CA Technologies
Oct 21, 2015

CA Technologies Reports Second Quarter Fiscal Year 2016 Results

NEW YORK--(BUSINESS WIRE)-- CA Technologies (NASDAQ:CA) today reported financial results for its second quarter fiscal 2016, which ended September 30, 2015.

Mike Gregoire, CA Technologies Chief Executive Officer, said:

"I am pleased with the progress we have demonstrated this quarter. Our new sales performance reflects the continued improvements we are making in both our products as well as our sales execution. New sales were up more than forty percent. This is an indicator of the great traction our products are experiencing and CA's value in today's application economy. In addition, our renewal yields were the best in recent history.

"We recognize that there is still work to do in order to realize the kind of growth that CA can achieve. CA remains focused on product quality, product innovation, overall execution and fiscal discipline.

"Our strategy continues to stress organic innovation, complemented by targeted investments that give us competitive advantage.

"Looking ahead, we are encouraged by the breadth of opportunities in front of us. That said, for the rest of the fiscal year, we expect results to be weighted towards the fourth quarter."

FINANCIAL OVERVIEW

 
(dollars in millions, except share data)   Second Quarter FY16 vs. FY15
FY16   FY15   % Change  

% Change
CC**

Revenue $1,005   $1,079   (7)%   (1)%
GAAP Income from Continuing Operations $172   $235   (27)%   (14)%
Non-GAAP Income from Continuing Operations* $247   $292   (15)%   (7)%
GAAP Diluted EPS from Continuing Operations $0.39   $0.53   (26)%   (13)%
Non-GAAP Diluted EPS from Continuing Operations* $0.56   $0.65   (14)%   (6)%
Cash Flow from Continuing Operations   $43   $66   (35)%   (32)%

* 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

 

REVENUE AND BOOKINGS

 
(dollars in millions)   Second Quarter FY16 vs. FY15
FY16  

% of
Total

  FY15  

% of
Total

  %
Change
 

%
Change
CC**

North America Revenue $677   67%   $693   64%   (2)%   (1)%
International Revenue $328   33%   $386   36%   (15)%   1%
Total Revenue $1,005       $1,079       (7)%   (1)%
                       
North America Bookings $1,173   85%   $552   74%   113%   114%
International Bookings $210   15%   $197   26%   7%   22%
Total Bookings $1,383       $749       85%   92%
                       
Current Revenue Backlog $3,006       $3,230       (7)%   (2)%
Total Revenue Backlog   $6,614       $6,811       (3)%   2%

**CC: Constant Currency

 

EXPENSES AND MARGIN

 
(dollars in millions)   Second Quarter FY16 vs. FY15
FY16   FY15  

%
Change

 

%
Change
CC**

GAAP  
Operating Expenses Before Interest and Income Taxes $746   $759   (2)%   1%
Operating Income Before Interest and Income Taxes $259   $320   (19)%   (6)%
Operating Margin 26%   30%        
Effective Tax Rate 30.4%   23.7%        
               
Non-GAAP*  
Operating Expenses Before Interest and Income Taxes $648   $650   0%   5%
Operating Income Before Interest and Income Taxes $357   $429   (17)%   (9)%
Operating Margin 36%   40%        
Effective Tax Rate   28.4%   30.0%        

*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 workforce rebalancing initiatives and certain other gains and losses. The results also include gains and losses on hedges that mature within the quarter, but exclude gains and losses on hedges that do not mature within the quarter.
**CC: Constant Currency

SELECTED HIGHLIGHTS FROM THE QUARTER

SEGMENT INFORMATION

 
(dollars in millions)   Second Quarter FY16 vs. FY15
Revenue  

%
Change

 

%
Change
CC**

  Operating Margin
FY16   FY15       FY16   FY15
Mainframe Solutions $554   $610   (9)%   (3)%   62%   62%
Enterprise Solutions $368   $378   (3)%   3%   3%   13%
Services   $83   $91   (9)%   (3)%   5%   2%

**CC: Constant Currency

 

CASH FLOW FROM OPERATIONS

CAPITAL STRUCTURE

OUTLOOK FOR FISCAL YEAR 2016

The Company updated its fiscal 2016 outlook for GAAP diluted earnings per share from continuing operations. The following outlook contains "forward-looking statements" (as defined below).

