Market Overview

CA Technologies Reports First Quarter Fiscal Year 2019 Results

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  • First Quarter Revenue of $938 Million Under ASC 606 and $1,052
    Million Under ASC 605
  • First Quarter GAAP EPS of $0.40 Under ASC 606 and $0.62 Under
    ASC 605
  • First Quarter Non-GAAP EPS of $0.54 Under ASC 606 and $0.76
    Under ASC 605
  • First Quarter Cash Flow From Operations of $262 Million

CA Technologies (NASDAQ:CA) today reported financial results for its
first quarter fiscal 2019, which ended June 30, 2018.

As of April 1, 2018, CA Technologies adopted Accounting Standard
Codification 606 (ASC 606) using the modified retrospective method.
First quarter fiscal 2019 financial results are presented under ASC 606
and under ASC 605 for comparison to prior periods.

On July 11, 2018, CA Technologies entered into a definitive agreement to
be acquired by Broadcom, Inc. Due to the pending acquisition, CA
Technologies will not host a conference call to discuss its first
quarter results.

FINANCIAL OVERVIEW

(dollars in millions, except share data)   First Quarter FY19 vs. FY18
FY19   FY19   FY18   % Change   % Change CC*
  ASC 606   ASC 605   ASC 605   ASC 605   ASC 605
Revenue $938   $1,052   $1,025   3%   1%
GAAP Net Income $166   $261   $178   47%   33%
Non-GAAP Net Income* $229   $320   $256   25%   21%
GAAP Diluted EPS $0.40   $0.62   $0.42   48%   33%
Non-GAAP Diluted EPS* $0.54   $0.76   $0.61   25%   20%
Cash Flow provided by Operations   $262   $262   $298   (12)%   (12)%

* Non-GAAP income, Non-GAAP earnings per share and CC or Constant
Currency are non-GAAP financial measures, as noted in "Non-GAAP
Financial Measures" below. A reconciliation of non-GAAP financial
measures to their comparable GAAP financial measures is included in the
tables following this news release.

REVENUE AND BOOKINGS

(dollars in millions)   First Quarter FY19 vs. FY18
FY19   % of
Total
  FY19   % of
Total
  FY18   % of
Total
  %
Change
  %
Change
CC*
  ASC 606   ASC 606   ASC 605   ASC 605   ASC 605   ASC 605   ASC 605   ASC 605
North America Revenue $600   64%   $697   66%   $690   67%   1%   1%
International Revenue $338   36%   $355   34%   $335   33%   6%   1%
Total Revenue   $938       $1,052       $1,025       3%   1%

*CC or Constant Currency is a non-GAAP financial measure, as noted in
"Non-GAAP Financial Measures" below. A reconciliation of non-GAAP
financial measures to their comparable GAAP financial measures is
included in the tables following this news release.

  • Total bookings for the first quarter of fiscal 2019 were $778 million.

EXPENSES, MARGIN AND EARNINGS PER SHARE

(dollars in millions)   First Quarter FY19 vs. FY18
FY19   FY19   FY18   %
Change
  %
Change
CC**
GAAP ASC 606   ASC 605   ASC 605   ASC 605   ASC 605
Operating Expenses Before Interest and Income Taxes $836   $833   $762   9%   10%
Operating Income Before Interest and Income Taxes $102   $219   $263   (17)%   (24)%
Diluted EPS $0.40   $0.62   $0.42   48%   33%
Operating Margin 11%   21%   26%        
Effective Tax Rate (102.4)%   (31.2)%   25.2%        
                   
Non-GAAP*      
Operating Expenses Before Interest and Income Taxes $625   $622   $642   (3)%   (4)%
Operating Income Before Interest and Income Taxes $313   $430   $383   12%   9%
Diluted EPS $0.54   $0.76   $0.61   25%   20%
Operating Margin 33%   41%   37%        
Effective Tax Rate   21.8%   22.0%   28.5%        

*Refer to the discussion of Non-GAAP financial measures included in this
news release and the reconciliation of non-GAAP financial measures to
their comparable GAAP financial measures included in the tables
following this news release.

**CC or Constant Currency is a non-GAAP financial measure, as noted in
"Non-GAAP Financial Measures" below. A reconciliation of non-GAAP
financial measures to their comparable GAAP financial measures is
included in the tables following this news release.

  • GAAP income tax benefit included a net $98 million tax benefit
    relating to changes in the provisional amounts for the US Tax Cuts and
    Jobs Act, enacted on December 22, 2017 ("US Tax Reform"). GAAP EPS was
    positively impacted by $0.23 from this US Tax Reform adjustment.
    Non-GAAP income tax expense excluded the aforementioned tax benefit
    relating to US Tax Reform.

