Company Quick10K Filing
Quick10K
CA
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-K 2018-03-31 Annual: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-K 2017-03-31 Annual: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-K 2016-03-31 Annual: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-K 2015-03-31 Annual: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-K 2014-03-31 Annual: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2018-11-05 Leave Agreement, M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Exhibits
8-K 2018-10-15 Other Events
8-K 2018-09-12 Shareholder Vote, Other Events, Exhibits
8-K 2018-08-23 Other Events
8-K 2018-08-08 Officers, Shareholder Vote, Exhibits
8-K 2018-08-06 Earnings, Exhibits
8-K 2018-07-11 Enter Agreement, Shareholder Rights, Regulation FD, Other Events, Exhibits
8-K 2018-05-30 Regulation FD, Exhibits
8-K 2018-05-08 Earnings, Exit Costs, Officers, Exhibits
8-K 2018-02-01 Officers, Exhibits
8-K 2018-01-30 Earnings, Exhibits
CHKP Check Point Software Technologies 20,690
ZTO ZTO Express 15,180
NBR Nabors Industries 1,390
ICD Independence Contract Drilling 219
ELGX Endologix 110
EMMS Emmis Communications 47
NVLN Novelion Therapeutics 26
FLAG Flag Financial 16
QNBC QNB 0
CYS CYS Investments 0
CA 2018-09-30
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Note 1 - Accounting Policies
Note 2 - Revenue From Contracts with Customers
Note 3 - Impact of Adopting Topic 606
Note 4 - Restructuring
Note 5 - Goodwill, Capitalized Software and Other Intangible Assets
Note 6 - Derivatives
Note 7 - Fair Value Measurements
Note 8 - Commitments and Contingencies
Note 9 - Stockholders' Equity
Note 10 - Income per Common Share
Note 11 - Accounting for Share-Based Compensation
Note 12 - Income Taxes
Note 13 - Supplemental Statement of Cash Flows Information
Note 14 - Segment Information
Note 15 - Subsequent Events
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Item 4: Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-15 ca-ex15_20180930.htm
EX-31.1 ca-ex311_20180930.htm
EX-31.2 ca-ex312_20180930.htm
EX-32 ca-ex32_20180930.htm

CA Earnings 2018-09-30

CA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ca-20180930x10q.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________
FORM 10-Q
__________________________________________

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______            
Commission File Number 1-9247
__________________________________________
CA, Inc.
(Exact name of registrant as specified in its charter)
__________________________________________
Delaware
13-2857434
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
 
520 Madison Avenue,
New York, New York
10022
(Address of principal executive offices)
(Zip Code)
1-800-225-5224
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
__________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one:)
 
 
 
Large accelerated filer
þ
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Emerging growth company
¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Title of Class
 
Shares Outstanding
Common Stock
 
as of October 31, 2018
par value $0.10 per share
 
418,222,273



CA, INC. AND SUBSIDIARIES
INDEX
 
 
 
Page
PART I.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 



PART I. FINANCIAL INFORMATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
CA, Inc.:
Results of Review of Interim Financial Information
We have reviewed the condensed consolidated balance sheet of CA, Inc. and subsidiaries as of September 30, 2018, the related condensed consolidated statements of operations and comprehensive income for the three-month and six-month periods ended September 30, 2018 and 2017, the related condensed consolidated statements of cash flows for the six-month periods ended September 30, 2018 and 2017, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of March 31, 2018, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated May 9, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ KPMG LLP
New York, New York
November 7, 2018

1


Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
 
September 30,
2018
 
March 31,
2018
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,931

 
$
3,405

Trade accounts receivable, net of allowance for doubtful accounts of $9 and $10, respectively
507

 
793

Contract assets
817



Other current assets
107

 
210

Total current assets
$
4,362

 
$
4,408

Property and equipment, net of accumulated depreciation of $822 and $865, respectively
213

 
237

Goodwill
6,790

 
6,804

Capitalized software and other intangible assets, net
981

 
1,111

Deferred income taxes
124

 
346

Contract assets
112



Contract costs
400



Other noncurrent assets, net
121

 
154

Total assets
$
13,103

 
$
13,060

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
20

 
$
269

Accounts payable
81

 
85

Accrued salaries, wages and commissions
201

 
242

Accrued expenses and other current liabilities
309

 
340

Deferred revenue and advanced payments
1,002

 
2,289

Taxes payable, other than income taxes payable
25

 
55

Federal, state and foreign income taxes payable
72

 
41

Total current liabilities
$
1,710

 
$
3,321

Long-term debt, net of current portion
2,506

 
2,514

Federal, state and foreign income taxes payable
297

 
311

Deferred income taxes
171

 
111

Deferred revenue and advanced payments
419

 
820

Other noncurrent liabilities
98

 
88

Total liabilities
$
5,201

 
$
7,165

Stockholders’ equity:
 
 
 
Preferred stock, no par value, 10,000,000 shares authorized; No shares issued and outstanding
$

 
$

Common stock, $0.10 par value, 1,100,000,000 shares authorized; 589,695,081 and 589,695,081 shares issued; 413,476,935 and 412,056,923 shares outstanding, respectively
59

 
59

Additional paid-in capital
3,735

 
3,744

Retained earnings
9,156

 
6,971

Accumulated other comprehensive loss
(463
)
 
(290
)
Treasury stock, at cost, 176,218,146 and 177,638,158 shares, respectively
(4,585
)
 
(4,589
)
Total stockholders’ equity
$
7,902

 
$
5,895

Total liabilities and stockholders’ equity
$
13,103

 
$
13,060

Effective April 1, 2018, the Company adopted Topic 606 utilizing the modified retrospective method. As a result, the financial statements are not comparable to the prior period presented. See accompanying Notes to the Condensed Consolidated Financial Statements for details.

2


CA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in millions, except per share amounts)
 
For the Three
Months Ended
September 30,
 
For the Six
Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
Software licenses and maintenance
$
824

 
$
959

 
$
1,694

 
$
1,909

Professional services
71

 
75

 
139

 
150

Total revenue
$
895

 
$
1,034

 
$
1,833

 
$
2,059

Expenses:
 
 
 
 
 
 
 
Costs of licensing and maintenance
$
74

 
$
73

 
$
150

 
$
144

Cost of professional services
64

 
74

 
134

 
147

Amortization of capitalized software costs
49

 
67

 
109

 
137

Selling and marketing
252

 
244

 
487

 
490

General and administrative
99

 
97

 
203

 
204

Product development and enhancements
158

 
161

 
320

 
319

Depreciation and amortization of other intangible assets
28

 
27

 
54

 
53

Other expenses, net
4

 
9

 
107

 
20

Total expenses before interest and income taxes
$
728

 
$
752

 
$
1,564

 
$
1,514

Income before interest and income taxes
$
167

 
$
282

 
$
269

 
$
545

Interest expense, net
19

 
24

 
39

 
49

Income before income taxes
$
148

 
$
258

 
$
230

 
$
496

Income tax expense (benefit)
19

 
74

 
(65
)
 
134

Net income
$
129

 
$
184

 
$
295

 
$
362

 
 
 
 
 
 
 
 
Basic income per common share
$
0.31

 
$
0.44

 
$
0.70

 
$
0.86

Basic weighted average shares used in computation
413

 
415

 
414

 
415


 
 
 
 
 
 
 
Diluted income per common share
$
0.31

 
$
0.44

 
$
0.70

 
$
0.86

Diluted weighted average shares used in computation
416

 
416

 
416

 
416

Effective April 1, 2018, the Company adopted Topic 606 utilizing the modified retrospective method. As a result, the financial statements are not comparable to the prior period presented. See accompanying Notes to the Condensed Consolidated Financial Statements for details.

