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 ~~December~~June 3130, ~~2017~~2018

¨ 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 ~~January~~July 2431, 2018
par value $0.10 per share		~~416~~418,~~924~~179,~~204~~224

Table of Contents

CA, INC. AND SUBSIDIARIES

INDEX

		Page
PART I.	Financial Information
	Report of Independent Registered Public Accounting Firm	1
Item 1.	Condensed Consolidated Financial Statements	2
	Condensed Consolidated Balance Sheets – December 31, 2017 and March 31, 2017	2
	Condensed Consolidated Balance Sheets – June 30, 2018 and March 31, 2018	2
	Condensed Consolidated Statements of Operations – Three and Nine Months Ended December 31, 2017 and 2016	3
	Condensed Consolidated Statements of Operations – Three Months Ended June 30, 2018 and 2017	3
	Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended December 31, 2017 and 2016	4
	Condensed Consolidated Statements of Comprehensive Income – Three Months Ended June 30, 2018 and 2017	4
	Condensed Consolidated Statements of Cash Flows – Nine Months Ended December 31, 2017 and 2016	5
	Condensed Consolidated Statements of Cash Flows – Three Months Ended June 30, 2018 and 2017	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2027
	Overview	2128
	Executive Summary	2330
	Performance Indicators	2431
	Results of Operations	2731
	Liquidity and Capital Resources	3638
	Critical Accounting Policies and Business Practices	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	4241
PART II.	Other Information
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4344
Item 3.	Defaults Upon Senior Securities	4344
Item 4.	Mine Safety Disclosures	4344
Item 5.	Other Information	4344
Item 6.	Exhibits	4445
	Signatures	4546

Table of Contents

PART I. FINANCIAL INFORMATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~The~~To the Stockholders and Board of Directors ~~and Stockholders~~

CA, Inc.:

WeResults ~~have reviewed the condensed consolidated balance sheet~~ of ~~CA,~~Review ~~Inc. and subsidiaries as~~ of ~~December 31,~~Interim ~~2017,~~Financial ~~and~~Information the related condensed consolidated statements of operations and comprehensive income for the three-month and nine-month periods ended December 31, 2017 and 2016, and the related condensed consolidated statements of cash flows for the nine-month periods ended December 31, 2017 and 2016. These condensed consolidated financial statements are the responsibility of the Company’s management.

We ~~conducted~~have ~~our~~reviewed ~~reviews~~the incondensed ~~accordance~~consolidated ~~with~~balance ~~the~~sheet ~~standards~~ of ~~the~~CA, ~~Public~~Inc. ~~Company~~and ~~Accounting~~subsidiaries ~~Oversight~~as ~~Board~~of ~~(United~~June 30, ~~States).~~2018, Athe ~~review~~related ofcondensed ~~interim~~consolidated ~~financial~~statements ~~information~~of ~~consists~~operations ~~principally~~and ofcomprehensive ~~applying~~income ~~analytical~~for ~~procedures~~the ~~and~~three-month ~~making~~periods ~~inquiries~~ended ofJune 30, ~~persons~~2018 ~~responsible~~and ~~for~~2017, ~~financial~~the ~~and~~related ~~accounting~~condensed ~~matters.~~consolidated Itstatements isof ~~substantially~~cash ~~less~~flows infor ~~scope~~the ~~than~~three-month anperiods ~~audit~~ended ~~conducted~~June 30, in2018 ~~accordance~~and ~~with~~2017, and the ~~standards~~related ofnotes (collectively, the ~~Public~~consolidated ~~Company~~interim ~~Accounting~~financial ~~Oversight~~information). ~~Board~~Based ~~(United~~on ~~States)~~our reviews, ~~the~~we ~~objective~~are not aware of ~~which~~any ismaterial ~~the~~modifications ~~expression~~that ofshould anbe ~~opinion~~made ~~regarding~~to the consolidated interim financial ~~statements~~information ~~taken~~for asit ato ~~whole.~~be ~~Accordingly,~~in weconformity dowith ~~not~~U.S. ~~express~~generally ~~such~~accepted anaccounting ~~opinion~~principles.

~~Based~~We onhave ~~our~~previously ~~reviews~~audited, wein ~~are~~accordance ~~not~~with ~~aware~~the standards of ~~any~~the ~~material~~Public ~~modifications~~Company ~~that~~Accounting ~~should~~Oversight beBoard ~~made~~(United toStates) (“PCAOB”), the ~~condensed~~ consolidated ~~financial~~balance sheet of the Company as of March 31, 2018, and the related consolidated statements ~~referred~~of tooperations, ~~above~~comprehensive income, stockholders’ equity, and cash flows for ~~them~~the toyear bethen ended (not presented herein); and in ~~conformity~~our ~~with~~report Udated May 9, 2018, we expressed an unqualified opinion on those consolidated financial statements.S. ~~generally~~In ~~accepted~~our ~~accounting~~opinion, ~~principles~~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.

WeBasis have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of CA, Inc. and subsidiaries as of March 31, 2017, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for ~~the~~Review year then ended (not presented herein); and in our report dated May 12, 2017, 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, 2017 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.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

~~January~~August 317, 2018

Table of Contents

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)

	December 31, 2017			March 31, 2017
	June 30, 2018			March 31, 2018
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	23,~~971~~328		$	23,~~771~~405
Trade accounts receivable, net of allowance for doubtful accounts of $11 and $11, respectively	719			764
Trade accounts receivable, net of allowance for doubtful accounts of $12 and $10, respectively	525			793
Other current assets	136			198
Contract assets	797			—
Total current assets	$	3,826		$	3,733
Other current assets	112			210
Property and equipment, net of accumulated depreciation of $860 and $841, respectively	230			237
Total current assets	$	4,762		$	4,408
Goodwill	6,799			6,857
Property and equipment, net of accumulated depreciation of $852 and $865, respectively	222			237
Capitalized software and other intangible assets, net	1,176			1,307
Goodwill	6,792			6,804
Deferred income taxes	346			327
Capitalized software and other intangible assets, net	1,044			1,111
Other noncurrent assets, net	156			149
Deferred income taxes	121			346
Total assets	$	12,533		$	12,610
Contract assets	117			—
Contract costs	408			—
Other noncurrent assets, net	128			154
Total assets	$	13,594		$	13,060
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt	$	~~269~~270		$	18269
Accounts payable	6987			9185
Accrued salaries, wages and commissions	~~219~~201			~~256~~242
Accrued expenses and other current liabilities	~~350~~324			~~326~~340
Deferred revenue (billed or collected)	2,095			2,222
Deferred revenue and advanced payments	1,108			2,289
Taxes payable, other than income taxes payable	7931			6355
Federal, state and foreign income taxes payable	9133			3041
Total current liabilities	$	32,~~090~~154		$	3,~~006~~321
Long-term debt, net of current portion	2,~~518~~510			2,~~773~~514
Federal, state and foreign income taxes payable	~~335~~309			~~131~~311
Deferred income taxes	~~118~~179			~~119~~111
Deferred revenue (billed or collected)	655			794
Deferred revenue and advanced payments	481			820
Other noncurrent liabilities	94100			9888
Total liabilities	$	65,~~810~~733		$	67,~~921~~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; 412,196,271 and 413,409,346 shares outstanding, respectively	59			59
Common stock, $0.10 par value, 1,100,000,000 shares authorized; 589,695,081 and 589,695,081 shares issued; 413,232,677 and 412,056,923 shares outstanding, respectively	59			59
Additional paid-in capital	3,~~715~~699			3,~~702~~744
Retained earnings	69,~~871~~134			6,~~923~~971
Accumulated other comprehensive loss	(~~342~~440		)	(~~483~~290		)
Treasury stock, at cost, 177,498,810 and 176,285,735 shares, respectively	(4,580		)	(4,512		)
Treasury stock, at cost, 176,462,404 and 177,638,158 shares, respectively	(4,591		)	(4,589		)
Total stockholders’ equity	$	57,~~723~~861		$	5,~~689~~895
Total liabilities and stockholders’ equity	$	1213,~~533~~594		$	1213,~~610~~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.

Table of Contents

CA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in millions, except per share amounts)

	For the ThreeMonths EndedDecember 31,						For the NineMonths EndedDecember 31,
	For the ThreeMonths EndedJune 30,
	2017			2016			2017		2016
	2018			2017
Revenue:
Subscription and maintenance	$	843		$	817		$	2,486	$	2,467
Software licenses and maintenance	$	870		$	950
Professional services	8068			7275			~~230~~		~~224~~
Software fees and other	170			118			436		333
Total revenue	$	938		$	1,025
Total revenue	$	1,093		$	1,007		$	3,152	$	3,024
Expenses:
Expenses:
Costs of licensing and maintenance	$	76		$	71
Costs of licensing and maintenance	$	79		$	68		$	223	$	202
Cost of professional services	70			73
Cost of professional services	76			74			223		222
Amortization of capitalized software costs	60			70
Amortization of capitalized software costs	68			57			205		182
Selling and marketing	235			246
Selling and marketing	288			270			778		747
General and administrative	104			107
General and administrative	95			85			299		257
Product development and enhancements	162			158
Product development and enhancements	157			144			476		428
Depreciation and amortization of other intangible assets	26			26
Depreciation and amortization of other intangible assets	26			18			79		56
Other expenses, net	103			11
Other (gains) expenses, net	(3		)	(17		)	17		10
Total expenses before interest and income taxes	$	836		$	762
Total expenses before interest and income taxes	$	786		$	699		$	2,300	$	2,104
Income before interest and income taxes	$	102		$	263
Income before interest and income taxes	$	307		$	308		$	852	$	920
Interest expense, net	20			25
Interest expense, net	25			16			74		45
Income before income taxes	$	82		$	238
Income before income taxes	$	282		$	292		$	778	$	875
Income tax (benefit) expense	(84		)	60
Income tax expense	375			84			509		257
Net income	$	166		$	178
Net (loss) income	$	(93	)	$	208		$	269	$	618
Basic income per common share	$	0.40		$	0.42
Basic (loss) income per common share	$	(0.23	)	$	0.50		$	0.64	$	1.48
Basic weighted average shares used in computation	413			415
Basic weighted average shares used in computation	413			413			414		414
Diluted income per common share	$	0.40		$	0.42
Diluted (loss) income per common share	$	(0.23	)	$	0.50		$	0.64	$	1.47
Diluted weighted average shares used in computation	415			417
Diluted weighted average shares used in computation	413			414			415		415

Table of Contents

CA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(in millions)

	For the ThreeMonths EndedDecember 31,						For the NineMonths EndedDecember 31,
	For the ThreeMonths EndedJune 30,
	2017			2016			2017		2016
	2018			2017
Net (loss) income	$	(93	)	$	208		$	269	$	618
Net income	$	166		$	178
Other comprehensive income (loss):
Other comprehensive (loss) income:
Foreign currency translation adjustments	9(141		)	~~(83~~84		)	~~141~~		~~(102~~		)
Total other comprehensive income (loss)	$	9		$	(83	)	$	141	$	(102	)
Total other comprehensive (loss) income	$	(141	)	$	84
Comprehensive (loss) income	$	(84	)	$	125		$	410	$	516
Comprehensive income	$	25		$	262

Table of Contents

CA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)

	For the NineMonths EndedDecember 31,
	For the ThreeMonths EndedJune 30,
	2017			2016
	2018			2017
Operating activities:
Net income	$	~~269~~166		$	~~618~~178
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	~~284~~86			~~238~~96
Deferred income taxes	41(3		)	~~(20~~5		)
Provision for bad debts	1—			32
Share-based compensation expense	8933			8032
Other non-cash items	3			41
Foreign currency transaction losses (gains)	3			(5		)
Foreign currency transaction (gains) losses	(5		)	1
Changes in other operating assets and liabilities, net of effect of acquisitions:
Decrease in trade accounts receivable	58262			57308
Decrease in deferred revenue	(334		)	(332		)
Increase in contract assets	(6		)	—
Increase (decrease) in taxes payable, net	220			(21		)
Decrease in contract costs	11			—
Increase in accounts payable, accrued expenses and other	20			13
Decrease in deferred revenue and advanced payments	(148		)	(172		)
Decrease in accrued salaries, wages and commissions	(44		)	(12		)
Decrease in taxes payable, net	(179		)	(56		)
Changes in other operating assets and liabilities, net	40			35
Increase (decrease) in accounts payable, accrued expenses and other	44			(5		)
Net cash provided by operating activities	$	650		$	658
Decrease in accrued salaries, wages and commissions	(36		)	(102		)
Changes in other operating assets and liabilities, net	34			10
Net cash provided by operating activities	$	262		$	298
Investing activities:
Acquisitions of businesses, net of cash acquired, and purchased software	$	(1525	)	$	(486	)
Purchases of property and equipment	(3412		)	(3012		)
Other investing activities	(2		)	(1		)
Net cash used in investing activities	$	(37	)	$	(18	)
Net cash used in investing activities	$	(51	)	$	(79	)
Financing activities:
Dividends paid	$	(~~321~~107	)	$	(~~321~~107	)
Purchases of common stock	(~~143~~80		)	~~(100~~—		)
Notional pooling borrowings	~~1,581~~571			~~1,391~~737
Notional pooling repayments	(~~1,612~~547		)	(~~1,365~~755		)
Debt repayments	(144		)	(5		)
Debt issuance costs	(3—		)	—(3		)
Exercise of common stock options	514			221
Payments related to tax withholding for share-based compensation	(3537		)	(3431		)
Other financing activities	(39		)	—(3		)
Net cash used in financing activities	$	(~~545~~199	)	$	(~~412~~166	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	~~148~~(104		)	~~(151~~88		)
Increase in cash, cash equivalents and restricted cash	$	202		$	16
(Decrease) increase in cash, cash equivalents and restricted cash	$	(78	)	$	202
Cash, cash equivalents and restricted cash at beginning of period	23,~~772~~407			2,~~813~~772
Cash, cash equivalents and restricted cash at end of period	$	23,~~974~~329		$	2,~~829~~974

Table of Contents

CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A1 – ACCOUNTING POLICIES

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements (“Condensed Consolidated Financial Statements”) of CA, Inc. and its subsidiaries (the “Company”) ~~have~~as ~~been~~of ~~prepared~~and infor ~~accordance~~the ~~with~~period ~~U.S.~~ended ~~generally~~June ~~accepted accounting principles (GAAP)~~30, as2018 ~~defined~~reflect inthe ~~Financial~~adoption ~~Accounting~~of ~~Standards~~Topic ~~Board~~606 (~~FASB)~~as ~~Accounting~~defined ~~Standards~~below) ~~Codification~~on ~~(ASC)~~April ~~270~~1, ~~for~~2018 ~~interim~~using ~~financial information and in accordance with~~ the ~~instructions to Form~~modified ~~10-Q~~retrospective ~~and Article 10 of Securities and Exchange Commission Regulation S-X~~method. ~~Accordingly,~~The ~~they~~accompanying doCondensed ~~not~~Consolidated ~~include~~Balance ~~all~~Sheet as of ~~the~~March ~~information~~31, ~~and~~2018 ~~footnotes required by GAAP for complete financial statements~~ and ~~therefore~~the ~~should~~Condensed beConsolidated ~~read~~Statements inof ~~conjunction~~Operations, ~~with~~Comprehensive ~~the~~Income ~~Company’s consolidated financial statements~~ and ~~notes~~Cash ~~thereto~~Flows ~~included in the Company’s Annual Report on Form 10-K~~ for the ~~fiscal~~period ~~year~~ ended ~~March 31~~June 30, 2017 ~~(2017~~have ~~Form~~not ~~10-K).~~been Inrevised for the ~~opinion~~effects of ~~management,~~Topic ~~all~~606 ~~adjustments~~and ~~considered~~are ~~necessary~~therefore ~~for~~not acomparable ~~fair~~to ~~presentation~~the ~~have~~June ~~been included. All such adjustments are of a normal~~30, ~~recurring~~2018 ~~nature~~period.

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 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 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 nine~~ months ended ~~December~~June 3130, ~~2017~~2018 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, ~~2018~~2019.

Cash, Cash Equivalents and Restricted Cash: The Company’s cash and cash equivalents are held in numerous locations throughout the world, with approximately 6648% being held by the Company’s foreign subsidiaries outside the United States at ~~December~~June 3130, ~~2017~~2018.

At ~~December~~June 3130, ~~2017~~2018 and March 31, ~~2017~~2018, the total amount of restricted cash included in “Other noncurrent assets, net” in the Company’s Condensed Consolidated Balance Sheets was approximately $31 million and $12 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 ~~nine~~three months ended ~~December~~June 3130, ~~2017~~2018 and ~~2016~~2017.

New Accounting Pronouncements:

New Accounting Pronouncements Recently Adopted

In ~~March~~May ~~2016~~2014, the FASB issued Accounting Standards Update No. ~~2016~~2014-09 ~~(ASU 2016-09)~~, ~~Improvements~~Revenue tofrom ~~Employee~~Contracts ~~Share-Based~~with ~~Payment Accounting (Topic 718)~~Customers, ~~which~~with isamendments ~~intended~~in to2015, ~~simplify~~2016 ~~several~~and ~~aspects~~2017, ofcreating ~~the~~new ~~accounting~~ASC ~~for~~Topic ~~share-based~~606 ~~payment~~(“Topic ~~award~~606”) ~~transactions,~~that ~~including~~replaces ~~the~~most ~~income~~existing ~~tax~~revenue ~~consequences~~recognition ~~and~~guidance ~~classification~~in ~~on the statements of cash flows~~GAAP. ~~ASU~~Topic ~~2016-09~~606 was adopted by the Company ~~when~~ effective inApril ~~the~~1, ~~first~~2018 ~~quarter~~using ofthe ~~fiscal~~modified ~~year~~retrospective ~~2018~~method. ~~The~~Reporting ~~adoption~~periods ofprior ~~ASU~~to ~~2016-09 resulted in~~ the ~~presentation~~adoption of ~~cash~~Topic ~~flows~~606 ~~for~~were ~~employee~~presented ~~taxes~~in ~~paid~~accordance bywith ~~withholding~~ASC ~~shares~~Topic of605 ~~restricted~~(“Topic ~~stock~~605”). asAs a ~~financing~~result ~~activity within the Condensed Consolidated Statements~~ of ~~Cash~~adopting ~~Flows~~Topic 606, ~~which~~the ~~were~~Company ~~previously~~now ~~presented~~recognizes asrevenue anfor ~~operating~~the ~~activity.~~license Acomponent ~~retrospective method~~ of ~~adoption~~all ~~was~~its ~~required~~on-premise ~~for~~software ~~this~~arrangements ~~change,~~at ~~which~~the ~~resulted~~ point-in-time ~~the~~control ~~reclassification~~ of ~~cash~~the ~~outflows~~software oflicense ~~approximately~~is ~~$34~~transferred ~~million~~to ~~from~~the ~~operating~~customer, ~~activities~~rather tothan ~~financing~~ratably ~~activities~~over ~~within~~ the ~~Condensed~~term ~~Consolidated Statements~~ of ~~Cash Flows for~~ the ~~nine months ended December 31, 2016~~contract. ~~Although~~The ~~not~~Company ~~material,~~reflected ~~ASU 2016-09 also requires that excess tax benefits on share-based compensation expense be recognized in~~ the ~~Condensed~~impact ~~Consolidated Statements~~ of ~~Operations as a component of~~ the ~~provision~~changes ~~for~~at ~~income~~transition ~~taxes,~~with ~~rather than additional paid-in capital, on~~ a ~~prospective~~cumulative ~~basis.~~increase Asof ~~permitted~~approximately ~~by ASU 2016-09~~$2,104 ~~although~~million ~~not~~to ~~material,~~ the ~~Company~~opening ~~elected~~balance toof ~~retrospectively~~retained ~~reclassify~~earnings. ~~cash~~Refer ~~flows related~~ to ~~excess~~Note ~~tax~~2, ~~benefits~~“Revenue onfrom ~~share-based~~Contracts ~~compensation~~with ~~expense~~Customers,” asand anNote ~~operating~~3, ~~activity~~“Impact ~~within the Condensed Consolidated Statements~~ of ~~Cash~~Adopting ~~Flows~~Topic 606,” ~~which~~for ~~were~~a ~~previously~~discussion ~~presented~~of asthe achanges ~~financing~~in ~~activity.~~the InCompany’s ~~addition,~~policies asfor ~~permitted~~revenue byrecognition ~~ASU~~and ~~2016-09~~commissions, and the ~~Company~~required ~~elected~~disclosures related to ~~continue~~the toimpact ~~estimate~~of ~~forfeitures~~adopting ~~expected~~Topic to606. ~~occur~~Refer to ~~determine~~ the ~~amount~~Company’s ofAnnual ~~share-based~~Report ~~compensation~~on ~~expense~~Form to10-K befor ~~recognized~~policies in ~~each~~accordance ~~period~~with Topic 605.

In ~~August~~October 2016, the FASB issued Accounting Standards Update No. 2016-1516 (“ASU 2016-1516”), ~~Classification~~Intra-Equity Transfers of ~~Certain~~Assets ~~Cash~~Other ~~Receipts~~Than ~~and~~Inventory ~~Cash Payments~~ (Topic ~~230~~740), which is intended to ~~reduce~~eliminate diversity in practice ~~on how certain cash receipts~~ and ~~cash~~provide ~~payments~~a ~~are~~more ~~classified~~accurate ~~and~~depiction ~~presented~~of in the ~~statements~~tax ofconsequences ~~cash~~on ~~flows.~~intercompany Inasset ~~November~~transfers ~~2016,~~(excluding ~~the FASB issued Accounting Standards Update No~~inventory). ~~2016-18 (~~ASU 2016-~~18),~~16 ~~Restricted~~requires ~~Cash~~entities ~~(Topic~~to ~~230),~~immediately ~~which~~recognize isthe ~~intended~~tax toconsequences ~~reduce~~on ~~diversity~~intercompany inasset ~~practice~~transfers on(excluding ~~how~~inventory) ~~changes~~at inthe ~~restricted~~transaction ~~cash~~date, ~~are~~rather ~~classified~~than ~~and~~deferring ~~presented in~~ the ~~statements~~tax ofconsequences ~~cash~~under ~~flows~~current GAAP. ASU 2016-1816 ~~requires~~was ~~amounts~~adopted ~~generally~~by ~~described as restricted cash to be included with cash and cash equivalents when reconciling~~ the ~~beginning-of-period and end-of-period total amounts shown on the statements of cash flows. The~~ Company ~~elected~~when toeffective ~~early adopt both ASU 2016-15 and ASU 2016-18~~ in ~~the~~ first quarter of fiscal year ~~2018~~2019 using the modified retrospective ~~transition~~ method of adoption. The adoption of ~~these~~this ~~standards~~standard did not have a material effect on the Company’s consolidated financial statements and related disclosures.

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

New Accounting Pronouncements Not Yet Adopted

In ~~May~~February ~~2014~~2016, the FASB issued Accounting Standards Update No. ~~2014~~2016-~~09,~~02 ~~Revenue~~(“ASU ~~from~~2016-02”), ~~Contracts~~Leases ~~with~~(Topic ~~Customers~~842), with amendments in ~~2015~~2018, ~~2016~~requiring a lessee to recognize assets and ~~2017,~~liabilities ~~which~~on ~~creates~~its ~~new~~consolidated ~~ASC~~balance ~~Topic~~sheet ~~606~~for ~~(Topic~~leases ~~606)~~with ~~that~~accounting lease terms of more than 12 months. ASU 2016-02 will replace most existing ~~revenue~~lease ~~recognition~~accounting guidance in GAAP when it becomes effective. ~~Topic~~The ~~606~~new ~~requires~~standard anstates ~~entity~~that toa lessee will recognize a lease liability for the ~~amount~~obligation to make lease payments and a right-of-use ~~revenue~~asset for the right to ~~which~~use itthe ~~expects~~underlying toasset for the lease term. Leases will be ~~entitled~~classified ~~for~~as either finance or operating, with classification affecting the ~~transfer~~pattern of ~~promised~~expense ~~goods~~recognition orin ~~services~~the toconsolidated ~~customers.~~statements ~~The~~of ~~new~~operations. ~~standard~~ASU 2016-02 will be effective for the Company’s first quarter of fiscal year ~~2019~~2020 and ~~early~~requires ~~application~~the ~~for~~modified ~~fiscal~~retrospective ~~year~~method ~~2018~~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. ~~Topic~~The ~~606~~Company ~~may~~will beadopt ~~applied~~ASU ~~retrospectively~~2016-02 towhen ~~each~~effective ~~prior~~in ~~period~~the ~~presented~~first ~~(full~~quarter ~~retrospective~~of ~~method)~~fiscal oryear ~~with~~2020. Although the ~~cumulative~~Company is currently evaluating the effect ~~recognized~~that asASU of2016-02 will have on its consolidated financial statements and related disclosures, the ~~date~~Company currently expects that most of ~~initial~~its ~~application~~operating ~~(modified~~lease ~~retrospective~~commitments ~~method)~~will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption.

~~The~~In ~~Company~~January ~~has~~2017, ~~established~~the aFASB ~~cross-functional~~issued ~~implementation~~Accounting ~~team~~Standards ~~consisting~~Update ofNo. ~~representatives~~2017-04 ~~across~~(“ASU ~~the~~2017-04”), ~~organization~~Simplifying ~~and~~the aTest ~~third-party~~for ~~service~~Goodwill ~~provider~~Impairment to(Topic ~~develop~~350), awhich ~~project~~is ~~plan,~~intended ~~including~~to simplify the ~~evaluation~~subsequent measurement of ~~customer~~goodwill. ~~contracts~~ASU ~~across~~2017-04 eliminates Step 2 of the ~~organization,~~goodwill impairment test requiring the ~~development~~assessment of ~~policies,~~fair ~~processes~~value of individual assets and ~~tools~~liabilities of a reporting unit to ~~report~~measure ~~financial~~goodwill ~~results,~~impairments. ~~the~~Upon ~~consideration~~adoption of this new ~~performance measurements~~standard, ~~and~~goodwill impairments will be the ~~implementation~~amount ~~and~~by ~~evaluation~~which ofa ~~the~~reporting ~~Company’~~unit's ~~internal~~carrying ~~controls~~value ~~over~~exceeds ~~financial~~its ~~reporting~~fair ~~that~~value. ASU 2017-04 will be ~~necessary~~effective ~~under~~for the ~~new~~Company’s ~~standard~~first quarter of fiscal year 2021 and requires a prospective method of adoption. ~~The~~Early ~~Company~~adoption ~~currently~~is ~~plans~~permitted. toAlthough ~~adopt~~the ~~Topic~~Company ~~606~~is incurrently evaluating the ~~first~~timing ~~quarter~~of adoption of ~~fiscal~~ASU ~~year~~2017-04, ~~2019~~it ~~using~~does not currently expect the ~~modified~~adoption ~~retrospective~~to ~~method~~have a material effect on its consolidated financial statements and related disclosures.

