CA Technologies
Oct 27, 2016

CA Technologies Reports Second Quarter Fiscal Year 2017 Results

NEW YORK--(BUSINESS WIRE)-- CA Technologies (NASDAQ:CA) today reported financial results for its second quarter fiscal 2017, which ended September 30, 2016.

Mike Gregoire, CA Technologies Chief Executive Officer, said:

"CA delivered solid second quarter results. We reported another quarter of revenue growth with strong margins and earnings, and we are making progress across a number of our key initiatives. Our product development and innovation engines are beginning to gain momentum, and we're pleased with our improving customer experience metrics. At the same time, we recognize we still have work ahead of us. We continue to manage the business with thoughtful discipline, and I remain confident that we are moving the company in the right direction.

"At CA World next month we will welcome thousands of our customers and partners from around the globe. We look forward to demonstrating the transformational power of software, and the critical role it plays in driving today's new business models and strategies."

FINANCIAL OVERVIEW

     
(dollars in millions, except share data)   Second Quarter FY17 vs. FY16
FY17     FY16     % Change     % Change CC*
Revenue $1,018     $1,005     1%     2%
GAAP Income from Continuing Operations $212     $172     23%     24%
Non-GAAP Income from Continuing Operations* $283     $247     15%     13%
GAAP Diluted EPS from Continuing Operations $0.50     $0.39     28%     31%
Non-GAAP Diluted EPS from Continuing Operations* $0.67     $0.56     20%     18%
Cash Flow (used in) provided by Continuing Operations   ($58)     $43     (235)%     (239)%
           

* Non-GAAP income, Non-GAAP earnings per share and CC or Constant Currency 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.

REVENUE AND BOOKINGS

     
(dollars in millions)   Second Quarter FY17 vs. FY16
FY17     % of
Total
    FY16     % of
Total
    %
Change
    %
Change
CC*
North America Revenue $690     68%     $677     67%     2%     2%
International Revenue $328     32%     $328     33%     0%     1%
Total Revenue $1,018           $1,005           1%     2%
                                 
North America Bookings $479     66%     $1,173     85%     (59)%     (59)%
International Bookings $250     34%     $210     15%     19%     18%
Total Bookings $729           $1,383           (47)%     (47)%
                                 
Current Revenue Backlog $2,945           $3,006           (2)%     (2)%
Total Revenue Backlog   $6,858           $6,614           4%     4%
                   

*CC or Constant Currency is a non-GAAP financial measure, 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.

EXPENSES, MARGIN AND EARNINGS PER SHARE

     
(dollars in millions)   Second Quarter FY17 vs. FY16
FY17     FY16    

%
Change

    %
Change
CC**
GAAP  
Operating Expenses Before Interest and Income Taxes $698     $746     (6)%     (6)%
Operating Income Before Interest and Income Taxes $320     $259     24%     25%
Diluted EPS from Continuing Operations $0.50     $0.39     28%     31%
Operating Margin 31%     26%            
Effective Tax Rate 30.7%     30.4%            
                       
Non-GAAP*  
Operating Expenses Before Interest and Income Taxes $608     $648     (6)%     (5)%
Operating Income Before Interest and Income Taxes $410     $357     15%     13%
Diluted EPS from Continuing Operations $0.67     $0.56     20%     18%
Operating Margin 40%     36%            
Effective Tax Rate   28.5%     28.4%            
           

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

**CC or Constant Currency is a non-GAAP financial measure, as noted in 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.

SELECTED HIGHLIGHTS FROM THE QUARTER

SEGMENT INFORMATION

     
(dollars in millions)   Second Quarter FY17 vs. FY16
Revenue     %
Change
    %
Change
CC*
    Operating Margin
FY17     FY16             FY17     FY16
Mainframe Solutions $550     $554     (1)%     (1)%     62%     62%
Enterprise Solutions $393     $368     7%     8%     18%     3%
Services   $75     $83     (10)%     (9)%     3%     5%
       

*CC or Constant Currency is a non-GAAP financial measure, 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.

CASH FLOW FROM OPERATIONS

CAPITAL STRUCTURE

OUTLOOK FOR FISCAL YEAR 2017

The Company updated its fiscal 2017 outlook for cash flow from continuing operations. This guidance update reflects the anticipated settlement of legal matters related to the agreement-in-principle for the GSA litigation described above. The following outlook contains "forward-looking statements" (as defined below) and assumes no material acquisitions.

