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Press release from Business Wire

CORRECTING and REPLACING CA Technologies Reports Second Quarter Fiscal Year 2014 Results

<p> • <i><b>GAAP EPS Grows 8 Percent in Constant Currency and 10 Percent as Reported</b></i> </p> <p> • <i><b>Non-GAAP EPS Grows 46 Percent in Constant Currency and as Reported</b></i> </p> <p> • <i><b>Revenue Flat in Constant Currency and Down 1 Percent as Reported</b></i> </p> <p> • <i><b>Cash Flow From Operations Declines 7 Percent in Constant Currency and 2 Percent as Reported</b></i> </p> <p> • <i><b>Updates FY 2014 Outlook for Revenue and GAAP and Non-GAAP EPS</b></i> </p> <p> </p>

Thursday, October 24, 2013

CORRECTING and REPLACING CA Technologies Reports Second Quarter Fiscal Year 2014 Results

17:42 EDT Thursday, October 24, 2013

NEW YORK (Business Wire) -- In the Executive Commentary section, second graph, second sentence should read: "This will enable us to continue to deliver disruptive new products like our recently announced Nimsoft Monitor Snap - a free, feature-rich monitoring solution that provides an entirely new customer experience... (sted "This will enable us to continue to deliver disruptive new products like our recently announced Nimsoft Monitor Snap - a SaaS monitoring solution that provides an entirely new customer experience...)

The corrected release reads:

CA TECHNOLOGIES REPORTS SECOND QUARTER FISCAL YEAR 2014 RESULTS

GAAP EPS Grows 8 Percent in Constant Currency and 10 Percent as Reported

Non-GAAP EPS Grows 46 Percent in Constant Currency and as Reported

Revenue Flat in Constant Currency and Down 1 Percent as Reported

Cash Flow From Operations Declines 7 Percent in Constant Currency and 2 Percent as Reported

Updates FY 2014 Outlook for Revenue and GAAP and Non-GAAP EPS

CA Technologies (NASDAQ:CA) today reported financial results for its second quarter fiscal year 2014, ended September 30, 2013.

FINANCIAL OVERVIEW

   
(dollars in millions, except share data)   Second Quarter FY14 vs. FY13
FY14     FY13     % Change     % Change CC**
Revenue $1,140     $1,152     (1)%     0%
GAAP Net Income $240     $222     8%     7%
Non-GAAP Income* $390     $272     43%     43%
GAAP Diluted EPS $0.53     $0.48     10%     8%
Non-GAAP Diluted EPS* $0.86     $0.59     46%     46%
Cash Flow from Operations $87     $89     (2)%     (7)%

* Non-GAAP income and earnings per share are non-GAAP financial measures, as noted in the discussion of non-GAAP results below. A reconciliation of non-GAAP financial measures to their comparable GAAP financial measures is included in the tables following this news release.

**CC: Constant Currency

EXECUTIVE COMMENTARY

"I am pleased with our overall second quarter results," said Mike Gregoire, CA Technologies chief executive officer. "We over performed on both the top line and the bottom line, enabling us to increase our full year guidance for revenue and GAAP and non-GAAP earnings per share. This is clearly a beginning, but we still have work to do to get the aggregate portfolio growing.

"To drive growth at CA we are investing in our business. In the second half of the fiscal year we will increase our research and development spend and accelerate our investment in marketing, all within the expense guidance we outlined at the outset of the fiscal year,” Gregoire said. “This will enable us to continue to deliver disruptive new products like our recently announced Nimsoft Monitor Snap - a free, feature-rich monitoring solution that provides an entirely new customer experience - and the next generation of mainframe products. Accelerating innovation, delivering differentiated products and focusing our marketing is the path to getting CA on a growth trajectory.”

REVENUE AND BOOKINGS

(dollars in millions)   Second Quarter FY14 vs. FY13
FY14     % of
Total
    FY13     % of
Total
    %
Change
    %
Change
CC**
North America Revenue $731     64%     $730     63%     0%     0%
International Revenue $409     36%     $422     37%     (3)%     (1)%
Total Revenue $1,140           $1,152           (1)%     0%
   
North America Bookings $495     56%     $500     60%     (1)%     (1)%
International Bookings $382     44%     $337     40%     13%     14%
Total Bookings $877           $837           5%     5%
   
Current Revenue Backlog $3,382           $3,453           (2)%     (2)%
Total Revenue Backlog $7,241           $7,460           (3)%     (3)%

**CC: Constant Currency

  • The increase in the Company's second quarter bookings was primarily due to higher Mainframe renewals, offset by a decrease in Mainframe and Enterprise Solutions new product sales and Services engagements.
  • The Company executed a total of 12 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $320 million. During the second quarter of fiscal year 2013, the Company executed a total of 10 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $232 million.
  • The weighted average duration of subscription and maintenance bookings for the quarter was 3.32 years, compared with 3.11 years for the same period in fiscal year 2013.