~~While~~In ~~the~~August ~~Company is continuing to determine the full effect of the new standard~~2017, ~~it currently anticipates that this standard will have a material effect on its consolidated financial statements and related disclosures, and currently believes~~ the ~~most~~FASB ~~significant~~issued ~~effect~~Accounting ~~relates~~Standards toUpdate ~~the timing of the recognition of its software license revenue~~No. ~~Specifically, under the new standard, the Company currently expects to recognize license revenue for its Mainframe Solutions and Enterprise Solutions products at the point~~2017-~~in-time~~12 the licensed software is transferred to the customer, rather than ratably over the term of the customer contract as required by existing GAAP for most of the Company’s software arrangements. As a result, a significant portion of the Company’s revenue backlog (~~i.e.,~~“ASU ~~deferred revenue and future billings on committed contracts~~2017-12”) ~~relating to the license component of customer contracts at March 31~~, ~~2018~~Targeted ~~under~~Improvements existing GAAP will not be recognized as revenue in future periods but instead will be included as part of the cumulative effect adjustment within retained earnings upon adoption of Topic 606. Such cumulative effect adjustment will primarily result from (i) the significant reduction in deferred revenue relating to ~~the~~Accounting ~~license component of customer contracts as mentioned above, (ii) the establishment of a significant contract asset related to the Company’s contractual right to consideration~~ for ~~completed~~Hedging ~~performance~~Activities ~~obligations not yet billed or collected~~ (~~i.e.,~~Topic ~~license revenue recognized in advance of billings~~815), ~~(iii)~~which ~~the~~is ~~increase~~intended into ~~deferred~~improve ~~tax liabilities arising from~~ the ~~increase~~financial inreporting ~~contract assets, and (iv) the increase in income taxes payable from both the increase in contract assets as a result~~ of ~~the~~hedging ~~Tax~~relationships ~~Cuts~~to ~~and~~better ~~Jobs~~portray ~~Act enacted on December 22, 2017 (~~the ~~“Tax~~economic ~~Act”)~~results ~~and the portion~~ of ~~deferred~~risk ~~revenue~~management ~~included~~activities in ~~the~~financial ~~cumulative effect adjustment that has not been previously included as taxable income on a tax return~~statements. ~~The~~ASU ~~increase~~2017-12 inmakes ~~contract~~certain ~~assets~~targeted ~~and~~improvements ~~decrease~~to insimplify ~~deferred~~the ~~revenue,~~application ~~when taken together with those provisions~~ of the ~~Tax~~hedge ~~Act~~accounting ~~which~~guidance ~~affect tax method revenue recognition for accrual-method U.S. taxpayers, will result~~ in ancurrent ~~acceleration of the timing of the Company’s income tax payments~~GAAP. ~~This~~ASU ~~acceleration~~2017-12 ~~of the timing of income tax payments~~ will be ~~significant~~effective infor ~~relation to~~ the Company’s ~~current~~first ~~annual~~quarter ~~income tax payments within cash flows from operations. While the Company has not finalized its assessment~~ of ~~the~~fiscal ~~impact~~year ~~arising~~2020 ~~from the Topic 606 adoption~~ and ~~finalization~~requires ofa ~~the~~prospective ~~assessment~~method ~~could result in revisions to these estimates, which could be material, the Company currently estimates additional income tax payments in the range~~ of ~~approximately~~adoption ~~$100~~for ~~million to $150 million per year over a four-year period, beginning in fiscal year 2019. The Company currently expects these additional income tax payments will be largely offset by~~ the ~~benefit~~amended ~~from~~presentation ~~the~~and ~~reduced~~disclosure Uguidance.S. ~~corporate~~Early ~~tax~~adoption ~~rate~~is ~~enacted by the Tax Act~~permitted. The Company ~~believes~~is ~~that~~currently ~~taken~~evaluating ~~together,~~ the ~~incremental~~timing ~~income~~of ~~tax payments resulting from the Topic 606~~ adoption and ~~enactment~~the ofeffect ~~the~~that ~~Tax~~ASU ~~Act~~2017-12 will be approximately $25 million to $50 million, on average, per year for the next four years, beginning in fiscal year 2019. Although the Company continues to evaluate the items listed above, it does not currently expect Topic 606 to have ~~a significant effect~~ on its ~~customer~~consolidated ~~billings~~financial statements and ~~cash~~related ~~collections from customer billings~~disclosures.

~~The~~In ~~Company~~February ~~currently~~2018, ~~believes~~the ~~that~~FASB ~~the~~issued ~~point-in-time~~Accounting ~~recognition~~Standards ~~requirement~~Update ofNo. ~~the~~2018-02 ~~new~~(“ASU ~~standard~~2018-02”), ~~will~~Reclassification ~~increase~~of ~~the~~Certain ~~variability~~Tax ofEffects ~~its~~from ~~revenue~~Accumulated ~~and~~Other ~~overall~~Comprehensive ~~net~~Income ~~income~~(Topic ~~period-to-period.~~220), ~~The~~which ~~Company~~allows ~~does~~stranded ~~not~~tax ~~currently~~effects ~~expect~~resulting ~~Topic~~from ~~606~~the ~~will~~Tax ~~have~~Cuts aand ~~significant~~Jobs ~~effect~~Act enacted on December 22, 2017 (the ~~timing~~“Tax ofAct”) ~~revenue~~to ~~recognition~~be ~~for~~reclassified ~~its~~from ~~maintenance,~~accumulated ~~Software-as-a-Service~~other ~~and~~comprehensive ~~professional~~income ~~services~~to ~~contracts~~retained earnings. Since ~~However,~~ASU ~~under~~2018-02 ~~Topic~~only ~~606,~~relates ~~more~~to ~~judgment~~the ~~and~~income ~~estimates~~tax ~~will~~effects befrom ~~required~~the ~~within~~Tax Act, the ~~revenue~~underlying ~~recognition~~guidance ~~process~~that ~~than~~requires ~~are~~the ~~required~~effects ~~under~~from ~~existing~~changes ~~GAAP,~~in ~~including~~tax ~~estimates~~laws ofor ~~the~~rates ~~standalone~~be ~~selling~~included ~~price~~in ~~for~~income ~~each~~from ~~performance~~continuing ~~obligation~~operations ~~identified~~is ~~within~~not affected. ASU 2018-02 will be effective for the Company’s ~~contracts.~~first ~~These~~quarter ~~judgments~~of ~~and~~fiscal ~~estimates~~year ~~will~~2020. ~~also~~Early ~~impact~~adoption is permitted. Although the ~~proportion~~Company ofis acurrently ~~contract’s~~evaluating ~~value~~the ~~that~~timing isof ~~reported~~adoption asof ~~license~~ASU 2018-02, ~~maintenance~~it ~~and~~does ~~other~~not ~~elements,~~currently ~~and~~expect the ~~amounts~~adoption ~~assigned~~ to ~~the~~have ~~Company’s~~a ~~reportable~~material ~~segments~~effect on its consolidated financial statements and related disclosures.

~~Topic~~Reclassifications: ~~606~~As ~~will~~a ~~also~~result ~~require~~of the ~~Company~~adoption toof ~~capitalize~~Topic 606 on a ~~portion~~modified ofretrospective ~~its~~basis, ~~sales~~the ~~commissions~~Company’s ~~and~~presentation ~~other~~of ~~incremental~~prior ~~costs~~year torevenue ~~acquire~~in ~~contracts~~its ~~(i.e.,~~Condensed ~~contract~~Consolidated ~~costs),~~Statement ~~which~~of ~~are~~Operations ~~currently~~has ~~expensed~~been asrevised ~~incurred.~~to ~~Upon~~combine ~~adoption~~the ofpreviously ~~Topic~~reported ~~606,~~revenue ~~the~~line ~~capitalization~~items of“Subscription ~~contract~~and ~~costs~~maintenance” ~~will~~and be“Software ~~included~~fees asand ~~part~~other” ofinto the ~~cumulative~~revenue ~~effect~~line ~~adjustment~~item ~~within~~“Software ~~retained~~licenses ~~earnings.~~and ~~The~~maintenance” ~~Company~~in ~~currently~~the ~~anticipates~~current ityear ~~will~~presentation. ~~amortize~~This ~~these~~reclassification ~~capitalized~~had ~~contract~~no ~~costs~~effect ~~over~~on antotal ~~expected~~revenue ~~period~~as ofpreviously ~~benefit~~reported ~~ranging~~for ~~from~~the ~~approximately~~three ~~four~~months toended ~~seven~~June ~~years~~30, 2017. ~~The~~Refer ~~Company~~to isNote ~~currently~~3, ~~evaluating~~“Impact ~~the effect~~ of ~~this~~Adopting ~~requirement~~Topic on606,” ~~its~~for ~~consolidated~~the ~~financial~~transitional ~~statements~~disclosures ~~and~~required ~~related~~by ~~disclosures~~Topic 606.

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

InNOTE ~~February~~2 ~~2016,~~– ~~the~~REVENUE ~~FASB~~FROM ~~issued~~CONTRACTS ~~Accounting~~WITH Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842), which requires 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’s first quarter of fiscal year 2020 and requires the modified retrospective method of adoption. Early adoption is permitted. Although the Company is currently evaluating the timing of adoption and 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.CUSTOMERS

In ~~October~~accordance ~~2016,~~with ~~the FASB issued Accounting Standards Update No. 2016-16 (ASU 2016-16), Intra-Equity Transfers of Assets Other Than Inventory (~~Topic ~~740)~~606, ~~which~~the isCompany ~~intended~~accounts tofor ~~eliminate~~a ~~diversity~~customer incontract ~~practice~~when ~~and~~both ~~provide~~parties ahave ~~more~~approved ~~accurate depiction of~~ the ~~tax~~contract ~~consequences~~and onare ~~intercompany~~committed ~~asset transfers (excluding inventory). ASU 2016-16 requires entities~~ to ~~immediately~~perform ~~recognize~~their ~~the~~respective ~~tax~~obligations, ~~consequences~~each onparty’s ~~intercompany~~rights ~~asset~~can ~~transfers~~be ~~(excluding~~identified, ~~inventory)~~payment atterms ~~the~~can ~~transaction~~be ~~date~~identified, ~~rather than deferring~~ the ~~tax~~contract ~~consequences~~has ~~under~~commercial ~~current~~substance, ~~GAAP. ASU~~and ~~2016-16~~it ~~will~~is beprobable ~~effective for~~ the Company’s ~~first~~will ~~quarter~~collect ofsubstantially ~~fiscal~~all ~~year~~of ~~2019~~the ~~and~~consideration ~~requires~~to awhich ~~modified~~it ~~retrospective~~is ~~method of adoption~~entitled. ~~Early~~Revenue ~~adoption~~ is ~~permitted~~recognized when, ~~but~~or ~~only~~as, inperformance ~~the~~obligations ~~first~~are ~~quarter~~satisfied ofby antransferring ~~entity’s~~control ~~fiscal~~of ~~year. The~~a ~~Company~~promised ~~does~~product ~~not~~or ~~currently~~service ~~expect the adoption of ASU 2016-16~~ to ~~have~~ a ~~material effect on its consolidated financial statements and related disclosures~~customer.

~~In January 2017, the FASB issued Accounting Standards Update No~~A. ~~2017-04~~Nature ~~(ASU 2017-04), Simplifying the Test for Goodwill Impairment (Topic 350), which is intended to simplify the subsequent measurement~~ of ~~goodwill.~~products ~~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’s first quarter of fiscal year 2021 and requires a prospective method of adoption. Early adoption is permitted. The Company is currently evaluating the timing of adoption and the effect that ASU 2017-04 will have on its consolidated financial statements and related disclosures.services

InThe ~~August~~Company’s ~~2017,~~products ~~the~~and ~~FASB~~services ~~issued~~can ~~Accounting~~be ~~Standards~~broadly ~~Update~~categorized ~~No.~~as ~~2017-12~~perpetual ~~(ASU~~licenses ~~2017-12),~~to ~~Targeted~~use ~~Improvements~~software, toterm-based ~~Accounting~~licenses for ~~Hedging~~Software-as-a-Service ~~Activities~~ (~~Topic 815~~“SaaS”), ~~which~~and ison-premise ~~intended~~use ~~to improve the financial reporting~~ of ~~hedging~~software, ~~relationships~~maintenance tofor ~~better~~perpetual ~~portray~~and ~~the~~term-based ~~economic results of risk management activities in financial statements. ASU 2017~~on-12premise ~~makes~~licenses, ~~certain~~and ~~targeted~~professional ~~improvements to simplify the application of the hedge accounting guidance in current GAAP~~services. ~~ASU~~The ~~2017-12 will be effective for the~~ Company’s ~~first~~software ~~quarter~~licenses ~~of fiscal year 2020~~ and ~~requires~~maintenance aare ~~prospective method of adoption~~ for ~~the~~mainframe, ~~amended~~enterprise, ~~presentation~~ and ~~disclosure~~SaaS ~~guidance.~~computing ~~Early adoption is permitted~~environments. ~~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.~~

~~NOTE~~Perpetual Blicenses: –The ~~ACQUISITIONS~~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.

(dollars in millions)	Automic			Veracode			Estimated Useful Life
Finite-lived intangible assets (1)	$	174		$	99		2-12 years
Purchased software	273			240			1-8 years
Goodwill	303			339			Indefinite
Deferred tax liabilities, net	(92		)	(36		)	—
Other assets (liabilities), net (2)	17			(24		)	—
Purchase price	$	675		$	618

Term-based arrangements: Term-based arrangements consists of on-premise term licenses, SaaS solutions, as well as maintenance.

~~(1)~~• ~~Includes~~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 ~~relationships~~is able to use and ~~trade~~benefit ~~names~~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.

~~(2)~~• ~~Includes~~SaaS ~~approximately~~solutions: ~~$34~~The ~~million~~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 ~~$16~~have ~~million~~the same pattern of ~~cash~~transfer ~~acquired~~to the customer. Revenue from ~~Automic~~a ~~and~~SaaS ~~Veracode~~solution is generally recognized ratably over the term of the arrangement. Revenue related to SaaS solutions provided on a usage basis, ~~respectively~~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.

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.

Table of Contents

CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~The~~Arrangements excess purchase price over the estimated value of the net tangible and identifiable intangible assets was recorded to goodwill. The allocation of the purchase price to goodwill was predominantly due to synergies the Company expects to achieve through integration of the acquired technology with ~~the~~multiple ~~Company’s~~performance existing product portfolio and the intangible assets that are not separable, such as assembled workforce and going concern. The goodwill relating to the Company’s acquisitions of Automic and Veracode is not expected to be deductible for tax purposes and is allocated to the Enterprise Solutions segment. The purchase price allocation for Automic was finalized during the third quarter of fiscal year 2018. During the third quarter of fiscal year 2018, the Company recorded $72 million of additional deferred tax assets relating to Veracode based on further review of their historical tax records. The Company expects to complete its analysis of Veracode’s historical tax records and finalize the purchase price allocation for Veracode in the fourth quarter of fiscal year 2018.obligations

The ~~Condensed~~Company’s ~~Consolidated~~contracts ~~Statement~~generally ofcontain ~~Operations~~more ~~for~~than ~~the~~one ~~three and nine months ended December 31, 2017 included total revenue~~ of ~~approximately~~the ~~$68~~products ~~million~~ and ~~$182~~services ~~million,~~listed ~~respectively~~above, ~~and~~each ~~net loss~~ of ~~approximately~~which ~~$16~~is ~~million~~separately ~~and~~accounted ~~$53~~for ~~million,~~as ~~respectively,~~a ~~from~~distinct ~~Automic~~performance ~~and Veracode~~obligation.

~~The~~Allocation ~~unaudited pro forma combined financial information in the table below summarizes the results~~ of ~~operations~~consideration: ~~for~~The ~~the~~ Company, ~~Automic~~allocates ~~and~~total ~~Veracode~~contract asconsideration ~~though~~to ~~the~~each ~~companies~~distinct ~~were~~performance ~~combined~~obligation asin ofan ~~the~~arrangement ~~beginning~~on ofa ~~fiscal~~relative ~~year~~standalone ~~2017~~selling price basis. The ~~pro~~standalone ~~forma~~selling ~~financial~~price ~~information~~reflects ~~presented~~the ~~below~~price ~~is for informational purposes only and is not indicative of~~ the ~~results~~Company ~~of operations that~~ would ~~have~~charge ~~been~~for ~~achieved~~a ifspecific ~~the~~product ~~acquisitions~~or ~~had~~service ~~taken~~if ~~place at the beginning of fiscal year 2017, nor does~~ it ~~attempt~~was tosold ~~represent~~separately ~~the~~in ~~results~~similar ofcircumstances ~~future operations of the combined entities under the ownership~~ and operation of the Company. The pro forma results of operations also do not include any cost savings or other synergies that may result from these acquisitions or any estimated costs that have been or will be incurred by the Company to ~~integrate~~similar ~~the acquired assets~~customers.

	Three Months Ended December 31, 2016		Nine Months Ended December 31, 2016
(in millions, except per share amounts)	unaudited
Total revenue	$	1,061	$	3,178
Net income	$	181	$	527
Basic income per common share	$	0.43	$	1.26
Diluted income per common share	$	0.43	$	1.25

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 ~~pro~~standalone ~~forma~~selling ~~effects~~price offor ~~the~~perpetual ~~Company’s~~and ~~other~~on-premise ~~fiscal~~term ~~year~~licenses, ~~2017~~which ~~acquisitions~~are onalways sold with maintenance, is the ~~Company’s~~price ~~revenues~~for the combined license and ~~results~~maintenance ofbundle. ~~operations~~The ~~during~~amount assigned to the ~~three~~license and ~~nine~~maintenance ~~months~~bundle ~~ended~~is ~~December 31,~~separated ~~2016~~into ~~were~~license ~~immaterial~~and maintenance amounts using the respective standalone selling prices represented by the value relationship between the software license and maintenance.

~~The~~When ~~Company~~two ~~had~~or ~~approximately~~more ~~$11~~contracts ~~million~~are ~~and~~entered ~~$12~~into ~~million~~at ofor ~~accrued~~near ~~acquisition-related~~the ~~costs~~same attime ~~December 31~~with the same customer, ~~2017~~the Company evaluates the facts and ~~March 31,~~circumstances ~~2017,~~associated ~~respectively~~with the negotiation of those contracts. Where the contracts are negotiated as a package, ~~related~~the toCompany ~~purchase~~will ~~price~~account ~~amounts~~for ~~withheld~~them ~~subject~~as toa ~~indemnification~~single ~~protections~~arrangement and allocate the consideration for the combined contracts among the performance obligations accordingly.

~~NOTE~~Standalone Cselling –price: ~~GOODWILL~~When available, ~~CAPITALIZED~~the ~~SOFTWARE~~Company ~~AND~~uses ~~OTHER~~directly ~~INTANGIBLE~~observable ~~ASSETS~~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.

	At December 31, 2017
	GrossAmortizableAssets		Less: FullyAmortizedAssets		RemainingAmortizableAssets		AccumulatedAmortizationon RemainingAmortizableAssets		NetAssets
	(in millions)
Purchased software products	$	6,565	$	4,910	$	1,655	$	837	$	818
Internally developed software products	1,467		1,347		120		103		17
Other intangible assets	1,222		823		399		58		341
Total capitalized software and other intangible assets	$	9,254	$	7,080	$	2,174	$	998	$	1,176

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.

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.

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	At March 31, 2017
	GrossAmortizableAssets		Less: FullyAmortizedAssets		RemainingAmortizableAssets		AccumulatedAmortizationon RemainingAmortizableAssets		NetAssets
	(in millions)
Purchased software products	$	6,496	$	4,914	$	1,582	$	667	$	915
Internally developed software products	1,467		1,029		438		391		47
Other intangible assets	1,193		812		381		36		345
Total capitalized software and other intangible assets	$	9,156	$	6,755	$	2,401	$	1,094	$	1,307

B. Disaggregation

The disaggregation of revenue by region, type of performance obligation, timing of revenue recognition, and segment was as follows:

	Year Ended March 31,
(in millions)	Three Months Ended June 30, 2018
	2018		2019		2020		2021		2022
Revenue by region:
	(in millions)
United States	$	572
Purchased software products	$	236	$	185	$	162	$	118	$	109
EMEA (1)	229
Internally developed software products	37		9		1		—		—
Other	137
Other intangible assets	42		40		37		37		36
Total revenue	$	938
Total	$	315	$	234	$	200	$	155	$	145
Revenue by type of performance obligation:
Perpetual licenses	$	76
Renewable:
On-premise term licenses	193
Maintenance	487
SaaS	114
Professional services	68
Total revenue	$	938
Timing of revenue recognition:
Point-in-time, including professional services	$	337
Over time	601
Total revenue	$	938
Revenue by segment:
Mainframe Solutions	$	440
Enterprise Solutions	430
Services	68
Total revenue	$	938

~~The~~(1) ~~Company~~Consists ~~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 demandEurope, ~~technology trends and~~ the ~~impact~~Middle ofEast ~~those factors on the technology the Company acquires~~ and ~~develops for its products~~Africa. 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.

(in millions)	Mainframe Solutions		Enterprise Solutions			Services		Total
Balance at March 31, 2017	$	4,178	$	2,598		$	81	$	6,857
Acquisitions (1)	—		(99		)	—		(99		)
Foreign currency translation adjustment	—		41			—		41
Balance at December 31, 2017	$	4,178	$	2,540		$	81	$	6,799

C. Contract Balances

~~(1)~~The ~~Acquisitions~~Company’s ~~amount~~contract ~~relates~~assets toand ~~purchase~~deferred ~~price~~revenue ~~allocation~~balances ~~adjustments~~for ~~that occurred during~~ the ~~nine~~periods ~~months~~indicated ~~ended~~below ~~December~~were ~~31,~~as ~~2017.~~follows:



(in millions)	Contract Assets		Deferred Revenue
Balance at April 1, 2018	$	931	$	1,751
Balance at June 30, 2018	$	914	$	1,589

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 three months ended June 30, 2018 that was included in the deferred revenue balance at April 1, 2018 was $434 million.

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~NOTE~~ D. –Transaction ~~DEFERRED~~Price ~~REVENUE~~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.

	December 31, 2017		March 31, 2017
(in millions)	12 months or less		Greater than 12 months (1)
	(in millions)
Perpetual licenses	$	8	$	13
Current:
Renewable:
Subscription and maintenance	$	1,773	$	1,948
On-premise term licenses	$	160	$	80
Professional services	138		135
Maintenance	$	1,504	$	1,727
Software fees and other	184		139
SaaS	$	336	$	235
Total deferred revenue (billed or collected) – current	$	2,095	$	2,222
Professional services	$	66	$	34
Noncurrent:
Material rights	$	2	$	176
Subscription and maintenance	$	631	$	769
Professional services	17		19
Software fees and other	7		6
Total deferred revenue (billed or collected) – noncurrent	$	655	$	794
Total deferred revenue (billed or collected)	$	2,750	$	3,016

~~NOTE~~(1) EOf –the ~~DERIVATIVES~~amount of performance obligations greater than 12 months, the portion that is 2 to 3 years is approximately $1.8 billion and the remaining amount is generally between 4 and 5 years.

The Company’s ismulti-year ~~exposed~~contracts towith ~~financial~~government ~~market~~customers ~~risks~~may ~~arising~~have termination for convenience clauses. Approximately $88 million of advanced payments received from ~~changes~~government incustomers ~~interest~~that ~~rates~~have ~~and~~termination ~~foreign~~for ~~exchange~~convenience ~~rates.~~rights ~~Changes~~are included in ~~interest~~“Deferred ~~rates~~revenue ~~could~~and ~~affect~~advanced payments” in the Company’s ~~monetary~~Condensed ~~assets~~Consolidated ~~and~~Balance ~~liabilities,~~Sheet and ~~foreign~~allocated ~~exchange~~to ~~rate~~the ~~changes~~remaining ~~could~~performance ~~affect~~obligations in the ~~Company’s~~table ~~foreign~~above. ~~currency~~In ~~denominated~~addition, ~~monetary~~approximately ~~assets~~$561 ~~and~~million ~~liabilities~~related ~~and~~to ~~forecasted~~the ~~transactions.~~remaining ~~The~~unbilled ~~Company~~contract ~~enters~~value ~~into~~and ~~derivative~~performance obligations in these contracts with termination for convenience clauses are not included in the ~~intent~~allocation of ~~mitigating~~transaction aprice ~~portion~~and ofnot ~~these~~included ~~risks~~in “Deferred revenue and advanced payments” in the Company’s Condensed Consolidated Balance Sheet.

~~Foreign Currency Contracts: The Company enters into foreign currency option and forward contracts to manage balance sheet and forecasted transaction foreign currency risks~~E. ~~The~~Contract Company has not designated its foreign exchange 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 British pound sterling, 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 (gains) expenses, net” in the Company’s Condensed Consolidated Statements of Operations.Costs

AtThe ~~December 31,~~Company ~~2017,~~pays ~~foreign~~commissions ~~currency~~for ~~contracts~~new ~~outstanding~~product ~~consisted~~sales ofas ~~purchase~~well ~~and~~as ~~sale~~for ~~contracts~~renewals ~~with a total gross notional value~~ of ~~approximately~~existing ~~$825 million and durations of less than three months~~contracts. ~~The~~Commissions ~~net~~paid ~~fair~~to ~~value~~obtain ofrenewal ~~these~~ contracts atare ~~December 31,~~not ~~2017~~commensurate ~~was~~with athe ~~net~~commissions ~~liability~~paid offor ~~approximately~~new $4product ~~million,~~sales ~~of which approximately $8 million is included in “Other current assets”~~ and ~~approximately~~therefore, ~~$12~~a ~~million~~portion isof ~~included~~the incommissions ~~“Accrued~~paid ~~expenses~~for ~~and~~new ~~other~~contracts ~~current~~relate ~~liabilities”~~to infuture ~~the Company’s Condensed Consolidated Balance Sheet~~renewals.

AtThe ~~March 31,~~Company ~~2017,~~accounts ~~foreign~~for ~~currency~~commissions ~~contracts~~using ~~outstanding~~a ~~consisted~~portfolio ofapproach ~~purchase~~ and ~~sale~~allocates ~~contracts~~the ~~with~~cost aof ~~total~~commissions ~~gross~~in ~~notional~~proportion ~~value~~to the allocation of ~~approximately~~transaction ~~$336~~price ~~million~~of license and ~~durations~~maintenance ofperformance ~~less~~obligations, ~~than~~including ~~three~~assumed ~~months~~renewals. ~~The~~Commissions ~~net~~allocated ~~fair~~to ~~value~~the oflicense ~~these~~and ~~contracts~~license renewal components are expensed at ~~March 31,~~the ~~2017~~time ~~was~~the license revenue is recognized. Commissions allocated to maintenance are capitalized and amortized on a ~~net~~straight-line ~~asset~~basis over a period of ~~approximately~~seven $1years ~~million~~for new contracts, reflecting the Company’s estimate of ~~which~~the ~~approximately~~expected $2period ~~million~~that isthe ~~included~~Company inwill ~~“Other~~benefit ~~current~~from ~~assets”~~those commissions. Commissions paid on renewal contracts that are allocated to maintenance are capitalized and amortized over the renewal term of approximately $1three ~~million~~years. isService ~~included~~contracts inare ~~“Accrued~~generally ~~expenses~~less than one year and ~~other~~accordingly, ~~current~~as ~~liabilities”~~a inpractical ~~the~~expedient, ~~Company’s~~commissions ~~Condensed~~paid ~~Consolidated~~for ~~Balance~~service ~~Sheet~~contracts are expensed as incurred.

	Amount of Net (Gain) Loss Recognized in the Condensed Consolidated Statements of Operations
	Three Months Ended December 31,					Nine Months Ended December 31,
(in millions)	2017		2016			2017		2016
Other (gains) expenses, net – foreign currency contracts	$	—	$	(9	)	$	8	$	(3	)

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 months ended June 30, 2018 was $30 million, and there was no impairment loss in relation to the costs capitalized.