The Company expects the following:*

The Company expects a full-year GAAP operating margin of 29 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 411 million shares outstanding at fiscal 2017 year-end and weighted average diluted shares outstanding of approximately 414 million for the fiscal year.

*In the outlook section, certain non-material differences between growth rates and translated dollar amounts may arise from impact of rounding.

Webcast

This news release and the accompanying tables should be read in conjunction with additional content that is available on the Company's website, including a supplemental financial package, as well as a conference call and webcast that the Company will host at 5:00 p.m. ET today to discuss its unaudited 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., "Magic Quadrant for Application Release Automation," Colin Fletcher, David Paul Williams, Laurie F. Wurster,
August 1, 2016.
 

The Gartner Report(s) described herein, (the "Gartner Report(s)") represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ("Gartner"), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this Quarterly Report) and the opinions expressed in the Gartner Report(s) are subject to change without notice.

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

 
(2) Forrester Research, Inc., "The Forrester Wave™: Application Performance Management, Q3 2016," September 22, 2016
 

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: non-cash amortization of purchased software, internally developed software and other intangible assets; share-based compensation expense; charges relating to rebalancing initiatives that are large enough to require approval from the Company's Board of Directors and certain other gains and losses, which include the gains and losses since inception of hedges that mature within the quarter, but exclude gains and losses of hedges that do not mature within the quarter. The effective tax rate on GAAP and non-GAAP income from operations is the Company's provision for income taxes expressed as a percentage of pre-tax GAAP and non-GAAP income from continuing operations, respectively. These tax rates are determined based on an estimated effective full year tax rate, with the effective tax rate for GAAP generally including the impact of discrete items in the period in which such items arise and the effective tax rate for non-GAAP generally allocating the impact of discrete items pro rata to the fiscal year's remaining reporting periods. The non-GAAP effective tax rate is equal to the full year GAAP effective tax rate, therefore no adjustment is required on an annual basis. Non-GAAP adjusted cash flow from operations excludes payments associated with the fiscal 2014 Board-approved rebalancing initiative as described above and restructuring and other payments. Non-GAAP free cash flow excludes purchases of property and equipment. The Company presents constant currency information to provide a framework for assessing how the Company's underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than U.S. dollars are converted into U.S. dollars at the exchange rate in effect on the last day of the Company's prior fiscal year (i.e., March 31, 2016, March 31, 2015 and March 31, 2014, respectively). Constant currency excludes the impacts from the Company's hedging program. The constant currency calculation for annualized subscription and maintenance bookings is calculated by dividing the subscription and maintenance bookings in constant currency by the weighted average subscription and maintenance duration in years. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. By excluding these items, non-GAAP financial measures facilitate management's internal comparisons to the Company's historical operating results and cash flows, to competitors' operating results and cash flows, and to estimates made by securities analysts. Management uses these non-GAAP financial measures internally to evaluate its performance and they are key variables in determining management incentive compensation. The Company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency of supplemental information used by management in its financial and operational decision-making. In addition, the Company has historically reported similar non-GAAP financial measures to its investors and believes that the inclusion of comparative numbers provides consistency in its financial reporting. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this news release to their most directly comparable GAAP financial measures, which are attached to this news release.

Cautionary Statement Regarding Forward-Looking Statements

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

Repurchases under the Company's stock repurchase program may be made from time to time, subject to market conditions and other factors, in the open market, through solicited or unsolicited privately negotiated transactions or otherwise. The program does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company's discretion.

