CA Technologies
May 11, 2017

CA Technologies Reports Fourth Quarter and Full Fiscal Year 2017 Results

NEW YORK--(BUSINESS WIRE)-- CA Technologies (NASDAQ:CA) today reported financial results for its fourth quarter and full fiscal year 2017, which ended March 31, 2017.

Mike Gregoire, CA Technologies Chief Executive Officer, said:

"CA delivered strong performance both for the full year and the fourth quarter of fiscal 2017. We ended the year with momentum, and our fourth quarter performance enabled us to deliver most metrics at or above the high-end of our full year guidance ranges.

"I am particularly pleased with the quality of both our products and our sales execution. The success of our recent acquisitions gives me confidence that the strategic acquisitions of Automic and Veracode will create meaningful value within our product organization, to the benefit of both our customers and shareholders.

"This is an exciting time at CA. We are very enthusiastic about our opportunities in fiscal year 2018 and beyond. In many ways, we are just getting started."

FINANCIAL OVERVIEW

 

       
(dollars in millions, except share data)   Fourth Quarter FY17 vs. FY16   Full Year FY17 vs. FY16
FY17   FY16  

%
Change

 

%
Change
CC*

FY17   FY16  

%
Change

 

%
Change
CC*

Revenue $1,012   $1,009   0%   1% $4,036   $4,025   0%   1%
GAAP Income from Continuing Operations $157   $171   (8)%   (7)% $775   $769   1%   (1)%
Non-GAAP Income from Continuing Operations* $227   $252   (10)%   (11)% $1,042   $1,050   (1)%   (2)%
GAAP Diluted EPS from Continuing Operations $0.38   $0.41   (7)%   (7)% $1.85   $1.78   4%   2%
Non-GAAP Diluted EPS from Continuing Operations* $0.54   $0.60   (10)%   (12)% $2.48   $2.43   2%   1%
Cash Flow from Continuing Operations   $419   $471   (11)%   (11)% $1,039   $1,034   0%   3%
* 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

Fourth Quarter

 

 

   
(dollars in millions) Fourth Quarter FY17 vs. FY16
FY17   % of
Total
  FY16   % of
Total
  %
Change
  %
Change
CC*
North America Revenue $683   67%   $681   67%   0%   0%
International Revenue $329   33%   $328   33%   0%   2%
Total Revenue $1,012       $1,009       0%   1%
                       
North America Bookings $1,049   74%   $636   66%   65%   65%
International Bookings $374   26%   $324   34%   15%   18%
Total Bookings $1,423       $960       48%   49%
                       
Current Revenue Backlog $3,240       $3,113       4%   6%
Total Revenue Backlog   $7,556       $6,829       11%   12%
*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.
 

Full Year

 
     
(dollars in millions) Full Year FY17 vs. FY16
FY17   % of
Total
  FY16   % of
Total
  %
Change
  %
Change
CC*
North America Revenue $2,716   67%   $2,712   67%   0%   0%
International Revenue $1,320   33%   $1,313   33%   1%   2%
Total Revenue $4,036       $4,025       0%   1%
                       
North America Bookings $3,329   70%   $2,987   70%   11%   12%
International Bookings $1,434   30%   $1,260   30%   14%   15%
Total Bookings   $4,763       $4,247       12%   13%
*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.

EXPENSES, MARGIN AND EARNINGS PER SHARE

Fourth Quarter

 
     
(dollars in millions) Fourth Quarter FY17 vs. FY16
FY17   FY16   %
Change
  %
Change
CC**
GAAP  
Operating Expenses Before Interest and Income Taxes $797   $730   9%   10%
Operating Income Before Interest and Income Taxes $215   $279   (23)%   (22)%
Diluted EPS from Continuing Operations $0.38   $0.41   (7)%   (7)%
Operating Margin 21%   28%        
Effective Tax Rate 20.7%   35.2%        
               
Non-GAAP*  
Operating Expenses Before Interest and Income Taxes $693   $630   10%   12%
Operating Income Before Interest and Income Taxes $319   $379   (16)%   (17)%
Diluted EPS from Continuing Operations $0.54   $0.60   (10)%   (12)%
Operating Margin 32%   38%        
Effective Tax Rate   24.8%   30.8%        
*A reconciliation of non-GAAP financial measures to their comparable GAAP financial measures is included in the tables following this news release and noted in "Non-GAAP Financial Measures" below.
**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.
 