Table of Contents

CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~The~~NOTE ~~Company~~3 is– ~~subject~~IMPACT toOF ~~collateral~~ADOPTING ~~security~~TOPIC arrangements with most of its major counterparties. The Company posted no collateral at December 31, 2017 or March 31, 2017. 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.606

~~NOTE~~The FCompany –adopted ~~FAIR~~Topic ~~VALUE~~606 ~~MEASUREMENTS~~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:

	At December 31, 2017									At March 31, 2017
Condensed Consolidated Balance Sheet(in millions)	As ReportedMarch 31, 2018			Adjustments Due to Topic 606			AdjustedApril 1, 2018
	Fair ValueMeasurement UsingInput Types						EstimatedFairValue			Fair ValueMeasurement UsingInput Types				EstimatedFairValue
Assets
(in millions)	Level 1			Level 2			Total			Level 1		Level 2		Total
Current assets:
Assets:
Cash and cash equivalents	$	3,405		$	—		$	3,405
Money market funds (1)	$	1,063		$	—		$	1,063		$	1,077	$	—	$	1,077
Trade accounts receivable, net	793			9			802
Foreign exchange derivatives (2)	—			8			8			—		2		2
Contract assets	—			772			772
Total assets	$	1,063		$	8		$	1,071		$	1,077	$	2	$	1,079
Other current assets	210			(38		)	172
Liabilities:
Total current assets	$	4,408		$	743		$	5,151
Foreign exchange derivatives (2)	$	—		$	12		$	12		$	—	$	1	$	1
Property and equipment, net	237			—			237
Total liabilities	$	—		$	12		$	12		$	—	$	1	$	1
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

Table of Contents

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 tax payables 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.

Table of Contents

CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table compares the Condensed Consolidated Balance Sheet at June 30, 2018 to the proforma amounts had the previous standard of Topic 605 been in effect:



	At June 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	$	3,328		$	3,328		$	—
Trade accounts receivable, net	525			523			2
Contract assets	797			—			797
Other current assets	112			164			(52		)
Total current assets	$	4,762		$	4,015		$	747
Property and equipment, net	222			222			—
Goodwill	6,792			6,792			—
Capitalized software and other intangible assets, net	1,044			1,044			—
Deferred income taxes	121			336			(215		)
Contract assets	117			—			117
Contract costs	408			—			408
Other noncurrent assets, net	128			145			(17		)
Total assets	$	13,594		$	12,554		$	1,040
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt	$	270		$	270		$	—
Accounts payable	87			87			—
Accrued salaries, wages and commissions	201			201			—
Accrued expenses and other current liabilities	324			334			(10		)
Deferred revenue and advanced payments	1,108			2,070			(962		)
Taxes payable, other than income taxes payable	31			31			—
Federal, state and foreign income taxes payable	133			—			133
Total current liabilities	$	2,154		$	2,993		$	(839	)
Long-term debt, net of current portion	2,510			2,510			—
Federal, state and foreign income taxes payable	309			199			110
Deferred income taxes	179			105			74
Deferred revenue and advanced payments	481			738			(257		)
Other noncurrent liabilities	100			100			—
Total liabilities	$	5,733		$	6,645		$	(912	)
Stockholders’ equity:
Preferred stock	$	—		$	—		$	—
Common stock	59			59			—
Additional paid-in capital	3,699			3,699			—
Retained earnings	9,134			7,125			2,009
Accumulated other comprehensive loss	(440		)	(383		)	(57		)
Treasury stock	(4,591		)	(4,591		)	—
Total stockholders’ equity	$	7,861		$	5,909		$	1,952
Total liabilities and stockholders’ equity	$	13,594		$	12,554		$	1,040

Table of Contents

CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table compares the Condensed Consolidated Statement of Operations for the three months ended June 30, 2018 to the proforma amounts had the previous standard of Topic 605 been in effect:



	For the Three Months Ended June 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	$	870		$	978		$	(108	)
Professional services	68			74			(6		)
Total revenue	$	938		$	1,052		$	(114	)
Expenses:
Costs of licensing and maintenance	$	76		$	76		$	—
Cost of professional services	70			73			(3		)
Amortization of capitalized software costs	60			60			—
Selling and marketing	235			225			10
General and administrative	104			103			1
Product development and enhancements	162			162			—
Depreciation and amortization of other intangible assets	26			26			—
Other expenses, net	103			108			(5		)
Total expenses before interest and income taxes	$	836		$	833		$	3
Income before interest and income taxes	$	102		$	219		$	(117	)
Interest expense, net	20			20			—
Income before income taxes	$	82		$	199		$	(117	)
Income tax benefit	(84		)	(62		)	(22		)
Net income	$	166		$	261		$	(95	)

Basic income per common share	$	0.40		$	0.62		$	(0.22	)
Basic weighted average shares used in computation	413			413			—

Diluted income per common share	$	0.40		$	0.62		$	(0.22	)
Diluted weighted average shares used in computation	415			415			—

The following table provides a summary of the Company’s revenue amounts under Topic 605 for the three months ended June 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 June 30,
(in millions)	2018		2017
Revenue:
Subscription and maintenance	$	838	$	817
Professional services	74		75
Software fees and other	140		133
Total revenue	$	1,052	$	1,025

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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 three months ended June 30, 2018 to the proforma amounts had the previous standard of Topic 605 been in effect:



	For the Three Months Ended June 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	$	166		$	261		$	(95	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	86			86			—
Deferred income taxes	(3		)	(1		)	(2		)
Provision for bad debts	—			(1		)	1
Share-based compensation expense	33			33			—
Other non-cash items	3			3			—
Foreign currency transaction (gains) losses	(5		)	1			(6		)
Changes in other operating assets and liabilities, net of effect of acquisitions:
Decrease in trade accounts receivable	262			257			5
Increase in contract assets	(6		)	—			(6		)
Decrease in contract costs	11			—			11
Decrease in deferred revenue and advanced payments	(148		)	(260		)	112
Decrease in taxes payable, net	(179		)	(159		)	(20		)
Increase in accounts payable, accrued expenses and other	44			45			(1		)
Decrease in accrued salaries, wages and commissions	(36		)	(36		)	—
Changes in other operating assets and liabilities, net	34			33			1
Net cash provided by operating activities	$	262		$	262		$	—

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. The Company intends to fill many of the positions involved in the Fiscal 2019 Plan with new employees who have different skill sets. These actions are 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 a pre-tax charge 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).

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accrued restructuring severance and exit costs and changes in the accruals during the three months ended June 30, 2018 were as follows:



(in millions)	Accrued Balance at March 31, 2018		Expense		Change in Estimate		Payments			Accretion and Other		Accrued Balance at June 30, 2018
Severance charges	$	—	$	78	$	—	$	(20	)	$	2	$	60
Facility exit charges	7		36		—		(3		)	—		40
Total accrued liabilities	$	7										$	100

The balance at June 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 June 30, 2018 were as follows:



	At June 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	$	6,582	$	5,047	$	1,535	$	811	$	724
Internally developed software products	1,467		1,458		9		4		5
Other intangible assets	1,215		823		392		77		315
Total capitalized software and other intangible assets	$	9,264	$	7,328	$	1,936	$	892	$	1,044

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

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Based on the capitalized software and other intangible assets recorded through June 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 three months ended June 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	—		(18		)	—		(18		)
Balance at June 30, 2018	$	4,178	$	2,533		$	81	$	6,792

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 June 30, 2018, foreign currency contracts outstanding consisted of purchase and sale contracts with a total gross notional value of approximately $933 million and durations of less than nine months. The net fair value of these contracts at June 30, 2018 was a net asset of approximately $13 million, of which approximately $21 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.

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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 (Gain) Loss Recognized in the Condensed Consolidated Statements of Operations
	Three Months Ended June 30,
(in millions)	2018			2017
Other expenses, net – foreign currency contracts	$	(10	)	$	4

The Company is subject to collateral security arrangements with most of its major counterparties. The Company posted no collateral at June 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 June 30, 2018 and March 31, 2018:



	At June 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⁾	$	1,357	$	—	$	1,357	$	1,281	$	—	$	1,281
Foreign exchange derivatives ⁽²⁾	—		21		21		—		2		2
Total assets	$	1,357	$	21	$	1,378	$	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 E6, “Derivatives,” for additional information.

At ~~December~~June 3130, ~~2017~~2018 and March 31, ~~2017~~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 June 30, 2018 and March 31, 2018:

	At December 31, 2017				At March 31, 2017
	At June 30, 2018				At March 31, 2018
(in millions)	CarryingValue		EstimatedFair Value		CarryingValue		EstimatedFair Value
Liabilities:
Total debt (1)	$	2,~~787~~780	$	2,~~874~~816	$	2,~~791~~783	$	2,~~903~~844
Facility exit reserves (2)	$	840	$	942	$	117	$	128


(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 ~~December~~June 3130, ~~2017~~2018 and March 31, ~~2017~~2018. At ~~December~~June 3130, ~~2017~~2018 and March 31, ~~2017~~2018, the facility exit reserves included carrying values of approximately $213 million and $32 million, respectively, in “Accrued expenses and other current liabilities” and approximately $627 million and $85 million, respectively, in “Other noncurrent liabilities” in the Company’s Condensed Consolidated Balance Sheets (Level 3).

~~NOTE G – COMMITMENTS AND CONTINGENCIES~~19

The Company has been or, 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 in contract issues and disputes with customers, including government customers.

Based on the Company’s experience, 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 any material claims and disputes, and intends to vigorously contest each of them.

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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.

On August 3, 2018, subsequent to the Company’s announcement of its agreement to be acquired by Broadcom Inc. (“Broadcom”) pursuant to the terms of the Merger Agreement (as defined in Note 15, “Subsequent Events,” below), a purported class action complaint was filed on behalf of the Company’s stockholders against the Company, members of its Board of Directors, Collie Acquisition Corp. and Broadcom in the United States District Court for the Southern District of New York. The plaintiff seeks to enjoin the defendants from consummating the proposed transaction, or, if the transaction is consummated, the plaintiff alternatively seeks rescission and/or damages. The plaintiff also seeks costs and fees associated with the suit.

Based on the Company’s experience, 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.

NOTE H9 – STOCKHOLDERS’ EQUITY

Stock Repurchases: On November 13, 2015, the Board ~~of Directors (Board)~~ approved a stock repurchase program that authorized the Company to acquire up to $750 million of its common stock. During the ~~nine~~three months ended ~~December~~June 3130, ~~2017~~2018, the Company repurchased approximately 42.43 million shares of its common stock for approximately $~~143~~80 million. At ~~December~~June 3130, ~~2017~~2018, the Company remained authorized to purchase approximately $~~507~~407 million of its common stock under its current stock repurchase program. Pursuant to the terms of the Merger Agreement (as defined in Note 15, “Subsequent Events,” below) with Broadcom, the Company may not continue to repurchase shares without Broadcom’s consent.

Accumulated Other Comprehensive Loss: Foreign currency translation losses included in “Accumulated other comprehensive loss” in the Company’s Condensed Consolidated Balance Sheets at ~~December~~June 3130, ~~2017~~2018 and March 31, ~~2017~~2018 were approximately $~~342~~440 million and $~~483~~290 million, respectively.

Cash Dividends: The Board declared the following dividends during the ~~nine~~three months ended ~~December~~June 3130, ~~2017~~2018 and ~~2016~~2017:

~~Nine~~Three Months Ended ~~December~~June 3130, ~~2017~~2018:

(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
May 2, 2018	$0.255	May 17, 2018	$107	June 5, 2018
August 9, 2017	$0.255	August 24, 2017	$108	September 12, 2017
November 9, 2017	$0.255	November 30, 2017	$106	December 12, 2017

~~Nine~~Three Months Ended ~~December~~June 3130, ~~2016~~2017:

(in millions, except per share amounts)

Declaration Date	Dividend Per Share	Record Date	Total Amount	Payment Date
May 4, 2016	$0.255	May 26, 2016	$107	June 14, 2016
May 9, 2017	$0.255	May 25, 2017	$107	June 13, 2017
August 3, 2016	$0.255	August 25, 2016	$107	September 13, 2016
November 2, 2016	$0.255	November 17, 2016	$107	December 6, 2016

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE I10 – 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 months ended June 30, 2018 and 2017:

	Three Months Ended December 31,						Nine Months Ended December 31,
	Three Months Ended June 30,
	2017			2016			2017			2016
	2018			2017
	(in millions, except per share amounts)
Basic (loss) income per common share:
Basic income per common share:
Net (loss) income	$	(93	)	$	208		$	269		$	618
Net income	$	166		$	178
Less: Net income allocable to participating securities	—(2		)	(2		)	(5		)	(7		)
Net (loss) income allocable to common shares	$	(93	)	$	206		$	264		$	611
Net income allocable to common shares	$	164		$	176
Weighted average common shares outstanding	413			~~413~~415			~~414~~			~~414~~
Basic (loss) income per common share	$	(0.23	)	$	0.50		$	0.64		$	1.48
Basic income per common share	$	0.40		$	0.42
Diluted (loss) income per common share:
Diluted income per common share:
Net (loss) income	$	(93	)	$	208		$	269		$	618
Net income	$	166		$	178
Less: Net income allocable to participating securities	—(2		)	(2		)	(5		)	(7		)
Net (loss) income allocable to common shares	$	(93	)	$	206		$	264		$	611
Net income allocable to common shares	$	164		$	176
Weighted average shares outstanding and common share equivalents:
Weighted average common shares outstanding	413			~~413~~415			~~414~~			~~414~~
Weighted average effect of share-based payment awards	—2			12			1			1
Denominator in calculation of diluted income per share	~~413~~415			~~414~~417			~~415~~			~~415~~
Diluted (loss) income per common share	$	(0.23	)	$	0.50		$	0.64		$	1.47
Diluted income per common share	$	0.40		$	0.42

For the three months ended ~~December~~June 3130, ~~2017~~2018 and ~~2016~~2017, respectively, approximately 21 million shares and 12 million shares of Company common stock underlying restricted stock awards (“RSAs”) and options to purchase common stock were excluded from the calculation because their effect on income per share was anti-dilutive during the respective periods. Weighted average RSAs of approximately 5 million shares and 5 million shares for the three months ended ~~December~~June 3130, ~~2017~~2018 and ~~2016~~2017, respectively, were considered participating securities in the calculation of net income allocable to common stockholders.

For the nine months ended December 31, 2017 and 2016, respectively, approximately 2 million shares and 2 million shares of Company common stock underlying RSAs and options to purchase common stock were excluded from the calculation because their effect on income per share was anti-dilutive during the respective periods. Weighted average RSAs of approximately 5 million shares and 5 million shares for the nine months ended December 31, 2017 and 2016, respectively, were considered participating securities in the calculation of net income allocable to common stockholders.21

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE J11 – ACCOUNTING FOR SHARE-BASED COMPENSATION

The Company recognized share-based compensation in the following line items in the Condensed Consolidated Statements of Operations for the periods indicated:

	Three Months Ended December 31,						Nine Months Ended December 31,
	Three Months Ended June 30,
	2017			2016			2017			2016
	2018			2017
	(in millions)
Costs of licensing and maintenance	$	12		$	2		$	5		$	5
Cost of professional services	1			1			2			3
Selling and marketing	910			910			29			28
General and administrative	1012			812			33			27
Product development and enhancements	78			67			20			17
Share-based compensation expense before tax	$	2833		$	2632		$	89		$	80
Income tax benefit	(78		)	(811		)	~~(27~~		)	~~(26~~		)
Net share-based compensation expense	$	2125		$	1821		$	62		$	54

There were no capitalized share-based compensation costs for the three ~~and nine~~ months ended ~~December~~June 3130, ~~2017~~2018 and ~~2016~~2017.

The following table summarizes the unrecognized share-based compensation costs at June 30, 2018:

	Unrecognized Share-Based Compensation Costs		Weighted Average Period Expected to be Recognized
	(in millions)		(in years)
Stock option awards	$	57	12.93
Restricted stock units (RSUs)	21		1.9
Restricted stock awards (“RSAs”)	112		2.3
Restricted stock awards (RSAs)	78		1.9
Restricted stock units (“RSUs”)	32		2.4
Performance share units	3747		2.48
Total unrecognized share-based compensation costs	$	~~141~~198	2.14

For the three months ended June 30, 2018 and 2017, the Company issued stock options for approximately 0.9 million shares and 1.0 million shares, respectively. The weighted average fair values and assumptions used for the options granted were as follows:

	Nine Months Ended December 31,
	Three Months Ended June 30,
	2017			2016
	2018			2017
Weighted average fair value	$	45.7270		$	4.4272
Dividend yield	3.1707		%	3.5617		%
Expected volatility factor (1)	21		%	2221		%
Risk-free interest rate (2)	23.10		%	12.51		%
Expected life (in years) (3)	6.0			6.0


(1)	Expected volatility is measured using historical daily price changes of the Company’s common stock over the respective expected term of the options and the implied volatility derived from the market prices of the Company’s traded options.


(2)	The risk-free rate for periods within the contractual term of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant.


(3)	The expected life is the number of years the Company estimates that options will be outstanding prior to exercise. The Company’s computation of expected life was determined based on the simplified method (the average of the vesting period and option term).

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The table below summarizes all of the RSAs and RSUs granted, including grants made pursuant to the Company’s long-term incentive plans, during the three months ended June 30, 2018 and 2017:

	Three Months Ended December 31,						Nine Months Ended December 31,
	Three Months Ended June 30,
	2017			2016			2017		2016
	2018			2017
	(shares in millions)
RSAs:
Shares	02.19			—2.9		~~(3)~~	~~3.0~~		~~2.9~~
Weighted average grant date fair value (1)	$	3235.1228		$	31.9969		$	~~31.70~~	$	~~31.56~~
RSUs:
Shares	—1.2		~~(3)~~	—1.1			~~1.1~~		~~1.0~~
Weighted average grant date fair value (2)	$	3034.1404		$	—30.35		$	~~30.35~~	$	~~30.16~~


(1)	The fair value is based on the quoted market value of the Company’s common stock on the grant date.


(2)	The fair value is based on the quoted market value of the Company’s common stock on the grant date reduced by the present value of dividends expected to be paid on the Company’s common stock prior to vesting of the RSUs, which is calculated using a risk-free interest rate.

~~(3)~~Employee ~~Less~~Stock ~~than~~Purchase Plan: For the six-month offer period ended June 30, 2018, the Company issued approximately 0.1 million shares under the Employee Stock Purchase Plan (“ESPP”) at $33.87 per share. As of June 30, 2018, approximately 28.7 million shares were available for future issuances under the ESPP.

~~Employee~~NOTE ~~Stock~~12 ~~Purchase~~– ~~Plan: For~~INCOME the six-month offer period ended June 30, 2017, the Company issued approximately 0.1 million shares under the Employee Stock Purchase Plan (ESPP) at $32.75 per share. For the six-month offer period ended December 31, 2017, the Company issued approximately 0.1 million shares under the Employee Stock Purchase Plan (ESPP) at $31.62 per share. As of December 31, 2017, approximately 28.8 million shares were available for future issuances under the ESPP.TAXES

~~NOTE~~Income Ktax –benefit ~~INCOME~~for ~~TAXES~~the three months ended June 30, 2018 was approximately $84 million compared with income tax expense for the three months ended June 30, 2017 of approximately $60 million. For the three months ended June 30, 2018, the Company recorded a net discrete tax benefit of approximately $98 million resulting primarily from refinements to the provisional estimates of the impact of changes in tax law in the United States resulting from the enactment of the Tax Act. For the three months ended June 30, 2017, the Company recorded a net discrete tax benefit of approximately $8 million resulting primarily from reductions in uncertain tax positions related to effectively settled tax audits.

~~Income~~The ~~tax~~cumulative expense recorded for the ~~three~~impacts ~~and~~of ~~nine~~the ~~months~~Tax ~~ended~~Act ~~December 31,~~are ~~2017~~provisional ~~was~~amounts of approximately $~~375~~192 million ~~and~~in total, including expense of approximately $~~509~~198 million related to the taxation of unremitted earnings of the Company’s foreign subsidiaries, ~~respectively~~which is payable over eight years, ~~compared~~partially ~~with~~offset ~~income~~by ~~tax~~a ~~expense~~benefit of approximately $102 million related to a dividends received deduction for certain foreign tax credits relating to the ~~three~~fiscal ~~and~~2018 ~~nine~~year ~~months~~calculation ~~ended~~of ~~December 31~~taxation of unremitted earnings, ~~2016~~and expense of approximately $8496 million related to the remeasurement of deferred tax assets and ~~$257~~liabilities ~~million,~~for ~~respectively~~the change in income tax rates. ~~For~~The Company will continue to refine the ~~three~~provisional amounts as it reviews and ~~nine~~analyzes ~~months~~the ~~ended~~historic ~~December 31~~unremitted earnings of its foreign subsidiaries, ~~2017~~as well as the attendant computations that impact the measurement of the taxation of unremitted earnings, and also takes into consideration any additional regulatory guidance published by the U.S. tax authorities in respect of the Tax Act. The Company ~~recorded~~expects ato ~~net~~finalize ~~discrete~~the tax expense as soon as practical, but not later than the third quarter of ~~approximately~~fiscal ~~$310~~year ~~million~~2019. ~~and~~The $~~302~~102 million, ~~respectively.~~tax Ofbenefit ~~these~~for ~~amounts,~~the ~~approximately~~dividends ~~$318~~received ~~million~~deduction ~~resulted~~was ~~from~~based ~~preliminary~~on ~~estimates~~the Company’s assessment of the ~~impact~~treatment under the provisions of ~~changes~~the inTax ~~tax~~Act. ~~law~~Congress inor the ~~United~~Department ~~States~~of ~~resulting~~Treasury ~~from~~may provide legislative or regulatory updates which would change the ~~enactment~~Company’s assessment. If legislative or regulatory updates are issued related to this item, the timing of which is uncertain, the ~~Tax~~Company ~~Act~~may be required to recognize additional tax expense up to the full amount of the $102 million in the period such updates are issued.

~~The~~Excluding ~~amounts~~the ~~recorded~~impact of discrete items for the ~~impacts~~three ofmonths ~~the~~ended ~~Tax~~June 30, ~~Act~~2018 ~~are~~and ~~provisional~~2017, ~~amounts~~the ofCompany’s ~~approximately~~estimated ~~$220~~annual ~~million~~effective ~~related~~tax torate ~~the~~was ~~taxation~~20.9% ofand ~~unremitted~~28.6%, ~~earnings~~respectively. ofThe reduction in the Company’s ~~foreign~~estimated ~~subsidiaries,~~annual ~~which~~effective istax ~~payable~~rate ~~over~~is ~~eight~~primarily ~~years,~~resulting ~~and~~from ~~approximately~~the ~~$98~~Tax ~~million~~Act ~~related~~which toprovided ~~the~~for ~~remeasurement~~a oflower ~~deferred~~statutory tax ~~assets~~rate ~~and~~in ~~liabilities~~the ~~for~~United ~~the~~States. ~~change~~Changes in ~~income~~ tax ~~rates.~~laws, ~~The Company will continue to refine~~ the ~~provisional~~outcome ~~amounts~~of astax itaudits ~~reviews~~ and ~~analyzes~~any ~~results~~other ~~from~~changes ~~the~~in ~~full~~potential ~~fiscal~~tax ~~year~~liabilities ~~2018~~may ~~operations~~result ~~needed~~in ~~for~~additional ~~calculations~~tax ~~under~~expense ~~the~~or ~~Tax~~benefit ~~Act,~~in asfiscal ~~well~~year as2019, ~~further~~which ~~review~~are ~~the~~not ~~historic~~considered ~~unremitted~~in ~~earnings of~~ the Company’s ~~foreign~~estimated ~~subsidiaries~~annual ~~and~~effective ~~take~~tax ~~into consideration any additional regulatory guidance published by the U~~rate.S. ~~tax~~While ~~authorities in respect of~~ the ~~Tax Act. The~~ Company ~~expects~~does tonot ~~finalize~~currently ~~the~~view ~~tax~~any ~~expense~~such asitems ~~soon~~ as ~~practical,~~individually ~~but~~material ~~not~~to ~~later than~~ the ~~third~~results ~~quarter~~ of ~~fiscal~~the ~~year 2019. The~~ Company’s ~~does~~consolidated ~~not~~financial ~~expect~~position ~~other~~or ~~provisions~~results of operations, the ~~Tax~~impact ~~Act~~of tocertain ~~have~~items amay ~~material~~yield ~~impact~~additional ~~for~~tax ~~fiscal~~expense ~~year~~or ~~2018,~~benefit ~~but~~in ~~is evaluating~~ the ~~impact~~remaining onquarters ~~future~~of fiscal ~~years~~year 2019.

Excluding the impact of discrete items for the nine months ended December 31, 2017 and 2016, the Company’s estimated annual effective tax rate was 26.6% and 28.9%, respectively. The Company’s estimated annual effective tax rate for the nine months ended December 31, 2017 includes a reduction as compared with the six months ended September 30, 2017 of 2.0% related to the statutory tax rate reduction for fiscal year 2018 resulting from the Tax Act. Changes in tax laws, the outcome of tax audits and any other changes in potential tax liabilities may result in additional tax expense or benefit in fiscal year 2018, which are not considered in the Company’s estimated annual effective tax rate. While the Company does not currently view any such items as individually material to the results of the Company’s consolidated financial position or results of operations, the impact of certain items may yield additional tax expense or benefit in the remaining quarter of fiscal year 2018.23

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE L13 – SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION

For the ~~nine~~three months ended ~~December~~June 3130, ~~2017~~2018 and ~~2016~~2017, interest payments were approximately $8424 million and $6624 million, respectively, and income taxes paid, net were approximately $~~231~~30 million and $~~274~~47 million, respectively.

Non-cash financing activities for the ~~nine~~three months ended ~~December~~June 3130, ~~2017~~2018 and ~~2016~~2017 consisted of treasury common shares issued in connection with the following: share-based incentive awards issued under the Company’s equity compensation plans of approximately $46 million (net of approximately $3640 million of income taxes withheld) and $4445 million (net of approximately $3334 million of income taxes withheld), respectively; discretionary stock contributions to the CA, Inc. Savings Harvest Plan of approximately $2324 million and $2423 million, respectively; and the Company’s ESPP of approximately $52 million and $52 million, respectively.

The Company uses a notional pooling arrangement with an international bank to help manage global liquidity. Under this pooling arrangement, the Company and its participating subsidiaries may maintain either cash deposit or borrowing positions through local currency accounts with the bank, so long as the aggregate position of the global pool is a notionally calculated net cash deposit. Because it maintains a security interest in the cash deposits and has the right to offset the cash deposits against the borrowings, the bank provides the Company and its participating subsidiaries favorable interest terms on both. The activity under this notional pooling arrangement for the three months ended June 30, 2018 and 2017 was as follows:

	Nine Months Ended December 31,
	Three Months Ended June 30,
	2017			2016
	2018			2017
	(in millions)
Total borrowings outstanding at beginning of period (1)	$	137		$	~~139~~137
Borrowings	~~1,581~~571			~~1,391~~737
Repayments	(~~1,612~~547		)	(~~1,365~~755		)
Foreign exchange effect	33(22		)	~~(26~~20		)
Total borrowings outstanding at end of period (1)	$	139		$	139


(1)	Included in “Accrued expenses and other current liabilities” in the Company’s Condensed Consolidated Balance Sheets.

NOTE M14 – SEGMENT INFORMATION

In accordance with FASB ASC Topic 280, Segment Reporting, the Company disaggregates its operations into Mainframe Solutions, Enterprise Solutions and Services segments, which is utilized by the Chief Operating Decision Maker, who is the Company's Chief Executive Officer, for evaluating segment performance and allocating resources.

The Company’s Mainframe Solutions and Enterprise Solutions segments are comprised of its software business organized by the nature of the Company’s software offerings and the platforms on which the products operate. The Services segment is comprised of product implementation, consulting, customer education and customer training services, including those directly related to the Mainframe Solutions and Enterprise Solutions software that the Company sells to its customers.