EXPENSES AND MARGIN

   
(dollars in millions)   Second Quarter FY14 vs. FY13
FY14     FY13     %
Change
    %
Change
CC**
GAAP  
Operating Expenses Before Interest and Income Taxes $781     $815     (4)%     (3)%
Operating Income Before Interest and Income Taxes $359     $337     7%     5%
Operating Margin 31%     29%            
Effective Tax Rate 31%     32%            
     
Non-GAAP*    
Operating Expenses Before Interest and Income Taxes $673     $748     (10)%     (9)%
Operating Income Before Interest and Income Taxes $467     $404     16%     15%
Operating Margin 41%     35%            
Effective Tax Rate 14%     31%            

*A reconciliation of non-GAAP financial measures to their comparable GAAP financial measures is included in the tables following this news release. Year-over-year non-GAAP results exclude purchased software and other intangibles amortization, share-based compensation, capitalization (an add-back) and amortization of internal software costs, Board approved rebalancing initiatives and certain other gains and losses. The results also include gains and losses on hedges that mature within the quarter, but exclude gains and losses on hedges that do not mature within the quarter.

**CC: Constant Currency

  • GAAP and non-GAAP operating expenses were positively affected by lower personnel costs within selling and marketing, a decrease in commissions and other operational efficiencies.
  • GAAP and non-GAAP operating margins in the second quarter were positively affected by the decrease in personnel expenses. GAAP operating margin also was negatively affected by a decrease in software capitalization.
  • Non-GAAP EPS was positively affected by $0.16 due to a lower effective tax rate. The Company recognized a net discrete tax benefit of approximately $179 million in the first half of fiscal year 2014, primarily from the resolution of uncertain tax positions upon the completion of the examination of U.S. federal income tax returns for fiscal years 2005, 2006 and 2007.

SEGMENT INFORMATION

Starting in the first quarter of fiscal year 2014, the measure of segment expenses and segment profit was revised to treat all costs of internal software development as segment expense in the period the costs are incurred. As a result, the Company will add back capitalized internal software costs and exclude amortization of internally developed software costs previously capitalized from segment expenses. Segment expenses also exclude the effects of the Company's fiscal year 2014 rebalancing plan. Prior period segment expenses and profit information have been revised to present segment profit and expenses on a consistent basis.

     
(dollars in millions)   Second Quarter FY14 vs. FY13
Revenue     %
Change
    %
Change
CC**
    Operating Margin
FY14     FY13             FY14     FY13
Mainframe Solutions $624     $619     1%     1%     63%     60%
Enterprise Solutions $419     $438     (4)%     (3)%     15%     7%
Services $97     $95     2%     3%     9%     6%

**CC: Constant Currency

  • The increase in Mainframe Solutions revenue was primarily due to an increase in new product and mainframe capacity sales in the first quarter of fiscal year 2014 while the increase in operating margin was primarily a result of a decrease in selling and marketing expenses.
  • Enterprise Solutions revenue for the second quarter of fiscal 2014 decreased compared with the year-ago period primarily due to a decrease in new product sales in prior periods. Enterprise Solutions operating margin for the second quarter of fiscal 2014 increased compared with the year-ago period as a result of a decrease in selling and marketing expenses.
  • The increase in Services revenue was primarily due to an increase in professional services engagements resulting from prior period bookings.

CASH FLOW FROM OPERATIONS

  • Cash flow from operations in the second quarter was $87 million, compared with $89 million in the prior year. Cash was positively affected by increased cash collections and the receipt of a tax refund in connection with the resolution of the U.S. tax matter mentioned above, offset by a number of expected factors including higher cash taxes, payments related to the rebalancing actions announced on May 7, 2013 and a reduction in capitalized software development.

CAPITAL STRUCTURE

  • Cash, cash equivalents and investments at September 30, 2013 were $2.799 billion.
  • With $1.779 billion in total debt outstanding and $126 million in notional pooling, the Company's net cash, cash equivalents and investments position was $894 million. In August 2013, the Company issued $250 million of 2.875% Senior Notes due August 2018 and $250 million of 4.500% Senior Notes due August 2023, for an aggregate principal amount of $500 million.
  • In the second quarter of fiscal year 2014, the Company repurchased 5 million shares of stock for $145 million.
  • The Company is currently authorized to repurchase an additional $307 million of common stock through fiscal year 2014.
  • During the second quarter of fiscal year 2014, the Company distributed $114 million in dividends to shareholders.
  • The Company's outstanding share count at September 30, 2013 was 447 million.

OUTLOOK FOR FISCAL YEAR 2014

The Company updated the following outlook, which represents "forward-looking statements" (as defined below). It takes into account the change in business practice regarding internally developed software costs, the costs and payments associated with the rebalancing initiative announced on May 7, 2013 and the resolution of the U.S. tax matter mentioned above.