SELECTED HIGHLIGHTS FROM THE QUARTER

  • CA Technologies was named a Leader in the Gartner Magic Quadrant for
    Project Portfolio Management for the second consecutive year. (1)(5)
  • CA Technologies was named a Leader in the Gartner Magic Quadrant for
    Full Life Cycle API Management for the sixth consecutive time. (2)(3)(5)
  • CA Technologies was named a Leader in the Gartner Magic Quadrant for
    Enterprise Agile Planning Tools. (4)(5)

SEGMENT INFORMATION

(dollars in millions)   First Quarter FY19 vs. FY18
Revenue   %
Change
  %
Change
CC**
  Operating Margin
FY19*   FY18       FY19*   FY18
Mainframe Solutions $553   $536   3%   1%   67%   65%
Enterprise Solutions $425   $414   3%   1%   14%   8%
Services   $74   $75   (1)%   (3)%   0%   1%

*The manner in which the Company measures and recognizes revenues for
segment reporting was not revised upon adoption of ASC 606. For segment
reporting purposes, the Company follows its previous ASC 605 policies,
which recognizes software license revenue ratably, except for sales of
perpetual licenses on a stand-alone basis, which are recognized at a
point-in-time.

**CC or Constant Currency is a non-GAAP financial measure, as noted in
"Non-GAAP Financial Measures" below. A reconciliation of non-GAAP
financial measures to their comparable GAAP financial measures is
included in the tables following this news release.

CAPITAL STRUCTURE

  • Cash and cash equivalents at June 30, 2018 were $3.328 billion.
  • With $2.780 billion in total debt outstanding and $139 million in
    notional pooling, the Company's net cash position was $409 million.
  • Approximately 48% of the Company's cash and cash equivalents were held
    by foreign subsidiaries outside the United States at June 30, 2018.
  • In the first quarter of fiscal 2019, the Company repurchased 2.3
    million shares of its common stock for $80 million.
  • As of June 30, 2018, the Company was authorized to purchase $407
    million of its common stock under its current stock repurchase
    program. Pursuant to the terms of the merger agreement with Broadcom,
    Inc, the Company may not continue to repurchase shares without
    Broadcom Inc.'s consent.
  • The Company distributed $107 million in dividends to stockholders
    during the first quarter of fiscal 2019.
  • The Company's outstanding share count at June 30, 2018 was
    approximately 413 million.
(1)  

Gartner, Inc., "Magic Quadrant for Project Portfolio
Management, Worldwide," Daniel B. Stang, Matt Light, May 29, 2018.

 
(2)

Gartner, Magic Quadrant for Full Life Cycle API Management, by
Paolo Malinverno and Mark O'Neill. April 30, 2018

 
(3)

In the 2009 & 2011 versions of the report, CA Technologies is
listed as Layer 7 since it acquired Layer 7 in April 2013. This
report was previously titled "Magic Quadrant for Application
Services Governance," "Magic Quadrant for SOA Governance
Technologies," and "Magic Quadrant for Integrated SOA Governance
Technology Sets."

 
(4)

Gartner, Magic Quadrant for Enterprise Agile Planning Tools, by
Keith James Mann, Thomas E. Murphy, Nathan Wilson, and Mike West.
April 23, 2018

 
(5)

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

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

About CA Technologies

CA Technologies (NASDAQ:CA) creates software that fuels transformation
for companies and enables them to seize the opportunities of the
Application Economy. Software is at the heart of every business in every
industry. From planning, to development, to management and security, CA
is working with companies worldwide to change the way we live, transact,
and communicate - across mobile, private and public cloud, distributed
and mainframe environments. Learn more at www.ca.com.