Certain statements in this news release (such as statements containing the words "believes," "plans," "anticipates," "expects," "estimates," "targets" and similar expressions relating to the future) constitute "forward-looking statements" that are based upon the beliefs of, and assumptions made by, the Company's management, as well as information currently available to management. These forward-looking statements reflect the Company's current views with respect to future events and are subject to certain risks, uncertainties, and assumptions. A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements, including: the ability to achieve success in the Company's business strategy by, among other things, ensuring that any new offerings address the needs of a rapidly changing market while not adversely affecting the demand for the Company's traditional products or the Company's profitability to an extent greater than anticipated, enabling the Company's sales force to accelerate growth of sales to new customers and expand sales with existing customers, including sales outside of the Company's renewal cycle and to a broadening set of purchasers outside of traditional information technology operations (with such growth and expansion at levels sufficient to offset any decline in revenue and/or sales in the Company's Mainframe Solutions segment and in certain mature product lines in the Company's Enterprise Solutions segment), effectively managing the strategic shift in the Company's business model to develop more easily installed software, provide additional SaaS offerings and refocus the Company's professional services and education engagements on those engagements that are connected to new product sales, without affecting the Company's financial performance to an extent greater than anticipated, and effectively managing the Company's pricing and other go-to-market strategies, as well as improving the Company's brand, technology and innovation awareness in the marketplace; the failure to innovate or adapt to technological changes and introduce new software products and services in a timely manner; competition in product and service offerings and pricing; the ability of the Company's products to remain compatible with ever-changing operating environments, platforms or third party products; global economic factors or political events beyond the Company's control and other business and legal risks associated with non-U.S. operations; the failure to expand partner programs and sales of the Company's solutions by the Company's partners; the ability to retain and attract qualified professionals; general economic conditions and credit constraints, or unfavorable economic conditions in a particular region, business or industry sector; the ability to successfully integrate acquired companies and products into the Company's existing business; risks associated with sales to government customers; breaches of the Company's data center, network, as well as the Company's software products, and the IT environments of the Company's vendors and customers; the ability to adequately manage, evolve and protect the Company's information systems, infrastructure and processes; the failure to renew license transactions on a satisfactory basis; fluctuations in foreign exchange rates; discovery of errors or omissions in the Company's software products or documentation and potential product liability claims; the failure to protect the Company's intellectual property rights and source code; access to software licensed from third parties; risks associated with the use of software from open source code sources; third-party claims of intellectual property infringement or royalty payments; fluctuations in the number, terms and duration of the Company's license agreements, as well as the timing of orders from customers and channel partners; events or circumstances that would require the Company to record an impairment charge relating to the Company's goodwill or capitalized software and other intangible assets balances; potential tax liabilities; changes in market conditions or the Company's credit ratings; changes in generally accepted accounting principles; the failure to effectively execute the Company's workforce reductions, workforce rebalancing and facilities consolidations; successful and secure outsourcing of various functions to third parties; and other factors described more fully in the Company's other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties occur, or should the Company's assumptions prove incorrect, actual results may vary materially from the forward-looking information described herein as believed, planned, anticipated, expected, estimated, targeted or similarly identified. We do not intend to update these forward-looking statements, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

Copyright © 2016 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:

2016

2015

2016

2015

Subscription and maintenance $ 824 $ 832 $ 1,650 $ 1,668
Professional services 75 83 152 162
Software fees and other   119   90   215   152
Total revenue $ 1,018 $ 1,005 $ 2,017 $ 1,982
Expenses:
Costs of licensing and maintenance $ 66 $ 70 $ 134 $ 136
Cost of professional services 73 78 148 149
Amortization of capitalized software costs 59 67 125 127
Selling and marketing 235 248 477 474
General and administrative 84 99 172 189
Product development and enhancements 136 151 284 287
Depreciation and amortization of other intangible assets 18 29 38 56
Other expenses, net   27   4   27   1
Total expenses before interest and income taxes $ 698 $ 746 $ 1,405 $ 1,419
Income from continuing operations before interest and income taxes $ 320 $ 259 $ 612 $ 563
Interest expense, net   14   12   29   21
Income from continuing operations before income taxes $ 306 $ 247 $ 583 $ 542
Income tax expense   94   75   173   163
Income from continuing operations $ 212 $ 172 $ 410 $ 379
Income from discontinued operations, net of income taxes $ - $ 2 $ - $ 7
Net income $ 212 $ 174 $ 410 $ 386
 
Basic income per common share:
Income from continuing operations $ 0.50 $ 0.39 $ 0.98 $ 0.86
Income from discontinued operations   -   -   -   0.02
Net income $ 0.50 $ 0.39 $ 0.98 $ 0.88
Basic weighted average shares used in computation 414 436 414 436
 