~~Segment~~The ~~expenses~~Company doregularly ~~not~~enters ~~include~~into ~~amortization~~a ofsingle ~~purchased~~arrangement ~~software~~with a customer that includes mainframe solutions, ~~amortization~~enterprise solutions and services. The amount of ~~other~~contract ~~intangible~~revenue ~~assets,~~assigned ~~amortization~~to operating segments is generally based on the manner in which the proposal is made to the customer. The software product revenue assigned to the Mainframe Solutions and Enterprise Solutions segments is 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 ~~internally~~the ~~developed~~products); (2) allocations included within internal contract approval documents; or (3) the value for individual software products, ~~share-based~~as ~~compensation~~stated ~~expense,~~in ~~certain~~the ~~foreign~~customer ~~exchange~~contract. ~~derivative~~The ~~hedging~~price ~~gains~~for ~~and~~the ~~losses~~implementation, ~~severance~~consulting, education and ~~facility~~training ~~actions~~services ~~approved~~is byseparately stated in the ~~Board,~~contract and ~~other~~these ~~miscellaneous~~amounts ~~costs. A~~of ~~measure~~contract ofrevenue are assigned to the Services segment. ~~assets~~The contract value assigned to each operating segment is ~~not~~then ~~currently~~recognized ~~provided~~in a manner consistent with the revenue recognition policies of the Company prior to the adoption of Topic 606. Accordingly, differences in segment revenue and consolidated revenue arise primarily from (a) term and perpetual software licenses that are recognized ratably under the Company’s ~~Chief~~segment ~~Executive~~policies ~~Officer~~and in its Condensed Consolidated Statement of Operations for periods prior to the adoption of Topic 606 that, after adoption of Topic 606, are recognized at a point-in-time; and ~~has~~(b) ~~therefore~~differences ~~not~~in ~~been~~the ~~disclosed~~allocations of contract value among products and services in a contract arising from the use of a relative standalone selling price allocation method in the Company’s Condensed Consolidated Statement of Operations for periods after adoption of Topic 606 as compared to the aforementioned approach to assigning contract value to the Company’s segments.

Three Months Ended December 31, 2017	MainframeSolutions			EnterpriseSolutions			Services			Total
(dollars in millions)
Revenue	$	552		$	461		$	80		$	1,093
Expenses	197			408			78			683
Segment profit	$	355		$	53		$	2		$	410
Segment operating margin	64		%	11		%	3		%	38		%
Depreciation	$	8		$	7		$	—		$	15

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions)
Segment profit	$	410
Less:
Purchased software amortization	60
Other intangibles amortization	11
Internally developed software products amortization	8
Share-based compensation expense	28
Other gains, net (1)	(4		)
Interest expense, net	25
Income before income taxes	$	282

Segment expenses include costs that are controllable by segment managers (i.e., direct costs) and, in the case of the Mainframe Solutions and Enterprise Solutions segments, an allocation of shared and indirect costs (i.e., allocated costs). Segment-specific direct costs include a portion of selling and marketing costs, licensing and maintenance costs, product development costs and general and administrative costs. Allocated segment costs primarily include indirect and non-segment-specific direct selling and marketing costs and general and administrative costs that are not directly attributable to a specific segment. The basis for allocating shared and indirect costs between the Mainframe Solutions and Enterprise Solutions segments is dependent on the nature of the cost being allocated and is generally either in proportion to segment revenues or in proportion to the related direct cost category. Expenses for the Services segment consist of cost of professional services and other direct costs included within selling and marketing and general and administrative expenses. There are no allocated or indirect costs for the Services segment.

~~(1)~~Segment ~~Other~~expenses ~~gains~~do not include amortization of purchased software, ~~net~~amortization ~~consists~~of other intangible assets, amortization of ~~costs~~internally ~~associated~~developed ~~with~~software products, share-based compensation expense, certain foreign exchange derivative hedging gains and losses, severance and facility actions approved by the Board, and other miscellaneous costs. A measure of segment assets is not currently provided to the Company’s Chief Executive Officer and has therefore not been disclosed.

Nine Months Ended December 31, 2017	MainframeSolutions			EnterpriseSolutions			Services			Total
(dollars in millions)
Revenue	$	1,627		$	1,295		$	230		$	3,152
Expenses	572			1,169			226			1,967
Segment profit	$	1,055		$	126		$	4		$	1,185
Segment operating margin	65		%	10		%	2		%	38		%
Depreciation	$	27		$	21		$	—		$	48

The Company’s summary of segment revenue and reconciliation to total consolidated revenue for the three months ended June 30, 2018 and 2017 was as follows:

(in millions)
	Three Months Ended June 30,
Segment profit	$	1,185
	2018			2017
Less:
	(in millions)
Purchased software amortization	176
Revenue by segment:
Other intangibles amortization	31
Mainframe Solutions	$	553		$	536
Internally developed software products amortization	29
Enterprise Solutions	425			414
Share-based compensation expense	89
Services	74			75
Other expenses, net (1)	8
Total segment revenue	$	1,052		$	1,025
Interest expense, net	74
Impact of segment policies that differ from U.S. GAAP (1)	(114		)	—
Income before income taxes	$	778
Total consolidated revenue	$	938		$	1,025

(1) ~~Other~~The ~~expenses,~~manner ~~net~~in ~~consists~~which the Company measures and recognizes revenues for segment reporting was not revised upon adoption of ~~costs~~Topic ~~associated~~606. ~~with~~For ~~certain~~segment ~~foreign~~reporting ~~exchange~~purposes, ~~derivative~~the ~~hedging~~Company ~~gains~~follows ~~and~~its ~~losses~~previous Topic 605 policies, ~~and~~which ~~other~~recognizes ~~miscellaneous~~software ~~costs~~license revenue ratably, except for sales of perpetual licenses on a stand-alone basis, which are recognized at a point-in-time.

Three Months Ended December 31, 2016	MainframeSolutions			EnterpriseSolutions			Services			Total
(dollars in millions)
Revenue	$	546		$	389		$	72		$	1,007
Expenses	215			333			75			623
Segment profit (loss)	$	331		$	56		$	(3	)	$	384
Segment operating margin	61		%	14		%	(4		)%	38		%
Depreciation	$	8		$	6		$	—		$	14

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s summary of segment profit and reconciliation to income before income taxes for the three months ended June 30, 2018 and 2017 was as follows:

(in millions)
	Three Months Ended June 30,
Segment profit	$	384
	2018			2017
Less:
	(in millions)
Purchased software amortization	39
Segment profit:
Other intangibles amortization	4
Mainframe Solutions	$	370		$	349
Internally developed software products amortization	18
Enterprise Solutions	60			33
Share-based compensation expense	26
Services	—			1
Other gains, net (1)	(11		)
Total segment profit	$	430		$	383
Interest expense, net	16
Impact of segment policies that differ from U.S. GAAP (1)	(117		)	—
Income before income taxes	$	292
Less unallocated amounts:
Purchased software amortization	55			58
Other intangibles amortization	10			10
Internally developed software products amortization	5			12
Share-based compensation expense	33			32
Other expenses, net (2)	108			8
Interest expense, net	20			25
Income before income taxes	$	82		$	238

(1) ~~Other~~The ~~gains~~manner in which the Company measures and recognizes revenues and expenses, ~~net~~including ~~consists~~commissions, offor ~~costs~~segment ~~associated~~reporting ~~with~~was ~~certain~~not ~~foreign~~revised ~~exchange~~upon ~~derivative~~adoption ~~hedging~~of ~~gains~~Topic ~~and~~606. ~~losses~~For segment reporting purposes, ~~and~~commissions ~~other~~are ~~miscellaneous~~expensed ~~costs~~in the period earned by the employee.

Nine Months Ended December 31, 2016	MainframeSolutions			EnterpriseSolutions			Services			Total
(dollars in millions)
Revenue	$	1,647		$	1,153		$	224		$	3,024
Expenses	634			981			223			1,838
Segment profit	$	1,013		$	172		$	1		$	1,186
Segment operating margin	62		%	15		%	—		%	39		%
Depreciation	$	25		$	18		$	—		$	43

(2)

Other expenses, net for the three months ended June 30, 2018 consisted of costs associated with the Fiscal 2019 Plan of $114 million, certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs. Other expenses, net for the three months ended June 30, 2017 consisted of costs associated with certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.

(in millions)
Segment profit	$	1,186
Less:
Purchased software amortization	120
Other intangibles amortization	13
Internally developed software products amortization	62
Share-based compensation expense	80
Other gains, net (1)	(9		)
Interest expense, net	45
Income before income taxes	$	875

Depreciation for the Mainframe Solutions and Enterprise Solutions segments for the three months ended June 30, 2018 was $9 million and $7 million, respectively. Depreciation for the Mainframe Solutions and Enterprise Solutions segments for the three months ended June 30, 2017 was $9 million and $7 million, respectively. There was no depreciation for the Services segment for the three months ended June 30, 2018 and 2017.

~~(1)~~NOTE ~~Other~~15 ~~gains,~~– ~~net~~SUBSEQUENT ~~consists of costs associated with certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.~~EVENTS

	Three Months Ended December 31,				Nine Months Ended December 31,
	2017		2016		2017		2016
	(in millions)
United States	$	682	$	642	$	1,997	$	1,936
EMEA (1)	256		223		720		667
Other	155		142		435		421
Total revenue	$	1,093	$	1,007	$	3,152	$	3,024

On July 11, 2018, the Company, 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 Merger Agreement provides that, subject to the terms and conditions set forth therein, Merger Sub will merge 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 (i) owned or held in treasury by the Company or owned by Broadcom or Merger Sub, (ii) owned by any wholly owned subsidiary of Broadcom or of the Company and (iii) held by the Company’s stockholders who perfect their appraisal rights with respect to the Merger) will be cancelled and automatically converted into the right to receive $44.50 in cash, without interest. Consummation of the Merger is subject to the satisfaction or waiver of customary closing conditions, including adoption of the Merger Agreement by the Company’s stockholders, the expiration or termination of the waiting period under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and clearance under the antitrust laws of the European Union and Japan.

(Assuming timely satisfaction or waiver of the necessary closing conditions, the Company anticipates that the Merger will be completed in the fourth calendar quarter of 2018. For additional information related to the Merger, please refer to the Merger Agreement, which is incorporated herein by reference as Exhibit 2.1) ~~Consists~~to this Form 10-Q. In addition, see Part II, Item 1A. Risk Factors of ~~Europe~~this Form 10-Q, which is incorporated herein by reference, for a discussion of certain risks due to the ~~Middle~~announcement ~~East~~and pendency of the proposed Merger or the failure of the Merger to be completed that could have a material adverse effect on the Company’s business and ~~Africa~~operating results.

1926

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Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains certain forward-looking information relating to CA, Inc. (which we refer to as the “Company,” “Registrant,” “CA Technologies,” “CA,” “we,” “our” or “us”), that is based on the beliefs of, and assumptions made by, our management as well as information currently available to management. When used in this Form 10-Q, the words “believes,” “plans,” “anticipates,” “expects,” “estimates,” “targets” and similar expressions relating to the future are intended to identify forward-looking information. Forward-looking information includes, for example, not only the statements relating to the future made in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), but also statements relating to the future that appear in other parts of this Form 10-Q. This forward-looking information reflects our current views with respect to future events and is subject to certain risks, uncertainties and assumptions.

~~The~~A ~~declaration~~number ~~and~~of ~~payment~~important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements, including: the effect of ~~future~~the ~~dividends~~announcement or pendency of the proposed acquisition by Broadcom Inc. (“Broadcom”) of the Company is(the ~~subject~~“Merger”) on our business relationships, operating results and business; the failure to complete the ~~determination~~proposed Merger in a timely manner or at all and the effects of such failure on our business, financial condition, operating results and stock price; the ~~Company’s~~limitations ~~Board~~on our ability to pursue alternative transactions pursuant to the provisions of ~~Directors~~the merger agreement; the ability to achieve success in our business strategy by, among other things, ensuring that any new offerings address the needs of a rapidly changing market while not adversely affecting the demand for our traditional products or our profitability to an extent greater than anticipated, enabling our sales force to execute renewals within our existing customer base at acceptable renewal rates, enabling our sales force to expand relationships with our global customer base and address opportunities with new customers (for example, in geographic regions where we have underserved, or with chief information security officers and chief development officers, who have not been traditional customers) at levels sufficient to offset any decline in revenue in our Mainframe Solutions segment and in certain mature product lines in our Enterprise Solutions segment, effectively managing the ~~Board~~strategic shift in our business model to increase sales through digital sales forces and indirectly through our partners, as well as provide additional Software-as-a-Service (“SaaS”) offerings, offer try-and-buy models and refocus our professional services and education engagements on those engagements that are connected to new product sales, without affecting our financial performance to an extent greater than anticipated, and effectively managing our pricing and other go-to-market strategies, as well as improving our brand, technology and innovation awareness in ~~its~~the ~~sole~~marketplace; ~~discretion~~the failure to innovate or adapt to technological changes or develop and introduce new software products and services in a timely and market-accepted manner; competition in product and service offerings and pricing; the ability of our products to remain compatible with ever-changing operating environments, ~~after~~platforms ~~considering~~or ~~various~~third party products; global economic factors or political events beyond our control and other business and legal risks associated with global operations; the failure to sell and renew license agreement on a satisfactory basis; the failure to expand partner programs and failure by our partners to leverage their sales channels to drive revenue growth; the ability to retain and attract qualified professionals; changes in generally accepted accounting principles (“GAAP”), ~~including~~which includes adoption of revenue recognition requirements under Accounting Standards Codification Topic 606; the ~~Company’s~~ability ~~financial~~to ~~condition~~successfully integrate acquired companies and products into our existing business; hacking or other cybersecurity attacks on our data center, ~~historical~~network and ~~forecasted~~software ~~operating~~products, ~~results~~or the IT environments of our business partners and customers; the ability to adequately manage, evolve and ~~available~~protect ~~cash~~our ~~flow~~information systems, infrastructure and processes; general economic conditions and credit constraints, or unfavorable economic conditions in a particular region, business or industry sector; risks associated with sales to government customers; fluctuations in foreign exchange rates; discovery of errors or omissions in our software products; the failure to protect our intellectual property rights and source code; access to software licensed from third parties; risks associated with the use of software from open source code sources; third-party claims of intellectual property infringement and/or royalty payments; fluctuations in the number, terms and duration of our license agreements, as well as ~~any~~the ~~applicable~~timing ~~laws~~of ~~and~~orders ~~contractual~~from ~~covenants~~customers and ~~any~~partners; potential tax liabilities; changes in market conditions or our credit ratings; events or circumstances that would require us to record an impairment charge relating to our goodwill or capitalized software and other ~~relevant~~intangible ~~factors.~~assets ~~The~~balances; ~~Company’s~~the ~~practice~~failure ~~regarding~~to effectively execute on our announced restructuring plans; successful and secure outsourcing of various functions to third parties; the continued payment of dividends and repurchasing of shares of our common stock; and other factors described more fully in this Form 10-Q and our other filings with the Securities and Exchange Commission, including those described on pages 11-20 of our fiscal year 2018 Annual Report on Form 10-K, filed on May 9, 2018. Should one or more of these risks or uncertainties occur, or should our assumptions prove incorrect, actual results may vary materially from the forward-looking information described in this Form 10-Q as believed, planned, anticipated, expected, estimated, targeted or similarly identified. We do not intend to update these forward-looking statements, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. This MD&A is provided as a supplement to, and should be ~~modified~~read atin ~~any~~conjunction ~~time~~with, our financial statements and ~~from~~the ~~time~~accompanying notes to ~~time~~the financial statements. References in this Form 10-Q to fiscal 2019 and fiscal 2018 are to our fiscal years ending on March 31, 2019 and 2018, respectively.

Repurchases under the Company’s stock repurchase program may be made from time to time, subject to market conditions and other factors, in the open market, through solicited or unsolicited privately negotiated transactions or otherwise. The program does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company’s discretion.27

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A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements, including: the ability to achieve success in the Company’s business strategy by, among other things, ensuring that any new offerings address the needs of a rapidly changing market while not adversely affecting the demand for the Company’s traditional products or the Company’s profitability to an extent greater than anticipated, enabling the Company’s sales force to accelerate growth of sales to new customers and expand sales with existing customers, including sales outside of the Company’s renewal cycle and to a broadening set of purchasers outside of traditional information technology operations (with such growth and expansion at levels sufficient to offset any decline in revenue and/or sales in the Company’s Mainframe Solutions segment and in certain mature product lines in the Company’s Enterprise Solutions segment), effectively managing the strategic shift in the Company’s business model to develop more easily installed software, provide additional Software-as-a-Service (SaaS) offerings and refocus the Company’s professional services and education engagements on those engagements that are connected to new product sales, without affecting the Company’s financial performance to an extent greater than anticipated, and effectively managing the Company’s pricing and other go-to-market strategies, as well as improving the Company’s brand, technology and innovation awareness in the marketplace; the failure to innovate or adapt to technological changes and introduce new software products and services in a timely manner; competition in product and service offerings and pricing; the ability of the Company’s products to remain compatible with ever-changing operating environments, platforms or third party products; global economic factors or political events beyond the Company’s control and other business and legal risks associated with global operations; the failure to expand partner programs and sales of the Company’s solutions by the Company’s partners; the ability to retain and attract qualified professionals; general economic conditions and credit constraints, or unfavorable economic conditions in a particular region, business or industry sector; the ability to successfully integrate acquired companies and products into the Company’s existing business; risks associated with sales to government customers; breaches of the Company’s data center, network and software products, and the IT environments of the Company’s business partners and customers; the ability to adequately manage, evolve and protect the Company’s information systems, infrastructure and processes; the failure to renew license agreement transactions on a satisfactory basis; fluctuations in foreign exchange rates; changes in generally accepted accounting principles, which includes adoption of revenue recognition requirements under Accounting Standards Codification Topic 606; discovery of errors or omissions in the Company’s software products or documentation and potential product liability claims; the failure to protect the Company’s intellectual property rights and source code; access to software licensed from third parties; risks associated with the use of software from open source code sources; third-party claims of intellectual property infringement and/or royalty payments; fluctuations in the number, terms and duration of the Company’s license agreements, as well as the timing of orders from customers and partners; potential tax liabilities; changes in market conditions or the Company’s credit ratings; events or circumstances that would require the Company to record an impairment charge relating to the Company’s goodwill or capitalized software and other intangible assets balances; successful and secure outsourcing of various functions to third parties; and other factors described more fully in this Form 10-Q and the Company’s other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties occur, or should the Company’s assumptions prove incorrect, actual results may vary materially from the forward-looking information described in this Form 10-Q as believed, planned, anticipated, expected, estimated, targeted or similarly identified. The Company does not intend to update these forward-looking statements, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. This MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s financial statements and the accompanying notes to the financial statements. References in this Form 10-Q to fiscal 2018 and fiscal 2017 are to the Company’s fiscal years ending on March 31, 2018 and 2017, respectively.

OVERVIEW

CA Technologies is a global leader in software solutions ~~enabling~~ that simplify complex enterprise environments. Our solutions enable customers to plan, develop, automate, manage and secure applications ~~and enterprise environments~~ across ~~distributed~~mobile, cloud, ~~mobile~~distributed and mainframe platforms. ~~Most~~Many of the ~~Global~~largest ~~Fortune~~companies ~~500~~in the world, asincluding ~~well~~most asof ~~many~~the ~~government~~Fortune ~~agencies~~500 ~~around~~and ~~the~~many ~~world~~government agencies, rely on CA software to help manage ~~their~~and ~~increasingly~~secure ~~dynamic~~their ~~and~~hybrid ~~complex~~cloud environments.

WeOur mission is to eliminate the barriers between ideas and business outcomes. To achieve this, we have built a ~~broad~~ portfolio of ~~software~~ solutions that weenable ~~use~~customers to ~~execute~~leverage ~~our~~the benefits of agility, automation, insights and security in managing business ~~strategy~~processes and ~~organize~~technology ~~our~~investments. ~~offerings~~Customers inare ~~Enterprise~~transforming ~~Solutions~~their businesses to better manage the market demands for speed, ~~Mainframe~~exceptional ~~Solutions~~customer experience and ~~Services~~rich ~~operating~~analytics. We ~~segments~~believe this journey, broadly referred to as digital transformation, is fueled by software.

Our ~~Enterprise~~business ~~Solutions~~is ~~segment~~comprised ~~includes~~of ~~products~~three ~~that~~distinct ~~are~~but ~~designed~~highly ~~for~~complementary ~~distributed~~operating ~~and~~segments: ~~cloud~~Enterprise ~~computing~~Solutions, ~~environments~~Mainframe Solutions and ~~run~~Services. onThese ~~industry~~also ~~standard~~represent ~~servers.~~the ~~Within~~operating ~~Enterprise~~segments ~~Solutions,~~used by our ~~areas~~Chief ofExecutive ~~focus~~Officer ~~include:~~for evaluating our performance and allocating resources.

• ~~Agile~~Our ~~Management~~Enterprise ~~enables~~Solutions ~~customers~~segment toincludes ~~plan,~~a ~~deliver~~broad ~~and~~range ~~manage~~of ~~information~~software ~~technology~~planning, ~~(IT)~~development, and ~~business~~management ~~services~~tools. ~~for~~More ~~their~~specifically, our solutions help customers. ~~Our~~with ~~solutions~~secure application development, infrastructure management, automation, and ~~Agile~~identity-centric ~~services~~security ~~enable~~solutions. ~~customers~~These toproducts ~~improve~~are ~~delivery~~designed ~~time~~for onmobile, ~~projects~~cloud, ~~reduce~~and ~~costs~~distributed computing environments and ~~optimize~~run ~~resources~~on industry standard servers.

21• Our Mainframe Solutions segment includes solutions for the IBM z Systems® platform, which runs many of our largest customers’ mission critical business applications. Our Mainframe Solutions help customers improve economics by increasing throughput and lowering cost per transaction, increasing business agility through DevOps tooling and processes, increasing reliability and availability of operations through machine intelligence and automation solutions, and protecting enterprise data with security and compliance.

•

Our Services segment helps customers reach their information technology (“IT”) and business goals primarily by enabling the rapid implementation and adoption of our software solutions. Our Services team consists of experienced professionals who provide a variety of services, such as consulting, implementation, application management services, education and support services, to both commercial and government customers.

Our segments strengthen each other in several ways. Our customers benefit from the ability of CA solutions to span their entire infrastructure stack, across mobile, cloud, distributed, and mainframe. This is critical as customers focus on their end users’ experiences on their apps and the underlying transactions that traverse their heterogeneous environments. CA is one of the few companies positioned to deliver solutions that span mobile, cloud, open systems and mainframe environments. This hybrid cloud capability helps customers remove the barriers between ideas and business outcomes. We are able to bidirectionally leverage our core strengths and development efforts in our products within the Enterprise Solutions segment to bring new innovations to the Mainframe Solutions segment and vice versa. Our strong market position enables our investment in development, innovation and support of the mainframe platform to be among the largest in the industry, which sustains ongoing customer commitment to our Mainframe Solutions. Our Services segment leverages our expertise across our Mainframe Solutions and Enterprise Solutions segments and helps customers deploy and maintain our solutions.

The focus of our business is aligned around three strategic pillars: Agile, DevOps and Security, each of which contain portfolios of solutions spanning the continuum of platforms, from mobile to mainframe.

Agile

Our Agile portfolio defines how work is planned, executed and serviced to deliver rapid value to our customers, and enables customers to plan, deliver, manage and optimize application development and project management. Our capabilities within Agile include:

•

Agile Planning helps customers transform their development practices from traditional to modern agile methodologies. Agile development utilizes an iterative work cadence with a feedback loop that decreases time-to-market, increases product quality and, most importantly, maintains a focus on generating rapid business value. CA’s cloud-based solutions in this space help customers to collaboratively plan, prioritize and track agile software development at scale.


•	Project & Portfolio Management, which is highly complementary to Agile Planning, enables customers to collect, prioritize, plan and deliver products, services and customer experiences. CA’s solutions improve decision making processes and resource optimizations, and decrease project execution risk.

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• DevOps is adjacent to Agile Management and is comprised of a range of solutions that allow customers to efficiently deliver and manage applications and IT infrastructure. With our portfolio of solutions, customers can reduce the delivery time of new applications, increase the frequency of new releases and dramatically improve quality. Our solutions enable complete end-to-end automation, which minimizes downtime and accelerates the application delivery process.

•Our ~~Security~~DevOps ~~includes~~portfolio aaccelerates ~~comprehensive~~software ~~set~~delivery ofand ~~solutions~~enables ~~that~~customers ~~address the global imperative~~ to ~~minimize~~more ~~the~~efficiently ~~risk~~deliver ofand ~~data~~manage ~~breaches~~applications and ~~alleviate~~infrastructure. ~~the~~The ~~pressures~~portfolio ~~faced~~empowers bydevelopers ~~Chief~~with ~~Information~~a ~~Security~~rich ~~Officers~~set ~~(CISOs)~~of astools athat ~~result~~help ofsimplify, ~~increasing~~automate, ~~information~~and ~~security~~make ~~regulations.~~their ~~Our~~processes ~~solutions~~and ~~facilitate~~applications ~~digital~~more ~~transformation~~robust. byThey ~~providing~~enable ~~secure~~better ~~customer~~ experiences, ~~enabling~~for adevelopers ~~collaborative~~and ~~enterprise,~~for ~~empowering~~the aend ~~digital~~users ~~workforce~~of ~~and~~their ~~securing~~higher ~~the~~quality ~~‘Internet of Things~~applications.’ ~~CA’s~~Our ~~Security~~DevOps ~~suite~~portfolio ~~simplifies~~strategy ~~the~~is ~~complexity~~platform ofagnostic, ~~managing~~providing customers the ~~trusted~~flexibility ~~digital~~to ~~relationships~~optimize ~~among~~workloads ~~people~~across mobile, ~~devices~~cloud, ~~and applications both~~ on-premise, and inmainframe ~~the cloud~~environments. Our ~~solutions~~capabilities ~~help~~within toDevOps ~~eliminate vulnerabilities during the development and deployment chain, which helps to lower cost and improve time-to-market.~~include:

~~Our~~• ~~Mainframe~~Continuous ~~Solutions~~Delivery ~~are~~optimizes ~~designed for~~ the ~~IBM~~application zdevelopment ~~Systems™~~processes ~~platform,~~by ~~which~~automating ~~runs~~the ~~many~~deployment of ~~our largest customers’ mission-critical business~~ applications. ~~Our~~across ~~Mainframe~~all ~~Solutions~~stages ~~help~~of ~~customers~~their ~~improve~~lifecycles. ~~economics~~Continuous bydelivery ~~increasing~~is ~~throughput~~key ~~and~~to ~~lowering~~transforming ~~cost~~the ~~per~~technical ~~transaction,~~aspects ~~increase~~of ~~business~~software ~~agility~~delivery. ~~through~~Our ~~DevOps~~solutions ~~tooling~~enable ~~and~~the ~~processes~~development, ~~increase~~testing ~~reliability~~ and ~~availability~~release ofteams ~~operations~~to ~~through~~work ~~machine~~concurrently ~~intelligence~~ and ~~automation~~continuously ~~solutions,~~to ~~and~~remove ~~protect~~the ~~enterprise~~excess ~~data~~overhead ~~with security~~ and ~~compliance.~~delays ~~Within~~that ~~Mainframe~~come ~~Solutions,~~with ~~our~~traditional ~~areas~~software ~~of focus include:~~development.

• ~~DevOps~~Automation solutions help customers ~~increase~~transform ~~the~~business ~~innovation~~processes. ~~velocity~~They ~~for~~automate, ~~mainframe~~orchestrate ~~applications~~ and ~~teams.~~accelerate Wethe ~~support~~entire ~~agile~~application ~~development~~delivery ~~processes~~process. ~~and~~Our ~~modern~~unified ~~languages,~~platform asprovides ~~well~~end-to-end asautomation ~~tools~~capabilities ~~for development, testing and deployment~~ that ~~support~~cover ~~collaboration~~service ~~across~~orchestration, ~~the~~workload ~~software~~automation ~~development lifecycle~~ and ~~across~~release ~~mobile~~automation ~~to mainframe teams~~capabilities.