The Company expects the following:

This outlook assumes no further material acquisitions and a partial currency hedge of operating income. The Company expects a full-year GAAP operating margin of 28 percent and non-GAAP operating margin of 38 percent, unchanged from previous guidance.

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

The Company anticipates approximately 431 million shares outstanding at fiscal 2016 year-end and weighted average diluted shares outstanding of approximately 436 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 5:00 p.m. ET today to discuss its unaudited second quarter results. The webcast will be archived on the website. Individuals can access the webcast, as well as the press release and supplemental financial information at http://ca.com/invest or can listen to the call at 1-877-561-2748. The international participant number is 1-720-545-0044.

(1) Gartner, Inc., " Vendor Rating: CA Technologies, David Cappuccio, et.al, 31 August 2015

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.

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.

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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, 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: share-based compensation expense; non-cash amortization of purchased software and other intangible assets; 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 Company began expensing costs for internally developed software where development efforts commenced in the first quarter of fiscal 2014. Due to this change, the Company also adds back capitalized internal software costs and excludes amortization of internally developed software costs previously capitalized from these non-GAAP metrics. 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 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. 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, 2015, March 31, 2014 and March 31, 2013, 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 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 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, enabling the Company's sales force to accelerate growth of new product sales (at levels sufficient to offset any decline in revenue in the Company's Mainframe Solutions segment), improving the Company's brand, technology and innovation awareness in the marketplace, ensuring the Company's offerings for cloud computing, application development and IT operations (DevOps), Software-as-a-Service (SaaS), and mobile device management, as well as 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 to an extent greater than anticipated, and 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 performance to an extent greater than anticipated; the failure to innovate or adapt to technological changes and introduce new software products and services in a timely manner; competition in product and service offerings and pricing; the ability of the Company's products to remain compatible with ever-changing operating environments, platforms or third party products; global economic factors or political events beyond the Company's control and other business and legal risks associated with non-U.S. operations; the failure to expand partner programs; the failure to expand partner programs; the ability to retain and attract qualified professionals; general economic conditions and credit constraints, or unfavorable economic conditions in a particular region, industry or business sector; the ability to successfully integrate acquired companies and products into the Company's existing business; risks associated with sales to government customers; breaches of the Company's data center, network, as well as the Company's software products, and the IT environments of the Company's vendors and customers; the ability to adequately manage, evolve and protect the Company's information systems, infrastructure and processes; fluctuations in foreign exchange rates; discovery of errors or omissions in the Company's software products or documentation and potential product liability claims; the failure to protect the Company's intellectual property rights and source code; the failure to renew large license transactions on a satisfactory basis; access to software licensed from third parties; risks associated with the use of software from open source code sources; third-party claims of intellectual property infringement or royalty payments; fluctuations in the number, terms and duration of the Company's license agreements, as well as the timing of orders from customers and channel partners; events or circumstances that would require the Company to record an impairment charge relating to the Company's goodwill or capitalized software and other intangible assets balances; potential tax liabilities; changes in market conditions or the Company's credit ratings; the failure to effectively execute the Company's workforce reductions, workforce rebalancing and facilities consolidations; successful and secure outsourcing of various functions to third parties; changes in generally accepted accounting principles; 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 the Company's 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 © 2015 CA, Inc. All Rights Reserved. All other trademarks, trade names, service marks, and logos referenced herein belong to their respective companies.