Full Year

 
     

(dollars in millions)

Full Year FY17 vs. FY16
FY17   FY16  

%
Change

 

%
Change
CC**

GAAP  
Operating Expenses Before Interest and Income Taxes $2,901   $2,890   0%   2%
Operating Income Before Interest and Income Taxes $1,135   $1,135   0%   (2)%

Diluted EPS from Continuing Operations

$1.85   $1.78   4%   2%
Operating Margin 28%   28%        
Effective Tax Rate 27.8%   29.1%        
               
Non-GAAP*  
Operating Expenses Before Interest and Income Taxes $2,531   $2,494   1%   3%
Operating Income Before Interest and Income Taxes $1,505   $1,531   (2)%   (3)%
Diluted EPS from Continuing Operations $2.48   $2.43   2%   1%
Operating Margin 37%   38%        
Effective Tax Rate   27.8%   29.1%        
*A reconciliation of non-GAAP financial measures to their comparable GAAP financial measures is included in the tables following this news release and noted in "Non-GAAP Financial Measures" below.
**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.
 

SELECTED QUARTERLY HIGHLIGHTS

SEGMENT INFORMATION

Fourth Quarter

     

(dollars in millions)

  Fourth Quarter FY17 vs. FY16
Revenue   %
Change
  %
Change
CC*
  Operating Margin
FY17   FY16       FY17   FY16
Mainframe Solutions $535   $547   (2)%   (1)%   59%   61%
Enterprise Solutions $400   $380   5%   6%   1%   10%
Services $77   $82   (6)%   (5)%   -3%   7%
*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.
 

Full Year

 
     
(dollars in millions) Full Year FY17 vs. FY16
Revenue   %
Change
  %
Change
CC*
  Operating Margin
FY17   FY16       FY17   FY16
Mainframe Solutions $2,182   $2,215   (1)%   (1)%   61%   61%
Enterprise Solutions $1,553   $1,484   5%   5%   11%   10%
Services   $301   $326   (8)%   (7)%   0%   7%
*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.
 

CASH FLOW FROM OPERATIONS

CAPITAL STRUCTURE

OUTLOOK FOR FISCAL 2018

The following outlook for fiscal 2018 includes the acquisition of Veracode, assumes no further material acquisitions, includes incremental interest expense associated with the Company's March 2017 senior notes issuance, and contains "forward-looking statements" (as defined below).

The Company expects the following:*

*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 fourth quarter and full fiscal year 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 Identity Governance and Administration, by Felix Gaehtgens, Perry Carpenter, Brian Iverson and Kevin Kampman, February 22, 2017.

 

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 [Annual/Quarterly Report]) and the opinions expressed in the Gartner Report(s) are subject to change without notice.

 

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

 

(2)

KuppingerCole, "Leadership Compass: Adaptive Authentication," by John Tolbert, February 2017

 

About CA Technologies

CA Technologies (NASDAQ: CA) creates software that fuels transformation for companies and enables them to seize the opportunities of the Application Economy. Software is at the heart of every business in every industry. From planning, to development, to management and security, CA is working with companies worldwide to change the way we live, transact, and communicate - across mobile, private and public cloud, distributed and mainframe environments. Learn more at www.ca.com.

Follow CA Technologies

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 Board-approved rebalancing initiative 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, 2017, March 31, 2016, and March 31, 2015, 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 global 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 and software products, and the IT environments of the Company's business partners and customers; the ability to adequately manage, evolve and protect the Company's information systems, infrastructure and processes; the failure to renew license transactions on a satisfactory basis; fluctuations in foreign exchange rates; changes in generally accepted accounting principles; 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 and/or royalty payments; fluctuations in the number, terms and duration of the Company's license agreements, as well as the timing of orders from customers and channel partners; potential tax liabilities; changes in market conditions or the Company's credit ratings; events or circumstances that would require the Company to record an impairment charge relating to the Company's goodwill or capitalized software and other intangible assets balances; 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 © 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 Fiscal Year Ended

March 31,

March 31,

Revenue:

2017

2016

2017

2016

Subscription and maintenance $ 812 $ 821 $ 3,279 $ 3,317
Professional services 77 82 301 326
Software fees and other   123   106   456   382
Total revenue $ 1,012 $ 1,009 $ 4,036 $ 4,025
Expenses:
Costs of licensing and maintenance $ 71 $ 74 $ 273 $ 283
Cost of professional services 78 76 300 300
Amortization of capitalized software costs 61 64 243 256
Selling and marketing 281 255 1,028 1,006
General and administrative 118 88 375 367
Product development and enhancements 158 140 586 560
Depreciation and amortization of other intangible assets 21 23 77 106
Other expenses, net   9   10   19   12
Total expenses before interest and income taxes $ 797 $ 730 $ 2,901 $ 2,890
Income from continuing operations before interest and income taxes $ 215 $ 279 $ 1,135 $ 1,135
Interest expense, net   17   15   62   51
Income from continuing operations before income taxes $ 198 $ 264 $ 1,073 $ 1,084
Income tax expense   41   93   298   315
Income from continuing operations $ 157 $ 171 $ 775 $ 769
Income from discontinued operations, net of income taxes $ - $ 3 $ - $ 14
Net income $ 157 $ 174 $ 775 $ 783
 
Basic income per common share:
Income from continuing operations $ 0.38 $ 0.41 $ 1.85 $ 1.79
Income from discontinued operations   -   0.01   -   0.03
Net income $ 0.38 $ 0.42 $ 1.85 $ 1.82
Basic weighted average shares used in computation 413 413 414 426
 
Diluted income per common share:
Income from continuing operations $ 0.38 $ 0.41 $ 1.85 $ 1.78
Income from discontinued operations   -   0.01   -   0.03
Net income $ 0.38 $ 0.42 $ 1.85 $ 1.81
Diluted weighted average shares used in computation 415 414 415 427
 

Table 2
CA Technologies
Condensed Consolidated Balance Sheets
(in millions)
     
March 31, March 31,
  2017     2016  
(unaudited)
Cash and cash equivalents $ 2,771 $ 2,812
Trade accounts receivable, net 764 625
Other current assets   198     124  
Total current assets $ 3,733 $ 3,561
 
Property and equipment, net $ 237 $ 242
Goodwill 6,857 6,086
Capitalized software and other intangible assets, net 1,307 795
Deferred income taxes 327 407
Other noncurrent assets, net   149     113  
Total assets $ 12,610   $ 11,204  
 
Current portion of long-term debt $ 18 $ 6
Deferred revenue (billed or collected) 2,222 2,197
Other current liabilities   766     691  
Total current liabilities $ 3,006 $ 2,894
 
Long-term debt, net of current portion $ 2,773 $ 1,947
Deferred income taxes 119 3
Deferred revenue (billed or collected) 794 737
Other noncurrent liabilities   229     245  
Total liabilities $ 6,921   $ 5,826  
 
Common stock $ 59 $ 59
Additional paid-in capital 3,702 3,664
Retained earnings 6,923 6,575
Accumulated other comprehensive loss (483 ) (416 )
Treasury stock   (4,512 )   (4,504 )
Total stockholders' equity $ 5,689   $ 5,378  
Total liabilities and stockholders' equity $ 12,610   $ 11,204  
 

 
Table 3
CA Technologies
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions)
 

Three Months Ended

March 31,

2017

 

2016

Operating activities from continuing operations:
Net income $ 157 $ 174
Income from discontinued operations   -     (3 )
Income from continuing operations $ 157 $ 171
Adjustments to reconcile income from continuing operations to net cash provided
by operating activities:
Depreciation and amortization 82 87
Deferred income taxes (1 ) (62 )
Provision for bad debts 1 -
Share-based compensation expense 28 27
Other non-cash items 1 (1 )
Foreign currency transaction losses (gains) 1 (1 )
Changes in other operating assets and liabilities, net of effect of acquisitions:
(Increase) decrease in trade accounts receivable (142 ) 4
Increase in deferred revenue 356 248
Decrease in taxes payable, net (85 ) (25 )
Decrease in accounts payable, accrued expenses and other (38 ) (12 )
Increase in accrued salaries, wages and commissions 44 25
Changes in other operating assets and liabilities   15     10  
Net cash provided by operating activities - continuing operations $ 419   $ 471  
Investing activities from continuing operations:
Acquisitions of businesses, net of cash acquired, and purchased software $ (1,240 ) $ -
Purchases of property and equipment (17 ) (14 )
Other investing activities   (1 )   3  
Net cash used in investing activities - continuing operations $ (1,258 ) $ (11 )
Financing activities from continuing operations:
Dividends paid $ (107 ) $ (104 )
Purchases of common stock - (2 )
Notional pooling (repayments) borrowings, net (3 ) 15
Debt borrowings (repayments), net 849 (1 )
Debt issuance costs (5 ) -
Exercise of common stock options - 3
Other financing activities   -     (1 )
Net cash provided by (used in) financing activities - continuing operations $ 734 $ (90 )
Effect of exchange rate changes on cash $ 48   $ 62  
Net change in cash and cash equivalents - continuing operations $ (57 ) $ 432
Cash used in operating activities - discontinued operations $ - $ (23 )
Cash provided by investing activities - discontinued operations   -     50  
Net effect of discontinued operations on cash and cash equivalents $ -   $ 27  
(Decrease) increase in cash and cash equivalents $ (57 ) $ 459
Cash and cash equivalents at beginning of period $ 2,828   $ 2,353  
Cash and cash equivalents at end of period $ 2,771   $ 2,812  
 