3


CA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in millions)
 
For the Three
Months Ended
September 30,
 
For the Six
Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
129

 
$
184

 
$
295

 
$
362

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(23
)
 
48

 
(164
)
 
132

Total other comprehensive (loss) income
$
(23
)
 
$
48

 
$
(164
)
 
$
132

Comprehensive income
$
106

 
$
232

 
$
131

 
$
494

Effective April 1, 2018, the Company adopted Topic 606 utilizing the modified retrospective method. As a result, the financial statements are not comparable to the prior period presented. See accompanying Notes to the Condensed Consolidated Financial Statements for details.

4


CA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
 
For the Six
Months Ended
September 30,
 
2018
 
2017
Operating activities:
 
 
 
Net income
$
295

 
$
362

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
163

 
190

Deferred income taxes
(12
)
 
(23
)
Provision for bad debts

 
2

Share-based compensation expense
68

 
61

Other non-cash items
5

 
2

Foreign currency transaction (gains) losses
(4
)
 
9

Changes in other operating assets and liabilities, net of effect of acquisitions:
 
 
 
Decrease in trade accounts receivable
279

 
317

Increase in contract assets
(26
)
 

Decrease in contract costs
18

 

Decrease in deferred revenue and advanced payments
(314
)
 
(460
)
Decrease in taxes payable, net
(258
)
 
(58
)
Increase in accounts payable, accrued expenses and other
33

 
11

Decrease in accrued salaries, wages and commissions
(34
)
 
(81
)
Changes in other operating assets and liabilities, net
38

 
3

Net cash provided by operating activities
$
251

 
$
335

Investing activities:
 
 
 
Acquisitions of businesses, net of cash acquired, and purchased software
$
(25
)

$
(15
)
Purchases of property and equipment
(24
)

(22
)
Other investing activities
(1
)
 
(1
)
Net cash used in investing activities
$
(50
)
 
$
(38
)
Financing activities:
 
 
 
Dividends paid
$
(214
)

$
(215
)
Purchases of common stock
(80
)

(90
)
Notional pooling borrowings
1,076

 
1,173

Notional pooling repayments
(1,053
)
 
(1,204
)
Debt repayments
(259
)
 
(9
)
Debt issuance costs

 
(3
)
Exercise of common stock options
21


5

Payments related to tax withholding for share-based compensation
(40
)
 
(35
)
Other financing activities
(9
)
 
(3
)
Net cash used in financing activities
$
(558
)
 
$
(381
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(118
)

136

(Decrease) increase in cash, cash equivalents and restricted cash
$
(475
)
 
$
52

Cash, cash equivalents and restricted cash at beginning of period
3,407

 
2,772

Cash, cash equivalents and restricted cash at end of period
$
2,932

 
$
2,824

Effective April 1, 2018, the Company adopted Topic 606 utilizing the modified retrospective method. As a result, the financial statements are not comparable to the prior period presented. See accompanying Notes to the Condensed Consolidated Financial Statements for details.

5

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 – ACCOUNTING POLICIES
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements (“Condensed Consolidated Financial Statements”) of CA, Inc. and its subsidiaries (the “Company”) as of and for the periods ended September 30, 2018 reflect the adoption of Topic 606 (as defined below) on April 1, 2018 using the modified retrospective method. The accompanying Condensed Consolidated Balance Sheet as of March 31, 2018 and the Condensed Consolidated Statements of Operations, Comprehensive Income and Cash Flows for the periods ended September 30, 2017 have not been revised for the effects of Topic 606 and are therefore not comparable to the September 30, 2018 periods.
The Condensed Consolidated Financial Statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 270, for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and therefore should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018 (“2018 Form 10-K”). In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal, recurring nature.
The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, these estimates may ultimately differ from actual results.
Operating results for the three and six months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2019.
Cash, Cash Equivalents and Restricted Cash: The Company’s cash and cash equivalents are held in numerous locations throughout the world, with approximately 53% being held by the Company’s foreign subsidiaries outside the United States at September 30, 2018.
At September 30, 2018 and March 31, 2018, the total amount of restricted cash included in “Other noncurrent assets, net” in the Company’s Condensed Consolidated Balance Sheets was approximately $1 million and $2 million, respectively. Restricted cash was included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown in the Company’s Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2018 and 2017.
New Accounting Pronouncements:
New Accounting Pronouncements Recently Adopted
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, with amendments in 2015, 2016 and 2017, creating new ASC Topic 606 (“Topic 606”) that replaces most existing revenue recognition guidance in GAAP. Topic 606 was adopted by the Company effective April 1, 2018 using the modified retrospective method. Reporting periods prior to the adoption of Topic 606 were presented in accordance with ASC Topic 605 (“Topic 605”). As a result of adopting Topic 606, the Company now recognizes revenue for the license component of all its on-premise software arrangements at the point-in-time control of the software license is transferred to the customer, rather than ratably over the term of the contract. The Company reflected the impact of the changes at transition with a cumulative increase of approximately $2,104 million to the opening balance of retained earnings. Refer to Note 2, “Revenue from Contracts with Customers,” and Note 3, “Impact of Adopting Topic 606,” for a discussion of the changes in the Company’s policies for revenue recognition and commissions, and the required disclosures related to the impact of adopting Topic 606. Refer to the Company’s Annual Report on Form 10-K for policies in accordance with Topic 605.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16 (“ASU 2016-16”), Intra-Equity Transfers of Assets Other Than Inventory (Topic 740), which is intended to eliminate diversity in practice and provide a more accurate depiction of the tax consequences on intercompany asset transfers (excluding inventory). ASU 2016-16 requires entities to immediately recognize the tax consequences on intercompany asset transfers (excluding inventory) at the transaction date, rather than deferring the tax consequences under current GAAP. ASU 2016-16 was adopted by the Company when effective in first quarter of fiscal year 2019 using the modified retrospective method of adoption. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements and related disclosures.