Diluted income per common share:
Income from continuing operations $ 0.50 $ 0.39 $ 0.98 $ 0.86
Income from discontinued operations   -   -   -   0.02
Net income $ 0.50 $ 0.39 $ 0.98 $ 0.88
Diluted weighted average shares used in computation 415 437 415 437

 

 

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

2016

2016

(unaudited)
Cash and cash equivalents $ 2,585 $ 2,812
Trade accounts receivable, net 445 625
Other current assets   148   124
Total current assets $ 3,178 $ 3,561
 
Property and equipment, net $ 222 $ 242
Goodwill 6,083 6,086
Capitalized software and other intangible assets, net 662 795
Deferred income taxes 422 407
Other noncurrent assets, net   120   113
Total assets $ 10,687 $ 11,204
 
Current portion of long-term debt $ 4 $ 6
Deferred revenue (billed or collected) 1,790 2,197
Other current liabilities   614   691
Total current liabilities $ 2,408 $ 2,894
 
Long-term debt, net of current portion $ 1,946 $ 1,947
Deferred income taxes 3 3
Deferred revenue (billed or collected) 580 737
Other noncurrent liabilities   221   245
Total liabilities $ 5,158 $ 5,826
 
Common stock $ 59 $ 59
Additional paid-in capital 3,652 3,664
Retained earnings 6,771 6,575
Accumulated other comprehensive loss (435) (416)
Treasury stock   (4,518)   (4,504)
Total stockholders' equity $ 5,529 $ 5,378
Total liabilities and stockholders' equity $ 10,687 $ 11,204
 

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

September 30,

2016

     

2015

Operating activities from continuing operations:
Net income $ 212 $ 174
Income from discontinued operations   -   (2)
Income from continuing operations $ 212 $ 172
Adjustments to reconcile income from continuing operations to net cash provided
by operating activities:
Depreciation and amortization 77 96
Deferred income taxes (14) (18)
Provision for bad debts 1 -
Share-based compensation expense 25 23
Other non-cash items 2 -
Foreign currency transaction losses 1 3
Changes in other operating assets and liabilities, net of effect of acquisitions:
(Increase) decrease in trade accounts receivable (17) 3
Decrease in deferred revenue (317) (257)
Decrease in taxes payable, net (45) (25)
Increase in accounts payable, accrued expenses and other 11 24
Increase in accrued salaries, wages and commissions 18 17
Changes in other operating assets and liabilities   (12)   5
Net cash (used in) provided by operating activities - continuing operations $ (58) $ 43
Investing activities from continuing operations:
Acquisitions of businesses, net of cash acquired, and purchased software $ - $ (610)
Purchases of property and equipment (8) (10)
Proceeds from sale of short-term investments   -   48
Net cash used in investing activities - continuing operations $ (8) $ (572)
Financing activities from continuing operations:
Dividends paid $ (107) $ (110)
Purchases of common stock (50) (65)
Notional pooling borrowings, net 7 13
Debt borrowings, net - 399
Debt issuance costs - (3)
Exercise of common stock options 13 -
Other financing activities   -   5
Net cash (used in) provided by financing activities - continuing operations $ (137) $ 239
Effect of exchange rate changes on cash $ 12 $ (70)
Net change in cash and cash equivalents - continuing operations $ (191) $ (360)
Cash provided by operating activities - discontinued operations $ - $ 2
Net effect of discontinued operations on cash and cash equivalents $ - $ 2
Decrease increase in cash and cash equivalents $ (191) $ (358)
Cash and cash equivalents at beginning of period $ 2,776 $ 2,816
Cash and cash equivalents at end of period $ 2,585 $ 2,458
 

   
Table 4
CA Technologies
Operating Segments
(unaudited)
(dollars in millions)
                                   
Three Months Ended September 30, 2016 Six Months Ended September 30, 2016

Mainframe
Solutions (1)

Enterprise
Solutions (1)

Services (1)

Total

Mainframe
Solutions (1)

Enterprise
Solutions (1)

Services (1)

Total

 
Revenue (2) $ 550 $ 393 $ 75 $ 1,018 $ 1,101 $ 764 $ 152 $ 2,017
Expenses (3)   211   324   73   608   419   648   148   1,215
Segment profit $ 339 $ 69 $ 2 $ 410 $ 682 $ 116 $ 4 $ 802
Segment operating margin 62% 18% 3% 40% 62% 15% 3% 40%
 
