CA Technologies
Jul 24, 2013

CA Technologies Reports First Quarter Fiscal Year 2014 Results

NEW YORK--(BUSINESS WIRE)-- CA Technologies (NASDAQ:CA) today reported financial results for its first quarter fiscal year 2014, ended June 30, 2013.

FINANCIAL OVERVIEW

 
First Quarter FY14 vs. FY13

(dollars in millions,
except share data)

FY14   FY13   % Change  

% Change
CC**

Revenue $1,128   $1,145   (1%)   (1%)
GAAP Net Income $335   $240   40%   42%
Non-GAAP Income* $357   $298   20%   21%
GAAP Diluted EPS $0.73   $0.51   43%   47%
Non-GAAP Diluted EPS* $0.78   $0.63   24%   25%
Cash Flow from Operations $11   $183   (94%)   (83%)

* 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 performance in the first quarter and the start we made to fiscal year 2014," said CA Technologies Chief Executive Officer Mike Gregoire. "We did better than expected on the revenue line and were able to capitalize on organizational efficiencies, expense management and a tax benefit to drive earnings growth. Our cash flow from operations was down, but that was expected and we are confident in meeting our full year outlook in all areas.

"We are beginning to make progress in driving efficiencies across our business, getting traction in SaaS, Mobility and new customer acquisition, as well as improving the overall competitiveness of our products," Gregoire said.

REVENUE AND BOOKINGS

 
First Quarter FY14 vs. FY13
(dollars in millions) FY14  

% of
Total

  FY13  

% of
Total

 

%
Change

 

%
Change
CC**

North America Revenue $717   64%   $726   63%   (1%)   (1%)
International Revenue $411   36%   $419   37%   (2%)   0%
Total Revenue $1,128       $1,145       (1%)   (1%)
North America Bookings $423   51%   $326   59%   30%   30%
International Bookings $401   49%   $227   41%   77%   85%
Total Bookings $824       $553       49%   53%
Current Revenue Backlog $3,429       $3,527       (3%)   (2%)
Total Revenue Backlog $7,385       $7,771       (5%)   (4%)

**CC: Constant Currency

EXPENSES AND MARGIN

 
First Quarter FY14 vs. FY13
(dollars in millions)

FY14

  FY13  

%
Change

 

%
Change
CC**

GAAP              

Operating Expenses Before Interest
and Income Taxes

$900   $764   18%   18%

Operating Income Before Interest
and Income Taxes

$228   $381   (40%)  

(39%)

Operating Margin 20%   33%        
Effective Tax Rate (54%)   35%        

Non-GAAP*

             

Operating Expenses Before Interest
and Income Taxes

$702   $705  

0%

  0%

Operating Income Before Interest
and Income Taxes

$426   $440   (3%)   (2%)
Operating Margin 38%   38%        
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

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 has been revised to present segment profit and expenses on a consistent basis and is available in the 8-K filed today and in the Company's supplemental financial package, both of which are available at www.ca.com/invest.

 
First Quarter FY14 vs. FY13
Revenue  

%
Change

 

%
Change
CC**

  Operating Margin
(dollars in millions) FY14   FY13       FY14   FY13
Mainframe Solutions $619   $628   (1%)   (1%)   61%   58%
Enterprise Solutions $411   $426   (4%)   (3%)   10%   16%
Services $98   $91   8%  

8%

  8%   4%

**CC: Constant Currency

CASH FLOW FROM OPERATIONS

CAPITAL STRUCTURE

OUTLOOK FOR FISCAL YEAR 2014

The Company reaffirmed 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:

Outlook for cash flow from operations is being adversely 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 continues to expect a full-year GAAP operating margin of 23 percent 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 437 million shares outstanding at fiscal year 2014 year-end and weighted average diluted shares outstanding of approximately 446 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 first 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.

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, 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

June 30,

Revenue:

2013

2012

Subscription and maintenance revenue $ 944 $ 977
Professional services 98 91
Software fees and other   86   77
Total revenue $ 1,128 $ 1,145
Expenses:
Costs of licensing and maintenance $ 71 $ 69
Cost of professional services 88 86
Amortization of capitalized software costs 69 64
Selling and marketing 281 305
General and administrative 91 110
Product development and enhancements 135 125
Depreciation and amortization of other intangible assets 36 41

Other (gains) expenses, net (1)

  129   (36)
Total expenses before interest and income taxes $ 900 $ 764
Income before interest and income taxes $ 228 $ 381
Interest expense, net   11   11
Income before income taxes $ 217 $ 370
Income tax (benefit) expense   (118)   130
Net income $ 335 $ 240
 
Basic income per common share $ 0.74 $ 0.51
Basic weighted average shares used in computation 450 465
 
Diluted income per common share $ 0.73 $ 0.51
Diluted weighted average shares used in computation 451 467
(1)   Other (gains) expenses, net includes approximately $120 million of charges relating to the FY2014 Board approved re-balancing initiative announced May 7, 2013, for the three month period ending June 30, 2013.