6

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

New Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), with amendments in 2018, requiring a lessee to recognize assets and liabilities on its consolidated balance sheet for leases with accounting lease terms of more than 12 months. ASU 2016-02 will replace most existing lease accounting guidance in GAAP when it becomes effective. The new standard states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statements of operations. ASU 2016-02 will be effective for the Company in the first quarter of fiscal year 2020 and requires the modified retrospective method of adoption, with an option to recognize the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings. Early adoption is permitted. The Company will adopt ASU 2016-02 when effective in the first quarter of fiscal year 2020. Although the Company is currently evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures, the Company currently expects that most of its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (“ASU 2017-04”), Simplifying the Test for Goodwill Impairment (Topic 350), which is intended to simplify the subsequent measurement of goodwill. ASU 2017-04 eliminates Step 2 of the goodwill impairment test requiring the assessment of fair value of individual assets and liabilities of a reporting unit to measure goodwill impairments. Upon adoption of this new standard, goodwill impairments will be the amount by which a reporting unit's carrying value exceeds its fair value. ASU 2017-04 will be effective for the Company in the first quarter of fiscal year 2021 and requires a prospective method of adoption. Early adoption is permitted. Although the Company is currently evaluating the timing of adoption of ASU 2017-04, it does not currently expect the adoption to have a material effect on its consolidated financial statements and related disclosures.
In August 2017, the FASB issued Accounting Standards Update No. 2017-12 (“ASU 2017-12”), Targeted Improvements to Accounting for Hedging Activities (Topic 815), which is intended to improve the financial reporting of hedging relationships to better portray the economic results of risk management activities in financial statements. ASU 2017-12 makes certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. ASU 2017-12 will be effective for the Company in the first quarter of fiscal year 2020 and requires a prospective method of adoption for the amended presentation and disclosure guidance. Early adoption is permitted. The Company is currently evaluating the timing of adoption and the effect that ASU 2017-12 will have on its consolidated financial statements and related disclosures.
In February 2018, the FASB issued Accounting Standards Update No. 2018-02 (“ASU 2018-02”), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220), which allows stranded tax effects resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017 (the “Tax Act”) to be reclassified from accumulated other comprehensive income to retained earnings. Since ASU 2018-02 only relates to the income tax effects from the Tax Act, the underlying guidance that requires the effects from changes in tax laws or rates be included in income from continuing operations is not affected. ASU 2018-02 will be effective for the Company in the first quarter of fiscal year 2020. Early adoption is permitted. Although the Company is currently evaluating the timing of adoption of ASU 2018-02, it does not currently expect the adoption to have a material effect on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued Accounting Standards Update No. 2018-13 (“ASU 2018-13”), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), which modifies the disclosure requirements on fair value measurements. ASU 2018-13 will be effective for the Company in the first quarter of fiscal year 2021. Early adoption is permitted. Although the Company is currently evaluating the timing of adoption of ASU 2018-13, it does not currently expect the adoption to have a material effect on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15 (“ASU 2018-15”), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 will be effective for the Company in the first quarter of fiscal year 2021. Early adoption is permitted. The Company is currently evaluating the timing of adoption and the effect that ASU 2018-15 will have on its consolidated financial statements and related disclosures.
Reclassifications: As a result of the adoption of Topic 606 on a modified retrospective basis, the Company’s presentation of prior year revenue in its Condensed Consolidated Statement of Operations has been revised to combine the previously reported revenue line items “Subscription and maintenance” and “Software fees and other” into the revenue line item “Software licenses and maintenance” in the current year presentation. This reclassification had no effect on total revenue as previously reported for the three and six months ended September 30, 2017. Refer to Note 3, “Impact of Adopting Topic 606,” for the transitional disclosures required by Topic 606.

7

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other Information: On July 11, 2018, the Company, Broadcom Inc. (“Broadcom”), and Collie Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Broadcom (“Merger Sub”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). The transaction closed on November 5, 2018. Pursuant to the terms of the Merger Agreement, effective as of the closing, Merger Sub was merged with and into the Company (the “Merger”), with the Company surviving the Merger and becoming a wholly owned subsidiary of Broadcom. Under the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of Company common stock (other than shares that were (i) owned or held in treasury by the Company or owned by Broadcom or Merger Sub and (ii) owned by any wholly owned subsidiary of Broadcom or of the Company) was cancelled and automatically converted into the right to receive $44.50 in cash, without interest. On November 5, 2018, following the consummation of the Merger, the Company’s common stock was delisted from the NASDAQ Global Select Market (“NASDAQ”) and deregistered under the Exchange Act. Trading of the Company’s common stock on NASDAQ was halted prior to the opening of trading on November 5, 2018.

NOTE 2 – REVENUE FROM CONTRACTS WITH CUSTOMERS
In accordance with Topic 606, the Company accounts for a customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable the Company will collect substantially all of the consideration to which it is entitled. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.
A. Nature of products and services
The Company’s products and services can be broadly categorized as perpetual licenses to use software, term-based licenses for Software-as-a-Service (“SaaS”) and on-premise use of software, maintenance for perpetual and term-based on-premise licenses, and professional services. The Company’s software licenses and maintenance are for mainframe, enterprise, and SaaS computing environments.
Perpetual licenses: The Company sells perpetual licenses which provide customers the right to use software for an indefinite period of time in exchange for a one-time license fee, which may be paid either at contract inception or in installments over the contract term. The Company’s on-premise software licenses have standalone functionality from which customers derive a substantial portion of the benefit. Accordingly, for perpetual licenses, revenue is recognized at the point-in-time when the customer is able to use and benefit from the software, which is generally upon delivery to the customer.
Term-based arrangements: Term-based arrangements consists of on-premise term licenses, SaaS solutions, as well as maintenance.
On-premise term licenses: The Company sells term licenses which provide customers the right to use software for a specified period of time. Like perpetual licenses, the Company’s term licenses have standalone functionality from which customers derive a substantial portion of the benefit. Accordingly, for on-premise term licenses, revenue is generally recognized at the point-in-time when the customer is able to use and benefit from the software, which is generally upon delivery to the customer or upon the commencement of the renewal term. Payments for term licenses may be paid either at contract inception or in installments over the period of the term licenses.
SaaS solutions: The Company offers cloud-based solutions that provide customers the right to access the Company’s software through the internet for a period of time. The payment for SaaS solutions may be received either at inception of the arrangement, or over the term of the arrangement. The Company’s SaaS solutions represent a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. Revenue from a SaaS solution is generally recognized ratably over the term of the arrangement. Revenue related to SaaS solutions provided on a usage basis, such as the number of users, is recognized based on customer’s utilization of the service in a given period.
Maintenance: Maintenance is provided for both perpetual and on-premise term license arrangements, and consists primarily of telephone support and the provision of unspecified updates and upgrades on a when-and-if-available basis. Maintenance for perpetual licenses is renewable, generally on an annual basis, at the option of the customer. Maintenance for on-premise term-based licenses is always renewed concurrently with the term-based licenses for the same duration of time. Maintenance represents stand-ready obligations for which revenue is recognized ratably over the term of the arrangement. Payments for maintenance may be paid either at inception of the maintenance period or in installments over the term of the maintenance period.