Segment profit $ 410 $ 802
Less:
Purchased software amortization 38 81
Other intangibles amortization 4 9
Internally developed software products amortization 21 44
Share-based compensation expense 25 54
Other expenses, net (4) 2 2
Interest expense, net   14   29
Income from continuing operations before income taxes $ 306 $ 583
 
 
 
Three Months Ended September 30, 2015 Six Months Ended September 30, 2015

Mainframe
Solutions (1)

Enterprise
Solutions (1)

Services (1)

Total

Mainframe
Solutions (1)

Enterprise
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
 
(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 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 September 30, Six Months Ended September 30,

2016

2015

% Increase

(Decrease)

in $ US

% Increase
(Decrease)
in Constant
Currency (1)

2016

2015

% Increase

(Decrease)

in $ US

% Increase
(Decrease)
in Constant
Currency (1)

 
Bookings $ 729 $ 1,383 (47)% (47)% $ 2,082 $ 2,045 2% 2%
 
Revenue:
North America $ 690 $ 677 2% 2% $ 1,359 $ 1,329 2% 2%
International   328   328 0% 1%   658   653 1% 2%
Total revenue $ 1,018 $ 1,005 1% 2% $ 2,017 $ 1,982 2% 2%
 
Revenue:
Subscription and maintenance $ 824 $ 832 (1)% (1)% $ 1,650 $ 1,668 (1)% (1)%
Professional services 75 83 (10)% (9)% 152 162 (6)% (6)%
Software fees and other   119   90 32% 34%   215   152 41% 43%
Total revenue $ 1,018 $ 1,005 1% 2% $ 2,017 $ 1,982 2% 2%
 
Segment Revenue:
Mainframe solutions $ 550 $ 554 (1)% (1)% $ 1,101 $ 1,114 (1)% (1)%
Enterprise solutions 393 368 7% 8% 764 706 8% 9%
Services 75 83 (10)% (9)% 152 162 (6)% (6)%
 

Total expenses before interest and income
taxes:

Total non-GAAP (2) $ 608 $ 648 (6)% (5)% $ 1,215 $ 1,220 0% 1%
Total GAAP 698 746 (6)% (6)% 1,405 1,419 (1)% 0%
 
(1)   Constant currency information is presented to provide a framework for assessing how the Company's underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than U.S. dollars are converted into U.S. dollars at the exchange rate in effect on March 31, 2016, which was the last day of the prior fiscal year. Constant currency excludes the impacts from the Company's hedging program.
 
(2) Refer to Table 7 for a reconciliation of total expenses before interest and income taxes to total non-GAAP operating expenses.
 
Certain non-material differences may arise versus actual from impact of rounding.

   
Table 6
CA Technologies
Reconciliation of Select GAAP Measures to Non-GAAP Measures
(unaudited)
(dollars in millions)
             
Three Months Ended Six Months Ended

September 30,

September 30,

2016

2015

2016

2015

GAAP net income $ 212 $ 174 $ 410 $ 386
GAAP income from discontinued operations, net of income taxes   -   (2)   -   (7)
GAAP income from continuing operations $ 212 $ 172 $ 410 $ 379
GAAP income tax expense 94 75 173 163
Interest expense, net   14   12   29   21
GAAP income from continuing operations before interest and income taxes $ 320 $ 259 $ 612 $ 563
GAAP operating margin (% of revenue) (1) 31% 26% 30% 28%
 
Non-GAAP adjustments to expenses:
Costs of licensing and maintenance (2) $ 1 $ 1 $ 3 $ 3
Cost of professional services (2) 1 1 2 2
Amortization of capitalized software costs (3) 59 67 125 127
Selling and marketing (2) 9 8 19 16
General and administrative (2) 8 9 19 16
Product development and enhancements (2) 6 4 11 8
Depreciation and amortization of other intangible assets (4) 4 14 9 25
Other expenses (gains), net (5)   2   (6)   2   2
Total Non-GAAP adjustment to operating expenses $ 90 $ 98 $ 190 $ 199
Non-GAAP income from continuing operations before interest and income taxes $ 410 $ 357 $ 802 $ 762
Non-GAAP operating margin (% of revenue) (6) 40% 36% 40% 38%
 