• Agile Operations ~~Intelligence~~helps ~~and Automation solutions help~~ customers ~~adopt~~correlate ~~machine~~end-user, ~~learning~~application and ~~bring~~infrastructure ~~more~~data ~~intelligence~~from ~~and~~cloud-hosted ~~automation~~containers to ~~their mainframe operations~~mainframes. ~~With~~Our ~~machine~~solutions ~~learning,~~help ~~operations~~customers ~~teams~~see ~~can~~application ~~proactively~~dependencies ~~prevent problems, fix issues faster~~ and ~~get more done with fewer resources. We~~ provide aintelligent ~~unified~~analytics, ~~view~~comprehensive ~~of the IBM z Systems performance across the infrastructure stack~~coverage, ~~including~~and ~~applications,~~an ~~middleware~~open, ~~networks,~~extensible ~~systems,~~architecture ~~storage~~that ~~and~~improves ~~data~~end-user experience.

• ~~Security~~API &(Application ~~Compliance~~Programming ~~solutions~~Interface) ~~help~~Management ~~customers~~facilitates ~~address~~the ~~stringent~~creation, ~~data~~ security and ~~compliance~~management ~~requirements,~~of ~~such~~APIs asthrough EUtheir ~~General~~lifecycle, ~~Data~~enabling ~~Protection~~customers ~~Regulation~~to ~~(GDPR),~~connect bymore ~~finding~~directly ~~sensitive~~with ~~data,~~end-users ~~classifying~~via ~~data~~mobile ~~for compliance purposes~~apps, ~~alerting~~cloud ~~risks~~platforms ~~in real-time,~~ and ~~inspecting~~“Internet ~~threats~~of toThings” ~~protect mission-essential data-running 100 percent on the mainframe~~devices.

Our Services help customers reach their IT and business goals primarily by enabling the rapid implementation and adoption of our mainframe and enterprise solutions. Our professional services team consists of experienced professionals who provide a variety of services, such as consulting, implementation, application management services, education and support services, to both commercial and government customers.Security

Our ~~goal~~Security isportfolio toprovides becustomers, ~~the~~employees ~~world’s~~and ~~leading~~partners ~~independent~~seamless ~~software~~access ~~provider~~to ~~for~~the ITright ~~management~~data, ~~and~~regardless ~~security~~of ~~solutions~~the ~~that~~underlying ~~help~~platform. ~~organizations~~Our ~~and~~Security ~~enterprises~~portfolio ~~plan,~~is ~~develop,~~designed ~~manage,~~to ~~and~~minimize ~~secure~~the ~~modern~~risk ~~software~~of ~~environments,~~data ~~across~~breaches ~~mainframe,~~and ~~distributed,~~alleviate ~~cloud~~the ~~and~~increased ~~mobile~~pressures ~~platforms.~~faced Toby ~~accomplish~~chief ~~this,~~information ~~key~~security ~~elements~~officers. ofOur ~~our~~capabilities ~~strategy~~within Security include:

•

Application Security offers a holistic and scalable way to manage security risk across an application lifecycle. Through our acquisition of Veracode, we provide a wide range of security testing and threat mitigation techniques. Our solution is hosted on a unified application security testing platform and integrates into existing development toolchains. This enables users to quickly identify and remediate security flaws earlier in the development process and supports the development of high-quality, secure code.


•	Identity & Access Management provides enterprise-grade identity management and governance capabilities, including broad provisioning support for on-premises and cloud-based applications, extensibility and flexibility to integrate with other IT systems and consumer-grade scale.


•	Privileged Access Management enables organizations to control and monitor the access and activity of privileged users, or users with elevated access or administrator rights. Our solutions help detect and prevent the threat of internal and external attacks leveraging both network and host-based controls for the enterprise and hybrid cloud.


•	Payment Security is a SaaS-based payment authentication service to help banks protect against fraud and ensure a hassle-free online shopping experience for their customers.

Our goal is to be the world’s leading independent enterprise software provider that helps organizations and enterprises plan, develop, manage, and secure modern software environments, across mainframe, distributed, cloud and mobile platforms. To accomplish this, key elements of our strategy include:


•	Drive organic innovation. Our product development strategy is built around key growth areas, where we are focused on innovating and delivering differentiated products and solutions across both distributed and mainframe platforms.

• Incubate technology for next generation products. We are researching and dedicating resources to the development of emerging technologies that are logical extensions of our core areas of focus. We are working on opportunities in areas such as containers, data analytics, big data, artificial intelligence, machine learning and open source, some of which may enhance or extend our current product portfolio and others of which may evolve into new product categories.


•	Pursue new business models and expanded routes to market. While our traditional on-premise software delivery remains relevant to many enterprise customers, we see cloud-based and try-and-buy models as attractive to both our existing and potential customers. These models simplify decision-making and accelerate the value customers can derive from new solution investments.


•	Expand relationships with our global customer base and address opportunities with new and underserved customers. We are focused on maintaining and expanding the strong relationships with our established customer base, and will proactively target growth with other potential customers that we do not currently serve.

• Execute strategic and disciplined technology acquisitions. We intend to supplement our organic innovation efforts with key technology acquisitions that are within or adjacent to our core areas of focus. We also focus on organically developing nascent technologies from companies we have acquired to endow them with the necessary interoperability, resilience and security to operate at scale in the large, heterogeneous IT environments utilized by our customers.29

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•

Execute strategic and disciplined technology acquisitions. We intend to supplement our organic innovation efforts with key technology acquisitions that are within or adjacent to our core areas of focus. We also focus on organically developing nascent technologies from companies we have acquired to provide them with the necessary interoperability, resilience and security to operate at scale in the large, heterogeneous IT environments utilized by our customers.

EXECUTIVE SUMMARY

AIn ~~summary~~May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, with amendments in 2015, 2016 and 2017, which creates new ASC Topic 606 (“Topic 606”) that replaces most existing revenue recognition guidance in GAAP. Topic 606 was adopted by us effective April 1, 2018 using the modified retrospective method. Reporting periods prior to the adoption of ~~key~~Topic ~~results~~606 were presented in accordance with ASC Topic 605 (“Topic 605”). As a result of adopting Topic 606, we now recognize revenue for the ~~third~~license ~~quarter~~component of ~~fiscal~~all ~~2018~~our ~~compared~~on-premise ~~with~~software arrangements at the ~~third~~point-in-time ~~quarter~~control of ~~fiscal~~the ~~2017~~software license is astransferred ~~follows:~~to the customer, rather than ratably over the term of the contract.

Refer to Note 2, “Revenue from Contracts with Customers,” and Note 3, “Impact of Adopting Topic 606,” in the Notes to the Condensed Consolidated Financial Statements for a discussion of the changes in our policies for revenue recognition and commissions, and the required disclosures related to the impact of adopting Topic 606. Refer to our Annual Report on Form 10-K for policies in accordance with Topic 605.

A summary of key results for the first quarter of fiscal 2019 compared with the first quarter of fiscal 2018 is as follows:

Revenue

• Total revenue ~~increased~~decreased ~~primarily~~ due to ~~an increase in software fees and other revenue and, to a lesser extent, an increase in subscription and maintenance revenue. During~~ the ~~third~~adoption ~~quarter~~ of ~~fiscal~~Topic ~~2018,~~606 ~~total revenue included $68 million from our Automic Holding GmbH (Automic) and Veracode, Inc. (Veracode) acquisitions, which were acquired~~ in the ~~fourth~~first quarter of fiscal ~~2017 and primarily included in software fees and other revenue~~2019. ~~Excluding~~On ~~the~~a ~~revenue~~Topic ~~generated~~605 ~~from our Automic and Veracode acquisitions~~basis, total revenue increased $27 million primarily due to a favorable foreign exchange effect of $1920 million. ~~for~~Excluding the ~~third~~favorable ~~quarter~~foreign ofexchange ~~fiscal 2018~~effect, ~~and,~~total torevenue aincreased ~~lesser~~primarily ~~extent,~~due to an increase in Mainframe Solutions revenue ~~from~~and SaaS revenue within our Enterprise Solutions ~~products~~segment.

Bookings

• Total bookings decreased primarily due to a decline in renewal bookings. Excluding our Automic and Veracode acquisitions, total bookings decreased by a percentage in the high teens.

• Renewal bookings decreased by a percentage in the high teens primarily due to the decline in Mainframe Solutions renewal bookings, which was attributable to the timing of our renewal portfolio. This decline in Mainframe Solutions renewal bookings was partially offset by renewal bookings associated with our Automic and Veracode acquisitions. Excluding our Automic and Veracode acquisitions, renewal bookings decreased by a percentage in the mid-20s.

• Total new product sales increased by a percentage in the high single digits due to our Automic and Veracode acquisitions. Excluding our Automic and Veracode acquisitions, total new product sales decreased by a percentage in the high single digits primarily due to a lower level of renewals, which was attributable to the timing of our renewal portfolio, since renewals typically provide an increased opportunity to generate new product sales.

• Mainframe Solutions new product sales decreased by a percentage in the low single digits primarily due to a lower level of renewals as discussed above.

• Enterprise Solutions new product sales increased by a percentage in the mid-teens. Excluding our Automic and Veracode acquisitions, Enterprise Solutions new product sales decreased by a percentage in the high single digits primarily due to a decrease in our renewal portfolio, since renewals typically provide an increased opportunity to generate new product sales.

• We expect fiscal 2018 renewal bookings to decrease by a percentage in the high teens compared with fiscal 2017 primarily due to the large system integrator transaction that occurred in the first quarter of fiscal 2017 with an incremental contract value in excess of $475 million.

Expenses

• ~~Operating~~Under both Topic 606 and Topic 605, operating expenses increased primarily due to ~~$84~~an ~~million~~increase ofin ~~costs~~other ~~from~~expenses, net attributable to the restructuring plan approved by our ~~Automic~~Board ~~and~~of ~~Veracode~~Directors ~~acquisitions~~on May 2, ~~which~~2018 ~~were~~(“Fiscal ~~mainly~~2019 ~~personnel-related~~Plan”). This increase was partially offset by a decrease in selling and marketing expenses.

Income taxes

• ~~Income~~Under both Topic 606 and Topic 605, income tax ~~expense~~benefit includes $~~318~~98 million resulting primarily from ~~preliminary~~refinements to the provisional estimates of the impact of changes in tax law in the United States resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017 (the “Tax Act”).

Diluted income per common share

• ~~Diluted~~Under ~~(loss)~~Topic 606, diluted income per common share decreased to $(0.~~23)~~40 from $0.5042. ~~primarily~~Under ~~due~~Topic to605, diluted income per common share would have been $0.62 for the ~~Tax~~first ~~Act~~quarter of fiscal 2019.

Segment results

• Mainframe Solutions revenue increased primarily due to a favorable foreign exchange effect of $10 million and, to a lesser extent, an increase in revenue from new sales that offset the decline in revenue contribution from renewals. Mainframe Solutions operating margin increased primarily due to aan ~~decrease~~increase in ~~corporate~~Mainframe ~~overhead~~Solutions ~~costs~~revenue.

• Enterprise Solutions revenue increased primarily due to a favorable foreign exchange effect of $8 million. Excluding the favorable foreign exchange effect, Enterprise Solutions revenue ~~generated~~increased primarily due to an increase in SaaS revenue, partially offset by a decrease in revenue from our ~~Automic~~Enterprise ~~and~~Solutions ~~Veracode~~products ~~acquisitions~~recognized on an upfront basis. Enterprise Solutions operating margin ~~decreased~~increased primarily due to ~~costs~~lower ~~associated~~acquisition-related ~~with~~costs ~~our Automic~~ and ~~Veracode~~an ~~acquisitions,~~increase ~~which~~in ~~were~~Enterprise ~~mainly~~Solutions ~~personnel-related~~revenue.

• Services revenue ~~increased~~decreased slightly primarily due to ~~professional~~a ~~services~~decline ~~revenue~~in ~~generated~~professional ~~from~~services ~~our Automic and Veracode acquisitions~~engagements. ~~Operating~~The ~~margin~~decline ~~for~~in ~~Services~~professional ~~increased~~services ~~primarily~~engagements ~~due~~was to a ~~decrease in personnel-related costs as a~~ result of ~~severance~~several ~~actions~~factors ~~during~~including ~~the~~our ~~third~~products ~~quarter~~being ofeasier ~~fiscal~~to ~~2017~~install and manage, toand aan ~~lesser~~increase ~~extent,~~in ~~higher~~customers’ ~~margins~~use ~~from~~of partners for services ~~associated~~engagements. ~~with~~Operating ~~our~~margin ~~Automic~~for ~~and~~Services ~~Veracode~~was ~~acquisitions~~generally consistent.

Net cash provided by operating activities

• Net cash provided by operating activities decreased primarily due to a decrease in cash collections from billings of $~~153~~113 million mainly attributable to lower single installment collections, ~~and~~partially anoffset ~~increase~~by a decrease in vendor disbursements and payroll of $4181 million compared with the year-ago period.

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PERFORMANCE INDICATORS

Management uses several quantitative performance indicators to assess our financial results and condition. The following is a summary of the principal quantitative performance indicators that management uses to review performance:

	Third Quarter of Fiscal
	First Quarter of Fiscal								First Quarter of Fiscal 2019 vs. 2018
	2018			2017		Change			Percentage Change
	2019			2019		2018			Topic 606 vs. Topic 605					Topic 605 vs. Topic 605
	(dollars in millions)
	Topic 606			Topic 605		Topic 605			Change			Percentage Change		Change			Percentage Change
Total revenue	$	1,093		$	1,007	$	86		9	%
	(dollars in millions)
Net (loss) income	$	(93	)	$	208	$	(301	)	(145	)%
Total revenue	$	938		$	1,052	$	1,025		$	(87	)	(8	)%	$	27		3	%
Net cash provided by operating activities	$	315		$	517	$	(202	)	(39	)%
Net income	$	166		$	261	$	178		$	(12	)	(7	)%	$	83		47	%
Total bookings	$	1,128		$	1,258	$	(130	)	(10	)%
Net cash provided by operating activities	$	262		$	262	$	298		$	(36	)	(12	)%	$	(36	)	(12	)%
Subscription and maintenance bookings	$	816		$	1,038	$	(222	)	(21	)%
Weighted average subscription and maintenance license agreement duration in years	2.94			3.32		(0.38		)	(11	)%

	First Nine Months of Fiscal
	June 30, 2018		March 31, 2018		ChangeFrom FiscalYear End			June 30, 2017		ChangeFrom PriorYear Quarter
	2018		2017		Change			Percentage Change
	(in millions)
	(dollars in millions)
Cash and cash equivalents	$	3,328	$	3,405	$	(77	)	$	2,971	$	357
Total revenue	$	3,152	$	3,024	$	128		4	%
Total debt	$	2,780	$	2,783	$	(3	)	$	2,788	$	(8	)
Net income	$	269	$	618	$	(349	)	(56	)%
Net cash provided by operating activities (1)	$	650	$	658	$	(8	)	(1	)%
Total bookings	$	2,551	$	3,340	$	(789	)	(24	)%
Subscription and maintenance bookings	$	1,783	$	2,742	$	(959	)	(35	)%
Weighted average subscription and maintenance license agreement duration in years	2.95		3.94		(0.99		)	(25	)%

(1) Net cash provided by operating activities for the first nine months of fiscal 2017 was adjusted to reflect the adoption of Accounting Standards Update No. 2016-09 (ASU 2016-09), Improvements to Employee Share-Based Payment Accounting (Topic 718). Refer to Note A, “Accounting Policies” in the Notes to the Condensed Consolidated Financial Statements for further details.

	December 31, 2017		March 31, 2017		ChangeFrom FiscalYear End			December 31, 2016		ChangeFrom PriorYear Quarter
	(in millions)
Cash and cash equivalents	$	2,971	$	2,771	$	200		$	2,828	$	143
Total debt	$	2,787	$	2,791	$	(4	)	$	1,950	$	837
Total expected future cash collections from committed contracts (1)	$	5,024	$	5,304	$	(280	)	$	4,992	$	32
Total revenue backlog (1)	$	7,055	$	7,556	$	(501	)	$	7,005	$	50
Total current revenue backlog (1)	$	3,245	$	3,240	$	5		$	2,994	$	251

(1) Refer to the discussion in the “Liquidity and Capital Resources” section of this MD&A for additional information on expected future cash collections from committed contracts and revenue backlog.

Analyses of our performance indicators shown above and our segment performance can be found in the “Results of Operations” and “Liquidity and Capital Resources” sections of this MD&A.

~~Total~~RESULTS ~~Revenue:~~OF Total revenue is the amount of revenue recognized during the reporting period from the sale of license, maintenance, SaaS and professional services agreements. Amounts recognized as subscription and maintenance revenue are recognized ratably over the term of the agreement. Professional services revenue is generally recognized as the services are performed or recognized on a ratable basis over the term of the related software arrangement. Software fees and other revenue generally represents license fee revenue recognized at the inception of a license agreement (upfront basis) and also includes our SaaS revenue, which is recognized as services are provided.OPERATIONS

~~Price~~In ~~changes~~May do2014, ~~not~~the ~~have~~FASB aissued ~~material~~Topic ~~effect~~606 onthat replaces most existing revenue recognition guidance in ~~the~~GAAP. ~~period~~Topic ~~they~~606 ~~become~~was adopted by us effective asApril 1, 2018 using the modified retrospective method. Reporting periods prior to the adoption of Topic 606 were presented in accordance with Topic 605. As a result of adopting Topic 606, we now recognize revenue for the license component of all our ~~ratable~~on-premise ~~subscription~~software ~~model~~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.

24Refer to Note 2, “Revenue from Contracts with Customers,” and Note 3, “Impact of Adopting Topic 606,” in the Notes to the Condensed Consolidated Financial Statements for a discussion of the changes in our policies for revenue recognition and commissions, and the required disclosures related to the impact of adopting Topic 606. Refer to our Annual Report on Form 10-K for policies in accordance with Topic 605.

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~~Subscription~~The ~~and~~following ~~Maintenance~~table ~~Revenue:~~presents ~~Subscription~~revenue and ~~maintenance~~expense ~~revenue~~line isitems ~~the~~reported ~~amount~~in ofour ~~revenue~~Condensed ~~recognized~~Consolidated ~~ratably~~Statements ~~during~~of ~~the~~Operations ~~reporting~~for ~~period from: (i) subscription license agreements that were in effect during~~ the ~~period,~~first ~~generally~~quarter ~~including~~of ~~maintenance~~fiscal ~~that is bundled with and not separately identifiable from software usage fees or product sales~~2019, ~~(ii) maintenance~~both ~~agreements~~as ~~associated~~reported ~~with~~under ~~providing~~Topic ~~customer~~606 ~~technical support~~ and ~~access~~Topic ~~to software fixes and upgrades that are separately identifiable from software usage fees or product sales~~605, and ~~(iii) license agreements bundled with additional products, maintenance or professional services~~ for ~~which vendor specific objective evidence (VSOE) has not been established. These amounts include~~ the ~~sale~~first quarter of ~~products~~fiscal ~~directly~~2018 ~~by us,~~ as ~~well~~reported asunder byTopic ~~distributors and volume partners~~605, ~~value-added resellers~~ and ~~exclusive representatives to end-users, where~~ the ~~contracts incorporate the right for end~~period-~~users~~over-period todollar ~~receive unspecified future software products,~~ and ~~other~~percentage ~~contracts~~changes ~~entered~~for ~~into~~those inline ~~close proximity or contemplation of such agreements~~items. ~~The~~These ~~vast~~comparisons ~~majority~~ of ~~our~~past ~~subscription~~results ~~and~~are ~~maintenance~~not ~~revenue~~necessarily inindicative ~~any~~of ~~particular~~future ~~reporting period comes from contracts signed in prior periods, generally ranging in duration from three to five years~~results.

Total Bookings: Total bookings, or sales, includes the incremental value of all subscription, maintenance and professional services contracts and software fees and other contracts entered into during the reporting period and is generally reflective of the amount of products and services during the period that our customers have agreed to purchase from us. License fees for bookings attributed to sales of software products for which revenue is recognized on an upfront basis is reflected in “Software fees and other” in our Condensed Consolidated Statements of Operations, while the maintenance portion is reflected in “Subscription and maintenance” in our Condensed Consolidated Statements of Operations. Our SaaS bookings are recognized as revenue in “Software fees and other,” generally ratably over the term of the SaaS arrangement, rather than upfront.



	First Quarter of Fiscal								First Quarter of Fiscal 2019 vs. 2018
	2019			2019			2018		Topic 606 vs. Topic 605					Topic 605 vs. Topic 605
	Topic 606			Topic 605			Topic 605		Dollar Change			Percentage Change		Dollar Change			Percentage Change
	(dollars in millions)
Revenue:
Software licenses and maintenance	$	870		$	978		$	950	$	(80	)	(8	)%	$	28		3	%
Professional services	68			74			75		(7		)	(9	)	(1		)	(1	)
Total revenue	$	938		$	1,052		$	1,025	$	(87	)	(8	)%	$	27		3	%
Expenses:
Costs of licensing and maintenance	$	76		$	76		$	71	$	5		7	%	$	5		7	%
Cost of professional services	70			73			73		(3		)	(4	)	—			—
Amortization of capitalized software costs	60			60			70		(10		)	(14	)	(10		)	(14	)
Selling and marketing	235			225			246		(11		)	(4	)	(21		)	(9	)
General and administrative	104			103			107		(3		)	(3	)	(4		)	(4	)
Product development and enhancements	162			162			158		4			3		4			3
Depreciation and amortization of other intangible assets	26			26			26		—			—		—			—
Other expenses, net	103			108			11		92			NM		97			NM
Total expenses before interest and income taxes	$	836		$	833		$	762	$	74		10	%	$	71		9	%
Income before interest and income taxes	$	102		$	219		$	263	$	(161	)	(61	)%	$	(44	)	(17	)%
Interest expense, net	20			20			25		(5		)	(20	)	(5		)	(20	)
Income before income taxes	$	82		$	199		$	238	$	(156	)	(66	)%	$	(39	)	(16	)%
Income tax (benefit) expense	(84		)	(62		)	60		(144		)	(240	)	(122		)	(203	)
Net income	$	166		$	261		$	178	$	(12	)	(7	)%	$	83		47	%

Our management looks within total bookings at renewal bookings, which we define as bookings attributable to the renewable value of a prior contract (i.e., the maintenance value and, in the case of non-perpetual licenses, the license value), and at total new product sales, which we define as sales of mainframe and enterprise solutions products and mainframe solutions capacity that are new or in addition to sales of products or mainframe solutions capacity previously contracted for by a customer. Renewal bookings, as we report them, do not include new product or capacity sales or professional services arrangements and are reflected as subscription and maintenance bookings in the period (for which revenue is recognized ratably over the term of the contract). Renewals can close before their scheduled renewal date for a number of reasons, including customer preference, customer needs for additional products or capacity, or at our request. The level of contracts closed prior to scheduled expiration dates and the reasons for such closings can vary from quarter to quarter. Generally, quarters with smaller renewal inventories result in a lower level of bookings, since renewals remain an important opportunity for new product sales.32

Mainframe Solutions new product sales and capacity growth can be inconsistent on both a quarterly and annual basis. We believe the period-over-period change in Mainframe Solutions new product sales and capacity combined is an appropriate measure of performance and, therefore, we provide only total Mainframe Solutions new sales information, which includes mainframe solutions capacity. The amount of new product sales for a period, as currently tracked by us, requires estimation by management and has been historically reported by providing only growth rate comparisons. Within a given period, the amount of new product sales may not be material to the change in our total bookings or revenue compared with prior periods. New product sales can be reflected as subscription and maintenance bookings in the period (for which revenue would be recognized ratably over the term of the contract) or in software fees and other bookings (which are recognized as software fees and other revenue in the current period).

Subscription and Maintenance Bookings: Subscription and maintenance bookings is the aggregate incremental amount we expect to collect from our customers over the terms of the underlying subscription and maintenance agreements entered into during a reporting period. These amounts include the sale of products either directly by us or through distributors and volume partners, value-added resellers and exclusive representatives to end-users and may include the right for the customer to receive unspecified future software products and/or additional products, services or other fees for which we have not established VSOE for all undelivered elements. These amounts are recognized ratably as subscription and maintenance revenue over the applicable term of the agreements. Subscription and maintenance bookings excludes the value associated with perpetual licenses for which revenue is recognized on an upfront basis, SaaS offerings and professional services arrangements.

Within bookings, we also consider the yield on our renewals. We define “renewal yield” as the percentage of the renewable value of a prior contract (i.e., the maintenance value and, in the case of non-perpetual licenses, the license value) realized in current period bookings. The renewable value of a prior contract is an estimate affected by various factors including contractual renewal terms, price increases and other conditions. Price increases are not considered as part of the renewable value of the prior period contract. We estimate the aggregate renewal yield for a quarter based on a review of material transactions generally representing a majority of the dollar value of renewals during the current period. There may be no correlation between year-over-year changes in bookings and year-over-year changes in renewal yield, since renewal yield is based on the renewable value of contracts of various durations, most of which are longer than one year.

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The ~~license~~following ~~and~~table ~~maintenance~~sets ~~agreements that contribute to subscription and maintenance bookings represent binding payment commitments by customers over periods that range generally from three to five years~~forth, ~~although in certain cases customer commitments can be~~ for ~~longer~~the ~~or shorter~~ periods. ~~These current period bookings are often renewals of prior contracts that also had various durations, usually from three to five years. The amount of new subscription~~ and ~~maintenance~~revenue ~~bookings~~recognition ~~recorded~~accounting instandards ~~a period is affected by the volume~~indicated, ~~duration and value of contracts renewed during that period. Subscription and maintenance bookings typically increase in each consecutive quarter during a fiscal year, with~~ the ~~first~~percentage ~~quarter having the least bookings and the fourth quarter having the most bookings. However, subscription and maintenance bookings may not always follow the pattern~~ of ~~increasing~~total inrevenue ~~consecutive~~presented ~~quarters~~by ~~during a fiscal year, and~~ the ~~quarter-to-quarter~~items ~~differences~~ in ~~subscription and maintenance bookings may vary. Given~~ the ~~varying~~accompanying ~~durations~~Condensed ~~and~~Consolidated ~~dollar~~Statements ~~amounts~~ of ~~the contracts being renewed, year-over-year comparisons of bookings are not always indicative of the overall bookings trend.~~Operations:

Additionally, period-to-period changes in subscription and maintenance bookings do not necessarily correlate to changes in cash receipts. The contribution to current period revenue from subscription and maintenance bookings from any single license or maintenance agreement is relatively small, since revenue is recognized ratably over the applicable term for these agreements.



	First Quarter of Fiscal
	2019		2019		2018
	Topic 606		Topic 605		Topic 605
Revenue:
Software licenses and maintenance	93	%	93	%	93	%
Professional services	7		7		7
Total revenue	100	%	100	%	100	%
Expenses:
Costs of licensing and maintenance	8	%	7	%	7	%
Cost of professional services	7		7		7
Amortization of capitalized software costs	6		6		7
Selling and marketing	25		21		24
General and administrative	11		10		10
Product development and enhancements	17		15		15
Depreciation and amortization of other intangible assets	3		2		3
Other expenses, net	11		10		1
Total expenses before interest and income taxes	89	%	79	%	74	%
Income before interest and income taxes	11	%	21	%	26	%
Interest expense, net	2		2		2
Income before income taxes	9	%	19	%	23	%
Income tax (benefit) expense	(9	)	(6	)	6
Net income	18	%	25	%	17	%

Weighted Average Subscription and Maintenance License Agreement Duration in Years: The weighted average subscription and maintenance license agreement duration in years reflects the duration of all subscription and maintenance agreements executed during a period, weighted by the total contract value of each individual agreement. Weighted average subscription and maintenance license agreement duration in years can fluctuate from period-to-period depending on the mix of license agreements entered into during a period. Weighted average duration information is disclosed in order to provide additional understanding of the volume of our bookings.

