)
Total
Solutions (1)
Solutions (1)
Solutions (1)
Solutions (1)
Revenue (2)
$
546
$
389
$
72
$ 1,007
$
1,647
$
1,153
$
224
$
3,024
Expenses (3)
215
333
75
623
634
981
223
1,838
Segment profit (loss)
$
331
$
56
$
(3)
$
384
$
1,013
$
172
$
1
$
1,186
Segment operating margin
61%
14%
-4%
38%
62%
15%
0%
39%
Segment profit
$
384
$
1,186
Less:
Purchased software amortization
39
120
Other intangibles amortization
4
13
Internally developed software products amortization
18
62
Share-based compensation expense
26
80
Other gains, net (4)
(11)
(9)
Interest expense, net
16
45
Income from continuing operations before income taxes
$
292
$
875
Three Months Ended December 31, 2015
Nine Months Ended December 31, 2015
Mainframe
Enterprise
Services (1)
Total
Mainframe
Enterprise
Services (1)
Total
Solutions (1)
Solutions (1)
Solutions (1)
Solutions (1)
Revenue (2)
$
554
$
398
$
82
$ 1,034
$
1,668
$
1,104
$
244
$
3,016
Expenses (3)
218
349
77
644
641
996
227
1,864
Segment profit
$
336
$
49
$
5
$
390
$
1,027
$
108
$
17
$
1,152
Segment operating margin
61%
12%
6%
38%
62%
10%
7%
38%
Segment profit
$
390
$
1,152
Less:
Purchased software amortization
39
106
Other intangibles amortization
11
36
Internally developed software products amortization
26
86
Share-based compensation expense
25
70
Other gains, net (4)
(4)
(2)
Interest expense, net
15
36
Income from continuing operations before income taxes
$
278
$
820
(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, 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 December 31,
Nine Months Ended December 31,
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
$ 1,258
$ 1,242
1%
2%
$ 3,340
$ 3,287
2%
2%
Revenue:
North America
$
674
$
702
(4)%
(4)%
$ 2,033
$ 2,031
0%
0%
International
333
332
0%
1%
991
985
1%
2%
Total revenue
$ 1,007
$ 1,034
(3)%
(2)%
$ 3,024
$ 3,016
0%
1%
Revenue:
Subscription and maintenance
$
817
$
828
(1)%
(1)%
$ 2,467
$ 2,496
(1)%
(1)%
Professional services
72
82
(12)%
(12)%
224
244
(8)%
(8)%
Software fees and other
118
124
(5)%
(6)%
333
276
21%
21%
Total revenue
$ 1,007
$ 1,034
(3)%
(2)%
$ 3,024
$ 3,016
0%
1%
Segment Revenue:
Mainframe solutions
$
546
$
554
(1)%
(1)%
$ 1,647
$ 1,668
(1)%
(1)%
Enterprise solutions
389
398
(2)%
(2)%
1,153
1,104
4%
5%
Services
72
82
(12)%
(12)%
224
244
(8)%
(8)%
Total expenses before interest and income taxes:
Total GAAP
$
699
$
741
(6)%
(4)%
$ 2,104
$ 2,160
(3)%
(1)%
Total non-GAAP (2)
623
644
(3)%
(2)%
1,838
1,864
(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
Nine Months Ended
December 31,
December 31,
2016
2015
2016
2015
GAAP net income
$
208
$
223
$
618
$
609
GAAP income from discontinued operations, net of income taxes
-
(4)
-
(11)
GAAP income from continuing operations
$
208
$
219
$
618
$
598
GAAP income tax expense
84
59
257
222
Interest expense, net
16
15
45
36
GAAP income from continuing operations before interest and income
$
308
$
293
$
920
$
856
taxes
GAAP operating margin (% of revenue) (1)
31%
28%
30%
28%
Non-GAAP adjustments to expenses:
Costs of licensing and maintenance (2)
$
2
$
2
$
5
$
5
Cost of professional services (2)
1
1
3
3
Amortization of capitalized software costs (3)
57
65
182
192
Selling and marketing (2)
9
9
28
25
General and administrative (2)
8
9
27
25
Product development and enhancements (2)
6
4
17
12
Depreciation and amortization of other intangible assets (4)
4
11
13
36
Other gains, net (5)
(11)
(4)
(9)
(2)
Total Non-GAAP adjustment to operating expenses
$
76
$
97
$
266
$
296
Non-GAAP income from continuing operations before interest and
$
384
$
390
$ 1,186
$
1,152
income taxes
Non-GAAP operating margin (% of revenue) (6)
38%
38%
39%
38%
Interest expense, net
16
15
45
36
GAAP income tax expense
84
59
257
222
Non-GAAP adjustment to income tax expense (7)
21
48
69
96
Non-GAAP income tax expense
$
105
$
107
$
326
$
318
Non-GAAP income from continuing operations
$
263
$
268
$
815
$
798
(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, 2016 and 2015,
non-GAAP adjustment consists of $39 million and $39 million of
purchased software amortization and $18 million and $26 million of
internally developed software products amortization, respectively.