Table 1
CA Technologies
Consolidated Statements of Operations
(unaudited)
(in millions, except per share amounts)
 
  Three Months Ended Six Months Ended

September 30,

September 30,

Revenue:

2015

 

2014

2015

 

2014

Subscription and maintenance $ 832 $ 908 $ 1,668 $ 1,817
Professional services 83 91 162 178
Software fees and other   90     80     152     153  
Total revenue $ 1,005   $ 1,079   $ 1,982   $ 2,148  
Expenses:
Costs of licensing and maintenance $ 70 $ 71 $ 136 $ 143
Cost of professional services 78 88 149 169
Amortization of capitalized software costs 67 75 127 142
Selling and marketing 248 253 474 499
General and administrative 99 87 189 179
Product development and enhancements 151 150 287 300
Depreciation and amortization of other intangible assets 29 34 56 68
Other expenses, net   4     1     1     15  
Total expenses before interest and income taxes $ 746   $ 759   $ 1,419   $ 1,515  
Income from continuing operations before interest and income taxes $ 259 $ 320 $ 563 $ 633
Interest expense, net   12     12     21     26  
Income from continuing operations before income taxes $ 247 $ 308 $ 542 $ 607
Income tax expense   75     73     163     160  
Income from continuing operations $ 172 $ 235 $ 379 $ 447
Income from discontinued operations, net of income taxes $ 2   $ 21   $ 7   $ 26  
Net income $ 174   $ 256   $ 386   $ 473  
 
Basic income per common share:
Income from continuing operations $ 0.39 $ 0.53 $ 0.86 $ 1.01
Income from discontinued operations   -     0.05     0.02     0.06  
Net income $ 0.39   $ 0.58   $ 0.88   $ 1.07  
Basic weighted average shares used in computation 436 440 436 440
 
Diluted income per common share:
Income from continuing operations $ 0.39 $ 0.53 $ 0.86 $ 1.00
Income from discontinued operations   -     0.05     0.02     0.06  
Net income $ 0.39   $ 0.58   $ 0.88   $ 1.06  
Diluted weighted average shares used in computation 437 441 437 441

Results reflect the discontinued operations associated with the CA ERwin Data Modeling and CA arcserve data protection businesses.

 
Table 2
CA Technologies
Condensed Consolidated Balance Sheets
(in millions)
 
  September 30,   March 31,
2015 2015
(unaudited)
Cash and cash equivalents $ 2,458 $ 2,804
Trade accounts receivable, net 439 652
Deferred income taxes 342 318
Other current assets   183     213  
Total current assets $ 3,422 $ 3,987
 
Property and equipment, net $ 246 $ 252
Goodwill 6,120 5,806
Capitalized software and other intangible assets, net 953 731
Deferred income taxes 39 92
Other noncurrent assets, net   113     111  
Total assets $ 10,893   $ 10,979  
 
Current portion of long-term debt $ 8 $ 10
Deferred revenue (billed or collected) 1,870 2,114
Deferred income taxes 7 7
Other current liabilities   677     807  
Total current liabilities $ 2,562 $ 2,938
 
Long-term debt, net of current portion $ 1,649 $ 1,253
Deferred income taxes 70 45
Deferred revenue (billed or collected) 646 863
Other noncurrent liabilities   264     255  
Total liabilities $ 5,191   $ 5,354  
 
Common stock $ 59 $ 59
Additional paid-in capital 3,614 3,631
Retained earnings 6,387 6,221
Accumulated other comprehensive loss (439 ) (418 )
Treasury stock   (3,919 )   (3,868 )
Total stockholders' equity $ 5,702   $ 5,625  
Total liabilities and stockholders' equity $ 10,893   $ 10,979  
 

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

September 30,

2015

 

2014

Operating activities from continuing operations:
Net income $ 174 $ 256
Income from discontinued operations   (2 )   (21 )
Income from continuing operations $ 172 $ 235

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:

Depreciation and amortization 96 109
Deferred income taxes (18 ) (29 )
Provision for bad debts - 2
Share-based compensation expense 23 22
Asset impairments and other non-cash items - (1 )
Foreign currency transaction losses 3 3
Changes in other operating assets and liabilities, net of effect of acquisitions:
Decrease in trade accounts receivable 3 12
Decrease in deferred revenue (257 ) (212 )
Decrease in taxes payable, net (25 ) (59 )
Increase in accounts payable, accrued expenses and other 24 8
Increase in accrued salaries, wages and commissions 17 18
Changes in other operating assets and liabilities   5     (42 )
Net cash provided by operating activities - continuing operations $ 43   $ 66  
Investing activities from continuing operations:
Acquisitions of businesses, net of cash acquired, and purchased software $ (610 ) $ (1 )
Purchases of property and equipment (10 ) (13 )
Proceeds from sale of short-term investments   48     -  
Net cash used in investing activities - continuing operations $ (572 ) $ (14 )
Financing activities from continuing operations:
Dividends paid $ (110 ) $ (111 )
Purchases of common stock (65 ) -
Notional pooling borrowings, net 13 45
Debt borrowings (repayments), net 399 (3 )
Debt issuance costs (3 ) -
Exercise of common stock options - 2
Other financing activities   5     -  
Net cash provided by (used in) financing activities - continuing operations $ 239 $ (67 )
Effect of exchange rate changes on cash $ (70 ) $ (186 )
Net change in cash and cash equivalents - continuing operations $ (360 ) $ (201 )
Cash provided by (used in) operating activities - discontinued operations $ 2 $ (31 )
Cash provided by investing activities - discontinued operations   -     170  
Net effect of discontinued operations on cash and cash equivalents $ 2   $ 139  
Decrease in cash and cash equivalents $ (358 ) $ (62 )
Cash and cash equivalents at beginning of period $ 2,816   $ 3,255  
Cash and cash equivalents at end of period $ 2,458   $ 3,193  
 
Results reflect the discontinued operations associated with the CA ERwin Data Modeling and CA arcserve data protection businesses.
 

Table 4
CA Technologies
Operating Segments
(unaudited)
(dollars in millions)
 
  Three Months Ended September 30, 2015   Six Months Ended September 30, 2015

Mainframe

 

Enterprise

   

Mainframe

 

Enterprise

   

Solutions (1)

Solutions (1)

Services (1) Total

Solutions (1)

Solutions (1)

Services (1) Total
 
Revenue (2) $ 554 $ 368 $ 83 $ 1,005 $ 1,114 $ 706 $ 162 $ 1,982
Expenses (3)   212     357     79     648     423     647     150     1,220  
Segment profit $ 342   $ 11   $ 4   $ 357   $ 691   $ 59   $ 12   $ 762  
Segment operating margin 62 % 3 % 5 % 36 % 62 % 8 % 7 % 38 %
 
Segment profit $ 357 $ 762
Less:
Purchased software amortization 39 67
Other intangibles amortization 14 25
Internally developed software products amortization 28 60
Share-based compensation expense 23 45
Other (gains) expenses, net (4) (6 ) 2
Interest expense, net   12     21  
Income from continuing operations before income taxes $ 247   $ 542  
 
 
Three Months Ended September 30, 2014 Six Months Ended September 30, 2014

Mainframe

Enterprise

Mainframe

Enterprise

Solutions (1)

Solutions (1)

Services (1) Total

Solutions (1)

Solutions (1)

Services (1) Total
 
Revenue (2) $ 610 $ 378 $ 91 $ 1,079 $ 1,224 $ 746 $ 178 $ 2,148
Expenses (3)   234     327     89     650     469     652     171     1,292  
Segment profit $ 376   $ 51   $ 2   $ 429   $ 755   $ 94   $ 7   $ 856  
Segment operating margin 62 % 13 % 2 % 40 % 62 % 13 % 4 % 40 %
 
Segment profit $ 429 $ 856
Less:
Purchased software amortization 31 59
Other intangibles amortization 16 31
Internally developed software products amortization 44 83
Share-based compensation expense 22 42
Other (gains) expenses, net (4) (4 ) 8
Interest expense, net   12     26  
Income from continuing operations before income taxes $ 308   $ 607  
(1)   The Company's Mainframe Solutions and Enterprise Solutions segments comprise its software business organized by the nature of the Company's software offerings and the platform on which the products operate. The Services segment comprises product implementation, consulting, customer education and customer training, including those directly related to the Mainframe Solutions and Enterprise Solutions software that the Company sells to its customers.
 