Annualized Subscription and Maintenance Bookings: Annualized subscription and maintenance bookings is an indicator that normalizes the bookings recorded in the current period to account for contract length. It is calculated by dividing the total value of all new subscription and maintenance license agreements entered into during a period by the weighted average subscription and license agreement duration in years for all such subscription and maintenance license agreements recorded during the same period.

Total Revenue Backlog: Total revenue backlog represents the aggregate amount we expect to recognize as revenue in the future as either subscription and maintenance revenue, professional services revenue or software fees and other revenue associated with contractually committed amounts billed or to be billed as of the balance sheet date. Total revenue backlog is composed of amounts recognized as liabilities in our Condensed Consolidated Balance Sheets as deferred revenue (billed or collected) as well as unearned amounts yet to be billed under subscription and maintenance and software fees and other agreements. Classification of amounts as current or noncurrent depends on when such amounts are expected to be earned and, therefore, recognized as revenue. Amounts that are expected to be earned and, therefore, recognized as revenue in 12 months or less are classified as current, while amounts expected to be earned in greater than 12 months are classified as noncurrent. The portion of the total revenue backlog that relates to subscription and maintenance agreements is recognized as revenue evenly on a monthly basis over the duration of the underlying agreements and is reported as subscription and maintenance revenue in our Condensed Consolidated Statements of Operations. Generally, we believe that an increase or decrease in the current portion of revenue backlog on a year-over-year basis is a favorable or unfavorable indicator of future subscription and maintenance revenue performance, respectively, due to the high percentage of our revenue that is recognized from license agreements that are already committed and being recognized ratably. The value of backlog can fluctuate based upon the timing of contract expirations.

“Deferred revenue (billed or collected)” is composed of: (i) amounts received from customers in advance of revenue recognition and (ii) amounts billed but not collected for which revenue has not yet been earned.

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RESULTS OF OPERATIONS

The following tables present revenue and expense line items reported in our Condensed Consolidated Statements of Operations for the third quarter and first nine months of fiscal 2018 and fiscal 2017, and the period-over-period dollar and percentage changes for those line items. These comparisons of past results are not necessarily indicative of future results.

	Third Quarter Comparison Fiscal 2018 Versus Fiscal 2017
							Dollar Change			Percentage Change		Percentage ofTotal Revenue
	2018			2017			2018 / 2017			2018 / 2017		2018		2017
	(dollars in millions)
Revenue:
Subscription and maintenance	$	843		$	817		$	26		3	%	77	%	81	%
Professional services	80			72			8			11		7		7
Software fees and other	170			118			52			44		16		12
Total revenue	$	1,093		$	1,007		$	86		9	%	100	%	100	%
Expenses:
Costs of licensing and maintenance	$	79		$	68		$	11		16	%	7	%	7	%
Cost of professional services	76			74			2			3		7		7
Amortization of capitalized software costs	68			57			11			19		6		6
Selling and marketing	288			270			18			7		26		27
General and administrative	95			85			10			12		9		8
Product development and enhancements	157			144			13			9		14		14
Depreciation and amortization of other intangible assets	26			18			8			44		2		2
Other gains, net	(3		)	(17		)	14			(82	)	—		(2	)
Total expenses before interest and income taxes	$	786		$	699		$	87		12	%	72	%	69	%
Income before interest and income taxes	$	307		$	308		$	(1	)	—	%	28	%	31	%
Interest expense, net	25			16			9			56		2		2
Income before income taxes	$	282		$	292		$	(10	)	(3	)%	26	%	29	%
Income tax expense	375			84			291			346		34		8
Net (loss) income	$	(93	)	$	208		$	(301	)	(145	)%	(9	)%	21	%

Note: Amounts may not add to their respective totals due to rounding.

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	First Nine Months Comparison Fiscal 2018 Versus Fiscal 2017
					Dollar Change			Percentage Change		Percentage ofTotal Revenue
	2018		2017		2018 / 2017			2018 / 2017		2018		2017
	(dollars in millions)
Revenue:
Subscription and maintenance	$	2,486	$	2,467	$	19		1	%	79	%	82	%
Professional services	230		224		6			3		7		7
Software fees and other	436		333		103			31		14		11
Total revenue	$	3,152	$	3,024	$	128		4	%	100	%	100	%
Expenses:
Costs of licensing and maintenance	$	223	$	202	$	21		10	%	7	%	7	%
Cost of professional services	223		222		1			—		7		7
Amortization of capitalized software costs	205		182		23			13		7		6
Selling and marketing	778		747		31			4		25		25
General and administrative	299		257		42			16		9		8
Product development and enhancements	476		428		48			11		15		14
Depreciation and amortization of other intangible assets	79		56		23			41		3		2
Other expenses, net	17		10		7			70		1		—
Total expenses before interest and income taxes	$	2,300	$	2,104	$	196		9	%	73	%	70	%
Income before interest and income taxes	$	852	$	920	$	(68	)	(7	)%	27	%	30	%
Interest expense, net	74		45		29			64		2		1
Income before income taxes	$	778	$	875	$	(97	)	(11	)%	25	%	29	%
Income tax expense	509		257		252			98		16		8
Net income	$	269	$	618	$	(349	)	(56	)%	9	%	20	%

Note: Amounts may not add to their respective totals due to rounding.

Revenue

Total Revenue

Total revenue ~~for~~is the ~~third~~amount ~~quarter~~ of ~~fiscal~~revenue ~~2018~~recognized ~~increased~~during ~~compared~~the ~~with~~reporting ~~the~~period ~~third~~from ~~quarter~~the sale of ~~fiscal~~products ~~2017~~and ~~primarily~~services. ~~due~~Our toproducts anand ~~increase~~services incan ~~software~~be ~~fees~~broadly ~~and~~categorized ~~other~~as ~~revenue~~perpetual ~~and,~~licenses to ause ~~lesser extent~~software, anterm-based ~~increase~~licenses infor ~~subscription~~SaaS and ~~maintenance~~on-premise ~~revenue.~~use ~~During the third quarter~~ of ~~fiscal 2018~~software, ~~total~~maintenance ~~revenue~~for ~~included~~perpetual ~~$68~~and ~~million~~term-based ~~from~~on-premise ~~our~~licenses, ~~Automic~~ and ~~Veracode~~professional ~~acquisitions,~~services. ~~primarily~~Our ~~included in~~ software ~~fees~~licenses and ~~other~~maintenance ~~revenue.~~are ~~Excluding~~for ~~the~~mainframe, ~~revenue~~enterprise, ~~generated from our Automic~~ and ~~Veracode~~SaaS ~~acquisitions,~~computing ~~total~~environments. ~~revenue~~Refer ~~increased primarily due~~ to aNote ~~favorable~~2, ~~foreign~~“Revenue ~~exchange~~from ~~effect~~Contracts ofwith ~~$19~~Customers,” ~~million~~in ~~for~~ the ~~third~~Notes ~~quarter of fiscal 2018, and,~~ to athe ~~lesser~~Condensed ~~extent,~~Consolidated anFinancial ~~increase~~Statements infor ~~revenue~~additional ~~from our Enterprise Solutions products~~information.

Total revenue for the first ~~nine~~quarter ~~months~~ of fiscal ~~2018~~2019 ~~increased~~decreased compared with the first ~~nine~~quarter ~~months~~ of fiscal ~~2017~~2018 ~~primarily~~ due to anthe ~~increase~~adoption inof ~~software~~Topic ~~fees~~606 ~~and~~in ~~other revenue. During~~ the first ~~nine~~quarter ~~months~~ of fiscal ~~2018,~~2019. ~~total~~Excluding ~~revenue~~the ~~included~~impact ~~$182~~from ~~million~~the ~~from~~adoption ~~our~~of ~~Automic~~Topic ~~and~~606 ~~Veracode~~of ~~acquisitions~~$114 million, ~~primarily~~total ~~included~~revenue infor ~~software~~the ~~fees~~first ~~and~~quarter ~~other~~of ~~revenue.~~fiscal ~~Excluding~~2019 ~~the~~increased ~~revenue~~$27 ~~generated~~million ~~from~~compared ~~our~~with ~~Automic~~the ~~and~~first ~~Veracode~~quarter ~~acquisitions,~~of ~~total~~fiscal ~~revenue~~2018 ~~decreased~~ primarily due to a ~~decline~~favorable inforeign ~~our~~exchange ~~Mainframe~~effect ~~Solutions~~of ~~revenue~~$20 ~~and,~~million. toExcluding athe ~~lesser~~favorable ~~extent,~~foreign aexchange ~~decline~~effect, intotal revenue ~~from~~increased ~~our~~due ~~Enterprise~~to ~~Solutions products recognized on~~ an ~~upfront~~increase ~~basis.~~in ~~There~~software ~~was~~licenses aand ~~favorable~~maintenance ~~foreign~~revenue ~~exchange~~as ~~effect~~discussed ~~of $17 million for the first nine months of fiscal 2018~~below.

InWith ~~general~~the adoption of Topic 606, weour ~~treat~~revenue ~~acquired~~results ~~technologies~~will asbe ~~organic~~highly independent on total bookings. Total bookings, or sales, includes the ~~quarter~~incremental value of ~~their~~all ~~one~~product ~~year~~and ~~anniversary~~professional ~~date.~~services ~~Automic~~contracts ~~was~~entered ~~acquired~~into during the ~~fourth~~reporting ~~quarter~~period and is generally reflective of ~~fiscal~~the ~~2017~~amount of products and, asservices ~~such,~~during ~~will~~the beperiod ~~treated~~that asour ~~organic~~customers inhave agreed to purchase from us. For the ~~fourth~~first quarter of fiscal ~~2018.~~2019, ~~Since~~total ~~Veracode~~bookings ~~was~~were ~~acquired~~$778 onmillion. Total revenue for the ~~last~~first ~~day~~quarter of fiscal ~~2017~~2018 was based on Topic 605, itwhich ~~will~~generally beconsisted ~~treated~~of asa ~~organic~~majority inof ~~the~~our ~~first~~revenue ~~quarter~~being recognized ratably over the term of ~~fiscal~~our ~~2019~~contracts and, as such, total bookings had a lower effect on our quarterly revenue performance.

28License Agreements over $10 million: During the first quarter of fiscal 2019, we executed a total of 10 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $292 million. During the first quarter of fiscal 2018, we executed a total of 9 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $176 million.

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~~Subscription~~Software Licenses and Maintenance

~~Subscription~~Software licenses and maintenance revenue for the ~~third~~first quarter of fiscal ~~2018~~2019 ~~increased~~decreased compared with the ~~third~~first quarter of fiscal ~~2017~~2018 ~~primarily~~ due to the adoption of Topic 606 in the first quarter of fiscal 2019. Excluding the impact from the adoption of Topic 606 of $21108 million, ofsoftware ~~subscription~~licenses and maintenance revenue ~~generated~~for ~~from~~the ~~our~~first ~~Automic~~quarter ~~acquisition~~of infiscal 2019 increased $28 million compared with the ~~third~~first quarter of fiscal 2018. ~~There~~primarily ~~was~~due to a favorable foreign exchange effect of $1418 million. ~~for~~Excluding the ~~third~~favorable ~~quarter~~foreign ofexchange ~~fiscal~~effect, ~~2018~~software licenses and maintenance revenue increased primarily due to an increase in Mainframe Solutions revenue and SaaS revenue within our Enterprise Solutions segment.

Subscription and maintenance revenue for the first nine months of fiscal 2018 increased compared with the first nine months of fiscal 2017 due to $54 million of subscription and maintenance revenue generated from our Automic acquisition in the first nine months of fiscal 2018, partially offset by a decline in Mainframe Solutions revenue (refer to “Performance of Segments” below). There was a favorable foreign exchange effect of $12 million for the first nine months of fiscal 2018.

Professional Services

Professional services revenue for the first quarter of fiscal 2019 decreased compared with the first quarter of fiscal 2018 primarily ~~includes~~due ~~revenue~~to ~~derived~~the ~~from~~adoption ~~product~~of ~~implementation,~~Topic ~~consulting,~~606 ~~customer~~in ~~education~~the ~~and~~first ~~customer~~quarter ~~training~~of ~~services~~fiscal 2019. ~~Professional~~Excluding the impact from the adoption of Topic 606 of $6 million, professional services revenue for the ~~third~~first quarter of fiscal ~~2018~~2019 ~~increased~~decreased slightly compared with the ~~third~~first quarter of fiscal ~~2017~~2018 primarily due to $6a ~~million~~decline ofin professional services ~~revenue~~engagements. ~~generated~~The ~~from~~decline in professional services engagements was a result of several factors, including our ~~Automic~~products being easier to install and ~~Veracode~~manage ~~acquisitions~~and an increase in customers’ use of partners for services engagements. For the ~~third~~long ~~quarter~~term, we expect new versions of ~~fiscal~~our ~~2018~~on-premise software to be easier to implement and a higher percentage of our business to shift to a SaaS-based model, which could potentially reduce the demand for our professional services engagements.

Professional services revenue for the first nine months of fiscal 2018 increased compared with the first nine months of fiscal 2017 due to $21 million of professional services revenue generated from our Automic and Veracode acquisitions in the first nine months of fiscal 2018, partially offset by a decline in non-acquisition-related professional services engagements. The decline in non-acquisition-related professional services engagements was a result of several factors, including our products being easier to install and manage and an increase in customers’ use of partners for services engagements. For the long term, we expect new versions of our on-premise software to be easier to implement and a higher percentage of our business to shift to a SaaS-based model, which could potentially reduce the demand for our professional services engagements.

Software Fees and Other

Software fees and other revenue consists of revenue that is recognized on an upfront basis and also includes our SaaS revenue. Upfront revenue includes revenue associated with enterprise solutions products sold on an upfront basis directly by our sales force and through transactions with distributors and volume partners, value-added resellers and exclusive representatives. Our SaaS revenue is recognized as the services are provided, generally ratably over the term of the SaaS arrangement, rather than upfront.

Software fees and other revenue for the third quarter and first nine months of fiscal 2018 increased compared with the third quarter and first nine months of fiscal 2017, respectively, primarily due to software fees and other revenue generated from our Automic and Veracode acquisitions of $41 million and $107 million for the third quarter and first nine months of fiscal 2018, respectively. Excluding the software fees and other revenue generated from our Automic and Veracode acquisitions for the first nine months of fiscal 2018, software fees and other revenue decreased primarily due to a decline in revenue from our Enterprise Solutions products recognized on an upfront basis.

Total Revenue by Geography

The following tables present the amount of revenue earned from sales to unaffiliated customers in the United States and international regions and corresponding percentage changes for the first quarter of fiscal 2019 compared with the first quarter of fiscal 2018.

	Third Quarter Comparison Fiscal 2018 Versus Fiscal 2017
	First Quarter Comparison Fiscal 2019 Versus Fiscal 2018
	2018		Percentage of Total Revenue		2017		Percentage of Total Revenue		DollarChange			PercentageChange
	2019Topic 606		Percentage of Total Revenue		2018Topic 605		Percentage of Total Revenue		DollarChange			PercentageChange
	(dollars in millions)
United States	$	~~682~~572	6261	%	$	~~642~~657	64	%	$	40(85	)	6(13	)%
International	~~411~~366		3839		~~365~~368		36		46(2		)	13(1	)
Total Revenue	$	1,093	100	%	$	1,007	100	%	$	86		9	%
Total revenue	$	938	100	%	$	1,025	100	%	$	(87	)	(8	)%

	First Nine Months Comparison Fiscal 2018 Versus Fiscal 2017
	First Quarter Comparison Fiscal 2019 Versus Fiscal 2018
	2018		Percentage of Total Revenue		2017		Percentage of Total Revenue		DollarChange		PercentageChange
	2019Topic 605		Percentage of Total Revenue		2018Topic 605		Percentage of Total Revenue		DollarChange		PercentageChange
	(dollars in millions)
United States	$	~~1,997~~663	63	%	$	~~1,936~~657	64	%	$	616	31	%
International	~~1,155~~389		37		~~1,088~~368		36		6721		6
Total Revenue	$	3,152	100	%	$	3,024	100	%	$	128	4	%
Total revenue	$	1,052	100	%	$	1,025	100	%	$	27	3	%

29Revenue in the United States for the first quarter of fiscal 2019 decreased compared with the first quarter of fiscal 2018 due to the adoption of Topic 606 in the first quarter of fiscal 2019. Excluding the impact from the adoption of Topic 606 of $91 million, revenue in the United States increased.

~~Table~~International revenue for the first quarter of ~~Contents~~fiscal 2019 decreased compared with the first quarter of fiscal 2018 due to the adoption of Topic 606 in the first quarter of fiscal 2019. Excluding the impact from the adoption of Topic 606 of $23 million, international revenue increased primarily due to a favorable foreign exchange effect of $20 million.

Revenue in the United States for the third quarter of fiscal 2018 increased compared with the third quarter of fiscal 2017 primarily due to our Automic and Veracode acquisitions. Excluding the favorable foreign exchange effect of $19 million for the third quarter of fiscal 2018, international revenue increased compared with the third quarter of fiscal 2017 due to our Automic acquisition.

Revenue in the United States for the first nine months of fiscal 2018 increased compared with the first nine months of fiscal 2017 due to our Automic and Veracode acquisitions. Excluding the favorable foreign exchange effect of $17 million for the first nine months of fiscal 2018, international revenue increased compared with the first nine months of fiscal 2017 due to our Automic acquisition. As described above, excluding the revenue generated from our Automic and Veracode acquisitions, revenue in the United States and international revenue would have decreased.

Expenses

Operating Expenses

Operating expenses for the ~~third~~first quarter of fiscal ~~2018~~2019 increased compared with the ~~third~~first quarter of fiscal ~~2017~~2018 primarily due to ~~$84~~an ~~million~~increase ofin ~~costs~~other ~~from~~expenses, ~~our~~net ~~Automic~~attributable ~~and~~to ~~Veracode~~the ~~acquisitions,~~Fiscal ~~which~~2019 ~~were~~Plan. ~~mainly~~This ~~personnel-related,~~increase was partially offset by a decrease in ~~the~~selling ~~third~~and ~~quarter~~marketing ofexpenses ~~fiscal~~as ~~2018~~discussed below.

Operating expenses for the first nine months of fiscal 2018 increased compared with the first nine months of fiscal 2017 due to $235 million of costs from our Automic and Veracode acquisitions, which were mainly personnel-related, in the first nine months of fiscal 2018, partially offset by decreases in non-acquisition-related costs, which included personnel-related costs, legal settlements and commission costs.34

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Costs of Licensing and Maintenance

Costs of licensing and maintenance include technical support, royalties, SaaS, and other manufacturing and distribution costs. Costs of licensing and maintenance for the ~~third~~first quarter ~~and first nine months~~ of fiscal ~~2018~~2019 increased compared with the ~~third~~first quarter ~~and first nine months~~ of fiscal ~~2017,~~2018 ~~respectively,~~primarily due to ~~personnel-related~~an ~~costs~~increase ~~from~~in ~~our~~costs ~~Automic~~associated ~~and~~with ~~Veracode~~our ~~acquisitions~~SaaS products.

Cost of Professional Services

Cost of professional services consists primarily of our personnel-related costs associated with providing professional services and training to customers. Cost of professional services for the ~~third~~first quarter ~~and first nine months~~ of fiscal ~~2018~~2019 ~~increased~~decreased compared with the ~~third~~first quarter ~~and~~of ~~first~~fiscal ~~nine~~2018 ~~months~~due ofto ~~fiscal~~the ~~2017,~~adoption ~~respectively,~~of asTopic a606 ~~result~~in ofthe ~~personnel-related~~first ~~costs~~quarter ~~from~~of ~~our~~fiscal ~~Automic~~2019. ~~and~~Excluding ~~Veracode~~the ~~acquisitions,~~impact ~~partially~~from ~~offset~~the byadoption ~~lower~~of ~~costs~~Topic ~~primarily~~606, ~~due~~cost toof aprofessional ~~decrease~~services infor the ~~number~~first quarter of ~~non-acquisition-related~~fiscal ~~professional~~2019 ~~services~~was ~~engagements,~~consistent ~~and~~compared ~~severance~~with ~~actions during~~ the ~~third~~first quarter of fiscal ~~2017~~2018.

Operating margin for professional services for the ~~third~~first quarter of fiscal ~~2018~~2019 ~~increased~~decreased compared with the ~~third~~first quarter of fiscal ~~2017~~2018 primarily due to ~~a decrease in personnel-related costs as a result of severance actions during~~ the ~~third~~adoption ~~quarter~~ of ~~fiscal~~Topic ~~2017~~606 ~~and,~~in ~~to a lesser extent, higher margins from services associated with our Automic and Veracode acquisitions. Operating margin for professional services for~~ the first nine months of fiscal 2018 increased compared with the first nine months of fiscal 2017 primarily due to an increase in professional services revenue from our Automic and Veracode acquisitions and a decrease in personnel-related costs as a result of severance actions during the third quarter of fiscal ~~2017~~2019. Operating margin for professional services does not include certain additional direct costs that are included within the Services segment (refer to “Performance of Segments” below). Expenses for the Services segment consist of cost of professional services and other direct costs included within selling and marketing and general and administrative expenses.

Amortization of Capitalized Software Costs

Amortization of capitalized software costs consists of the amortization of both purchased software and internally generated capitalized software development costs. Internally generated capitalized software development costs relate to new products and significant enhancements to existing software products that have reached the technological feasibility stage.

Amortization of capitalized software costs for the ~~third~~first quarter ~~and first nine months~~ of fiscal ~~2018~~2019 ~~increased~~decreased compared with the ~~third~~first quarter ~~and first nine months~~ of fiscal ~~2017,~~2018 ~~respectively,~~ primarily due to ana ~~increase~~decrease in amortization ~~expense~~of ~~associated~~our ~~with~~internally ~~purchased~~developed software products ~~acquired from Automic~~ and ~~Veracode~~, ~~partially~~to ~~offset~~a bylesser extent, a decrease in amortization ofexpense ~~our~~associated ~~internally~~with ~~developed~~purchased software products. With our adoption of the Agile development methodology in fiscal 2014, amortization expense of internally developed software products has decreased, ~~since~~as we have not capitalized any internally developed software costs.

Selling and Marketing

Selling and marketing expenses include the costs relating to our sales force, partners, corporate and business marketing and customer training programs. Selling and marketing expenses for the ~~third~~first quarter ~~and first nine months~~ of fiscal ~~2018~~2019 ~~increased~~decreased compared with the ~~third~~first quarter ~~and first nine months~~ of fiscal ~~2017~~2018 due to ~~costs~~a ~~from~~decrease ~~our~~in ~~Automic~~personnel-related ~~and~~costs ~~Veracode acquisitions~~ of $3415 million ~~and~~resulting ~~$91~~from ~~million,~~lower ~~which~~headcount. ~~were~~Commissions ~~mainly~~expense ~~personnel-related,~~was inunfavorably ~~the~~affected ~~third~~by ~~quarter~~$10 ~~and~~million ~~first~~as ~~nine~~a ~~months~~result of ~~fiscal~~the ~~2018,~~adoption ~~respectively.~~of ~~These~~Topic ~~increases~~606, ~~were~~which ~~partially~~was ~~offset~~caused by ~~decreases~~amortization inexpense ~~non-acquisition-related~~from capitalized commission costs of $2030 million, ~~and~~partially offset by $6420 million of deferred commission costs. Refer to Note 2, ~~respectively~~“Revenue from Contracts with Customers,” ~~which~~in ~~primarily~~the ~~included~~Notes ~~personnel-related~~to ~~and~~the ~~commission~~Condensed ~~costs~~Consolidated Financial Statements for additional information.

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General and Administrative

General and administrative expenses include the costs of corporate functions, including our executive leadership and administration groups, finance, legal, human resources, corporate communications and other costs such as provisions for doubtful accounts. General and administrative expenses for the ~~third~~first quarter ~~and first nine months~~ of fiscal ~~2018~~2019 ~~increased~~decreased compared with the ~~third~~first quarter ~~and first nine months~~ of fiscal ~~2017,~~2018 ~~respectively,~~primarily due to ~~costs~~a ~~from~~decrease ~~our~~in ~~Automic~~personnel-related ~~and~~costs ~~Veracode~~resulting ~~acquisitions,~~from ~~which~~lower ~~were mainly personnel-related~~headcount.

Product Development and Enhancements

~~For~~Product ~~the third quarter of fiscal 2018 and fiscal 2017, product~~ development and enhancements expense ~~represented~~for ~~14% and 14%, respectively, of total revenue. For~~ the ~~third~~first quarter of fiscal ~~2018,~~2019 ~~product development and enhancements expense~~ increased compared with the ~~third~~first quarter of fiscal ~~2017~~2018 primarily due to ~~costs~~an ~~from~~increase ~~our~~in ~~Automic~~personnel-related ~~and~~costs ~~Veracode~~resulting ~~acquisitions,~~from ~~which~~higher ~~were mainly personnel-related~~headcount.

For the first nine months of fiscal 2018 and fiscal 2017, product development and enhancements expense represented 15% and 14% respectively, of total revenue. For the first nine months of fiscal 2018, product development and enhancements expense increased compared with the first nine months of fiscal 2017 due to costs from our Automic and Veracode acquisitions, which were mainly personnel-related.

Depreciation and Amortization of Other Intangible Assets,

~~For~~Depreciation ~~the~~and ~~third~~amortization ~~quarter~~of ~~and~~other ~~first~~intangible ~~nine~~assets ~~months~~consists of ~~fiscal~~both ~~2018,~~ depreciation of property and equipment and amortization of other intangible assets. ~~increased~~Depreciation ~~compared with the third quarter~~ and ~~first~~amortization ~~nine months~~ of ~~fiscal~~other ~~2017,~~intangible ~~respectively,~~assets ~~primarily~~for ~~due~~the tofirst anquarter ~~increase~~of infiscal ~~amortization~~2019 ~~expense~~was ~~associated~~consistent compared with ~~other~~the ~~intangible~~first ~~assets~~quarter ~~acquired~~of ~~from~~fiscal ~~Automic and Veracode~~2018.

~~Other (Gains) Expenses, Net~~35

	Third QuarterFiscal 2018			Third QuarterFiscal 2017
	(dollars in millions)
Legal settlements	$	—		$	(4	)
Gains from foreign exchange derivative contracts	—			(9		)
Gains from foreign exchange rate fluctuations	(3		)	(3		)
Other miscellaneous items	—			(1		)
Total	$	(3	)	$	(17	)

	First Nine Months Fiscal 2018		First Nine Months Fiscal 2017
	(dollars in millions)
Legal settlements	$	2	$	23
Losses (gains) from foreign exchange derivative contracts	8		(3		)
Losses (gains) from foreign exchange rate fluctuations	7		(6		)
Other miscellaneous items	—		(4		)
Total	$	17	$	10

During the first nine months of fiscal 2017, other (gains) expenses, net included a $28 million legal settlement expense related to a settlement agreement that was then being negotiated with the U.S. government pertaining to our General Services Administration (GSA) schedule contract. The settlement agreement was finalized and the settlement amount was paid in full in the fourth quarter of fiscal 2017.

Interest Expense, Net

Interest expense, net for the third quarter and first nine months of fiscal 2018 increased compared with the third quarter and first nine months of fiscal 2017, respectively, as a result of interest associated with our 3.600% Senior Notes due August 2022 and our 4.700% Senior Notes due March 2027 both issued during the fourth quarter of fiscal 2017.

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Other Expenses, Net

The summary of other expenses, net was as follows:



	First Quarter Fiscal 2019			First Quarter Fiscal 2019			First Quarter Fiscal 2018
	Topic 606			Topic 605			Topic 605
	(dollars in millions)
Fiscal 2019 Plan	$	114		$	114		$	—
Legal settlements	—			—			2
(Gains) losses from foreign exchange derivative contracts	(10		)	(10		)	4
(Gains) losses from foreign exchange rate fluctuations	(1		)	4			5
Total	$	103		$	108		$	11

On May 2, 2018, our Board of Directors approved the 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. Severance and facility exit and consolidation actions under the Fiscal 2019 Plan are expected to be substantially completed by the end of fiscal 2019. Refer to Note 4, “Restructuring,” in the Notes to the Condensed Consolidated Financial Statements for additional information.

