CA Technologies Reports First Quarter Fiscal Year 2012 Results

First Quarter FY12 vs. FY11

(in millions, except share data)

FY12

FY11

% Change

% Change CC**

Revenue

$1,163

$1,069

9%

4%

GAAP Net Income from continuing operations

$228

$221

3%

3%

Non-GAAP Net Income from continuing operations*

$279

$233

20%

20%

GAAP Diluted EPS from continuing operations

$0.45

$0.43

5%

7%

Non-GAAP  Diluted EPS from continuing operations*

$0.55

$0.45

22%

23%

Cash Flow from continuing operations

$143

$122

17%

2%

* 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

Contacts:

Dan Kaferle

Kelsey Doherty

Public Relations

Investor Relations

(631) 342-2111

(212) 415-6844

[email protected]

[email protected]

Table 1

CA Technologies

Condensed Consolidated Statements of Operations

(in millions, except per share amounts)

(unaudited)

Three Months Ended

June 30,

Revenue

2011

2010

Subscription and maintenance revenue

$1,007

$ 939

Professional services

90

78

Software fees and other

66

52

Total revenue

1,163

1,069

Expenses

Costs of licensing and maintenance

67

67

Cost of professional services

88

71

Amortization of capitalized software costs

50

45

Selling and marketing

326

290

General and administrative

114

117

Product development and enhancements

118

128

Depreciation and amortization of other intangible assets

47

44

Other expenses (gains), net

10

(11)

Restructuring and other

1

(3)

Total expenses before interest and income taxes

821

748

Income from continuing operations before interest and income taxes

342

321

Interest expense, net

9

13

Income from continuing operations before income taxes

333

308

Income tax expense

105

87

Income from continuing operations

$   228

$ 221

Income (loss) from discontinued operations, net of income taxes

13

(4)

Net income

$   241

$ 217

Basic income (loss) per share

Income from continuing operations

$  0.45

$0.43

Income (loss) from discontinued operations

0.03

(0.01)

Net Income

$  0.48

$0.42

Basic weighted average shares used in computation

500

510

Diluted income (loss) per share

Income from continuing operations

$  0.45

$0.43

Income (loss) from discontinued operations

0.02

(0.01)

Net Income

$  0.47

$0.42

Diluted weighted average shares used in computation

501

511

Prior year results have been adjusted to reflect the discontinued operations associated with the

sale of the Information Governance business and the Internet Security business.

Table 2

CA Technologies

Condensed Consolidated Balance Sheets

(in millions)

(unaudited)

June 30,

March 31,

2011

2011

Cash and cash equivalents

$  2,761

$   3,049

Marketable securities- current

84

75

Trade and installment accounts receivable, net      

597

849

Deferred income taxes - current

207

246

Other current assets

192

152

Total current assets

3,841

4,371

Marketable securities - noncurrent

105

104

Property and equipment, net

426

437

Goodwill

5,695

5,688

Capitalized software and other intangible assets, net

1,275

1,284

Deferred income taxes - noncurrent

249

284

Other noncurrent assets, net

261

246

Total assets

$11,852

$ 12,414

Current portion of long-term debt and loans payable

$       19

$      269

Deferred revenue (billed or collected) - current

2,475

2,600

Deferred income taxes - current

69

68

Other current liabilities

763

987

Total current liabilities

3,326

3,924

Long-term debt, net of current portion

1,288

1,282

Deferred income taxes - noncurrent

66

64

Deferred revenue (billed or collected) - noncurrent

909

969

Other noncurrent liabilities

540

555

Total liabilities

6,129

6,794

Common stock

59

59

Additional paid-in capital

3,562

3,615

Retained earnings

4,321

4,106

Accumulated other comprehensive loss

(48)

(65)

Treasury stock

(2,171)

(2,095)

Total stockholders’ equity

5,723

5,620

Total liabilities and stockholders’ equity

$11,852

$ 12,414

Table 3

CA Technologies

Condensed Consolidated Statements of Cash Flows

(in millions)

(unaudited)

Three Months Ended

June 30,

2011

2010

OPERATING ACTIVITIES:

       Net income

$   241

$   217

       (Income) loss from discontinued operations

(13)

4

       Income from continuing operations

228

221

       Adjustments to reconcile income from continuing operations to net cash provided

by operating activities:

Depreciation and amortization

97

89

Provision for deferred income taxes

71

116

Provision for bad debts

-

3

Share-based compensation expense

25

19

Asset impairments and other non-cash charges

2

5

Foreign currency transaction losses (gains)

2

(2)

       Changes in other operating assets and liabilities, net of effect of acquisitions:            

Decrease in trade and installment accounts receivable, net  

274

320

Decrease in deferred revenue

(214)

(310)

Decrease in taxes payable, net

(241)

(191)

(Decrease) increase in accounts payable, accrued expenses and other

(2)

3

Decrease in accrued salaries, wages and commissions

(82)

(105)

Decrease in restructuring liabilities

(6)

(34)