The Company expects the following:

  • GAAP diluted earnings per share to decrease in a range of minus 7 percent to minus 4 percent in constant currency. Previous guidance was minus 11 percent to minus 6 percent in constant currency. At September 30, 2013 exchange rates, this translates to reported GAAP diluted earnings per share of $1.92 to $1.98.
  • Non-GAAP diluted earnings per share to increase in a range of 17 percent to 20 percent in constant currency. Previous guidance was 16 percent to 20 percent in constant currency. At September 30, 2013 exchange rates, this translates to reported non-GAAP diluted earnings per share of $2.96 to $3.03.
  • Cash flow from operations to decrease in a range of minus 30 percent to minus 24 percent in constant currency, unchanged from previous guidance. At September 30, 2013 exchange rates, this translates to reported cash flow from operations of $970 million to $1.05 billion.
  • Total revenue to decrease in a range of minus 3 percent to minus 2 percent in constant currency. Previous guidance was a decrease of minus 4 percent to minus 2 percent. At September 30, 2013 exchange rates, this translates to reported revenue of $4.47 billion to $4.52 billion.

Outlook for cash flow from operations is being negatively affected by costs associated with the rebalancing of resources during the fiscal year, an increase in cash taxes, and an increase in operating cash outflows relating to product development and enhancements expense for fiscal year 2014. In fiscal year 2013, cash flow from operations did not reflect $165 million of capitalized software development costs that appeared as an investment activity in our Statement of Cash Flows.

This outlook also assumes no material acquisitions and a partial currency hedge of operating income. The Company expects a full-year GAAP operating margin of 24 percent, an increase of one point from previous guidance, and non-GAAP operating margin of 36 percent. The Company expects a fiscal year 2014 GAAP and non-GAAP effective tax rate of approximately 14 percent.

The Company anticipates approximately 438 million shares outstanding at fiscal year 2014 year-end and weighted average diluted shares outstanding of approximately 447 million for the fiscal year.

Webcast

This news release and the accompanying tables should be read in conjunction with additional content that is available on the Company's website, including a supplemental financial package, as well as a conference call and webcast that the Company will host at 5 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.

About CA Technologies

CA Technologies (NASDAQ: CA) provides IT management solutions that help customers manage and secure complex IT environments to support agile business services. Organizations leverage CA Technologies software and SaaS solutions to accelerate innovation, transform infrastructure and secure data and identities, from the data center to the cloud. Learn more about CA Technologies at www.ca.com.

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Non-GAAP Financial Measures

This news release, the accompanying tables and the additional content that is available on the Company's website, including a supplemental financial package, includes 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 and other intangibles, share-based compensation, fiscal year 2007 restructuring costs, recoveries and certain costs associated with derivative litigation matters and certain other gains and losses, which include the gains and losses since inception of hedges that mature within the quarter, but exclude gains and losses of hedges that do not mature within the quarter. The Company will expense costs for internally developed software where development efforts commenced in the first quarter of fiscal year 2014 and afterwards. As a result, product development and enhancement expenses are expected to increase in future periods as the amount capitalized for internally developed software costs decreases. Due to this change, the Company will also add back capitalized internal software costs and exclude the amortization of internal software costs from these non-GAAP metrics. Also beginning in the first quarter of fiscal year 2014, the Company will exclude charges relating to rebalancing initiatives that are large enough to require approval from the Company's Board of Directors. The effective tax rate on GAAP and non-GAAP income from operations is the Company's provision for income taxes expressed as a percentage of pre-tax GAAP and non-GAAP income from continuing operations, respectively. These tax rates are determined based on an estimated effective full year tax rate, with the effective tax rate for GAAP generally including the impact of discrete items in the period in which such items arise and the effective tax rate for non-GAAP generally allocating the impact of discrete items pro rata to the fiscal year's remaining reporting periods. Adjusted cash flow from operations excludes payments associated with the fiscal year 2014 Board-approved rebalancing initiative as described above, capitalized software development costs as described above, and restructuring and other payments. Free cash flow excludes purchases of property and equipment and capitalized software development costs. We present constant currency information to provide a framework for assessing how our 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 our prior fiscal year (i.e., March 31, 2013, March 31, 2012 and March 31, 2011, respectively). Constant currency excludes the impacts from the Company's hedging program. The constant currency calculation for annualized subscription and maintenance bookings is calculated by dividing the subscription and maintenance bookings in constant currency by the weighted average subscription and maintenance duration in years. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. By excluding these items, non-GAAP financial measures facilitate management's internal comparisons to the Company's historical operating results and cash flows, to competitors' operating results and cash flows, and to estimates made by securities analysts. Management uses these non-GAAP financial measures internally to evaluate its performance and they are key variables in determining management incentive compensation. The Company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency of supplemental information used by management in its financial and operational decision-making. In addition, the Company has historically reported similar non-GAAP financial measures to its investors and believes that the inclusion of comparative numbers provides consistency in its financial reporting. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this news release to their most directly comparable GAAP financial measures, which are attached to this news release.