Interest expense, net 14 12 29 21
GAAP income tax expense 94 75 173 163
Non-GAAP adjustment to income tax expense (7)   19   23   48   48
Non-GAAP income tax expense $ 113 $ 98 $ 221 $ 211
Non-GAAP income from continuing operations $ 283 $ 247 $ 552 $ 530
 
(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, 2016 and 2015, non-GAAP adjustment consists of $38 million and $39 million of purchased software amortization and $21 million and $28 million of internally developed software products amortization, respectively. For the six month periods ending September 30, 2016 and 2015, non-GAAP adjustment consists of $81 million and $67 million of purchased software amortization and $44 million and $60 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 Six Months Ended

September 30,

September 30,

Operating Expenses

2016

2015

2016

2015

 
Total expenses before interest and income taxes $ 698 $ 746 $ 1,405 $ 1,419
 
Non-GAAP operating adjustments:
Purchased software amortization 38 39 81 67
Other intangibles amortization 4 14 9 25
Internally developed software products amortization 21 28 44 60
Share-based compensation 25 23 54 45
Other expenses (gains), net (1)   2   (6)   2   2
Total non-GAAP operating adjustment $ 90 $ 98 $ 190 $ 199
 
Total non-GAAP operating expenses $ 608 $ 648 $ 1,215 $ 1,220
 
 
Three Months Ended Six Months Ended

September 30,

September 30,

Diluted EPS from Continuing Operations

2016

2015

2016

2015

 
GAAP diluted EPS from continuing operations $ 0.50 $ 0.39 $ 0.98 $ 0.86
 
Non-GAAP adjustments:
Purchased software amortization 0.09 0.09 0.19 0.15
Other intangibles amortization 0.01 0.03 0.02 0.06
Internally developed software products amortization 0.05 0.06 0.10 0.13
Share-based compensation 0.06 0.05 0.13 0.10
Other expenses (gains), net (1) - (0.01) - 0.01
Tax effect of non-GAAP adjustments (0.06) (0.07) (0.13) (0.14)
Non-GAAP effective tax rate adjustments (2)   0.02   0.02   0.02   0.03
Total non-GAAP adjustment $ 0.17 $ 0.17 $ 0.33 $ 0.34
 
Non-GAAP diluted EPS from continuing operations $ 0.67 $ 0.56 $ 1.31 $ 1.20
 
(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 Six Months Ended

September 30, 2016

September 30, 2016

GAAP

Non-GAAP

GAAP

Non-GAAP

 
Income from continuing operations before interest and income taxes (1) $ 320 $ 410 $ 612 $ 802
Interest expense, net   14   14   29   29
Income from continuing operations before income taxes $ 306 $ 396 $ 583 $ 773
 
Statutory tax rate 35% 35% 35% 35%
 
Tax at statutory rate $ 107 $ 139 $ 204 $ 271
Adjustments for discrete and permanent items (2)   (13)   (26)   (31)   (50)
Total tax expense $ 94 $ 113 $ 173 $ 221
 
Effective tax rate (3) 30.7% 28.5% 29.7% 28.6%
 
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%
 
(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, 2017

 
Projected GAAP diluted EPS from continuing operations range $ 1.88 to $ 1.93
 
Non-GAAP adjustments:
Purchased software amortization 0.37 0.37
Other intangibles amortization 0.03 0.03
Internally developed software products amortization 0.19 0.19
Share-based compensation 0.26 0.26
Tax effect of non-GAAP adjustments   (0.24)   (0.24)
Total non-GAAP adjustment $ 0.61 $ 0.61
 
Projected non-GAAP diluted EPS from continuing operations range $ 2.49 to $ 2.54
 
 
Fiscal Year Ending

Projected Operating Margin

March 31, 2017

 
Projected GAAP operating margin 29%
 
Non-GAAP operating adjustments:
Purchased software amortization 4%
Other intangibles amortization 0%
Internally developed software products amortization 2%
Share-based compensation 3%
Total non-GAAP operating adjustment 9%
 
Projected non-GAAP operating margin 38%
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
Robert Lung, 212-415-6908
Investor Relations
robert.lung@ca.com

Source: CA Technologies

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