Changes in other operating assets and liabilities

(11)

(12)

NET CASH PROVIDED BY OPERATING ACTIVITIES - CONTINUING OPERATIONS

143

122

INVESTING ACTIVITIES:

        Acquisitions of businesses, net of cash acquired, and purchased software

(29)

(9)

        Purchases of property and equipment

(19)

(25)

        Capitalized software development costs

(50)

(42)

        Investment in marketable securities, net

(8)

-

        Other investing activities

(1)

(16)

NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS

(107)

(92)

FINANCING ACTIVITIES:

        Dividends paid

(25)

(21)

        Purchases of common stock

(153)

(55)

        Debt repayments, net

(184)

(3)

        Exercise of common stock options and other

9

4

NET CASH USED IN FINANCING ACTIVITIES - CONTINUING OPERATIONS

(353)

(75)

NET CHANGE IN CASH AND CASH EQUIVALENTS BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH - CONTINUING OPERATIONS

(317)

(45)

Effect of exchange rate changes on cash

37

(73)

CASH PROVIDED (USED) BY OPERATING ACTIVITIES - DISCONTINUED OPERATIONS

(12)

(5)

CASH PROVIDED (USED) BY INVESTING ACTIVITIES - DISCONTINUED OPERATIONS

4

16

NET EFFECT OF DISCONTINUED OPERATIONS ON CASH AND CASH EQUIVALENTS

(8)

11

DECREASE IN CASH AND CASH EQUIVALENTS

(288)

(107)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

3,049

2,583

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$2,761

$2,476

Prior year results have been adjusted to reflect the discontinued operations associated with the sale of the Information Governance business and the Internet Security business.

Table 4

CA Technologies

Operating Segments

(in millions)

(unaudited)

Three Months Ended June 30, 2011

Mainframe
Solutions (1)

Enterprise
Solutions (1)

Services (1)

Total

Revenue (2)

$                       646

$                       427

$          90

$1,163

Expenses (3)

276

382

88

746

Segment profit

$                       370

$                         45

$            2

$   417

Operating Margin

57%

11%

2%

36%

Unallocated operating expenses and interest expense (4)

$     84

Income from continuing operations before income taxes

$   333

Three Months Ended June 30, 2010

Mainframe
Solutions (1)

Enterprise
Solutions (1)

Services (1)

Total

Revenue (2)

$                       615

$                       376

$          78

$1,069

Expenses (3)

280

351

74

705

Segment profit

$                       335

$                         25

$            4

$   364

Operating Margin

54%

7%

5%

34%

Unallocated operating expenses and interest expense (4)

$     56

Income from continuing operations before income taxes

$   308

(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 Mainframe 2.0 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:  lowering costs, providing high service levels by sustaining critical workforce skills and increasing 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), project and portfolio management, service management, virtualization and service automation, 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)

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 products); (2) allocations included within internal contract approval documents; or (3) the value for individual software products as stated in the customer contract.  The price for the implementation, consulting, education and training services is separately stated in the contract and these amounts of contract revenue are assigned to the Services segment.

(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, general and administrative costs and amortization of the cost of internally developed software.   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)

Unallocated segment expenses include the following: share-based compensation expense; amortization of purchased software; amortization of other intangible assets; derivative hedging gains and losses; and severance, exit costs and related charges associated with the Company’s Fiscal 2007 Plan, which can be found on Table 7 and Interest Expense which can be found on Table 1.  

Table 5

CA Technologies

Constant Currency Summary

(in millions)

(unaudited)

Three Months Ended June 30,

2011

2010

% Increase
(Decrease)
in $ US

% Increase
(Decrease) in
Constant
Currency (1)

Bookings

$                         865

$                       732

18%

11%

Revenue:

  North America

$                         716

$                       655

9%

9%

  International

447

414

8%

(2%)

  Total revenue

$                      1,163

$                    1,069

9%

4%

Revenue:

  Subscription and maintenance

$                      1,007

$                       939

7%

3%

  Professional services

90

78

15%

9%

  Software fees and other

66

52

27%

23%

  Total revenue

$                      1,163

$                    1,069

9%

4%

Segment Revenue:

  Mainframe Solutions

$                         646

$                       615

5%

1%

  Enterprise Solutions

427

376

14%

9%

  Services

90

78

15%

9%

Total expenses before interest and income taxes:

  Total Non-GAAP (2)

$                         746

$                       705

6%

(1%)

  Total GAAP

$                         821

$                       748

10%

3%

(1)

Constant currency information is presented to provide a framework to assess how the 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, 2011, which was the last day of fiscal year 2011.  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 results have been adjusted to reflect the discontinued operations associated with the sale of the Information Governance business and the Internet Security business.