(2) The Company regularly enters into a single arrangement with a customer that includes mainframe solutions, enterprise solutions and services. The amount of contract revenue assigned to operating segments is generally based on the manner in which the proposal is made to the customer. The software product revenue is assigned to the Mainframe Solutions and Enterprise Solutions segments based on either: (1) a list price allocation method (which allocates a discount in the total contract price to the individual products in proportion to the list price of the product); (2) allocations included within internal contract approval documents; or (3) the value for individual software products as stated in the customer contract. The price for the implementation, consulting, education and training services is separately stated in the contract and these amounts of contract revenue are assigned to the Services segment. The contract value assigned to each operating segment is then recognized in a manner consistent with the revenue recognition policies the Company applies to the customer contract for purposes of preparing the Consolidated Financial Statements.
 
(3) Segment expenses include costs that are controllable by segment managers (i.e., direct costs) and, in the case of the Mainframe Solutions and Enterprise Solutions segments, an allocation of shared and indirect costs (i.e., allocated costs). Segment-specific direct costs include a portion of selling and marketing costs, licensing and maintenance costs, product development costs and general and administrative costs. Allocated segment costs primarily include indirect and non-segment specific direct selling and marketing costs and general and administrative costs that are not directly attributable to a specific segment. The basis for allocating shared and indirect costs between the Mainframe Solutions and Enterprise Solutions segments is dependent on the nature of the cost being allocated and is either in proportion to segment revenues or in proportion to the related direct cost category. Expenses for the Services segment consist of cost of professional services and other direct costs included within selling and marketing and general and administrative expenses. There are no allocated or indirect costs for the Services segment.
 
(4) Other (gains) expenses, net consists of costs associated with the FY2014 Board approved rebalancing initiative (the Fiscal 2014 Plan), certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.
 
Results reflect the discontinued operations associated with the CA ERwin Data Modeling and CA arcserve data protection businesses.
 

Table 5

CA Technologies

Constant Currency Summary

(unaudited)

(dollars in millions)

 
  Three Months Ended September 30,   Six Months Ended September 30,
     

% Increase

     

% Increase

% Increase

(Decrease)

% Increase

(Decrease)

(Decrease)

in Constant

(Decrease)

in Constant

2015

2014

in $ US

Currency (1)

2015

2014

in $ US

Currency (1)

 
Bookings $ 1,383 $ 749 85 % 92 % $ 2,045 $ 1,473 39 % 46 %
 
Revenue:
North America $ 677 $ 693 (2 )% (1 )% $ 1,329 $ 1,375 (3 )% (3 )%
International   328     386   (15 )% 1 %   653     773   (16 )% 0 %
Total revenue $ 1,005 $ 1,079 (7 )% (1 )% $ 1,982 $ 2,148 (8 )% (2 )%
 
Revenue:
Subscription and maintenance $ 832 $ 908 (8 )% (2 )% $ 1,668 $ 1,817 (8 )% (2 )%
Professional services 83 91 (9 )% (3 )% 162 178 (9 )% (3 )%
Software fees and other   90     80   13 % 17 %   152     153   (1 )% 4 %
Total revenue $ 1,005 $ 1,079 (7 )% (1 )% $ 1,982 $ 2,148 (8 )% (2 )%
 
Segment Revenue:
Mainframe solutions $ 554 $ 610 (9 )% (3 )% $ 1,114 $ 1,224 (9 )% (3 )%
Enterprise solutions 368 378 (3 )% 3 % 706 746 (5 )% 0 %
Services 83 91 (9 )% (3 )% 162 178 (9 )% (3 )%
 
Total expenses before interest and income taxes:
Total non-GAAP (2) $ 648 $ 650 0 % 5 % $ 1,220 $ 1,292 (6 )% (1 )%
Total GAAP 746 759 (2 )% 1 % 1,419 1,515 (6 )% (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, 2015, 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.
 