Cautionary Statement Regarding Forward-Looking Statements

The declaration and payment of future dividends is subject to the determination of the Company's Board of Directors, in its sole discretion, after considering various factors, including the Company's financial condition, historical and forecast operating results, and available cash flow, as well as any applicable laws and contractual covenants and any other relevant factors. The Company's practice regarding payment of dividends may be modified at any time and from time to time.

Repurchases under the Company's stock repurchase program are expected to be made with cash on hand and may be made from time to time, subject to market conditions and other factors, in the open market, through solicited or unsolicited privately negotiated transactions or otherwise. The program, which is authorized through the fiscal year ending March 31, 2014, does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company's discretion.

Certain statements in this communication (such as statements containing the words "believes," "plans," "anticipates," "expects," "estimates," "targets" and similar expressions relating to the future) constitute "forward-looking statements" that are based upon the beliefs of, and assumptions made by, the Company's management, as well as information currently available to management. These forward-looking statements reflect the Company's current views with respect to future events and are subject to certain risks, uncertainties, and assumptions. A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements, including: the ability to achieve success in the Company's strategy by, among other things, effectively rebalancing the Company's sales force to enable the Company to maintain and enhance its strong relationships in its traditional customer base of large enterprises and to increase penetration in growth markets and with large enterprises that have not historically been significant customers, enabling the sales force to sell new products, improving the Company's brand in the marketplace and ensuring the Company's set of cloud computing, application development and IT operations (DevOps), Software-as-a-Service, mobile device management and other new offerings address the needs of a rapidly changing market, while not adversely affecting the demand for the Company's traditional products or its profitability; global economic factors or political events beyond the Company's control; general economic conditions and credit constraints, or unfavorable economic conditions in a particular region, industry or business sector; the failure to adapt to technological changes and introduce new software products and services in a timely manner; competition in product and service offerings and pricing; the failure to expand partner programs; the ability to retain and attract adequate qualified personnel; the ability to integrate acquired companies and products into existing businesses; the ability to adequately manage, evolve and protect managerial and financial reporting systems and processes; the ability of the Company's products to remain compatible with ever-changing operating environments; breaches of the Company's software products and the Company's and customers' data centers and IT environments; 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; risks associated with sales to government customers; access to software licensed from third parties; risks associated with the use of software from open source code sources; events or circumstances that would require us to record an impairment charge relating to our goodwill or capitalized software and other intangible asset balances; access to third-party code and specifications for the development of code; third-party claims of intellectual property infringement or royalty payments; fluctuations in the number, terms and duration of the Company's license agreements as well as the timing of orders from customers and channel partners; the failure to renew large license transactions on a satisfactory basis; changes in market conditions or the Company's credit ratings; fluctuations in foreign currencies; the failure to effectively execute the Company's workforce reductions, workforce re-balancing and facility consolidations; successful outsourcing of various functions to third parties; potential tax liabilities; acquisition opportunities that may or may not arise; and other factors described more fully in the Company's filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties occur, or should our assumptions prove incorrect, actual results may vary materially from those described herein as believed, planned, anticipated, expected, estimated, targeted or similarly expressed in a forward-looking manner. The Company assumes no obligation to update the information in this communication, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

Copyright © 2013 CA, Inc. All Rights Reserved. One CA Plaza, Islandia, N.Y. 11749. 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:

2013

2012

2013

2012

Subscription and maintenance $ 945 $ 963 $ 1,889 $ 1,940
Professional services 97 95 195 186
Software fees and other   98   94   184     171  
Total revenue $ 1,140 $ 1,152 $ 2,268   $ 2,297  
Expenses:
Costs of licensing and maintenance $ 73 $ 69 $ 144 $ 138
Cost of professional services 88 88 176 174
Amortization of capitalized software costs 73 67 142 131
Selling and marketing 260 317 541 622
General and administrative 91 98 182 208
Product development and enhancements 145 123 280 248
Depreciation and amortization of other intangible assets 37 40 73 81
Other (gains) expenses, net (1)   14   13   143     (23 )
Total expenses before interest and income taxes $ 781 $ 815 $ 1,681   $ 1,579  
Income before interest and income taxes $ 359 $ 337 $ 587 $ 718
Interest expense, net   13   10   24     21  
Income before income taxes $ 346 $ 327 $ 563 $ 697
Income tax expense (benefit)   106   105   (12 )   235  
Net income $ 240 $ 222 $ 575   $ 462  
 
Basic income per common share $ 0.53 $ 0.48 $ 1.27 $ 0.99
Basic weighted average shares used in computation 448 458 449 462
 
Diluted income per common share $ 0.53 $ 0.48 $ 1.26 $ 0.99
Diluted weighted average shares used in computation 450 459 450 463
 
(1) Other (gains) expenses, net includes approximately $2 million and $122 million of charges relating to the FY2014 Board approved re-balancing initiative announced May 7, 2013, for the three and six month periods ending September 30, 2013, respectively.