8

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Professional services: Professional services consist of product implementation, consulting, customer education and customer training services. Payment for professional services is generally a fixed fee or a fee based on time and materials. The obligation to provide professional services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as the Company satisfies its performance obligations. For professional services, revenue is recognized by measuring progress toward the complete satisfaction of the Company’s obligation. Progress for services that are contracted for a fixed price is generally measured based on hours incurred as a portion of total estimated hours, and as a practical expedient, progress for services that are contracted for time and materials is generally based on the amount the Company has the right to invoice.
Material rights
Contracts with customers may include material rights which are also performance obligations. Material rights primarily arise when the contract gives the customer the right to renew or receive products or services at a discounted price in the future. Revenue allocated to material rights is recognized when the customer exercises the right or the right expires. If exercised by the customer, revenue is classified consistent with the products or services obtained through the exercise of the right. If expired, revenue is classified consistent with the products or services in the contract that gave rise to the material right.
Arrangements with multiple performance obligations
The Company’s contracts generally contain more than one of the products and services listed above, each of which is separately accounted for as a distinct performance obligation.
Allocation of consideration: The Company allocates total contract consideration to each distinct performance obligation in an arrangement on a relative standalone selling price basis. The standalone selling price reflects the price the Company would charge for a specific product or service if it was sold separately in similar circumstances and to similar customers.
If the arrangement contains professional services and other products or services, the Company first allocates to the professional service obligation a portion of the total contract consideration equal to the standalone selling price of professional services that is observed from consistently priced standalone sales. The Company allocates the remaining consideration among the other products and services in the contract on a relative standalone selling price basis.
The standalone selling price for perpetual and on-premise term licenses, which are always sold with maintenance, is the price for the combined license and maintenance bundle. The amount assigned to the license and maintenance bundle is separated into license and maintenance amounts using the respective standalone selling prices represented by the value relationship between the software license and maintenance.
When two or more contracts are entered into at or near the same time with the same customer, the Company evaluates the facts and circumstances associated with the negotiation of those contracts. Where the contracts are negotiated as a package, the Company will account for them as a single arrangement and allocate the consideration for the combined contracts among the performance obligations accordingly.
Standalone selling price: When available, the Company uses directly observable transactions to determine the standalone selling prices for performance obligations. Observable data is available for maintenance renewals on previously sold perpetual licenses and SaaS. When perpetual or term licenses are sold together with maintenance in a bundled arrangement, the Company estimates a narrow range of standalone selling price using observable pricing information from standalone sales of the bundle, when available, and other relevant information, such as market conditions and pricing strategies.
The value relationship the Company uses to allocate consideration between the license and maintenance performance obligations is derived from the observable relationship of the selling price of a standalone perpetual license maintenance renewal to the related perpetual license fee, which is generally 20% of the net license fee for one year of maintenance. The Company separates the license and maintenance performance obligations of a term license and maintenance bundle using the same observable value relationship as in a perpetual license and maintenance bundle because the nature of the maintenance performance obligation and its value relationship with the right to use the software were determined to be similar.
Arrangements that include a software license sold with more than one year of maintenance for the license use a value relationship which reflects an annual maintenance rate of 20% of the total value ascribed to the right to use the software. As a result, a greater portion of the bundle relates to maintenance as the length of the maintenance period included in the bundle increases.
The Company separately determines the standalone selling prices by geographic region, distribution channel and by volume when the pricing strategies include volume purchase discounts.
The Company also estimates the standalone selling prices of its material rights, which primarily include contractually stated amounts that the customer can use to acquire additional products and services. The Company estimates the value of these rights by considering the stated amount and the likelihood of the customer exercising its right. In addition, an option to purchase or receive additional products or services at a discounted price is estimated as the incremental discount the customer would obtain when exercising the option and the likelihood that the option would be exercised.

9

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other policies and judgments
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days of the invoice. In certain arrangements, the Company receives payment from a customer either before or after the performance obligation has been satisfied, however, the Company’s contracts generally do not contain a significant financing component.
The Company may modify contracts to offer customers additional products or services. The additional products and services will generally be considered distinct from those products or services transferred to the customer before the modification and will generally be accounted for as a separate contract. The Company evaluates whether the price for the additional products and services reflects the standalone selling price adjusted as appropriate for facts and circumstances applicable to that contract. In determining whether an adjustment is appropriate, the Company evaluates whether the incremental consideration is consistent with the prices previously paid by the customer or similar customers.
The Company reduces transaction price for an estimate of returns that is based on historical data.
B. Disaggregation
The disaggregation of revenue by region, type of performance obligation, timing of revenue recognition, and segment was as follows:
(in millions)
Three Months Ended September 30, 2018
 
Six Months Ended September 30, 2018
Revenue by region:
 
 
 
United States
$
592

 
$
1,164

EMEA (1)
186

 
415

Other
117

 
254

Total revenue
$
895

 
$
1,833

 
 
 
 
Revenue by type of performance obligation:
 
 
 
Perpetual licenses
$
70

 
$
146

Renewable:
 
 
 
     On-premise term licenses
157

 
350

     Maintenance
473

 
960

     SaaS
124

 
238

Professional services
71

 
139

Total revenue
$
895

 
$
1,833

 
 
 
 
Timing of revenue recognition:
 
 
 
Point-in-time, including professional services
$
297

 
$
634

Over time
598

 
1,199

Total revenue
$
895

 
$
1,833

 
 
 
 
Revenue by segment:
 
 
 
Mainframe Solutions
$
388

 
$
828

Enterprise Solutions
436

 
866

Services
71

 
139

Total revenue
$
895

 
$
1,833

(1)
Consists of Europe, the Middle East and Africa.

10

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

C. Contract Balances
The Company’s contract assets and deferred revenue balances for the periods indicated below were as follows:
(in millions)
Contract Assets
 
Deferred Revenue
Balance at April 1, 2018
$
931

 
$
1,751

Balance at September 30, 2018
$
929

 
$
1,421

The difference in the opening and closing balances of the Company’s contract assets and deferred revenue primarily results from the timing difference between the Company’s performance and the customer’s payment. The Company fulfills its obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer. The Company recognizes a contract asset when it transfers products or services to a customer and the right to consideration is conditional on something other than the passage of time. Accounts receivable are recorded when the customer has been billed or the right to consideration is unconditional. The Company recognizes deferred revenue when it has received consideration or an amount of consideration is due from the customer and the Company has a future obligation to transfer products or services. Deferred revenue includes amounts billed or collected and advanced payments on contracts which may include termination for convenience clauses. The amount of revenue recognized during the six months ended September 30, 2018 that was included in the deferred revenue balance at April 1, 2018 was $770 million.
D. Transaction Price Allocated to the Remaining Performance Obligations
The following table discloses the aggregate amount of the transaction price and advanced payments allocated to remaining performance obligations as of the end of the reporting period, and when the Company expects to recognize the revenue.
(in millions)
12 months or less
 
Greater than 12 months (1)
Perpetual licenses
$
10

 
$
11

Renewable:
 
 
 
     On-premise term licenses
$
231

 
$
113

     Maintenance
$
1,464

 
$
1,632

     SaaS
$
345

 
$
221

Professional services
$
61

 
$
31

Material rights
$
3

 
$
178

(1)
Of the amount of performance obligations greater than 12 months, the portion that is 2 to 3 years is approximately $1.7 billion and the remaining amount is generally between 4 and 5 years.
The Company’s multi-year contracts with government customers may have termination for convenience clauses. Approximately $105 million of advanced payments received from government customers that have termination for convenience rights are included in “Deferred revenue and advanced payments” in the Company’s Condensed Consolidated Balance Sheet and allocated to the remaining performance obligations in the table above. In addition, approximately $574 million related to the remaining unbilled contract value and performance obligations in these contracts with termination for convenience clauses are not included in the allocation of transaction price and not included in “Deferred revenue and advanced payments” in the Company’s Condensed Consolidated Balance Sheet.
E. Contract Costs
The Company pays commissions for new product sales as well as for renewals of existing contracts. Commissions paid to obtain renewal contracts are not commensurate with the commissions paid for new product sales and therefore, a portion of the commissions paid for new contracts relate to future renewals.
The Company accounts for commissions using a portfolio approach and allocates the cost of commissions in proportion to the allocation of transaction price of license and maintenance performance obligations, including assumed renewals. Commissions allocated to the license and license renewal components are expensed at the time the license revenue is recognized. Commissions allocated to maintenance are capitalized and amortized on a straight-line basis over a period of seven years for new contracts, reflecting the Company’s estimate of the expected period that the Company will benefit from those commissions. Commissions paid on renewal contracts that are allocated to maintenance are capitalized and amortized over the renewal term of approximately three years. Service contracts are generally less than one year and accordingly, as a practical expedient, commissions paid for service contracts are expensed as incurred.
Amortization of capitalized contract costs is included in “Selling and marketing” expenses in the Company’s Condensed Consolidated Statement of Operations. The amount of amortization for the three and six months ended September 30, 2018 was approximately $31 million and $61 million, respectively, and there was no impairment loss in relation to the costs capitalized.