Results reflect the discontinued operations associated with the CA ERwin Data Modeling and CA arcserve data protection businesses.
 
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,

2015

 

2014

2015

 

2014

GAAP net income $ 174 $ 256 $ 386 $ 473
GAAP income from discontinued operations, net of income taxes   (2 )   (21 )   (7 )   (26 )
GAAP income from continuing operations $ 172 $ 235 $ 379 $ 447
GAAP income tax expense 75 73 163 160
Interest expense, net   12     12     21     26  
GAAP income from continuing operations before interest and income taxes $ 259   $ 320   $ 563   $ 633  
GAAP operating margin (% of revenue) (1) 26 % 30 % 28 % 29 %
 
Non-GAAP adjustments to expenses:
Costs of licensing and maintenance (2) $ 1 $ 1 $ 3 $ 2
Cost of professional services (2) 1 1 2 2
Amortization of capitalized software costs (3) 67 75 127 142
Selling and marketing (2) 8 8 16 15
General and administrative (2) 9 7 16 13
Product development and enhancements (2) 4 5 8 10
Depreciation and amortization of other intangible assets (4) 14 16 25 31
Other (gains) expenses, net (5)   (6 )   (4 )   2     8  
Total Non-GAAP adjustment to operating expenses $ 98   $ 109   $ 199   $ 223  
Non-GAAP income from continuing operations before interest and income taxes $ 357 $ 429 $ 762 $ 856
Non-GAAP operating margin (% of revenue) (6) 36 % 40 % 38 % 40 %
 
Interest expense, net 12 12 21 26
GAAP income tax expense 75 73 163 160
Non-GAAP adjustment to income tax expense (7)   23     52     48     89  
Non-GAAP income tax expense $ 98   $ 125   $ 211   $ 249  
Non-GAAP income from continuing operations $ 247   $ 292   $ 530   $ 581  
(1)   GAAP operating margin is calculated by dividing GAAP income from continuing operations before interest and income taxes by total revenue (refer to Table 1 for total revenue).
 
(2) Non-GAAP adjustment consists of share-based compensation.
 
(3) For the three month periods ending September 30, 2015 and 2014, non-GAAP adjustment consists of $39 million and $31 million of purchased software amortization and $28 million and $44 million of internally developed software products amortization, respectively. For the six month periods ending September 30, 2015 and 2014, non-GAAP adjustment consists of $67 million and $59 million of purchased software amortization and $60 million and $83 million of internally developed software products amortization, respectively.
 
(4) Non-GAAP adjustment consists of other intangibles amortization.
 
(5) Non-GAAP adjustment consists of charges relating to the FY2014 Board approved rebalancing initiative (the Fiscal 2014 Plan) 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.
 
(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.
 
Results reflect the discontinued operations associated with the CA ERwin Data Modeling and CA arcserve data protection businesses.
 
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

2015

 

2014

2015

 

2014

 
Total expenses before interest and income taxes $ 746 $ 759 $ 1,419 $ 1,515
 
Non-GAAP operating adjustments:
Purchased software amortization 39 31 67 59
Other intangibles amortization 14 16 25 31
Internally developed software products amortization 28 44 60 83
Share-based compensation 23 22 45 42
Other (gains) expenses, net (1)   (6 )   (4 )   2     8  
Total non-GAAP operating adjustment $ 98   $ 109   $ 199   $ 223  
 