Table 2
CA Technologies
Condensed Consolidated Balance Sheets
(in millions)
     
September 30, March 31,

2013

2013

(unaudited)
Cash and cash equivalents $ 2,790 $ 2,593
Short-term investments 9 183
Trade accounts receivable, net 588 856
Deferred income taxes 358 346
Other current assets   166     148  
Total current assets $ 3,911 $ 4,126
 
Property and equipment, net $ 306 $ 311
Goodwill 5,920 5,871
Capitalized software and other intangible assets, net 1,214 1,231
Deferred income taxes 76 77
Other noncurrent assets, net   168     195  
Total assets $ 11,595   $ 11,811  
 
Current portion of long-term debt $ 11 $ 16
Deferred revenue (billed or collected) 2,038 2,482
Deferred income taxes 12 12
Other current liabilities   794     1,031  
Total current liabilities $ 2,855 $ 3,541
 
Long-term debt, net of current portion $ 1,768 $ 1,274
Deferred income taxes 122 120
Deferred revenue (billed or collected) 856 975
Other noncurrent liabilities   319     451  
Total liabilities $ 5,920   $ 6,361  
 
Common stock $ 59 $ 59
Additional paid-in capital 3,566 3,593
Retained earnings 5,704 5,357
Accumulated other comprehensive loss (175 ) (155 )
Treasury stock   (3,479 )   (3,404 )
Total stockholders' equity $ 5,675   $ 5,450  
Total liabilities and stockholders' equity $ 11,595   $ 11,811  

Table 3
CA Technologies
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions)
 
    Three Months Ended
September 30,
2013   2012
Operating activities:
Net income $ 240 $ 222
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 110 107
Deferred income taxes (11 ) (27 )
Provision for bad debts 3 2
Share-based compensation expense 21 21
Asset impairments and other non-cash items 2 2
Foreign currency transaction losses 3 7
Changes in other operating assets and liabilities, net of effect of acquisitions:
Increase in trade accounts receivable (57 ) (92 )
Decrease in deferred revenue (263 ) (283 )
Increase in taxes payable, net 68 110
Increase (decrease) in accounts payable, accrued expenses and other 4 (7 )
(Decrease) increase in accrued salaries, wages and commissions (33 ) 28
Changes in other operating assets and liabilities   -     (1 )
Net cash provided by operating activities $ 87   $ 89  
Investing activities:
Acquisitions of businesses, net of cash acquired, and purchased software $ (3 ) $ (7 )
Purchases of property and equipment (22 ) (10 )
Capitalized software development costs (10 ) (42 )
Purchases of short-term investments   (9 )   (154 )
Net cash used in investing activities $ (44 ) $ (213 )
Financing activities:
Dividends paid $ (114 ) $ (116 )
Purchases of common stock (151 ) (258 )
Notional pooling (repayments) borrowings, net (32 ) 26
Debt borrowings (repayments), net 494 (5 )
Debt issuance costs (3 ) -
Exercise of common stock options and other   27     5  
Net cash provided by (used in) financing activities $ 221   $ (348 )
Net change in cash and cash equivalents before effect of exchange rate

changes on cash

$ 264 $ (472 )
Effect of exchange rate changes on cash $ 65   $ 17  
Increase (decrease) in cash and cash equivalents $ 329 $ (455 )
Cash and cash equivalents at beginning of period $ 2,461   $ 2,541  
Cash and cash equivalents at end of period $ 2,790   $ 2,086  

Table 4
CA Technologies
Operating Segments
(unaudited)
(dollars in millions)
                 
Three Months Ended September 30, 2013   Six Months Ended September 30, 2013
Mainframe Solutions (1)   Enterprise Solutions (1)   Services (1)   Total Mainframe Solutions (1)   Enterprise Solutions (1)   Services (1)   Total
 
Revenue (2) $ 624 $ 419 $ 97 $ 1,140 $ 1,243 $ 830 $ 195 $ 2,268
Expenses (3)   228     357     88     673     470     727     178     1,375  
Segment profit $ 396   $ 62   $ 9   $ 467   $ 773   $ 103   $ 17   $ 893  
Segment operating margin 63 % 15 % 9 % 41 % 62 % 12 % 9 % 39 %
 
Segment profit $ 467 $ 893
Less:
Purchased software amortization 31 59
Other intangibles amortization 15 29
Software development costs capitalized (8 ) (31 )
Internally developed software products amortization 42 83
Share-based compensation expense 21 41
Other (gains) expenses, net (4) 7 125
Interest expense, net   13     24  
Income before income taxes $ 346   $ 563  
 
 
 
 
 
Three Months Ended September 30, 2012   Six Months Ended September 30, 2012
Mainframe Solutions (1)   Enterprise Solutions (1)   Services (1)   Total Mainframe Solutions (1)   Enterprise Solutions (1)   Services (1)   Total
 