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

(in millions)

(unaudited)

Three Months Ended

June 30, 2011

June 30, 2010

GAAP net income

$             241

$             217

GAAP Income (loss) from discontinued operations, net of taxes

13

(4)

GAAP income from continuing operations

228

221

GAAP income tax expense

105

87

GAAP interest expense

9

13

GAAP Income from continuing operations before interest and income taxes

342

321

GAAP operating margin (% of revenue) (1)

29%

30%

Non-GAAP adjustments to expenses:

Costs of licensing and maintenance(2)

1

1

Cost of professional services(2)

1

1

Amortization of capitalized software costs(3)

23

22

Selling and marketing(2)

10

7

General and administrative(2)

8

4

Product development and enhancements(2)

5

6

Depreciation and amortization of other intangible assets(4)

19

16

Other (gains), net (5)

7

(14)

Restructuring and other (6)

1

-

Total Non-GAAP adjustment to operating expenses

75

43

Non-GAAP Income from continuing operations before interest and income taxes

417

364

Non-GAAP operating margin (% of revenue) (7)

36%

34%

GAAP Interest expense, net

9

13

Non-GAAP adjustment to Interest expense

-

-

Non-GAAP interest expense

9

13

GAAP Income tax expense

105

87

Non-GAAP adjustment to income tax expense(8)

24

31

Non-GAAP income tax expense

129

118

Non-GAAP Income from continuing operations

$             279

$             233

(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)

Non-GAAP adjustment consists of purchased software amortization.

(4)

Non-GAAP adjustment consists of intangibles amortization.

(5)

Consists of 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.

(6)

Non-GAAP adjustment consists of Fiscal 2007 Restructuring Plan expense adjustments.

(7)

Non-GAAP operating margin is calculated by dividing non-GAAP income from continuing operations before interest and income taxes by total revenue (refer 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 from continuing operations (before tax). 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 results have been adjusted to reflect the discontinued operations associated with the sale of the Information Governance business and the Internet Security business.

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

(in millions, except per share amounts)

(unaudited)

Three Months Ended

June 30,

Operating Expenses

2011

2010

Total expenses before interest and income taxes

$ 821

$ 748

Non-GAAP operating adjustments:

  Purchased software amortization

23

22

  Intangibles amortization

19

16

  Share-based compensation

25

19

  Restructuring and other (1)

1

-

  Hedging (gains), net (2)

7

(14)

Total non-GAAP operating adjustments                            

75

43

Total non-GAAP operating expenses

$ 746

$ 705

Three Months Ended

June 30,

Diluted EPS from Continuing Operations

2011

2010

GAAP diluted EPS from continuing operations

$0.45

$0.43

Non-GAAP adjustments, net of taxes  

 Purchased software and intangibles amortization

0.06

0.05

 Share-based compensation

0.03

0.02

 Restructuring and other (1)

-

-

 Hedging (gains), net (2)

0.01

(0.02)

 Non-GAAP effective tax rate adjustments (3)

(0.00)

(0.03)

Non-GAAP diluted EPS from continuing operations

$0.55

$0.45

(1)

Non-GAAP adjustment consists of Fiscal 2007 Restructuring Plan expense adjustments.

(2)

Consists of 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.

(3)

The effective tax rate on non-GAAP income from continuing operations is the Company's provision for income taxes expressed as a percentage of non-GAAP income from continuing operations before income taxes.  Such 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 results have been adjusted to reflect the discontinued operations associated with the sale of the Information Governance business and the Internet Security business.

Certain non-material differences may arise versus actual from impact of rounding.

Table 8

CA Technologies

Effective Tax Rate Reconciliation

GAAP and Non-GAAP

(in millions)

(unaudited)

Three Months Ended

June 30, 2011

GAAP

Non-GAAP

Income from continuing operations before income taxes (1)

$ 333

$        408

Statutory tax rate

35%

35%

Tax at statutory rate

117

143

Adjustments for discrete and permanent items (2)

(12)

(14)

Total tax expense                            

$ 105

$        129

Effective tax rate (3)

31.5%

31.6%

Three Months Ended

June 30, 2010

GAAP

Non-GAAP

Income from continuing operations before income taxes (1)

$ 308

$        351

Statutory tax rate

35%

35%

Tax at statutory rate

108

123

Adjustments for discrete and permanent items (2)

(21)

(5)

Total tax expense                            

$   87

$        118

Effective tax rate (3)

28.2%

33.6%

(1)

Refer to Table 6 for a reconciliation of income from continuing operations before income taxes on a GAAP basis to income from continuing operations before 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.  Such 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 Earnings per Share to

Projected Non-GAAP Earnings per Share

(unaudited)

Fiscal Year Ending

Projected Diluted EPS from Continuing Operations

March 31, 2012

Projected GAAP Diluted EPS From Continuing Operations Range  

$                   1.79

to

$             1.86

Non-GAAP Adjustments, Net of Taxes:

    Purchased Software and Intangibles Amortization

0.21

0.21

    Share-based Compensation

0.14

0.14

Non-GAAP Projected Diluted EPS From Continuing Operations Range

$                   2.14

to

$             2.21

This outlook includes the impact of the planned acquisition of Interactive TKO.

Refer to the discussion of non-GAAP financial measures included in the accompanying press

release for additional information.