11

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 – IMPACT OF ADOPTING TOPIC 606
The Company adopted Topic 606 using the modified retrospective method. The cumulative effect of applying the new guidance to all contracts with customers that were not completed at March 31, 2018 was recorded as an adjustment to retained earnings as of the adoption date. As a result of applying the modified retrospective method to adopt Topic 606, the following adjustments were made to the opening balances of the Condensed Consolidated Balance Sheet accounts:
Condensed Consolidated Balance Sheet
(in millions)
As Reported
March 31, 2018
 
Adjustments Due to Topic 606
 
Adjusted
April 1, 2018
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
3,405

 
$

 
$
3,405

Trade accounts receivable, net
793

 
9

 
802

Contract assets

 
772

 
772

Other current assets
210

 
(38
)
 
172

Total current assets
$
4,408

 
$
743

 
$
5,151

Property and equipment, net
237

 

 
237

Goodwill
6,804

 

 
6,804

Capitalized software and other intangible assets, net
1,111

 

 
1,111

Deferred income taxes
346

 
(221
)
 
125

Contract assets

 
159

 
159

Contract costs

 
427

 
427

Other noncurrent assets, net
154

 
(19
)
 
135

Total assets
$
13,060

 
$
1,089

 
$
14,149

Liabilities and stockholders’ equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current portion of long-term debt
$
269

 
$

 
$
269

Accounts payable
85

 

 
85

Accrued salaries, wages and commissions
242

 

 
242

Accrued expenses and other current liabilities
340

 
(8
)
 
332

Deferred revenue and advanced payments
2,289

 
(1,067
)
 
1,222

Taxes payable, other than income taxes payable
55

 

 
55

Federal, state and foreign income taxes payable
41

 
170

 
211

Total current liabilities
$
3,321

 
$
(905
)
 
$
2,416

Long-term debt, net of current portion
2,514

 

 
2,514

Federal, state and foreign income taxes payable
311

 
110

 
421

Deferred income taxes
111

 
80

 
191

Deferred revenue and advanced payments
820

 
(291
)
 
529

Other noncurrent liabilities
88

 

 
88

Total liabilities
$
7,165

 
$
(1,006
)
 
$
6,159

Stockholders’ equity:
 
 
 
 
 
Preferred stock
$

 
$

 
$

Common stock
59

 

 
59

Additional paid-in capital
3,744

 

 
3,744

Retained earnings
6,971

 
2,104

 
9,075

Accumulated other comprehensive loss
(290
)
 
(9
)
 
(299
)
Treasury stock
(4,589
)
 

 
(4,589
)
Total stockholders’ equity
$
5,895

 
$
2,095

 
$
7,990

Total liabilities and stockholders’ equity
$
13,060

 
$
1,089

 
$
14,149


12

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In connection with the adoption of Topic 606, the Company increased its retained earnings by approximately $2,104 million. This increase was a result of a decrease in deferred revenue of approximately $1,358 million and the establishment of contract assets of approximately $931 million for amounts that would have been recognized under Topic 606 prior to April 1, 2018. In addition, upon adoption of Topic 606, the Company capitalized contract costs of approximately $427 million relating to commissions incurred to obtain customer contracts. Refer to Note 2 “Revenue from Contracts with Customers” for additional details on contract costs.
The net change in deferred income taxes of approximately $301 million and income taxes payable of approximately $280 million is primarily due to the current and deferred tax effects resulting from the aforementioned items.
In addition, the Company made other changes, primarily due to professional services, to our Condensed Consolidated Balance Sheet on April 1, 2018 to comply with Topic 606.

13

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table compares the Condensed Consolidated Balance Sheet at September 30, 2018 to the proforma amounts had the previous standard of Topic 605 been in effect:
 
At September 30, 2018
Condensed Consolidated Balance Sheet
(in millions)
As Reported under Topic 606
 
Proforma as if the previous accounting of Topic 605 was in effect
 
Effect of Change
Higher/(Lower)
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
2,931

 
$
2,931

 
$

Trade accounts receivable, net
507

 
502

 
5

Contract assets
817

 

 
817

Other current assets
107

 
183

 
(76
)
Total current assets
$
4,362

 
$
3,616

 
$
746

Property and equipment, net
213

 
213

 

Goodwill
6,790

 
6,790

 

Capitalized software and other intangible assets, net
981

 
981

 

Deferred income taxes
124

 
338

 
(214
)
Contract assets
112

 

 
112

Contract costs
400

 

 
400

Other noncurrent assets, net
121

 
136

 
(15
)
Total assets
$
13,103

 
$
12,074

 
$
1,029

Liabilities and stockholders’ equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current portion of long-term debt
$
20

 
$
20

 
$

Accounts payable
81

 
81

 

Accrued salaries, wages and commissions
201

 
201

 

Accrued expenses and other current liabilities
309

 
319

 
(10
)
Deferred revenue and advanced payments
1,002

 
1,826

 
(824
)
Taxes payable, other than income taxes payable
25

 
25

 

Federal, state and foreign income taxes payable
72

 

 
72

Total current liabilities
$
1,710

 
$
2,472

 
$
(762
)
Long-term debt, net of current portion
2,506

 
2,506

 

Federal, state and foreign income taxes payable
297

 
187

 
110

Deferred income taxes
171

 
98

 
73

Deferred revenue and advanced payments
419

 
638

 
(219
)
Other noncurrent liabilities
98

 
98

 

Total liabilities
$
5,201

 
$
5,999

 
$
(798
)
Stockholders’ equity:
 
 
 
 
 
Preferred stock
$

 
$

 
$

Common stock
59

 
59

 

Additional paid-in capital
3,735

 
3,735

 

Retained earnings
9,156

 
7,263

 
1,893

Accumulated other comprehensive loss
(463
)
 
(397
)
 
(66
)
Treasury stock
(4,585
)
 
(4,585
)
 

Total stockholders’ equity
$
7,902

 
$
6,075

 
$
1,827

Total liabilities and stockholders’ equity
$
13,103

 
$
12,074

 
$
1,029


14

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables compare the Condensed Consolidated Statement of Operations for the three and six months ended September 30, 2018 to the proforma amounts had the previous standard of Topic 605 been in effect:
 
For the Three Months Ended September 30, 2018
Condensed Consolidated Statement of Operations
(in millions)
As Reported under Topic 606
 
Proforma as if the previous accounting of Topic 605 was in effect
 
Effect of Change
Higher/(Lower)
Revenue:
 
 
 
 
 
Software licenses and maintenance
$
824

 
$
971

 
$
(147
)
Professional services
71

 
74

 
(3
)
Total revenue
$
895

 
$
1,045

 
$
(150
)
Expenses:
 
 
 
 
 
Costs of licensing and maintenance
$
74

 
$
74

 
$

Cost of professional services
64

 
70

 
(6
)
Amortization of capitalized software costs
49

 
49

 

Selling and marketing
252

 
246

 
6

General and administrative
99

 
99

 