Table 4
CA Technologies
Operating Segments
(unaudited)
(dollars in millions)
             
Three Months Ended March 31, 2017 Fiscal Year Ended March 31, 2017

Mainframe
Solutions (1)

Enterprise
Solutions (1)

Services (1) Total

Mainframe
Solutions (1)

Enterprise
Solutions (1)

Services (1) Total
 
Revenue (2) $ 535 $ 400 $ 77 $ 1,012 $ 2,182 $ 1,553 $ 301 $ 4,036
Expenses (3)   217   397   79   693   851   1,378   302   2,531
Segment profit (loss) $ 318 $ 3 $ (2) $ 319 $ 1,331 $ 175 $ (1) $ 1,505
Segment operating margin 59% 1% -3% 32% 61% 11% 0% 37%
 
Segment profit $ 319 $ 1,505
Less:
Purchased software amortization 44 164
Other intangibles amortization 6 19
Internally developed software products amortization 17 79
Share-based compensation expense 28 108
Other expenses, net (4) 9 -
Interest expense, net   17   62
Income from continuing operations before income taxes $ 198 $ 1,073
 
 
Three Months Ended March 31, 2016 Fiscal Year Ended March 31, 2016

Mainframe
Solutions (1)

Enterprise
Solutions (1)

Services (1) Total

Mainframe
Solutions (1)

Enterprise
Solutions (1)

Services (1) Total
 
Revenue (2) $ 547 $ 380 $ 82 $ 1,009 $ 2,215 $ 1,484 $ 326 $ 4,025
Expenses (3)   213   341   76   630   854   1,337   303   2,494
Segment profit $ 334 $ 39 $ 6 $ 379 $ 1,361 $ 147 $ 23 $ 1,531
Segment operating margin 61% 10% 7% 38% 61% 10% 7% 38%
 
Segment profit $ 379 $ 1,531
Less:
Purchased software amortization 40 146
Other intangibles amortization 8 44
Internally developed software products amortization 24 110
Share-based compensation expense 27 97
Other expenses (gains), net (4) 1 (1)
Interest expense, net   15   51
Income from continuing operations before income taxes $ 264 $ 1,084
 
(1)   The Company's Mainframe Solutions and Enterprise Solutions segments are comprised of its software business organized by the nature of the Company's software offerings and the platforms on which the products operate. The Services segment is comprised of product implementation, consulting, customer education and customer training services, 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 assigned to the Mainframe Solutions and Enterprise Solutions segments is 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 products); (2) allocations included within internal contract approval documents; or (3) the value for individual software products as stated in the customer contract. The price for the implementation, consulting, education and training services is separately stated in the contract and these amounts of contract revenue are assigned to the Services segment. The contract value assigned to each operating segment is then recognized in a manner consistent with the revenue recognition policies the Company applies to the customer contract for purposes of preparing the Consolidated Financial Statements.
 
(3) Segment expenses include costs that are controllable by segment managers (i.e., direct costs) and, in the case of the Mainframe Solutions and Enterprise Solutions segments, an allocation of shared and indirect costs (i.e., allocated costs). Segment-specific direct costs include a portion of selling and marketing costs, licensing and maintenance costs, product development costs and general and administrative costs. Allocated segment costs primarily include indirect and non-segment specific direct selling and marketing costs and general and administrative costs that are not directly attributable to a specific segment. The basis for allocating shared and indirect costs between the Mainframe Solutions and Enterprise Solutions segments is dependent on the nature of the cost being allocated and is either in proportion to segment revenues or in proportion to the related direct cost category. Expenses for the Services segment consist of cost of professional services and other direct costs included within selling and marketing and general and administrative expenses. There are no allocated or indirect costs for the Services segment.
 