Interest Expense, Net

Interest expense, net for the first quarter of fiscal 2019 decreased compared with the first quarter of fiscal 2018 primarily due to an increase in interest income resulting from higher interest rates and cash balances in the United States.

Income Taxes

Income tax ~~expense~~benefit for the ~~third~~first quarter ~~and first nine months~~ of fiscal ~~2018~~2019 was $~~375~~84 million ~~and $509 million, respectively,~~ compared with income tax expense for the ~~third~~first quarter ~~and first nine months~~ of fiscal ~~2017~~2018 of $8460 million ~~and $257 million, respectively~~. For the ~~third~~first quarter ~~and first nine months~~ of fiscal ~~2018~~2019, we recorded a net discrete tax ~~expense~~benefit of $~~310~~98 million ~~and~~resulting ~~$302~~primarily ~~million,~~from ~~respectively.~~refinements Ofto ~~these~~the ~~amounts,~~provisional ~~$318 million resulted from preliminary~~ estimates of the impact of changes in tax law in the United States resulting from the enactment of the Tax Act. For the first quarter of fiscal 2018, we recorded a net discrete tax benefit of $8 million resulting primarily from reductions in uncertain tax positions related to effectively settled tax audits.

The ~~amounts~~cumulative expense recorded for the impacts of the Tax Act are provisional amounts of $~~220~~192 million in total, including expense of $198 million related to the taxation of unremitted earnings of our foreign subsidiaries, which is payable over eight years, partially offset by a benefit of $102 million related to a dividends received deduction for certain foreign tax credits relating to the fiscal 2018 year calculation of taxation of unremitted earnings, and expense of $9896 million related to the remeasurement of deferred tax assets and liabilities for the change in income tax rates. We will continue to refine the provisional amounts as we review and analyze ~~results from~~ the ~~full~~historic ~~fiscal~~unremitted ~~2018~~earnings ~~operations~~of ~~needed~~our ~~for~~foreign ~~calculations under the Tax Act~~subsidiaries, as well as ~~further~~the ~~review~~attendant ~~the~~computations ~~historic~~that ~~unremitted~~impact ~~earnings~~the measurement of ~~our~~the ~~foreign~~taxation ~~subsidiaries~~of unremitted earnings, and also take into consideration any additional regulatory guidance published by the U.S. tax authorities in respect of the Tax Act. We expect to finalize the tax expense as soon as practical, but not later than the third quarter of fiscal 2019. WeThe do$102 ~~not~~million ~~expect~~tax ~~other~~benefit for the dividends received deduction was based on our assessment of the treatment under the provisions of the Tax Act. Congress or the Department of Treasury may provide legislative or regulatory updates which would change our assessment. If legislative or regulatory updates are issued related to ~~have~~this aitem, ~~material~~the ~~impact~~timing ~~for~~of ~~fiscal~~which ~~2018~~is uncertain, ~~but~~we ~~are~~may ~~evaluating~~be required to recognize additional tax expense up to the ~~impact~~full onamount ~~future~~of ~~fiscal~~the ~~years~~$102 million in the period such updates are issued.

Excluding the impact of discrete items for the first ~~nine~~quarter ~~months~~ of fiscal ~~2018~~2019 and fiscal ~~2017~~2018, our estimated annual effective tax rate was 2620.69% and 28.96%, respectively. ~~Our~~The reduction in our estimated annual effective tax rate ~~for~~is ~~the~~primarily ~~first~~resulting ~~nine~~from ~~months of fiscal 2018 includes a reduction as compared with~~ the ~~first~~Tax ~~half~~Act ofwhich ~~fiscal~~provided ~~2018~~for ofa ~~2.0%~~lower ~~related to the~~ statutory tax rate ~~reduction~~in ~~for fiscal 2018 resulting from~~ the ~~Tax~~United ~~Act~~States. Changes in tax laws, the outcome of tax audits and any other changes in potential tax liabilities may result in additional tax expense or benefit in fiscal ~~2018~~2019, which are not considered in our estimated annual effective tax rate. While we do not currently view any such items as individually material to the results of our consolidated financial position or results of operations, the impact of certain items may yield additional tax expense or benefit in the remaining ~~quarter~~quarters of fiscal ~~2018~~2019.

As more fully disclosed in Note A, “Accounting Policies,” within the Notes to the Condensed Consolidated Financial Statements, upon adoption of Accounting Standard Codification Topic 606 (Topic 606), a significant portion of our revenue backlog (i.e., deferred revenue and future billings on committed contracts) relating to the license component of customer contracts at March 31, 2018 under existing GAAP will not be recognized as revenue in future periods but instead will be included as part of the cumulative effect adjustment within retained earnings upon adoption. Such cumulative effect adjustment will primarily result from (i) the significant reduction in deferred revenue relating to the license component of customer contracts as mentioned above, (ii) the establishment of a significant contract asset related to our contractual right to consideration for completed performance obligations not yet billed or collected (i.e., license revenue recognized in advance of billings), (iii) the increase in deferred tax liabilities arising from the increase in contract assets, and (iv) the increase in income taxes payable from both the increase in contract assets as a result of the Tax Act and the portion of deferred revenue included in the cumulative effect adjustment that has not been previously included as taxable income on a tax return.

The increase in contract assets and decrease in deferred revenue, when taken together with those provisions of the Tax Act which affect tax method revenue recognition for accrual-method U.S. taxpayers, will result in an acceleration of the timing of our income tax payments. This acceleration of the timing of income tax payments will be significant in relation to our current annual income tax payments within cash flows from operations. While we have not finalized our assessment of the impact arising from the Topic 606 adoption and finalization of the assessment could result in revisions to these estimates, which could be material, we currently estimate additional income tax payments in the range of approximately $100 million to $150 million per year over a four-year period, beginning in fiscal 2019. Although we continue to evaluate the items listed above, we currently expect these additional income tax payments will be largely offset by the benefit from the reduced U.S. corporate tax rate enacted by the Tax Act. We believe that taken together, the incremental income tax payments resulting from the Topic 606 adoption and enactment of the Tax Act will be approximately $25 million to $50 million, on average, per year for the next four years, beginning in fiscal 2019.

Performance of Segments

~~Our~~In ~~Mainframe~~accordance ~~Solutions~~with ~~and~~FASB ~~Enterprise~~ASC ~~Solutions~~Topic ~~segments~~280, ~~are~~Segment ~~comprised~~Reporting, ofwe disaggregate our ~~software~~operations ~~business~~into ~~organized~~Mainframe bySolutions, ~~the~~Enterprise ~~nature~~Solutions ~~of our software offerings~~ and ~~the~~Services ~~platforms~~segments, on which ~~the~~is ~~products~~utilized ~~operate.~~by ~~Our~~the ~~Services~~Chief ~~segment~~Operating isDecision ~~comprised of product implementation~~Maker, ~~consulting,~~who ~~customer~~is ~~education~~our ~~and~~Chief ~~customer~~Executive ~~training services~~Officer, ~~including~~for ~~those~~evaluating ~~directly~~segment ~~related~~performance ~~to the Mainframe Solutions~~ and ~~Enterprise~~allocating ~~Solutions software that we sell to our customers~~resources.

~~Segment~~Our ~~expenses~~Mainframe doSolutions ~~not~~and ~~include~~Enterprise ~~amortization~~Solutions segments are comprised of ~~purchased~~our software, ~~amortization~~business organized by the nature of ~~other~~our ~~intangible~~software ~~assets,~~offerings ~~amortization~~and ofthe ~~internally~~platforms ~~developed~~on ~~software~~which the products, ~~share-based~~operate. ~~compensation~~The ~~expense,~~Services ~~certain~~segment ~~foreign~~is ~~exchange~~comprised ~~derivative~~of ~~hedging~~product ~~gains~~implementation, consulting, customer education and ~~losses~~customer training services, ~~severance~~including ~~and~~those ~~facility~~directly ~~actions~~related ~~approved~~to byour ~~the~~Mainframe ~~Board,~~Solutions and ~~other~~Enterprise ~~miscellaneous~~Solutions ~~costs~~software that we sell to our customers.

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Mainframe Solutions	Third QuarterFiscal 2018			Third QuarterFiscal 2017
	(dollars in millions)
Revenue	$	552		$	546
Expenses	197			215
Segment profit	$	355		$	331
Segment operating margin	64		%	61		%

We regularly enter into a single arrangement with a customer that includes mainframe solutions, enterprise solutions and services. The amount of contract revenue assigned to our operating segments is generally based on the manner in which the proposal is made to the customer. The software product revenue assigned to our Mainframe Solutions and Enterprise Solutions segments is 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 our Services segment. The contract value assigned to each operating segment is then recognized in a manner consistent with our revenue recognition policies prior to the adoption of Topic 606. Accordingly, differences in segment revenue and consolidated revenue arise primarily from (a) term and perpetual software licenses that are recognized ratably under our segment policies and in our Condensed Consolidated Statement of Operations for periods prior to the adoption of Topic 606 that, after adoption of Topic 606, are recognized at a point-in-time; and (b) differences in the allocations of contract value among products and services in a contract arising from the use of a relative standalone selling price allocation method in our Condensed Consolidated Statement of Operations for periods after adoption of Topic 606 as compared to the aforementioned approach to assigning contract value to our segments.

Mainframe Solutions	First Nine Months Fiscal 2018			First Nine Months Fiscal 2017
	(dollars in millions)
Revenue	$	1,627		$	1,647
Expenses	572			634
Segment profit	$	1,055		$	1,013
Segment operating margin	65		%	62		%

Segment expenses include costs that are controllable by segment managers (i.e., direct costs) and, in the case of our Mainframe Solutions and Enterprise Solutions segments, an allocation of shared and indirect costs (i.e., allocated costs). Segment-specific direct costs include a portion of selling and marketing costs, licensing and maintenance costs, product development costs and general and administrative costs. Allocated segment costs primarily include indirect and non-segment-specific direct selling and marketing costs and general and administrative costs that are not directly attributable to a specific segment. The basis for allocating shared and indirect costs between our Mainframe Solutions and Enterprise Solutions segments is dependent on the nature of the cost being allocated and is generally either in proportion to segment revenues or in proportion to the related direct cost category. Expenses for our Services segment consist of cost of professional services and other direct costs included within selling and marketing and general and administrative expenses. There are no allocated or indirect costs for our Services segment.

~~Mainframe~~Segment ~~Solutions~~expenses ~~revenue~~do ~~for~~not ~~the~~include ~~third~~amortization ~~quarter~~ of ~~fiscal~~purchased ~~2018~~software, ~~increased~~amortization ~~compared~~of ~~with~~other ~~the~~intangible ~~third~~assets, ~~quarter~~amortization of ~~fiscal~~internally ~~2017~~developed ~~due~~software toproducts, ashare-based ~~favorable~~compensation expense, certain foreign exchange ~~effect.~~derivative ~~Mainframe~~hedging ~~Solutions~~gains ~~operating~~and ~~margin~~losses, ~~for~~severance ~~the~~and ~~third~~facility ~~quarter~~actions ofapproved ~~fiscal~~by ~~2018~~our ~~increased~~Board ~~compared~~of ~~with~~Directors, ~~the~~and ~~third~~other ~~quarter~~miscellaneous costs. A measure of ~~fiscal~~segment ~~2017~~assets ~~primarily~~is ~~due~~not currently provided to aour ~~decrease~~Chief inExecutive ~~corporate~~Officer ~~overhead~~and ~~costs~~has therefore not been disclosed.

Segment financial information for the first quarter of fiscal 2019 and fiscal 2018 was as follows:

Enterprise Solutions	Third QuarterFiscal 2018			Third QuarterFiscal 2017
Mainframe Solutions	First QuarterFiscal 2019			First QuarterFiscal 2018
	(dollars in millions)
Revenue	$	~~461~~553		$	~~389~~536
Expenses	408			333
Segment profit	$	370		$	349
Segment profit	$	53		$	56
Segment operating margin	67		%	65		%
Segment operating margin	11		%	14		%

Enterprise Solutions	First Nine Months Fiscal 2018			First Nine Months Fiscal 2017
	(dollars in millions)
Revenue	$	1,295		$	1,153
Expenses	1,169			981
Segment profit	$	126		$	172
Segment operating margin	10		%	15		%

Mainframe Solutions revenue for the first quarter of fiscal 2019 increased compared with the first quarter of fiscal 2018 primarily due to a favorable foreign exchange effect of $10 million and, to a lesser extent, an increase in revenue from new sales that offset the decline in revenue contribution from renewals. Mainframe Solutions operating margin for the first quarter of fiscal 2019 increased compared with the first quarter of fiscal 2018 primarily due to an increase in Mainframe Solutions revenue.



Enterprise Solutions	First Quarter Fiscal 2019			First Quarter Fiscal 2018
	(dollars in millions)
Revenue	$	425		$	414
Segment profit	$	60		$	33
Segment operating margin	14		%	8		%

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Enterprise Solutions revenue for the first quarter of fiscal 2019 increased compared with the first quarter of fiscal 2018 primarily due to a favorable foreign exchange effect of $8 million. Excluding the favorable foreign exchange effect, Enterprise Solutions revenue increased primarily due to an increase in SaaS revenue, partially offset by a decrease in revenue from our Enterprise Solutions products recognized on an upfront basis. Enterprise Solutions operating margin for the first quarter of fiscal 2019 increased compared with the first quarter of fiscal 2018 primarily due to lower acquisition-related costs and an increase in Enterprise Solutions revenue.

Services	~~Third~~First QuarterFiscal ~~2018~~2019			~~Third~~First QuarterFiscal ~~2017~~2018
	(dollars in millions)
Revenue	$	8074		$	7275
Expenses	78			75
Segment profit	$	—		$	1
Segment profit (loss)	$	2		$	(3	)
Segment operating margin	—		%	1		%
Segment operating margin	3		%	(4		)%

Services	First Nine Months Fiscal 2018			First Nine Months Fiscal 2017
	(dollars in millions)
Revenue	$	230		$	224
Expenses	226			223
Segment profit	$	4		$	1
Segment operating margin	2		%	—		%

Services revenue for the first quarter of fiscal 2019 decreased slightly compared with the first quarter of fiscal 2018 primarily due to a decline in professional services engagements. The decline in professional services engagements was a result of several factors including our products being easier to install and manage, and an increase in customers’ use of partners for services engagements. For the long term, we expect new versions of our on-premise software to be easier to implement and a higher percentage of our business to shift to a SaaS-based model, which could potentially reduce the demand for our professional services engagements. Operating margin for Services for the first quarter of fiscal 2019 was generally consistent compared with the first quarter of fiscal 2018.

~~Services~~Refer ~~revenue for the third quarter of fiscal 2018 increased compared with the third quarter of fiscal 2017 primarily due~~ to $6Note ~~million~~14, of“Segment ~~professional~~Information,” ~~services revenue generated from our Automic and Veracode acquisitions~~ in the ~~third~~Notes ~~quarter of fiscal 2018. Operating margin for Services for the third quarter of fiscal 2018 increased compared with the third quarter of fiscal 2017 primarily due~~ to ~~a decrease in personnel-related costs as a result of severance actions during~~ the ~~third~~Condensed ~~quarter~~Consolidated ofFinancial ~~fiscal~~Statements ~~2017~~for ~~and,~~additional ~~to a lesser extent, higher margins from services associated with our Automic and Veracode acquisitions~~information.

Services revenue for the first nine months of fiscal 2018 increased compared with the first nine months of fiscal 2017 due to $21 million of professional services revenue generated from our Automic and Veracode acquisitions in the first nine months of fiscal 2018, partially offset by a decline in non-acquisition-related professional services engagements. The decline in professional services engagements was a result of several factors including our products being easier to install and manage, and an increase in customers’ use of partners for services engagements. For the long term, we expect new versions of our on-premise software to be easier to implement and a higher percentage of our business to shift to a SaaS-based model, which could potentially reduce the demand for our professional services engagements. Operating margin for Services for the first nine months of fiscal 2018 increased compared with the first nine months of fiscal 2017 primarily due to an increase in professional services revenue from our Automic and Veracode acquisitions and a decrease in personnel-related costs as a result of severance actions during the third quarter of fiscal 2017.

Refer to Note M, “Segment Information,” in the Notes to the Condensed Consolidated Financial Statements for additional information.

Bookings

Third Quarter Comparison Fiscal 2018 Versus Fiscal 2017

Total Bookings: For the third quarter of fiscal 2018 and fiscal 2017, total bookings were $1,128 million and $1,258 million, respectively. This decrease in total bookings was primarily due to a decline in renewal bookings. Excluding our Automic and Veracode acquisitions, total bookings decreased by a percentage in the high teens.

Subscription and Maintenance Bookings: For the third quarter of fiscal 2018 and fiscal 2017, subscription and maintenance bookings were $816 million and $1,038 million, respectively. This decrease in subscription and maintenance bookings was primarily attributable to a decline in Mainframe Solutions renewal bookings. Excluding our Automic acquisition, subscription and maintenance bookings decreased by percentage in the low-20s.

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Renewal Bookings: For the third quarter of fiscal 2018, renewal bookings decreased by a percentage in the high teens compared with the third quarter of fiscal 2017 primarily due to the decline in Mainframe Solutions renewal bookings, which was attributable to the timing of our renewal portfolio. This decline in Mainframe Solutions renewal bookings was partially offset by renewal bookings associated with our Automic and Veracode acquisitions. Excluding our Automic and Veracode acquisitions, renewal bookings decreased by a percentage in the mid-20s.

• Renewal Yield: Our average renewal yield for the first three quarters of fiscal 2018 was slightly above 90%, with the third quarter of fiscal 2018 renewal yield being in the mid-80% range.

• License Agreements over $10 million: During the third quarter of fiscal 2018, we executed a total of 13 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $367 million. During the third quarter of fiscal 2017, we executed a total of 21 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $577 million.

• Annualized Subscription and Maintenance Bookings and Weighted Average Subscription and Maintenance License Agreement Duration in Years: Annualized subscription and maintenance bookings decreased from $313 million in the third quarter of fiscal 2017 to $278 million in the third quarter of fiscal 2018. The weighted average subscription and maintenance license agreement duration in years decreased from 3.32 in the third quarter of fiscal 2017 to 2.94 in the third quarter of fiscal 2018. Although each contract is subject to terms negotiated by the respective parties, we do not expect the weighted average subscription and maintenance agreement duration in years to change materially from historical levels.

Total New Product Sales: Within total bookings, total new product sales increased by a percentage in the high single digits for the third quarter of fiscal 2018 compared with the third quarter of fiscal 2017 due to our Automic and Veracode acquisitions. Excluding our Automic and Veracode acquisitions, total new product sales decreased by a percentage in the high single digits primarily due to a lower level of renewals, which was attributable to the timing of our renewal portfolio, since renewals typically provide an increased opportunity to generate new product sales.

• Within Total New Product Sales:

◦ Mainframe Solutions New Product Sales: For the third quarter of fiscal 2018, Mainframe Solutions new product sales decreased by a percentage in the low single digits compared with the third quarter of fiscal 2017 primarily due to a lower level of renewals as discussed above. Overall, we expect our Mainframe Solutions revenue to decline by a percentage in the low single digits over the medium term, which we believe is in line with the mainframe market.

◦ Enterprise Solutions New Product Sales: For the third quarter of fiscal 2018, Enterprise Solutions new product sales increased by a percentage in the mid-teens compared with the third quarter of fiscal 2017. Excluding our Automic and Veracode acquisitions, Enterprise Solutions new product sales decreased by a percentage in the high single digits primarily due to a decrease in our renewal portfolio, since renewals typically provide an increased opportunity to generate new product sales.

Total Bookings by Geography: Total bookings in the third quarter of fiscal 2018 decreased in the United States and the Europe, Middle East and Africa region compared with the third quarter of fiscal 2017 primarily due to a decrease in our renewal portfolio, partially offset by our Automic and Veracode acquisitions. Total bookings in the third quarter of fiscal 2018 increased in the Asia Pacific Japan region compared with the third quarter of fiscal 2017 primarily due to an increase in our renewal portfolio and increased in the Latin America region primarily due to an increase in new sales.

New Product Sales by Geography: Total new product sales in the third quarter of fiscal 2018 increased in all regions, except for the United States, compared with the third quarter of fiscal 2017. The increase in the Latin America region was primarily due to an increase in new product offerings and capacity sales and the increase in the Europe, Middle East and Africa region was primarily due to our Automic acquisition. Total new product sales in the third quarter of fiscal 2018 for the United States was consistent compared with the third quarter of fiscal 2017.

First Nine Months Comparison Fiscal 2018 Versus Fiscal 2017

Total Bookings: For the first nine months of fiscal 2018 and fiscal 2017, total bookings were $2,551 million and $3,340 million, respectively. This decrease in total bookings was attributable to a decline in renewal bookings, which included a large system integrator transaction that occurred in the first quarter of fiscal 2017 with an incremental contract value in excess of $475 million.

Subscription and Maintenance Bookings: For the first nine months of fiscal 2018 and fiscal 2017, subscription and maintenance bookings were $1,783 million and $2,742 million, respectively. This decrease in subscription and maintenance bookings was attributable to a decline in renewal bookings, which included the aforementioned large system integrator transaction that occurred in the first quarter of fiscal 2017.

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Renewal Bookings: For the first nine months of fiscal 2018, renewal bookings decreased by a percentage in the low-30s compared with the first nine months of fiscal 2017 primarily due to the aforementioned large system integrator transaction that occurred in the first quarter of fiscal 2017 and the timing of our renewal portfolio.

• License Agreements over $10 million: During the first nine months of fiscal 2018, we executed a total of 31 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $718 million. During the first nine months of fiscal 2017, we executed a total of 46 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $1,696 million. As described above, the decrease in the first nine months of fiscal 2018 compared with the first nine months of fiscal 2017 was primarily attributable to a decline in renewal bookings, which included the aforementioned large system integrator transaction. In addition, as a result of the timing of our renewal portfolio, there was an overall lower number of license agreements with incremental contract values in excess of $10 million each.

• Annualized Subscription and Maintenance Bookings and Weighted Average Subscription and Maintenance License Agreement Duration in Years: Annualized subscription and maintenance bookings decreased from $696 million in the first nine months of fiscal 2017 to $604 million in the first nine months of fiscal 2018. The weighted average subscription and maintenance license agreement duration in years decreased from 3.94 in the first nine months of fiscal 2017 to 2.95 in the first nine months of fiscal 2018. These decreases were primarily due to the aforementioned large system integrator transaction.

• Full Year Fiscal 2018 Outlook: We expect fiscal 2018 renewal bookings to decrease by a percentage in the high teens compared with fiscal 2017 primarily due to the aforementioned large system integrator transaction that occurred in the first quarter of fiscal 2017.

Total New Product Sales: Within total bookings, total new product sales decreased by a percentage in the low single digits for the first nine months of fiscal 2018 compared with the first nine months of fiscal 2017 primarily due to the aforementioned large system integrator transaction that occurred in the first quarter of fiscal 2017.

• Within Total New Product Sales:

◦ Mainframe Solutions New Product Sales: For the first nine months of fiscal 2018, Mainframe Solutions new product sales decreased by a percentage in the high teens compared with the first nine months of fiscal 2017 primarily due to a lower level of renewals, which included the aforementioned large system integrator transaction that occurred in the first quarter of fiscal 2017. The lower level of renewals is primarily attributable to the timing of our renewal portfolio since renewals typically provide an increased opportunity to generate new product sales.

◦ Enterprise Solutions New Product Sales: For the first nine months of fiscal 2018, Enterprise Solutions new product sales increased by a percentage in the mid-single digits compared with the first nine months of fiscal 2017. Excluding the aforementioned large system integrator transaction, Enterprise Solutions new product sales increased by a percentage in the low teens due to our Automic and Veracode acquisitions. Excluding the aforementioned large system integrator transaction and Enterprise Solutions new product sales from our Automic and Veracode acquisitions, Enterprise Solutions new product sales decreased by approximately 10% primarily due to a lower level of renewal bookings, which was attributable to the timing of our renewal portfolio. Typically, renewals provide an increased opportunity to generate new product sales.

Total Bookings by Geography: Total bookings in the first nine months of fiscal 2018 decreased in all regions except for the Latin America region compared with the first nine months of fiscal 2017 primarily due to a decrease in our renewal portfolio. The decrease in the United States was primarily due to the aforementioned large system integrator transaction that occurred in the first quarter of fiscal 2017. The increase in total bookings in the Latin America region was primarily due to an increase in new product sales.

New Product Sales by Geography: Total new product sales in the first nine months of fiscal 2018 decreased in the United States compared with the first nine months of fiscal 2017 primarily due to a decrease in our renewal portfolio, which included the aforementioned large system integrator transaction that occurred in the first quarter of fiscal 2017, partially offset by our Automic and Veracode acquisitions. Total new product sales in the first nine months of fiscal 2018 increased in all other regions compared with the first nine months of fiscal 2017. Total new product sales in the Europe, Middle East and Africa region increased primarily due to our Automic acquisition.

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalent balances are held in numerous locations throughout the world, with 6648% held in our subsidiaries outside the United States at ~~December~~June 3130, ~~2017~~2018. Cash and cash equivalents totaled $23,~~971~~328 million at ~~December~~June 3130, ~~2017~~2018, representing ana ~~increase~~decrease of $~~200~~77 million from the March 31, ~~2017~~2018 balance of $23,~~771~~405 million. During the first ~~nine~~quarter ~~months~~ of fiscal ~~2018~~2019, there was a $~~148~~104 million ~~favorable~~unfavorable translation effect from foreign exchange rates on cash held outside the United States in currencies other than the U.S. dollar.

36On December 22, 2017, the Tax Act was enacted into law. This new law includes significant changes to the U.S. corporate income tax system, including a permanent reduction in the corporate income tax rate, limitations on the deductibility of executive compensation and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system. This new law includes a provision that imposes a transition tax on foreign earnings whether or not such earnings are repatriated to the U.S. and resulted in our recognition of income tax expense of $198 million through the first quarter of fiscal 2019. Refer to Note 12, “Income Taxes” in the Notes to the Condensed Consolidated Financial Statements for additional information.

~~Table~~We continue to expect domestic cash, cash equivalents, cash flows from operations and borrowings to be sufficient to fund our domestic operating activities and our investing and financing activities, including, among other things, the payment of ~~Contents~~regular quarterly dividends, compliance with our debt repayment schedules and the funding for capital expenditures, for at least the next 12 months and for the foreseeable future thereafter. In addition, we continue to expect foreign cash, cash equivalents and cash flows from foreign operations to be sufficient to fund our foreign operating activities and investing activities, including, among other things, the funding of capital expenditures, acquisitions and research and development, for at least the next 12 months and for the foreseeable future thereafter. Pursuant to the terms of the Merger Agreement with Broadcom, we may not continue to repurchase shares without Broadcom’s consent. Refer to Note 15, “Subsequent Events” in the Notes to the Condensed Consolidated Financial Statements for additional information.

On December 22, 2017, the Tax Act was enacted into law. This new law includes significant changes to the U.S. corporate income tax system, including a permanent reduction in the corporate income tax rate, limitations on the deductibility of executive compensation and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system. This new law includes a provision that imposes a transition tax on foreign earnings whether or not such earnings are repatriated to the U.S. and resulted in our recognition of income tax expense of $220 million for the three and nine months ended December 31, 2017. Refer to Note K, “Income Taxes” in the Notes to the Condensed Consolidated Financial Statements for additional information.