Product development and enhancements
158

 
158

 

Depreciation and amortization of other intangible assets
28

 
28

 

Other expenses, net
4

 
4

 

Total expenses before interest and income taxes
$
728

 
$
728

 
$

Income before interest and income taxes
$
167

 
$
317

 
$
(150
)
Interest expense, net
19

 
19

 

Income before income taxes
$
148

 
$
298

 
$
(150
)
Income tax expense
19

 
53

 
(34
)
Net income
$
129

 
$
245

 
$
(116
)
 
 
 
 
 
 
Basic income per common share
$
0.31

 
$
0.59

 
$
(0.28
)
Basic weighted average shares used in computation
413

 
413

 

 
 
 
 
 
 
Diluted income per common share
$
0.31

 
$
0.58

 
$
(0.27
)
Diluted weighted average shares used in computation
416

 
416

 


15

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
For the Six Months Ended September 30, 2018
Condensed Consolidated Statement of Operations
(in millions)
As Reported under Topic 606
 
Proforma as if the previous accounting of Topic 605 was in effect
 
Effect of Change
Higher/(Lower)
Revenue:
 
 
 
 
 
Software licenses and maintenance
$
1,694

 
$
1,949

 
$
(255
)
Professional services
139

 
148

 
(9
)
Total revenue
$
1,833

 
$
2,097

 
$
(264
)
Expenses:
 
 
 
 
 
Costs of licensing and maintenance
$
150

 
$
150

 
$

Cost of professional services
134

 
143

 
(9
)
Amortization of capitalized software costs
109

 
109

 

Selling and marketing
487

 
471

 
16

General and administrative
203

 
202

 
1

Product development and enhancements
320

 
320

 

Depreciation and amortization of other intangible assets
54

 
54

 

Other expenses, net
107

 
112

 
(5
)
Total expenses before interest and income taxes
$
1,564

 
$
1,561

 
$
3

Income before interest and income taxes
$
269

 
$
536

 
$
(267
)
Interest expense, net
39

 
39

 

Income before income taxes
$
230

 
$
497

 
$
(267
)
Income tax benefit
(65
)
 
(9
)
 
(56
)
Net income
$
295

 
$
506

 
$
(211
)
 
 
 
 
 
 
Basic income per common share
$
0.70

 
$
1.21

 
$
(0.51
)
Basic weighted average shares used in computation
414

 
414

 

 
 
 
 
 
 
Diluted income per common share
$
0.70

 
$
1.20

 
$
(0.50
)
Diluted weighted average shares used in computation
416

 
416

 

The following table provides a summary of the Company’s revenue amounts under Topic 605 for the three and six months ended September 30, 2018 and 2017 in a manner consistent with its presentation prior to the adoption of Topic 606. Refer to Note 1, “Accounting Policies,” for additional information on the current year reclassification.
 
For the Three
Months Ended
September 30,
 
For the Six
Months Ended
September 30,
(in millions)
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
Subscription and maintenance
$
829

 
$
826

 
$
1,667

 
$
1,643

Professional services
74

 
75

 
148

 
150

Software fees and other
142

 
133

 
282

 
266

Total revenue
$
1,045

 
$
1,034

 
$
2,097

 
$
2,059


16

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The adoption of Topic 606 had no impact on the Company’s net cash provided by operating activities. The impacts of adoption resulted in offsetting shifts in cash flows throughout the components of net income and various changes in working capital balances. The following table compares the operating activities within the Condensed Consolidated Statement of Cash Flows for the six months ended September 30, 2018 to the proforma amounts had the previous standard of Topic 605 been in effect:
 
For the Six Months Ended September 30, 2018
Condensed Consolidated Statement of Cash Flows
(in millions)
As Reported under Topic 606
 
Proforma as if the previous accounting of Topic 605 was in effect
 
Effect of Change
Higher/(Lower)
Operating activities:
 
 
 
 
 
Net income
$
295

 
$
506

 
$
(211
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 

Depreciation and amortization
163

 
163

 

Deferred income taxes
(12
)
 
(10
)
 
(2
)
Provision for bad debts

 
(1
)
 
1

Share-based compensation expense
68

 
68

 

Other non-cash items
5

 
5

 

Foreign currency transaction (gains) losses
(4
)
 
2

 
(6
)
Changes in other operating assets and liabilities, net of effect of acquisitions:
 
 
 
 

Decrease in trade accounts receivable
279

 
275

 
4

Increase in contract assets
(26
)
 

 
(26
)
Decrease in contract costs
18

 

 
18

Decrease in deferred revenue and advanced payments
(314
)
 
(598
)
 
284

Decrease in taxes payable, net
(258
)
 
(204
)
 
(54
)
Increase in accounts payable, accrued expenses and other
33

 
35

 
(2
)
Decrease in accrued salaries, wages and commissions
(34
)
 
(34
)
 

Changes in other operating assets and liabilities, net
38

 
44

 
(6
)
Net cash provided by operating activities
$
251

 
$
251

 
$


NOTE 4 – RESTRUCTURING
On May 2, 2018, the Company’s Board of Directors (the “Board”) approved a restructuring plan (“Fiscal 2019 Plan”) to better align its business priorities. The Fiscal 2019 Plan comprises the termination of approximately 800 employees and global facility exits and consolidations. These actions were intended to better align the Company’s cost structure with the skills and resources required to more effectively pursue opportunities in the marketplace and execute the Company’s long-term growth strategy. Costs associated with the Fiscal 2019 Plan are presented in “Other expenses, net” in the Company’s Condensed Consolidated Statement of Operations. Severance and facility exit and consolidation actions under the Fiscal 2019 Plan are expected to be substantially completed by the end of fiscal year 2019. Under the Fiscal 2019 Plan, the Company expects to incur pre-tax charges between approximately $140 million and $160 million (including severance costs between approximately $90 million and $100 million and facility exit and consolidation costs between approximately $50 million and $60 million).

17

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accrued restructuring severance and exit costs and changes in the accruals during the six months ended September 30, 2018 were as follows:
(in millions)
Accrued Balance at
March 31, 2018
 
Expense
 
Change in
Estimate
 
Payments
 
Accretion
and Other
 
Accrued
Balance at
September 30, 2018
Severance charges
$

 
$
82

 
$
(6
)
 
$
(44
)
 
$

 
$
32

Facility exit charges
7

 
37

 

 
(6
)
 

 
38

Total accrued liabilities
$
7

 
 
 
 
 
 
 
 
 
$
70

The balance at September 30, 2018 includes facility exit accruals of approximately $7 million for plans and actions prior to the Fiscal 2019 Plan.
The severance liabilities are included in “Accrued salaries, wages and commissions” in the Condensed Consolidated Balance Sheets. The facility exit liabilities are included in “Accrued expenses and other current liabilities” and “Other noncurrent liabilities” in the Condensed Consolidated Balance Sheets.