Revenue (2) $ 619 $ 438 $ 95 $ 1,152 $ 1,247 $ 864 $ 186 $ 2,297
Expenses (3)   250     409     89     748     511     766     176     1,453  
Segment profit $ 369   $ 29   $ 6   $ 404   $ 736   $ 98   $ 10   $ 844  
Segment operating margin 60 % 7 % 6 % 35 % 59 % 11 % 5 % 37 %
 
Segment profit $ 404 $ 844
Less:
Purchased software amortization 27 54
Other intangibles amortization 13 27
Software development costs capitalized (42 ) (78 )
Internally developed software products amortization 40 77
Share-based compensation expense 21 44
Other (gains) expenses, net (4) 8 2
Interest expense, net   10     21  
Income before income taxes $ 327   $ 697  

(1)

 

• Mainframe Solutions – Our Mainframe Solutions segment addresses the mainframe market and is focused on making significant investments in order to be innovative in key management disciplines across our broad portfolio of products. Ongoing development is guided by customer needs, our cross-enterprise management philosophy and our Next Generation Mainframe Management strategy, which offers management capabilities designed to appeal to the next generation of mainframe staff while also offering productivity improvements to today's mainframe experts. Our mainframe business assists customers by addressing three major challenges: reducing costs and improving operational efficiency, sustaining critical skills through modernized and simplified management, and increasing innovation and agility to help deliver on business goals.

 

• Enterprise Solutions – Our Enterprise Solutions segment includes products that operate on non-mainframe platforms, such as application performance management, infrastructure management, security (identity and access management), service and portfolio management, application delivery, SaaS, and cloud offerings. Our offerings help customers address their regulatory compliance demands, privacy needs, and internal security policies. Enterprise Solutions also focuses on delivering growth to the Company in the form of new customer acquisitions and revenue, while leveraging non-traditional routes-to-market and delivery models.

 

 

• Services – Our Services segment offers implementation, consulting, education and training services to customers, which is intended to promote a seamless customer experience and to increase the value that customers realize from our solutions.

 
(2) We regularly enter into a single arrangement with a customer that includes Mainframe Solutions segment software products, Enterprise Solutions segment software products and Services. The amount of contract revenue assigned to 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 segment is then recognized in a manner consistent with the revenue recognition policies we apply to the customer contract for purposes of preparing the Condensed 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 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 only of direct costs and there are no allocated or indirect costs for the Services segment.
 
(4) Other (gains) expenses, net includes charges relating to the FY2014 Board approved re-balancing initiative announced May 7, 2013, certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.
 
Prior year segment results have been adjusted for internally developed software.

Table 5
CA Technologies
Constant Currency Summary
(unaudited)
(dollars in millions)
               
Three Months Ended September 30, Six Months Ended September 30,
2013 2012 % Increase

(Decrease)

in $ US

% Increase (Decrease) in Constant Currency (1) 2013 2012 % Increase

(Decrease)

in $ US

% Increase (Decrease) in Constant Currency (1)
 
Bookings $ 877 $ 837 5 % 5 % $ 1,701 $ 1,390 22 % 24 %
 
Revenue:
North America $ 731 $ 730 0 % 0 % $ 1,448 $ 1,456 (1 )% 0 %
International   409   422 (3 )% (1 )%   820   841 (2 )% (1 )%
Total revenue $ 1,140 $ 1,152 (1 )% 0 % $ 2,268 $ 2,297 (1 )% (1 )%
 
Revenue:
Subscription and maintenance $ 945 $ 963 (2 )% (1 )% $ 1,889 $ 1,940 (3 )% (2 )%
Professional services 97 95 2 % 3 % 195 186 5 % 5 %
Software fees and other   98   94 4 % 6 %   184   171 8 % 9 %
Total revenue $ 1,140 $ 1,152 (1 )% 0 % $ 2,268 $ 2,297 (1 )% (1 )%
 
Segment Revenue:
Mainframe solutions $ 624 $ 619 1 % 1 % $ 1,243 $ 1,247 0 % 0 %
Enterprise solutions 419 438 (4 )% (3 )% 830 864 (4 )% (3 )%
Services 97 95 2 % 3 % 195 186 5 % 5 %
 
Total expenses before interest and income taxes:
Total non-GAAP (2) $ 673 $ 748 (10 )% (9 )% $ 1,375 $ 1,453 (5 )% (5 )%
Total GAAP 781 815 (4 )% (3 )% 1,681 1,579 6 % 7 %
(1)   Constant currency information is presented to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than US dollars are converted into US dollars at the exchange rate in effect on March 31, 2013, which was the last day of our prior fiscal year. Constant currency excludes the impacts from the Company's hedging program.
 
(2) Refer to Table 7 for a reconciliation of total expenses before interest and income taxes to total non-GAAP operating expenses.
 
Prior year non-GAAP results have been adjusted for internally developed software.
 