 
Table 2
CA Technologies
Condensed Consolidated Balance Sheets
(in millions)
     
June 30, March 31,
2013 2013
(unaudited)
Cash and cash equivalents $ 2,461 $ 2,593
Short-term investments - 183
Trade accounts receivable, net 537 856
Deferred income taxes 383 346
Other current assets   243   148
Total current assets $ 3,624 $ 4,126
 
Property and equipment, net $ 298 $ 311
Goodwill 5,916 5,871
Capitalized software and other intangible assets, net 1,293 1,231
Deferred income taxes 75 77
Other noncurrent assets, net   160   195
Total assets $ 11,366 $ 11,811
 
Current portion of long-term debt $ 14 $ 16
Deferred revenue (billed or collected) 2,230 2,482
Deferred income taxes 12 12
Other current liabilities   823   1,031
Total current liabilities $ 3,079 $ 3,541
 
Long-term debt, net of current portion $ 1,271 $ 1,274
Deferred income taxes 165 120
Deferred revenue (billed or collected) 899 975
Other noncurrent liabilities   322   451
Total liabilities $ 5,736 $ 6,361
 
Common stock $ 59 $ 59
Additional paid-in capital 3,546 3,593
Retained earnings 5,578 5,357
Accumulated other comprehensive loss (198) (155)
Treasury stock   (3,355)   (3,404)
Total stockholders' equity $ 5,630 $ 5,450
Total liabilities and stockholders' equity $ 11,366 $ 11,811

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

June 30,

2013

 

2012

Operating activities:
Net income $ 335 $ 240
 
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 105 105
Provision for deferred income taxes (48) 25
Provision for bad debts 2 1
Share-based compensation expense 20 23
Asset impairments and other non-cash items 2 1
Foreign currency transaction (gains) losses (1) 12
Changes in other operating assets and liabilities, net of effect of acquisitions:
Decrease in trade accounts receivable 316 398
Decrease in deferred revenue (317) (394)
Decrease in taxes payable, net (338) (93)
Increase in accounts payable, accrued expenses and other 8 18
Decrease in accrued salaries, wages and commissions (38) (141)
Changes in other operating assets and liabilities   (35)   (12)
Net cash provided by operating activities $ 11 $ 183
Investing activities:
Acquisitions of businesses, net of cash acquired, and purchased software $ (122) $ (5)
Purchases of property and equipment (13) (22)
Capitalized software development costs (25) (36)
Maturities of short-term investments 184 -
Other investing activities   -   2
Net cash provided by (used in) investing activities $ 24 $ (61)
Financing activities:
Dividends paid $ (114) $ (119)
Purchases of common stock (49) (86)
Debt (repayments) borrowings, net (2) 5
Debt issuance costs (1) -
Exercise of common stock options and other   28   17
Net cash used in financing activities $ (138) $ (183)

Net change in cash and cash equivalents before effect of exchange rate
changes on cash

$ (103) $ (61)
Effect of exchange rate changes on cash $ (29) $ (77)
Decrease in cash and cash equivalents $ (132) $ (138)
Cash and cash equivalents at beginning of period $ 2,593 $ 2,679
Cash and cash equivalents at end of period $ 2,461 $ 2,541

 
Table 4
CA Technologies
Operating Segments
(unaudited)
(dollars in millions)
             
Three Months Ended June 30, 2013

Mainframe
Solutions (1)

Enterprise
Solutions (1)

Services (1) Total
 
Revenue (2) $ 619 $ 411 $ 98 $ 1,128
Expenses (3)   242   370   90   702
Segment profit $ 377 $ 41 $ 8 $ 426
Segment operating margin 61% 10% 8% 38%
 
Segment profit $ 426
Less:
Purchased software amortization 28
Other intangibles amortization 14
Software development costs capitalized (23)
Internally developed software products amortization 41
Share-based compensation expense 20
Other (gains) expenses, net (4) 118
Interest expense, net   11
Income before income taxes $ 217
 
 
Three Months Ended June 30, 2012

Mainframe
Solutions (1)

 

Enterprise
Solutions (1)

  Services (1)   Total
 
Revenue (2) $ 628 $ 426 $ 91 $ 1,145
Expenses (3)   261   357   87   705
Segment profit $ 367 $ 69 $ 4 $ 440
Segment operating margin 58% 16% 4% 38%
 
Segment profit $ 440
Less:
Purchased software amortization 27
Other intangibles amortization 14
Software development costs capitalized (36)
Internally developed software products amortization 37
Share-based compensation expense 23
Other (gains) expenses, net (4) (6)
Interest expense, net   11
Income before income taxes $ 370

(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 service assurance, 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 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 June 30,
2013   2012  

% Increase
(Decrease)
in $ US

 

% Increase
(Decrease)
in Constant
Currency (1)

 
Bookings $ 824 $ 553 49% 53%
 
Revenue:
North America $ 717 $ 726 (1%) (1%)
International   411   419 (2%) 0%
Total revenue $ 1,128 $ 1,145 (1%) (1%)
 