NOTE 5 – GOODWILL, CAPITALIZED SOFTWARE AND OTHER INTANGIBLE ASSETS
The gross carrying amounts and accumulated amortization for capitalized software and other intangible assets at September 30, 2018 were as follows:
 
At September 30, 2018
 
Gross
Amortizable
Assets
 
Less: Fully
Amortized
Assets
 
Remaining
Amortizable
Assets
 
Accumulated
Amortization
on Remaining
Amortizable
Assets
 
Net
Assets
 
(in millions)
Purchased software products
$
6,579

 
$
5,247

 
$
1,332

 
$
658

 
$
674

Internally developed software products
1,467

 
1,458

 
9

 
6

 
3

Other intangible assets
1,215

 
834

 
381

 
77

 
304

Total capitalized software and other intangible assets
$
9,261

 
$
7,539

 
$
1,722

 
$
741

 
$
981

The gross carrying amounts and accumulated amortization for capitalized software and other intangible assets at March 31, 2018 were as follows:
 
At March 31, 2018
 
Gross
Amortizable
Assets
 
Less: Fully
Amortized
Assets
 
Remaining
Amortizable
Assets
 
Accumulated
Amortization
on Remaining
Amortizable
Assets
 
Net
Assets
 
(in millions)
Purchased software products
$
6,572

 
$
4,961

 
$
1,611

 
$
845

 
$
766

Internally developed software products
1,467

 
1,347

 
120

 
109

 
11

Other intangible assets
1,226

 
823

 
403

 
69

 
334

Total capitalized software and other intangible assets
$
9,265

 
$
7,131

 
$
2,134

 
$
1,023

 
$
1,111

 

18

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Based on the capitalized software and other intangible assets recorded through September 30, 2018, the projected annual amortization expense for fiscal year 2019 and the next four fiscal years is expected to be as follows:
 
Year Ended March 31,
 
2019
 
2020
 
2021
 
2022
 
2023
 
(in millions)
Purchased software products
$
189

 
$
166

 
$
122

 
$
113

 
$
86

Internally developed software products
10

 
1

 

 

 

Other intangible assets
40

 
36

 
36

 
35

 
31

Total
$
239

 
$
203

 
$
158

 
$
148

 
$
117

The Company evaluates the useful lives and recoverability of capitalized software and other intangible assets when events or changes in circumstances indicate that an impairment may exist. These evaluations require complex assumptions about key factors such as future customer demand, technology trends and the impact of those factors on the technology the Company acquires and develops for its products. Impairments or revisions to useful lives could result from the use of alternative assumptions that reflect reasonably possible outcomes related to future customer demand or technology trends for assets within the Enterprise Solutions segment.
Goodwill activity by segment for the six months ended September 30, 2018 was as follows:
(in millions)
Mainframe Solutions
 
Enterprise Solutions
 
Services
 
Total
Balance at March 31, 2018
$
4,178

 
$
2,545

 
$
81

 
$
6,804

Acquisitions

 
6

 

 
6

Foreign currency translation adjustment

 
(20
)
 

 
(20
)
Balance at September 30, 2018
$
4,178

 
$
2,531

 
$
81

 
$
6,790


NOTE 6 – DERIVATIVES
The Company is exposed to financial market risks arising from changes in interest rates and foreign exchange rates. Changes in interest rates could affect the Company’s monetary assets and liabilities, and foreign exchange rate changes could affect the Company’s foreign currency denominated monetary assets and liabilities and forecasted transactions. The Company enters into derivative contracts with the intent of mitigating a portion of these risks.
Foreign Currency Contracts: The Company enters into foreign currency option and forward contracts to manage balance sheet and forecasted transaction foreign currency risks. The Company has not designated its foreign currency derivatives as hedges for accounting purposes. The Company’s foreign currency derivative trading strategy is to economically hedge a majority of its material exposures due to forecasted and actual intercompany cash flows, such as royalties and development costs. The Company also economically hedges its material receivable, payable and cash balances held in non-functional currencies. The Company’s foreign currency contracts are generally short-term in duration. Principal currencies hedged include the euro, the Australian dollar, the Brazilian real, the Japanese yen, the Canadian dollar, the Israeli shekel, the Indian rupee and the Czech koruna. Changes in fair value from these contracts are recorded as “Other expenses, net” in the Company’s Condensed Consolidated Statements of Operations.
At September 30, 2018, foreign currency contracts outstanding consisted of purchase and sale contracts with a total gross notional value of approximately $720 million and durations of less than six months. The net fair value of these contracts at September 30, 2018 was a net asset of approximately $10 million, of which approximately $18 million was included in “Other current assets” and approximately $8 million was included in “Accrued expenses and other current liabilities” in the Company’s Condensed Consolidated Balance Sheet.
At March 31, 2018, foreign currency contracts outstanding consisted of purchase and sale contracts with a total gross notional value of approximately $456 million and durations of less than three months. The net fair value of these contracts at March 31, 2018 was a net asset of approximately $1 million, of which approximately $2 million was included in “Other current assets” and approximately $1 million was included in “Accrued expenses and other current liabilities” in the Company’s Condensed Consolidated Balance Sheet.

19

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of the effect of the foreign exchange derivatives on the Company’s Condensed Consolidated Statements of Operations was as follows:
 
Amount of Net Loss (Gain) Recognized in the Condensed Consolidated Statements of Operations
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
(in millions)
2018
 
2017
 
2018
 
2017
Other expenses, net – foreign currency contracts
$

 
$
4

 
$
(10
)
 
$
8

The Company is subject to collateral security arrangements with most of its major counterparties. The Company posted no collateral at September 30, 2018 or March 31, 2018. Under these agreements, if the Company’s credit ratings had been downgraded one rating level, the Company would still not have been required to post collateral.

NOTE 7 – FAIR VALUE MEASUREMENTS
The following table presents the Company’s assets and liabilities that were measured at fair value on a recurring basis at September 30, 2018 and March 31, 2018:
 
At September 30, 2018
 
At March 31, 2018
 
Fair Value
Measurement Using
Input Types
 
Estimated
Fair
Value
 
Fair Value
Measurement Using
Input Types
 
Estimated
Fair
Value
(in millions)
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
Money market funds (1)
$
906

 
$

 
$
906

 
$
1,281

 
$

 
$
1,281

Foreign exchange derivatives (2)

 
18

 
18

 

 
2

 
2

Total assets
$
906

 
$
18

 
$
924

 
$
1,281

 
$
2

 
$
1,283

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange derivatives (2)
$

 
$
8

 
$
8

 
$

 
$
1

 
$
1

Total liabilities
$

 
$
8

 
$
8

 
$

 
$
1

 
$
1

(1)
The Company’s investments in money market funds are classified as “Cash and cash equivalents” in its Condensed Consolidated Balance Sheets.
(2)
Refer to Note 6, “Derivatives,” for additional information.
At September 30, 2018 and March 31, 2018, the Company did not have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
The carrying values of financial instruments classified as current assets and current liabilities, such as cash and cash equivalents, short-term investments, accounts payable, accrued expenses and short-term borrowings, approximate fair value due to the short-term maturity of the instruments.
The following table presents the carrying amounts and estimated fair values of the Company’s other financial instruments that were not measured at fair value on a recurring basis at September 30, 2018 and March 31, 2018:
 
At September 30, 2018
 
At March 31, 2018
(in millions)
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Liabilities:
 
 
 
 
 
 
 
Total debt (1)
$
2,526

 
$
2,550

 
$
2,783

 
$
2,844

Facility exit reserves (2)
$
38

 
$
39

 
$
7

 
$
8

(1)
Estimated fair value of total debt is based on quoted prices for similar liabilities for which significant inputs are observable except for certain long-term lease obligations, for which fair value approximates carrying value (Level 2).
(2)
Estimated fair value for the facility exit reserves is determined using the Company’s incremental borrowing rate at September 30, 2018 and March 31, 2018. At September 30, 2018 and March 31, 2018, the facility exit reserves included carrying values of approximately $12 million and $2 million, respectively, in “Accrued expenses and other current liabilities” and approximately $26 million and $5 million, respectively, in “Other noncurrent liabilities” in the Company’s Condensed Consolidated Balance Sheets (Level 3).