We continue to expect domestic cash, cash equivalents, cash flows from operations and borrowings to be sufficient to fund our domestic operating activities and our investing and financing activities, including, among other things, the payment of regular quarterly dividends, compliance with our debt repayment schedules, repurchases of our common stock and the funding for capital expenditures, for at least the next 12 months and for the foreseeable future thereafter. In addition, we continue to expect foreign cash, cash equivalents and cash flows from foreign operations to be sufficient to fund our foreign operating activities and investing activities, including, among other things, the funding of capital expenditures, acquisitions and research and development, for at least the next 12 months and for the foreseeable future thereafter. However, following the enactment of the new Tax Act, we are currently re-evaluating our plans to permanently reinvest our foreign earnings outside the U.S. with a view to maximize our return on investments.

Sources and Uses of Cash

Under our subscription and maintenance agreements, customers generally make installment payments over the term of the agreement, often with at least one payment due at contract execution, for the right to use our software products and receive product support, software fixes and new products when available. The timing and actual amounts of cash received from committed customer installment payments under any specific agreement can be affected by several factors, including the time value of money and the customer’s credit rating. Often, the amount received is the result of direct negotiations with the customer when establishing pricing and payment terms. In certain instances, the customer negotiates a price for a single upfront installment payment and seeks its own internal or external financing sources. In other instances, we may assist the customer by arranging financing on the customer’s behalf through a third-party financial institution.

Amounts billed or collected as a result of a single installment for the entire contract value, or a substantial portion of the contract value, rather than being invoiced and collected over the life of the license agreement, are reflected in the liability section of our Condensed Consolidated Balance Sheets as “Deferred revenue (billed or collected).” Amounts received from either a customer or a third-party financial institution that are attributable to later years of a license agreement have a positive impact on billings and cash provided by operating activities in the current period. Accordingly, to the extent these collections are attributable to the later years of a license agreement, billings and cash provided by operating activities during the license’s later years will be lower than if the payments were received over the license term. We are unable to predict with certainty the amount of cash to be collected from single installments for the entire contract value, or a substantial portion of the contract value, under new or renewed license agreements to be executed in future periods.

For the third quarter of fiscal 2018, gross receipts related to single installments for the entire contract value, or a substantial portion of the contract value, were $36 million compared with $231 million for the third quarter of fiscal 2017. This decrease was primarily due to a lower level of renewals, including the reduction in bookings from financial services companies, which was attributable to the timing of our renewal portfolio compared with the year-ago period. For the first nine months of fiscal 2018, gross receipts related to single installments for the entire contract value, or a substantial portion of the contract value, were $310 million compared with $313 million for the first nine months of fiscal 2017.

In any quarter, we may receive payments in advance of the contractually committed date on which the payments were otherwise due. In limited circumstances, we may offer discounts to customers to ensure payment in the current period of invoices that have been billed, but might not otherwise be paid until a subsequent period because of payment terms. Historically, any such discounts have not been material.

Amounts due from customers from our subscription licenses are offset by deferred revenue related to these license agreements, leaving no or minimal net carrying value on our Condensed Consolidated Balance Sheets for those amounts. The fair value of these amounts may exceed or be less than this carrying value, but cannot be practically assessed, since there is no existing market for a pool of customer receivables with contractual commitments similar to those owned by us. The actual fair value may not be known until these amounts are sold, securitized or collected. Although these customer license agreements commit the customer to payment under a fixed schedule, to the extent amounts are not yet due and payable by the customer, the agreements are considered executory in nature due to our ongoing commitment to provide maintenance and unspecified future software products as part of the agreement terms.

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(in millions)	December 31, 2017		March 31, 2017		December 31, 2016
Billings backlog:
Amounts to be billed – current	$	1,936	$	1,941	$	1,882
Amounts to be billed – noncurrent	2,369		2,599		2,555
Total billings backlog	$	4,305	$	4,540	$	4,437
Revenue backlog:
Revenue to be recognized within the next 12 months – current	$	3,245	$	3,240	$	2,994
Revenue to be recognized beyond the next 12 months – noncurrent	3,810		4,316		4,011
Total revenue backlog	$	7,055	$	7,556	$	7,005
Deferred revenue (billed or collected)	$	2,750	$	3,016	$	2,568
Total billings backlog	4,305		4,540		4,437
Total revenue backlog	$	7,055	$	7,556	$	7,005

Note: Revenue backlog includes deferred subscription and maintenance, professional services and software fees and other revenue.

(in millions)	December 31, 2017		March 31, 2017		December 31, 2016
Expected future cash collections:
Total billings backlog	$	4,305	$	4,540	$	4,437
Trade accounts receivable, net	719		764		555
Total expected future cash collections	$	5,024	$	5,304	$	4,992

The 5% decrease in billings backlog at December 31, 2017 compared with March 31, 2017 was primarily due to a lower level of bookings during the first nine months of fiscal 2018. Excluding the favorable effect of foreign exchange, billings backlog decreased 7% at December 31, 2017 compared with March 31, 2017. The 3% decrease in billings backlog at December 31, 2017 compared with December 31, 2016 was primarily due to a lower level of bookings during the first nine months of fiscal 2018. Excluding the favorable effect of foreign exchange, billings backlog decreased 5% at December 31, 2017 compared with December 31, 2016.

The decrease in expected future cash collections at December 31, 2017 compared with March 31, 2017 was primarily driven by a decrease in billings backlog as described above, as well as a decrease in trade accounts receivable, net due to a decrease in billings. The increase in expected future cash collections at December 31, 2017 compared with December 31, 2016 was primarily driven by an increase in trade accounts receivable, net.

The 7% decrease in total revenue backlog at December 31, 2017 compared with March 31, 2017 was primarily due to a lower level of bookings during the first nine months of fiscal 2018. Excluding the favorable effect of foreign exchange, total revenue backlog decreased 9% at December 31, 2017 compared with March 31, 2017. The 1% increase in total revenue backlog at December 31, 2017 compared with December 31, 2016 was primarily due to the favorable effect of foreign exchange. Excluding the favorable effect of foreign exchange, total revenue backlog decreased 2% at December 31, 2017 compared with December 31, 2016 primarily due to the timing of our renewal portfolio.

Current revenue backlog, which is our revenue to be recognized within the next 12 months, was generally consistent at December 31, 2017 compared with March 31, 2017. Excluding the favorable effect of foreign exchange, current revenue backlog decreased 2% at December 31, 2017 compared with March 31, 2017 primarily due to a decrease in total bookings during the first nine months of fiscal 2018. Current revenue backlog increased 8% at December 31, 2017 compared with December 31, 2016. Excluding the favorable effect of foreign exchange, current revenue backlog increased 5% at December 31, 2017 compared with December 31, 2016 primarily due to our Automic and Veracode acquisitions.

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~~Generally,~~Amounts webilled ~~believe~~or ~~that~~collected as a ~~change~~result inof ~~current~~a ~~revenue~~single ~~backlog~~installment onfor athe ~~year-over-year~~entire ~~basis~~contract isvalue, anor ~~indicator~~a substantial portion of ~~future~~the ~~subscription~~contract value, rather than being invoiced and ~~maintenance~~collected ~~revenue~~over ~~performance~~the ~~due~~life toof the ~~high~~license ~~percentage~~agreement, are reflected in the liability section of our Condensed Consolidated Balance Sheets as “Deferred revenue ~~that~~and isadvanced ~~recognized~~payments.” Amounts received from ~~license~~either ~~agreements~~a customer or a third-party financial institution that are ~~already~~attributable ~~committed~~to later years of a license agreement have a positive impact on billings and ~~being~~cash ~~recognized~~provided ~~ratably~~by operating activities in the current period. We ~~also~~Accordingly, ~~believe~~to ~~that~~the ifextent wethese docollections ~~not~~are ~~demonstrate~~attributable ~~multiple~~to ~~quarters~~the later years of ~~total~~a ~~new~~license ~~product~~agreement, billings and ~~capacity~~cash ~~sales~~provided ~~growth~~by ~~while~~operating ~~maintaining~~activities aduring ~~renewal~~the ~~yield~~license’s inlater years will be lower than if the ~~low~~payments ~~90%~~were ~~range,~~received ~~our~~over ~~current~~the ~~revenue~~license ~~backlog~~term. ~~would~~We are unable to predict with certainty the amount of cash to be ~~unlikely~~collected from single installments for the entire contract value, or a substantial portion of the contract value, under new or renewed license agreements to ~~increase~~be executed in future periods.

	Third Quarter of Fiscal						Change
	2018			2017			2018 / 2017
	(in millions)
Cash collections from billings (1)	$	1,056		$	1,209		$	(153	)
Vendor disbursements and payroll (1)	(652		)	(611		)	(41		)
Income tax payments, net	(75		)	(72		)	(3		)
Other disbursements, net (2)	(14		)	(9		)	(5		)
Net cash provided by operating activities	$	315		$	517		$	(202	)

For the first quarter of fiscal 2019, gross receipts related to single installments for the entire contract value, or a substantial portion of the contract value, were $95 million, all of which was billed in the fourth quarter of fiscal 2018. For the first quarter of fiscal 2018, gross receipts related to single installments for the entire contract value, or a substantial portion of the contract value, were $194 million, of which $97 million was billed in the fourth quarter of fiscal 2017.

Net Cash Provided by Operating Activities



	First Quarter of Fiscal						Change
	2019			2018			2019 / 2018
	(in millions)
Cash collections from billings ⁽¹⁾	$	1,098		$	1,211		$	(113	)
Vendor disbursements and payroll ⁽¹⁾	(766		)	(847		)	81
Income tax payments, net	(30		)	(47		)	17
Other disbursements, net ⁽²⁾	(40		)	(19		)	(21		)
Net cash provided by operating activities	$	262		$	298		$	(36	)


(1)	Amounts include value added taxes and sales taxes.

(2) ~~Amounts~~For ~~include~~the first quarter of fiscal 2019, amount includes $22 million of payments associated with the Fiscal 2019 Plan, interest, prior period restructuring plans and miscellaneous receipts and disbursements. For the first quarter of fiscal 2018, amount includes payments associated with interest, prior period restructuring plans and miscellaneous receipts and disbursements.

	First Nine Months of Fiscal						Change
	2018			2017			2018 / 2017
	(in millions)
Cash collections from billings (1)	$	3,070		$	2,946		$	124
Vendor disbursements and payroll (1)	(2,130		)	(1,970		)	(160		)
Income tax payments, net	(231		)	(274		)	43
Other disbursements, net (2)	(59		)	(44		)	(15		)
Net cash provided by operating activities (3)	$	650		$	658		$	(8	)

First Quarter Comparison Fiscal 2019 Versus Fiscal 2018

(1) Amounts include value added taxes and sales taxes.

(2) Amounts include payments associated with interest, prior period restructuring plans and miscellaneous receipts and disbursements.

(3) Net cash provided by operating activities for the first nine months of fiscal 2017 was adjusted to reflect the adoption of ASU 2016-09. Refer to Note A, “Accounting Policies” in the Notes to the Condensed Consolidated Financial Statements for further details.

Third Quarter Comparison Fiscal 2018 Versus Fiscal 2017

Operating Activities

Net cash provided by operating activities for the ~~third~~first quarter of fiscal ~~2018~~2019 was $~~315~~262 million, representing a decrease of $~~202~~36 million compared with the ~~third~~first quarter of fiscal ~~2017~~2018. The decrease in net cash provided by operating activities was primarily due to a decrease in cash collections from billings of $~~153~~113 million mainly attributable to lower single installment collections, ~~and~~partially anoffset ~~increase~~by a decrease in vendor disbursements and payroll of $4181 million compared with the year-ago period.

Investing Activities

Net cash used in investing activities for the ~~third~~first quarter of fiscal ~~2018~~2019 was $1337 million compared with $6218 million for the ~~third~~first quarter of fiscal ~~2017~~2018. The ~~decrease~~increase in net cash used in investing activities was ~~primarily~~ due to aan ~~decrease~~increase in cash paid for acquisitions and purchased software of $4719 million compared with the year-ago period.

Financing Activities

Net cash used in financing activities for the ~~third~~first quarter of fiscal ~~2018~~2019 was $~~164~~199 million compared with $93166 million for the ~~third~~first quarter of fiscal ~~2017~~2018. The increase in net cash used in financing activities was primarily due to an increase in common stock repurchases of $5380 million, ~~and~~offset by an increase in net debt borrowings from our notional pooling arrangement of $1542 million and an increase in exercises of common stock options of $13 million compared with the year-ago period.

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First Nine Months Comparison Fiscal 2018 Versus Fiscal 2017

Operating Activities

Net cash provided by operating activities for the first nine months of fiscal 2018 was $650 million, representing a decrease of $8 million compared with the first nine months of fiscal 2017. The decrease in net cash provided by operating activities was primarily due to an increase in vendor disbursements and payroll of $160 million attributable to disbursements from our Automic and Veracode acquisitions and an increase in other disbursements, net of $15 million, offset by an increase in cash collections from billings of $124 million attributable to collections from our Automic and Veracode acquisitions and a decrease in income tax payments, net of $43 million compared with the year-ago period.

Investing Activities

Net cash used in investing activities for the first nine months of fiscal 2018 was $51 million compared with $79 million for the first nine months of fiscal 2017. The decrease in net cash used in investing activities was primarily due to a decrease in cash paid for acquisitions and purchased software of $33 million compared with the year-ago period.

Financing Activities

Net cash used in financing activities for the first nine months of fiscal 2018 was $545 million compared with $412 million for the first nine months of fiscal 2017. The increase in net cash used in financing activities was primarily due to an increase in net debt repayments from our notional pooling arrangement of $57 million, an increase in common stock repurchases of $43 million, and a decrease in the exercise of common stock options of $17 million compared with the year-ago period.

Debt Obligations

At June 30, 2018 and March 31, 2018, our debt obligations consisted of the following:

	December 31, 2017			March 31, 2017
	June 30, 2018			March 31, 2018
	(in millions)
Revolving credit facility	$	—		$	—
2.875% Senior Notes due August 2018	250			250
5.375% Senior Notes due December 2019	750			750
3.600% Senior Notes due August 2020	400			400
3.600% Senior Notes due August 2022	500			500
4.500% Senior Notes due August 2023	250			250
4.700% Senior Notes due March 2027	350			350
Term Loan due April 2022	289			300
Term Loan due April 2023	281			285
Other indebtedness, primarily capital leases	119			810
Unamortized debt issuance costs	(129		)	(1411		)
Unamortized discount for Senior Notes	(1		)	(31		)
Total debt outstanding	$	2,~~787~~780		$	2,~~791~~783
Less the current portion	(~~269~~270		)	(18269		)
Total long-term debt portion	$	2,~~518~~510		$	2,~~773~~514

~~Revolving~~Term ~~Credit Facility~~Loan

In ~~June~~April ~~2017~~2018, we amended our ~~revolving~~term ~~credit~~loan ~~facility~~agreement towith ~~extend~~Bank ~~the termination date from June 2019 to June 2022. Our revolving credit facility provides a maximum committed amount available~~ of $1America, ~~billion~~N.A. ~~The facility also provides us with an option~~ to ~~increase~~extend the ~~available~~maturity ~~credit~~date byfrom anApril ~~amount~~2022 up to ~~$500~~April ~~million~~2023. This option is subject to certain conditions and the agreement of the facility lenders. At December 31, 2017 and March 31, 2017, there were no outstanding borrowings under our revolving credit facility.

Other Indebtedness

We had $114 million of unsecured and uncommitted multi-currency lines of credit at ~~December~~June 3130, ~~2017~~2018 and March 31, ~~2017~~2018 available to meet short-term working capital needs for our subsidiaries. We use guarantees and letters of credit issued by financial institutions to guarantee performance on certain contracts and other items. At ~~December~~June 3130, ~~2017~~2018 and March 31, ~~2017~~2018, $6156 million and $5160 million, respectively, of these lines of credit were pledged in support of bank guarantees and other local credit lines. At ~~December~~June 3130, ~~2017~~2018 and March 31, ~~2017~~2018, none of these arrangements were drawn down by third parties.

We use a notional pooling arrangement with an international bank to help manage global liquidity. Under this pooling arrangement, we and our participating subsidiaries may maintain either cash deposit or borrowing positions through local currency accounts with the bank, so long as the aggregate position of the global pool is a notionally calculated net cash deposit. Because it maintains a security interest in the cash deposits and has the right to offset the cash deposits against the borrowings, the bank provides us and our participating subsidiaries favorable interest terms on both. The activity under this notional pooling arrangement for the three months ended June 30, 2018 and 2017 was as follows:



	Three Months Ended June 30,
	2018			2017
	(in millions)
Total borrowings outstanding at beginning of period ⁽¹⁾	$	137		$	137
Borrowings	571			737
Repayments	(547		)	(755		)
Foreign exchange effect	(22		)	20
Total borrowings outstanding at end of period ⁽¹⁾	$	139		$	139


(1)	Included in “Accrued expenses and other current liabilities” in our Condensed Consolidated Balance Sheets.

For additional information concerning our debt obligations, refer to our consolidated financial statements and notes thereto included in our 2018 Form 10-K.

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	Nine Months Ended December 31,
	2017			2016
	(in millions)
Total borrowings outstanding at beginning of period (1)	$	137		$	139
Borrowings	1,581			1,391
Repayments	(1,612		)	(1,365		)
Foreign exchange effect	33			(26		)
Total borrowings outstanding at end of period (1)	$	139		$	139

(1) Included in “Accrued expenses and other current liabilities” in our Condensed Consolidated Balance Sheets.

For additional information concerning our debt obligations, refer to our consolidated financial statements and notes thereto included in our 2017 Form 10-K.

Effect of Exchange Rate Changes

There was a $~~148~~104 million ~~favorable~~unfavorable foreign currency translation effect on our cash balances for the first ~~nine~~quarter ~~months~~ of fiscal ~~2018~~2019 predominantly due to the ~~weakening~~strengthening of the U.S. dollar against the euro (135%), the ~~British~~Brazilian ~~pound~~real ~~sterling~~ (815%), the Israeli shekel (54%) and the ~~Canadian~~British ~~dollar~~pound sterling (6%).

There was aan $~~151~~88 million ~~unfavorable~~favorable foreign currency translation effect on our cash balances infor the first ~~nine~~quarter ~~months~~ of fiscal ~~2017~~2018 predominantly due to the ~~strengthening~~weakening of the U.S. dollar against the euro (87%), ~~and~~ the British pound sterling (144%), and the Israeli shekel (4%), partially offset by the ~~weakening~~strengthening of the U.S. dollar against the Brazilian real (106%).

CRITICAL ACCOUNTING POLICIES AND BUSINESS PRACTICES

The preparation of financial statements in accordance with ~~generally~~GAAP ~~accepted accounting principles~~ requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances. Our estimates form the basis for making judgments about amounts and timing of revenue and expenses, the carrying values of assets and the recorded amounts of liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and the estimates may change if the underlying conditions or assumptions change. Information with respect to our critical accounting policies that we believe could have the most significant effect on our reported results or require subjective or complex judgments by management is contained in our ~~2017~~2018 Form 10-K under Management’s Discussion and Analysis of Financial Condition and Results of Operations. At ~~December~~June 3130, ~~2017~~2018, there was no material change to our critical accounting policies or the methodologies or assumptions we apply under them since March 31, ~~2017~~2018 other than the impact of adopting Topic 606. Refer to Note 2, “Revenue from Contracts with Customers,” and Note 3, “Impact of Adopting Topic 606,” in the Notes to the Condensed Consolidated Financial Statements for a discussion of the changes in our policies for revenue recognition and commissions, and the required disclosures related to the impact of adopting Topic 606.

New Accounting Pronouncements

For information regarding new accounting pronouncements, and the impact of these pronouncements on our consolidated financial statements, if any, ~~including the anticipated effects of Topic 606,~~ refer to Note A1, “Accounting Policies,” in the Notes to the Condensed Consolidated Financial Statements.

Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our ~~2017~~2018 Form 10-K. Our exposures to market risk have not changed materially subsequent to March 31, ~~2017~~2018.

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Item 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based on that evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

~~There~~Except as disclosed in the following paragraph, there were no changes in the Company’s internal control over financial reporting, as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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The Company adopted the new revenue recognition guidance under Topic 606 in the first quarter of fiscal year 2019. The adoption required the Company to establish new accounting policies and implement new accounting processes, including internal controls necessary to have reasonable assurance that the new accounting policy and process objectives are met. These processes and the related internal controls are newly designed and implemented this quarter and were not subject to the Company’s most recent annual evaluation and assessment of internal control over financial reporting. Additionally, the preparation of the financial statements and related notes included in this quarterly report are the first period these controls have operated. Significant changes arising from the adoption of Topic 606 include a new revenue recognition software system to measure periodic revenue, interfaces between the new IT system and the Company’s legacy IT systems, processes to estimate stand-alone selling price for performance obligations, additional or modified controls to identify performance obligations in its contracts, validate data accuracy in its IT systems, and identify and separately account for customer contract modifications. As a result of the foregoing, during the first quarter of fiscal year 2019, the changes in the Company’s internal controls and processes to meet the requirements of Topic 606 had a material effect on its internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Refer to Note G8, “Commitments and Contingencies,” in the Notes to the Condensed Consolidated Financial Statements for information regarding certain legal proceedings, the contents of which are herein incorporated by reference.

Item 1A. RISK FACTORS

Current and potential stockholders should consider carefully the risk factors described in more detail in our ~~2017~~2018 Form 10-K. WeThere ~~believe~~were ~~that~~no asmaterial ofchanges ~~December 31,~~to ~~2017,~~such ~~there~~risk ~~has~~factors, ~~been~~except noto ~~material~~include ~~change~~the torisk ~~this~~factors ~~information~~described below. Any of these factors, or others, many of which are beyond our control, could materially adversely affect our business, financial condition, operating results, cash flow and stock price.

The announcement and pendency of our agreement to be acquired by Broadcom may have an adverse effect on our business and operating results.

On July 11, 2018, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Broadcom Inc. (“Broadcom”) under which Broadcom agreed to acquire us subject to the terms and conditions set forth therein. Our pending acquisition by Broadcom may have an adverse effect on our revenue in the near term if our customers delay, defer, or cancel purchases pending completion of the transaction. In addition, the announcement and pendency of the transaction may cause reluctance by customers to begin or continue to do business with us due to potential uncertainty about the direction of our products and solutions following consummation of the transaction. We are subject to additional risks in connection with the announcement and pendency of the proposed transaction, including:


•	Difficulties maintaining existing and/or establishing business relationships, including relationships with significant customers, suppliers, channel partners, and other business partners;


•	Disruption to our business, including increased costs and diversion of management time and resources that could otherwise have been devoted to other opportunities that may have been beneficial to us;


•	The restrictions imposed on our business and operations pursuant to certain covenants set forth in the Merger Agreement, which may prevent us from pursuing certain opportunities, responding to competitive pressures and industry developments, or taking certain actions without Broadcom’s approval;


•	Adverse effects on our ability to attract, recruit, retain and motivate current and prospective employees who may be uncertain about their future roles following completion of the proposed transaction, and the possibility that our employees could lose productivity as a result of uncertainty regarding their employment following the proposed transaction;


•	The pendency and outcome of the legal proceedings that have been or may be instituted against us, our directors, executive officers and others relating to the proposed transaction; and


•	The diversion of our employees’ attention due to activities related to the proposed transaction.

The failure to complete our pending acquisition by Broadcom may adversely affect our business, financial condition, operating results, and stock price.

Consummation of the Broadcom transaction remains subject to certain customary closing conditions, including, without limitation, adoption of the Merger Agreement by the Company’s stockholders and the absence of legal impediments and regulatory clearances in the United States, the European Union and Japan. There can be no assurance that these conditions to the completion of the merger will be satisfied in a timely manner or at all. If the merger is not completed, our stock price could fall to the extent its current price reflects an assumption that the acquisition will be completed. Furthermore, if the acquisition is not completed, we may suffer other consequences that could adversely affect our business, financial condition, operating results, and stock price, including the following:


•	Any disruptions to our business resulting from the announcement and pendency of the proposed transaction, including adverse changes in our relationships with customers, suppliers, channel partners, other business partners and employees, may continue or intensify in the event the acquisition is not consummated or is significantly delayed;


•	We would have incurred significant costs, including professional services fees and other transaction costs, in connection with the proposed transaction that we would be unable to recover;


•	We may have to pay Broadcom a termination fee of $566 million under certain circumstances that give rise to the termination of the Merger Agreement;


•	We may be subject to negative publicity or be negatively perceived by the investment or business communities;


•	We may be subject to legal proceedings related to the transactions contemplated by the Merger Agreement;

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•	We may not be able to take advantage of alternative business opportunities or effectively respond to competitive pressures; and


•	We may experience a departure of employees.

The Merger Agreement with Broadcom limits our ability to pursue alternative transactions, which could deter a third party from proposing an alternative transaction.

The Merger Agreement contains provisions that limit our ability to pursue an alternative acquisition transaction. These or other provisions may discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of us from considering or proposing an acquisition or might result in a potential competing acquirer proposing to pay a lower per share price to acquire us than it might otherwise have proposed to pay.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth, for the months indicated, our purchases of common stock in the ~~third~~first quarter of fiscal ~~2018~~2019:

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Numberof SharesPurchased	AveragePrice Paidper Share		Total Numberof SharesPurchased asPart of PubliclyAnnounced Plansor Programs (1)	ApproximateDollar Value ofShares thatMay Yet BePurchased Underthe Plansor Programs
	(in thousands, except average price paid per share)
October 1, 2017 - October 31, 2017	62	$	32.35	62	$	557,994
April 1, 2018 - April 30, 2018	—	$	—	—	$	486,509
November 1, 2017 - November 30, 2017	664	$	32.35	664	$	536,509
May 1, 2018 - May 31, 2018	—	—		—	486,509
December 1, 2017 - December 31, 2017	923	$	32.51	923	$	506,509
June 1, 2018 - June 30, 2018	2,256	35.46		2,256	406,509
Total	12,~~649~~256	$	3235.4446	12,~~649~~256	$	~~506~~406,509

(1) In November 2015, ~~the~~our Board of Directors approved a stock repurchase program that authorized us to acquire up to $750 million of our common stock. WePursuant ~~currently expect~~ to ~~repurchase~~the ~~shares~~terms onof the ~~open~~Merger ~~market,~~Agreement ~~through~~with ~~solicited~~Broadcom, orwe ~~unsolicited~~may ~~privately~~not ~~negotiated~~continue ~~transactions or otherwise, from time~~ to ~~time~~repurchase ~~based~~shares onwithout ~~market~~Broadcom’s ~~conditions and other factors~~consent.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

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Item 6. EXHIBITS

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date	Filed or Furnished Herewith
2.1	Agreement and Plan of Merger, dated as of July 11, 2018, by and among Broadcom Inc., Collie Acquisition Corp. and CA, Inc.	8-K	2.1	7/12/18
3.1	Restated Certificate of Incorporation.	8-K	3.3	3/9/06
3.2	By-Laws of the Company, as amended.	10-K	3.2	5/8/15
4.1	Amendment No. 1 to the Stockholder Protection Rights Agreement, dated as of July 11, 2018, by and between CA, Inc. and Computershare Trust Company, N.A.	8-K	4.1	7/12/18
12	Statement of Ratios of Earnings to Fixed Charges.				X
15	Accountants’ Acknowledgment Letter.				X
31.1	Certification of the Principal Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.				X
31.2	Certification of the Principal Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.				X
32	Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002.				X
101.INS	XBRL Instance Document.				X
101.SCH	XBRL Taxonomy Extension Schema Document.				X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.				X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.				X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.				X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.				X

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



CA, INC.

By:	/s/ Michael P. Gregoire
	Michael P. Gregoire
	Chief Executive Officer

By:	/s/ Kieran J. McGrath
	Kieran J. McGrath
	Executive Vice President and Chief Financial Officer

Dated: ~~January~~August 317, 2018

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