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,

2013

2012

2013

2012

GAAP net income $ 240 $ 222 $ 575 $ 462
GAAP income tax expense (benefit) 106 105 (12 ) 235
Interest expense, net   13     10     24     21  
GAAP income before interest and income taxes $ 359   $ 337   $ 587   $ 718  
GAAP operating margin (% of revenue) (1) 31 % 29 % 26 % 31 %
 
Non-GAAP adjustments to expenses:
Costs of licensing and maintenance (2) $ 1 $ 1 $ 2 $ 1
Cost of professional services (2) 1 1 2 2
Amortization of capitalized software costs (3) 73 67 142 131
Selling and marketing (2) 8 8 15 18
General and administrative (2) 6 7 12 15
Product development and enhancements (4) (3 ) (38 ) (21 ) (70 )
Depreciation and amortization of other intangible assets (5) 15 13 29 27
Other (gains) expenses, net (6)   7     8     125     2  
Total Non-GAAP adjustment to operating expenses $ 108   $ 67   $ 306   $ 126  
Non-GAAP income before interest and income taxes $ 467 $ 404 $ 893 $ 844
Non-GAAP operating margin (% of revenue) (7) 41 % 35 % 39 % 37 %
 
Interest expense, net 13 10 24 21
GAAP income tax expense (benefit) 106 105 (12 ) 235
Non-GAAP adjustment to income tax expense (benefit) (8)   (42 )   17     134     18  
Non-GAAP income tax expense $ 64   $ 122   $ 122   $ 253  
Non-GAAP income $ 390   $ 272   $ 747   $ 570  
(1)   GAAP operating margin is calculated by dividing GAAP income before interest and income taxes by total revenue (refer to Table 1 for total revenue).
 
(2) Non-GAAP adjustment consists of share-based compensation.
 
(3) For the three month periods ending September 30, 2013 and 2012, non-GAAP adjustment consists of $31 million and $27 million of purchased software amortization and $42 million and $40 million of internally developed software products amortization, respectively. For the six month periods ending September 30, 2013 and 2012, non-GAAP adjustment consists of $59 million and $54 million of purchased software amortization and $83 million and $77 million of internally developed software products amortization, respectively.
 
(4) For the three month periods ending September 30, 2013 and 2012, non-GAAP adjustment consists of $5 million and $4 million of share-based compensation and ($8) million and ($42) million of software development costs capitalized, respectively. For the six month periods ending September 30, 2013 and 2012, non-GAAP adjustment consists of $10 million and $8 million of share-based compensation and ($31) million and ($78) million of software development costs capitalized, respectively.
 
(5) Non-GAAP adjustment consists of other intangibles amortization.
 
(6) Non-GAAP adjustment consists of charges relating to the FY2014 Board approved re-balancing initiative announced May 7, 2013 and certain other gains and losses, including gains and losses since inception of hedges that mature within the quarter, but excludes gains and losses of hedges that do not mature within the quarter.
 
(7) Non-GAAP operating margin is calculated by dividing non-GAAP income before interest and income taxes by total revenue (refer to Table 1 for total revenue).
 
(8) The full year non-GAAP income tax expense is different from GAAP income tax expense because of the difference in non-GAAP income before income taxes. On an interim basis, this difference would also include a difference in the impact of discrete and permanent items where for GAAP purposes the effect is recorded in the period such items arise, but for non-GAAP such items are recorded pro rata to the fiscal year's remaining reporting periods.
 
Refer to the discussion of non-GAAP financial measures included in the accompanying press release for additional information.
 
Prior year non-GAAP results have been adjusted for internally developed software.
 
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

2013

2012

2013

2012

 
Total expenses before interest and income taxes $ 781 $ 815 $ 1,681 $ 1,579
 
Non-GAAP operating adjustments:
Purchased software amortization 31 27 59 54
Other intangibles amortization 15 13 29 27
Software development costs capitalized (8) (42) (31) (78)
Internally developed software products amortization 42 40 83 77
Share-based compensation 21 21 41 44
Other (gains) expenses, net (1) 7 8 125 2
Total non-GAAP operating adjustment $ 108 $ 67 $ 306 $ 126
 
Total non-GAAP operating expenses $ 673 $ 748 $ 1,375 $ 1,453
 
 
Three Months Ended Six Months Ended

September 30,

September 30,

Diluted EPS

2013

2012

2013

2012

 
GAAP diluted EPS $ 0.53 $ 0.48 $ 1.26 $ 0.99
 
Non-GAAP adjustments, net of taxes:
Purchased software amortization 0.05 0.04 0.13 0.08
Other intangibles amortization 0.02 0.02 0.07 0.04
Software development costs capitalized (0.01) (0.06) (0.07) (0.11)
Internally developed software products amortization 0.06 0.06 0.19 0.11
Share-based compensation 0.03 0.03 0.09 0.06
Other (gains) expenses, net (1) 0.01 0.01 0.28 -
Non-GAAP effective tax rate adjustments (2) 0.17 0.01 (0.31) 0.05
Total non-GAAP adjustment $ 0.33 $ 0.11 $ 0.38 $ 0.23
 
Non-GAAP diluted EPS $ 0.86 $ 0.59 $ 1.64 $ 1.22
(1)   Non-GAAP adjustment consists of charges relating to the FY2014 Board approved re-balancing initiative announced May 7, 2013 and certain other gains and losses, including gains and losses since inception of hedges that mature within the quarter, but excludes gains and losses of hedges that do not mature within the quarter.
 