20

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – COMMITMENTS AND CONTINGENCIES
The Company, from time to time, may be named as a defendant in various lawsuits and claims arising in the normal course of business. The Company may also become involved with contract issues and disputes with customers.
Based on the Company’s experience, the Company’s management believes that the damages amounts claimed in a case are not a meaningful indicator of the potential liability. Claims, suits, investigations and proceedings are inherently uncertain, and it is not possible to predict the ultimate outcome of cases. The Company believes that it has meritorious defenses in connection with its current lawsuits and material claims and disputes and intends to vigorously contest each of them.
In the opinion of the Company’s management based upon information currently available to the Company, while the outcome of its lawsuits, claims and disputes is uncertain, the likely results of these lawsuits, claims and disputes are not expected, either individually or in the aggregate, to have a material adverse effect on the Company’s financial position, results of operations or cash flows, although the effect could be material to the Company’s results of operations or cash flows for any interim reporting period. For some matters, the Company is unable to estimate a range of reasonably possible loss due to the stage of the matter and/or other particular circumstances of the matter. For others, a range of reasonably possible loss can be estimated. For those matters for which such a range can be estimated, the Company estimates that, in the aggregate, the range of reasonably possible loss does not exceed $20 million. This is in addition to any amounts that have been accrued.
Beginning on August 3, 2018, subsequent to the Company’s announcement of the Merger Agreement with Broadcom (as defined in Note 1, “Accounting Policies,” above), four (4) purported class action complaints were filed on behalf of the Company’s stockholders (the “Broadcom Acquisition-Related Litigation”). These included:
(i)
Kelli Harvey v. Michael Gregoire, Jens Alder, Raymond Bromark, Jean Hobby, Rohit Kapoor, Jeffrey Katz, Kay Koplovitz, Christopher Lofgren, Richard Sulpizio, Laura Unger, Arthur Weinbach, Collie Acquisition Corp., and Broadcom Inc., United States District Court for the Southern District of New York (1:18-cv-06996-JGK) (filed August 3, 2018);
(ii)
Vladimir Guzinsky Rev. Trust v. Michael P. Gregoire, Jens Alder, Raymond J. Bromark, Jean M. Hobby, Rohit Kapoor, Jeffrey G. Katz, Kay Koplovitz, Christopher B. Lofgren, Richard Sulpizio, Laura S. Unger, and Arthur Weinbach, U.S. District Court for the District of Delaware (1:18-cv-01221-LPS) (filed August 9, 2018);
(iii)
Jacob Scheiner Retirement Account v. CA, Inc. Michael Gregoire, Jens Alder, Raymond Bromark, Jean Hobby, Rohit Kapoor, Jeffrey Katz, Kay Koplovitz, Christopher Lofgren, and Richard Sulpizio, United States District Court for the District of Delaware (1:18-cv-01251-LPS) (filed August 15, 2018); and
(iv)
Kenneth Gilley v. CA, Inc. Michael Gregoire, Jens Alder, Raymond Bromark, Jean Hobby, Rohit Kapoor, Jeffrey Katz, Kay Koplovitz, Christopher Lofgren, and Richard Sulpizio, U.S. District Court for the District of Delaware (1:18-cv-01286-LPS) (filed August 22, 2018),
(collectively, the “Stockholder Actions”).
The plaintiffs sought to enjoin the defendants from consummating the proposed transaction, or, if the transaction was consummated, the plaintiffs alternatively sought rescission and/or damages. The plaintiffs also sought costs and fees associated with the suits.
To avoid the risk of the Stockholder Actions delaying or adversely affecting the merger and to minimize the expense of defending the Broadcom Acquisition-Related Litigation, and without admitting any liability or wrongdoing, on September 5, 2018, the Company made certain disclosures that supplemented and revised those contained in the definitive proxy statement on Schedule 14A filed by the Company with the U.S. Securities and Exchange Commission on August 10, 2018. On September 24, 2018, each of the plaintiffs filed a Notice of Voluntary Dismissal, and each of the four (4) cases is now closed.

NOTE 9 – STOCKHOLDERS’ EQUITY
Stock Repurchases: On November 13, 2015, the Board approved a stock repurchase program that authorized the Company to acquire up to $750 million of its common stock. During the six months ended September 30, 2018, the Company repurchased approximately 2.3 million shares of its common stock for approximately $80 million. At September 30, 2018, the Company remained authorized to purchase approximately $407 million of its common stock under its current stock repurchase program.
Accumulated Other Comprehensive Loss: Foreign currency translation losses included in “Accumulated other comprehensive loss” in the Company’s Condensed Consolidated Balance Sheets at September 30, 2018 and March 31, 2018 were approximately $463 million and $290 million, respectively.

21

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Cash Dividends: The Board declared the following dividends during the six months ended September 30, 2018 and 2017:
Six Months Ended September 30, 2018:
(in millions, except per share amounts)
Declaration Date
 
Dividend Per Share
 
Record Date
 
Total Amount
 
Payment Date
May 2, 2018
 
$0.255
 
May 17, 2018
 
$107
 
June 5, 2018
August 9, 2018
 
$0.255
 
August 23, 2018
 
$107
 
September 11, 2018
Six Months Ended September 30, 2017:
(in millions, except per share amounts)
Declaration Date
 
Dividend Per Share
 
Record Date
 
Total Amount
 
Payment Date
May 9, 2017
 
$0.255
 
May 25, 2017
 
$107
 
June 13, 2017
August 9, 2017
 
$0.255
 
August 24, 2017
 
$108
 
September 12, 2017

NOTE 10 – INCOME PER COMMON SHARE
Basic net income per common share excludes dilution and is calculated by dividing net income allocable to common shares by the weighted average number of common shares outstanding for the period. Diluted net income per common share is calculated by dividing net income allocable to common shares by the weighted average number of common shares, as adjusted for the potential dilutive effect of non-participating share-based awards.
The following table presents basic and diluted income per common share information for the three and six months ended September 30, 2018 and 2017:
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
 
(in millions, except per share amounts)
Basic income per common share:
 
 
 
 
 
 
 
Net income
$
129

 
$
184

 
$
295

 
$
362

Less: Net income allocable to participating securities
(2
)
 
(3
)
 
(4
)
 
(5
)
Net income allocable to common shares
$
127

 
$
181

 
$
291

 
$
357

Weighted average common shares outstanding
413

 
415

 
414

 
415

Basic income per common share
$
0.31

 
$
0.44

 
$
0.70

 
$
0.86

 
 
 
 
 
 
 
 
Diluted income per common share:
 
 
 
 
 
 
 
Net income
$
129

 
$
184

 
$
295

 
$
362

Less: Net income allocable to participating securities
(2
)
 
(3
)
 
(4
)
 
(5
)
Net income allocable to common shares
$
127

 
$
181

 
$
291

 
$
357

Weighted average shares outstanding and common share equivalents:
 
 
 
 
 
 
 
Weighted average common shares outstanding
413

 
415

 
414

 
415

Weighted average effect of share-based payment awards
3

 
1

 
2