Total non-GAAP operating expenses $ 648   $ 650   $ 1,220   $ 1,292  
 
 
Three Months Ended Six Months Ended

September 30,

September 30,

Diluted EPS from Continuing Operations

2015

2014

2015

2014

 
GAAP diluted EPS from continuing operations $ 0.39 $ 0.53 $ 0.86 $ 1.00
 
Non-GAAP adjustments, net of taxes:
Purchased software amortization 0.06 0.05 0.11 0.10
Other intangibles amortization 0.02 0.02 0.04 0.05
Internally developed software products amortization 0.04 0.08 0.09 0.14
Share-based compensation 0.04 0.04 0.07 0.07
Other (gains) expenses, net (1) (0.01 ) (0.01 ) - 0.01
Non-GAAP effective tax rate adjustments (2)   0.02     (0.06 )   0.03     (0.07 )
Total non-GAAP adjustment $ 0.17   $ 0.12   $ 0.34   $ 0.30  
 
Non-GAAP diluted EPS from continuing operations $ 0.56   $ 0.65   $ 1.20   $ 1.30  
(1)   Other (gains) expenses, net consists of costs associated with the FY2014 Board approved rebalancing initiative (the Fiscal 2014 Plan), 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.
 
Results reflect the discontinued operations associated with the CA ERwin Data Modeling and CA arcserve data protection businesses.
 
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, 2015

September 30, 2015

GAAP

 

Non-GAAP

GAAP

 

Non-GAAP

 
Income from continuing operations before interest and income taxes (1) $ 259 $ 357 $ 563 $ 762
Interest expense, net   12     12     21     21  
Income from continuing operations before income taxes $ 247 $ 345 $ 542 $ 741
 
Statutory tax rate 35 % 35 % 35 % 35 %
 
Tax at statutory rate $ 86 $ 121 $ 190 $ 259
Adjustments for discrete and permanent items (2)   (11 )   (23 )   (27 )   (48 )
Total tax expense $ 75 $ 98 $ 163 $ 211
 
Effective tax rate (3) 30.4 % 28.4 % 30.1 % 28.5 %
 
 
Three Months Ended Six Months Ended

September 30, 2014

September 30, 2014

GAAP

Non-GAAP

GAAP

Non-GAAP

 
Income from continuing operations before interest and income taxes (1) $ 320 $ 429 $ 633 $ 856
Interest expense, net   12     12     26     26  
Income from continuing operations before income taxes $ 308 $ 417 $ 607 $ 830
 
Statutory tax rate 35 % 35 % 35 % 35 %
 
Tax at statutory rate $ 108 $ 146 $ 212 $ 291
Adjustments for discrete and permanent items (2)   (35 )   (21 )   (52 )   (42 )
Total tax expense $ 73 $ 125 $ 160 $ 249
 
Effective tax rate (3) 23.7 % 30.0 % 26.4 % 30.0 %
(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.
 
Results reflect the discontinued operations associated with the CA ERwin Data Modeling and CA arcserve data protection businesses.
 
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, 2016

 
Projected GAAP diluted EPS from continuing operations range

$

1.70

 

to

$

1.76

 

 
Non-GAAP adjustments, net of taxes:
Purchased software amortization 0.24 0.24
Other intangibles amortization 0.07 0.07
Internally developed software products amortization 0.18 0.18
Share-based compensation   0.15     0.15  
Total non-GAAP adjustment $ 0.64   $ 0.64  
 
Projected non-GAAP diluted EPS from continuing operations range $ 2.34   to $ 2.40  
 
 
Fiscal Year Ending

Projected Operating Margin

March 31, 2016

 
Projected GAAP operating margin 28 %
 
Non-GAAP operating adjustments:
Purchased software amortization 4 %
Other intangibles amortization 1 %
Internally developed software products amortization 3 %
Share-based compensation 2 %
Total non-GAAP operating adjustment 10 %
 
Projected non-GAAP operating margin 38 %
 
Refer to the discussion of non-GAAP financial measures included in the accompanying press release for additional information.

CA Technologies
Saswato Das, 646-710-6690
Corporate Communications
Saswato.das@ca.com
or
Traci Tsuchiguchi, 650-534-9814
Investor Relations
traci.tsuchiguchi@ca.com

Source: CA Technologies

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