(2) The non-GAAP effective tax rate is equal to the full year GAAP effective tax rate, therefore no adjustment is required on an annual basis. On an interim basis, the difference in non-GAAP income tax expense and GAAP income tax expense relates to the difference in non-GAAP income before income taxes, and includes a difference in the impact of discrete and permanent items where for GAAP purposes the effect is recorded in the period such items arise but for non-GAAP purposes such items are recorded pro rata to the fiscal year's remaining reporting periods.
 
Refer to the discussion of non-GAAP financial measures included in the accompanying press release for additional information.
 
Prior year non-GAAP results have been adjusted for internally developed software.
 
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, 2013

September 30, 2013

GAAP

Non-GAAP

GAAP

Non-GAAP

 
Income before interest and income taxes (1) $ 359 $ 467 $ 587 $ 893
Interest expense, net   13     13     24     24  
Income before income taxes $ 346 $ 454 $ 563 $ 869
 
Statutory tax rate 35 % 35 % 35 % 35 %
 
Tax at statutory rate $ 121 $ 159 $ 197 $ 304
Adjustments for discrete and permanent items (2)   (15 )   (95 )   (209 )   (182 )
Total tax expense (benefit) $ 106 $ 64 $ (12 ) $ 122
 
Effective tax rate (3) 30.6 % 14.1 % (2.1 )% 14.0 %
 
Three Months Ended Six Months Ended

September 30, 2012

September 30, 2012

GAAP

Non-GAAP

GAAP

Non-GAAP

 
Income before interest and income taxes (1) $ 337 $ 404 $ 718 $ 844
Interest expense, net   10     10     21     21  
Income before income taxes $ 327 $ 394 $ 697 $ 823
 
Statutory tax rate 35 % 35 % 35 % 35 %
 
Tax at statutory rate $ 114 $ 138 $ 244 $ 288
Adjustments for discrete and permanent items (2)   (9 )   (16 )   (9 )   (35 )
Total tax expense $ 105 $ 122 $ 235 $ 253
 
Effective tax rate (3) 32.1 % 31.0 % 33.7 % 30.7 %
(1)   Refer to Table 6 for a reconciliation of income before interest and income taxes on a GAAP basis to income before interest and income taxes on a non-GAAP basis.
 
(2) The effective tax rate 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 is the Company's provision for income taxes expressed as a percentage of GAAP and non-GAAP income before income taxes, respectively. The non-GAAP effective tax rate is equal to the full year GAAP effective tax rate. On an interim basis, the effective tax rates are determined based on an estimated effective full year tax rate after the adjustments for the impacts of certain discrete items (such as changes in tax rates, reconciliations of tax returns to tax provisions and resolutions of tax contingencies).
 
Refer to the discussion of non-GAAP financial measures included in the accompanying press release for additional information.
 
Prior year non-GAAP results have been adjusted for internally developed software.
 
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

March 31, 2014

 
Projected GAAP diluted EPS range $ 1.92 to $ 1.98
 
Non-GAAP adjustments, net of taxes:
Purchased software amortization 0.24 0.25
Other intangibles amortization 0.10 0.10
Software development costs capitalized (0.07 ) (0.07 )
Internally developed software products amortization 0.32 0.32
Share-based compensation 0.16 0.16
Other (gains) expenses, net (1)   0.29     0.29  
Total non-GAAP adjustment $ 1.04   $ 1.05  
 
Projected non-GAAP diluted EPS range $ 2.96   to $ 3.03  
 
 
Fiscal Year Ending

Projected Operating Margin

March 31, 2014

 
Projected GAAP operating margin 24 %
 
Non-GAAP operating adjustments:
Purchased software amortization 3 %
Other intangibles amortization 1 %
Software development costs capitalized (1 )%
Internally developed software products amortization 4 %
Share-based compensation 2 %
Other (gains) expenses, net (1) 3 %
Total non-GAAP operating adjustment 12 %
 
Projected non-GAAP operating margin 36 %
(1)   Non-GAAP adjustment consists of charges relating to the FY2014 Board approved re-balancing initiative announced May 7, 2013.
 
Refer to the discussion of non-GAAP financial measures included in the accompanying press release for additional information.

CA Technologies
Dan Kaferle
Public Relations
(631) 342-2111
daniel.kaferle@ca.com
or
Jonathan Doros
Investor Relations
(212) 415-6870
jonathan.doros@ca.com
or
Michael Bauer
Investor Relations
(212) 310-6276
michael.bauer@ca.com

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