Revenue:
Subscription and maintenance $ 944 $ 977 (3%) (3%)
Professional services 98 91 8% 8%
Software fees and other   86   77 12% 13%
Total revenue $ 1,128 $ 1,145 (1%) (1%)
 
Segment Revenue:
Mainframe solutions $ 619 $ 628 (1%) (1%)
Enterprise solutions 411 426 (4%) (3%)
Services 98 91 8% 8%
 

Total expenses before interest and income
taxes:

Total non-GAAP (2) $ 702 $ 705 0% 0%
Total GAAP 900 764 18% 18%

 
(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

June 30,

2013

2012

GAAP net income $ 335 $ 240
GAAP income tax (benefit) expense (118) 130
Interest expense, net   11   11
GAAP income before interest and income taxes $ 228 $ 381
GAAP operating margin (% of revenue) (1) 20% 33%
 
Non-GAAP adjustments to expenses:
Costs of licensing and maintenance (2) $ 1 $ -
Cost of professional services (2) 1 1
Amortization of capitalized software costs (3) 69 64
Selling and marketing (2) 7 10
General and administrative (2) 6 8
Product development and enhancements (4) (18) (32)
Depreciation and amortization of other intangible assets (5) 14 14
Other (gains) expenses, net (6)   118   (6)
Total Non-GAAP adjustment to operating expenses $ 198 $ 59
Non-GAAP income before interest and income taxes $ 426 $ 440
Non-GAAP operating margin (% of revenue) (7) 38% 38%
 
Interest expense, net 11 11
GAAP income tax (benefit) expense (118) 130
Non-GAAP adjustment to income tax (benefit) expense (8)   176   1
Non-GAAP income tax expense $ 58 $ 131
Non-GAAP income $ 357 $ 298

 
(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) Non-GAAP adjustment consists of $28 million and $27 million of purchased software amortization and $41 million and $37 million of internally developed software products amortization for the three month period ending June 30, 2013 and 2012, respectively.
 
(4) Non-GAAP adjustment consists of $5 million and $4 million of share-based compensation and ($23) million and ($36) million of software development costs capitalized for the three month period ending June 30, 2013 and 2012, 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

June 30,

Operating Expenses

2013

 

2012

 
Total expenses before interest and income taxes $ 900 $ 764
 
Non-GAAP operating adjustments:
Purchased software amortization 28 27
Other intangibles amortization 14 14
Software development costs capitalized (23) (36)
Internally developed software products amortization 41 37
Share-based compensation 20 23
Other (gains) expenses, net (1)   118   (6)
Total non-GAAP operating adjustment $ 198 $ 59
 
Total non-GAAP operating expenses $ 702 $ 705
 
 
Three Months Ended

June 30,

Diluted EPS

2013

2012

 
GAAP diluted EPS $ 0.73 $ 0.51
 
Non-GAAP adjustments, net of taxes:
Purchased software amortization 0.09 0.04
Other intangibles amortization 0.05 0.02
Software development costs capitalized (0.08) (0.05)
Internally developed software products amortization 0.14 0.05
Share-based compensation 0.07 0.03
Other (gains) expenses, net (1) 0.40 (0.01)
Non-GAAP effective tax rate adjustments (2)   (0.62)   0.04
Total non-GAAP adjustment $ 0.05 $ 0.12
 
Non-GAAP diluted EPS $ 0.78 $ 0.63

 
(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

June 30, 2013

GAAP

Non-GAAP

 
Income before interest and income taxes (1) $ 228 $ 426
Interest expense, net   11   11
Income before income taxes $ 217 $ 415
 
Statutory tax rate 35% 35%
 
Tax at statutory rate $ 76 $ 145
Adjustments for discrete and permanent items (2)   (194)   (87)
Total tax (benefit) expense $ (118) $ 58
 
Effective tax rate (3) -54.4% 14.0%
 
Three Months Ended

June 30, 2012

GAAP

Non-GAAP

 
Income before interest and income taxes (1) $ 381 $ 440
Interest expense, net   11   11
Income before income taxes $ 370 $ 429
 
Statutory tax rate 35% 35%
 
Tax at statutory rate $ 130 $ 150
Adjustments for discrete and permanent items (2)   -   (19)
Total tax expense $ 130 $ 131
 
Effective tax rate (3) 35.1% 30.5%

 
(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 $ 1.81 to $ 1.91
 
Non-GAAP adjustments, net of taxes:
Purchased software amortization 0.27 0.27
Other intangibles amortization 0.09 0.09
Software development costs capitalized (0.05) (0.06)
Internally developed software products amortization 0.32 0.33
Share-based compensation 0.17 0.17
Other (gains) expenses, net (1) 0.29 0.29
Total non-GAAP adjustment $ 1.09 $ 1.09
 
Projected non-GAAP diluted EPS range $ 2.90 to $ 3.00
 
 
Fiscal Year Ending

Projected Operating Margin

March 31, 2014

 
Projected GAAP operating margin 23%
 
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) 4%
Total non-GAAP operating adjustment 13%
 
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
Kelsey Turcotte
Investor Relations
(212) 415-6844
kelsey.turcotte@ca.com

Source: CA Technologies

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