For the nine month periods ending December 31, 2016 and 2015,
non-GAAP adjustment consists of $120 million and $106 million of
purchased software amortization and $62 million and $86 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
Nine Months Ended
December 31,
December 31,
Operating Expenses
2016
2015
2016
2015
Total expenses before interest and income taxes
$
699
$
741
$
2,104
$
2,160
Non-GAAP operating adjustments:
Purchased software amortization
39
39
120
106
Other intangibles amortization
4
11
13
36
Internally developed software products amortization
18
26
62
86
Share-based compensation
26
25
80
70
Other gains, net (1)
(11)
(4)
(9)
(2)
Total non-GAAP operating adjustment
$
76
$
97
$
266
$
296
Total non-GAAP operating expenses
$
623
$
644
$
1,838
$
1,864
Three Months Ended
Nine Months Ended
December 31,
December 31,
Diluted EPS from Continuing Operations
2016
2015
2016
2015
GAAP diluted EPS from continuing operations
$
0.50
$
0.52
$
1.47
$
1.37
Non-GAAP adjustments:
Purchased software amortization
0.09
0.09
0.29
0.24
Other intangibles amortization
0.01
0.03
0.03
0.08
Internally developed software products amortization
0.04
0.06
0.15
0.20
Share-based compensation
0.06
0.06
0.19
0.16
Other (gains) expenses, net (1)
(0.02)
(0.01)
(0.02)
-
Tax effect of non-GAAP adjustments
(0.05)
(0.05)
(0.19)
(0.18)
Non-GAAP effective tax rate adjustments (2)
-
(0.07)
0.02
(0.04)
Total non-GAAP adjustment
$
0.13
$
0.11
$
0.47
$
0.46
Non-GAAP diluted EPS from continuing operations
$
0.63
$
0.63
$
1.94
$
1.83
(1)
Other (gains) expenses, 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
Nine Months Ended
December 31, 2016
December 31, 2016
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income taxes (1)
$
308
$
384
$
920
$
1,186
Interest expense, net
16
16
45
45
Income from continuing operations before income taxes
$
292
$
368
$
875
$
1,141
Statutory tax rate
35%
35%
35%
35%
Tax at statutory rate
$
102
$
129
$
306
$
399
Adjustments for discrete and permanent items (2)
(18)
(24)
(49)
(73)
Total tax expense
$
84
$
105
$
257
$
326
Effective tax rate (3)
28.8%
28.5%
29.4%
28.6%
Three Months Ended
Nine Months Ended
December 31, 2015
December 31, 2015
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income taxes (1)
$
293
$
390
$
856
$
1,152
Interest expense, net
15
15
36
36
Income from continuing operations before income taxes
$
278
$
375
$
820
$
1,116
Statutory tax rate
35%
35%
35%
35%
Tax at statutory rate
$
97
$
131
$
287
$
391
Adjustments for discrete and permanent items (2)
(38)
(24)
(65)
(73)
Total tax expense
$
59
$
107
$
222
$
318
Effective tax rate (3)
21.2%
28.5%
27.1%
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
$
1.80
to
$
1.85
Non-GAAP adjustments:
Purchased software amortization
0.40
0.40
Other intangibles amortization
0.03
0.03
Internally developed software products amortization
0.19
0.19
Share-based compensation
0.25
0.24
Tax effect of non-GAAP adjustments
(0.25)
(0.24)
Total non-GAAP adjustment
$
0.62
$
0.62
Projected non-GAAP diluted EPS from continuing operations range
$
2.42
to
$
2.47
Fiscal Year Ending
Projected Operating Margin
March 31, 2017
Projected GAAP operating margin
28%
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
37%
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
Stefan Putyera, 631-342-4710
Investor Relations
stefan.putyera@ca.com