(4) Other expenses (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 March 31, Fiscal Year Ended March 31,
  2017   2016

% Increase
(Decrease)
in $ US

 

% Increase
(Decrease)
in Constant
Currency (1)

  2017   2016

% Increase
(Decrease)
in $ US

% Increase
(Decrease)
in Constant
Currency (1)

 
Bookings $ 1,423 $ 960 48 % 49 % $ 4,763 $ 4,247 12 % 13 %
 
Revenue:
North America $ 683 $ 681 0 % 0 % $ 2,716 $ 2,712 0 % 0 %
International   329   328 0 % 2 %   1,320   1,313 1 % 2 %
Total revenue $ 1,012 $ 1,009 0 % 1 % $ 4,036 $ 4,025 0 % 1 %
 
Revenue:
Subscription and maintenance $ 812 $ 821 (1 )% (1 )% $ 3,279 $ 3,317 (1 )% (1 )%
Professional services 77 82 (6 )% (5 )% 301 326 (8 )% (7 )%
Software fees and other   123   106 16 % 16 %   456   382 19 % 20 %
Total revenue $ 1,012 $ 1,009 0 % 1 % $ 4,036 $ 4,025 0 % 1 %
 
Segment Revenue:
Mainframe solutions $ 535 $ 547 (2 )% (1 )% $ 2,182 $ 2,215 (1 )% (1 )%
Enterprise solutions 400 380 5 % 6 % 1,553 1,484 5 % 5 %
Services 77 82 (6 )% (5 )% 301 326 (8 )% (7 )%
 
Total expenses before interest and income taxes:
Total GAAP $ 797 $ 730 9 % 10 % $ 2,901 $ 2,890 0 % 2 %
Total non-GAAP (2) 693 630 10 % 12 % 2,531 2,494 1 % 3 %
 
(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 Fiscal Year Ended

March 31,

March 31,

  2017     2016     2017     2016  
GAAP net income $ 157 $ 174 $ 775 $ 783
GAAP income from discontinued operations, net of income taxes   -     (3 )   -     (14 )
GAAP income from continuing operations $ 157 $ 171 $ 775 $ 769
GAAP income tax expense 41 93 298 315
Interest expense, net   17     15     62     51  
GAAP income from continuing operations before interest and income taxes $ 215   $ 279   $ 1,135   $ 1,135  
GAAP operating margin (% of revenue) (1) 21 % 28 % 28 % 28 %
 
Non-GAAP adjustments to expenses:
Costs of licensing and maintenance (2) $ 2 $ 2 $ 7 $ 7
Cost of professional services (2) - 1 3 4
Amortization of capitalized software costs (3) 61 64 243 256
Selling and marketing (2) 9 9 37 34
General and administrative (2) 11 10 38 35
Product development and enhancements (2) 6 5 23 17
Depreciation and amortization of other intangible assets (4) 6 8 19 44
Other gains, net (5)   9     1     -     (1 )
Total Non-GAAP adjustment to operating expenses $ 104   $ 100   $ 370   $ 396  
Non-GAAP income from continuing operations before interest and income taxes $ 319 $ 379 $ 1,505 $ 1,531
Non-GAAP operating margin (% of revenue) (6) 32 % 38 % 37 % 38 %
 
Interest expense, net 17 15 62 51
GAAP income tax expense 41 93 298 315
Non-GAAP adjustment to income tax expense (7)   34     19     103     115  
Non-GAAP income tax expense $ 75   $ 112   $ 401   $ 430  
Non-GAAP income from continuing operations $ 227   $ 252   $ 1,042   $ 1,050  
 
(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 March 31, 2017 and 2016, non-GAAP adjustment consists of $44 million and $40 million of purchased software amortization and $17 million and $24 million of internally developed software products amortization, respectively. For the twelve month periods ending March 31, 2017 and 2016, non-GAAP adjustment consists of $164 million and $146 million of purchased software amortization and $79 million and $110 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 Fiscal Year Ended

March 31,

March 31,

Operating Expenses

2017

2016

2017

2016

 
Total expenses before interest and income taxes $ 797 $ 730 $ 2,901 $ 2,890
 
Non-GAAP operating adjustments:
Purchased software amortization 44 40 164 146
Other intangibles amortization 6 8 19 44
Internally developed software products amortization 17 24 79 110
Share-based compensation 28 27 108 97
Other expenses (gains), net (1)   9     1     -     (1 )
Total non-GAAP operating adjustment $ 104   $ 100   $ 370   $ 396  
 
Total non-GAAP operating expenses $ 693   $ 630   $ 2,531   $ 2,494  
 
 
Three Months Ended Fiscal Year Ended

March 31,

March 31,

Diluted EPS from Continuing Operations

2017

2016

2017

2016

 
GAAP diluted EPS from continuing operations $ 0.38 $ 0.41 $ 1.85 $ 1.78
 
Non-GAAP adjustments:
Purchased software amortization 0.10 0.10 0.39 0.34
Other intangibles amortization 0.01 0.02 0.04 0.10
Internally developed software products amortization 0.04 0.05 0.19 0.26
Share-based compensation 0.07 0.06 0.26 0.22
Other expenses, net (1) 0.02 - - -
Tax effect of non-GAAP adjustments (0.05 ) (0.08 ) (0.25 ) (0.27 )
Non-GAAP effective tax rate adjustments (2)   (0.03 )   0.04     -     -  
Total non-GAAP adjustment $ 0.16   $ 0.19   $ 0.63   $ 0.65  
 
Non-GAAP diluted EPS from continuing operations $ 0.54   $ 0.60   $ 2.48   $ 2.43  
 
(1)   Other expenses (gains), net consists of costs associated with certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.
 
(2) The non-GAAP effective tax rate is equal to the full year GAAP effective tax rate, therefore no adjustment is required on an annual basis. On an interim basis, the difference in non-GAAP income tax expense and GAAP income tax expense relates to the difference in non-GAAP income from continuing operations before income taxes, and includes a difference in the impact of discrete and permanent items where for GAAP purposes the effect is recorded in the period such items arise but for non-GAAP purposes such items are recorded pro rata to the fiscal year's remaining reporting periods.
 
Refer to the discussion of non-GAAP financial measures included in the accompanying press release for additional information.
 
Certain non-material differences may arise versus actual from impact of rounding.
 

Table 8
CA Technologies
Effective Tax Rate Reconciliation
GAAP and Non-GAAP
(unaudited)
(dollars in millions)
       
Three Months Ended Fiscal Year Ended

March 31, 2017

March 31, 2017

GAAP

Non-GAAP

GAAP

Non-GAAP

 
Income from continuing operations before interest and income taxes (1) $ 215 $ 319 $ 1,135 $ 1,505
Interest expense, net   17     17     62     62  
Income from continuing operations before income taxes $ 198 $ 302 $ 1,073 $ 1,443
 
Statutory tax rate 35 % 35 % 35 % 35 %
 
Tax at statutory rate $ 69 $ 106 $ 376 $ 505
Adjustments for discrete and permanent items (2)   (28 )   (31 )   (78 )   (104 )
Total tax expense $ 41 $ 75 $ 298 $ 401
 
Effective tax rate (3) 20.7 % 24.8 % 27.8 % 27.8 %
 
Three Months Ended Fiscal Year Ended

March 31, 2016

March 31, 2016

GAAP

Non-GAAP

GAAP

Non-GAAP

 
Income from continuing operations before interest and income taxes (1) $ 279 $ 379 $ 1,135 $ 1,531
Interest expense, net   15     15     51     51  
Income from continuing operations before income taxes $ 264 $ 364 $ 1,084 $ 1,480
 
Statutory tax rate 35 % 35 % 35 % 35 %
 
Tax at statutory rate $ 92 $ 127 $ 379 $ 518
Adjustments for discrete and permanent items (2)   1     (15 )   (64 )   (88 )
Total tax expense $ 93 $ 112 $ 315 $ 430
 
Effective tax rate (3) 35.2 % 30.8 % 29.1 % 29.1 %
(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 Operations

March 31, 2018

 
Projected GAAP diluted EPS from continuing operations range $ 1.67

  to  

$ 1.72
 
Non-GAAP adjustments:
Purchased software amortization 0.52 0.52
Other intangibles amortization 0.10 0.10
Internally developed software products amortization 0.08 0.08
Share-based compensation 0.25 0.25
Tax effect of non-GAAP adjustments   (0.27 )   (0.27 )
Total non-GAAP adjustment $ 0.68   $ 0.68  
 
Projected non-GAAP diluted EPS from continuing operations range $ 2.35  

 to 

$ 2.40  
 
 
Fiscal Year Ending

Projected Operating Margin

March 31, 2018

 
Projected GAAP operating margin 26 %

 to 

27 %
 
Non-GAAP operating adjustments:
Purchased software amortization 5 % 4 %
Other intangibles amortization 1 % 1 %
Internally developed software products amortization 1 % 1 %
Share-based compensation   3 %   3 %
Total non-GAAP operating adjustment   10 %   9 %
 
Projected non-GAAP operating margin   36 %   36 %
 
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.

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

Source: CA Technologies

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