Follow CA Technologies

Non-GAAP Financial Measures

This news release, the accompanying tables and the additional content
that is available on the Company's website include certain financial
measures that exclude the impact of certain items and therefore have not
been calculated in accordance with U.S. generally accepted accounting
principles (GAAP). Non-GAAP metrics for operating expenses, operating
income, operating margin, net income, and diluted earnings per share
exclude the following items: non-cash amortization of purchased
software, internally developed software and other intangible assets;
share-based compensation expense; charges relating to restructuring and
rebalancing initiatives that are large enough to require approval from
the Company's Board of Directors and certain other gains and losses,
which include the gains and losses since inception of hedges that mature
within the quarter, but exclude gains and losses of hedges that do not
mature within the quarter. The effective tax rate on GAAP and non-GAAP
income from operations is the Company's provision for income taxes
expressed as a percentage of pre-tax GAAP and non-GAAP income from
operations, respectively. These tax rates are determined based on an
estimated effective full year tax rate, with the effective tax rate for
GAAP including the impact of discrete items in the period in which such
items arise and the effective tax rate for non-GAAP generally allocating
the impact of discrete items pro rata to the fiscal year's remaining
reporting periods. The non-GAAP effective tax rate is typically equal to
the full year GAAP effective tax rate, therefore no adjustment is
required on an annual basis. However, to minimize certain distortions
that otherwise would have resulted from applying this methodology to the
significant non-recurring impact on the Company's tax expense from
enactment of the US Tax Reform in the third quarter of fiscal 2018, such
impact was recorded as a discrete item in second half of fiscal 2018 and
the first quarter of fiscal 2019 only for purposes of the GAAP effective
tax rate, but excluded from the non-GAAP effective tax rate, which also
yields different full-year effective tax rates for the Company's GAAP
and non-GAAP results in fiscal 2018 and fiscal 2019. Non-GAAP diluted
earnings per share also excludes the impact of the US Tax Reform.
Non-GAAP adjusted cash flow from operations excludes payments associated
with the Board-approved rebalancing initiative, restructuring and other
payments. Non-GAAP free cash flow excludes purchases of property and
equipment. The Company presents constant currency information to provide
a framework for assessing how the Company's underlying businesses
performed excluding the effect of foreign currency rate fluctuations. To
present this information, current and comparative prior period results
for entities reporting in currencies other than U.S. dollars are
converted into U.S. dollars at the exchange rate in effect on the last
day of the Company's prior fiscal year (i.e., March 31, 2018). Constant
currency excludes the impacts from the Company's hedging program. These
non-GAAP financial measures may be different from non-GAAP financial
measures used by other companies. Non-GAAP financial measures should not
be considered as a substitute for, or superior to, measures of financial
performance prepared in accordance with GAAP. By excluding these items,
non-GAAP financial measures facilitate management's internal comparisons
to the Company's historical operating results and cash flows, to
competitors' operating results and cash flows, and to estimates made by
securities analysts. Management uses these non-GAAP financial measures
internally to evaluate its performance and they are key variables in
determining management incentive compensation. The Company believes
these non-GAAP financial measures are useful to investors in allowing
for greater transparency of supplemental information used by management
in its financial and operational decision-making. In addition, the
Company has historically reported similar non-GAAP financial measures to
its investors and believes that the inclusion of comparative numbers
provides consistency in its financial reporting. Investors are
encouraged to review the reconciliation of the non-GAAP financial
measures used in this news release to their most directly comparable
GAAP financial measures, which are attached to this news release.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this release (such as statements containing the
words "believes," "plans," "anticipates," "expects," "estimates,"
"targets" and similar expressions relating to the future) constitute
"forward-looking statements" that are based upon the beliefs of, and
assumptions made by, the Company's management, as well as information
currently available to management. These forward-looking statements
reflect the Company's current views with respect to future events and
are subject to certain risks, uncertainties, and assumptions. A number
of important factors could cause actual results or events to differ
materially from those indicated by such forward-looking statements,
including: the effect of the announcement or pendency of the proposed
acquisition by Broadcom Inc. of the Company (the "Merger") on the
Company's business relationships, operating results and business; the
failure to complete the proposed Merger in a timely manner or at all and
the effects of such failure on the Company's business, financial
condition, operating results and stock price; the limitations on the
Company's ability to pursue alternative transactions pursuant to the
provisions of the merger agreement; 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 execute renewals
within the Company's existing customer base at acceptable renewal rates,
enabling the Company's sales force to expand relationships with the
Company's global customer base and address opportunities with new
customers (for example, in geographic regions where the Company has
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 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 increase sales through digital sales
forces and indirectly through the Company's partners, as well as provide
additional Software as a Service offerings, offer try-and-buy models 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 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
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 sell and
renew license agreement on a satisfactory basis; the failure to expand
partner programs and failure by the Company's partners to leverage their
sales channels to drive revenue growth; the ability to retain and
attract qualified professionals; changes in generally accepted
accounting principles, which includes adoption of revenue recognition
requirements under Accounting Standards Codification Topic 606; the
ability to successfully integrate acquired companies and products into
the Company's existing business; hacking or other cybersecurity attacks
on the Company's data center, network and software products, or 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; 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 the Company's software products; 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; the failure
to effectively execute on the Company's announced restructuring plans;
successful and secure outsourcing of various functions to third parties;
the continued payment of dividends and repurchasing of shares of the
Company's common stock; and other factors described more fully in the
Company's filings with the United States Securities and Exchange
Commission, such as Quarterly Reports on Form 10-Q and Annual Reports on
Form 10-K. 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.

Additional Information and Where to Find It

This communication is being made in respect of the proposed transaction
involving CA, Inc. and Broadcom Inc. In connection with the proposed
transaction, CA intends to file relevant materials with the Securities
and Exchange Commission (the "SEC"), including a proxy statement on
Schedule 14A. Promptly after filing its definitive proxy statement with
the SEC, CA will mail the definitive proxy statement and a proxy card to
each stockholder of CA entitled to vote at the special meeting relating
to the proposed transaction. This communication is not a substitute for
the proxy statement or any other document that CA may file with the SEC
or send to its stockholders in connection with the proposed transaction.
BEFORE MAKING ANY VOTING DECISION, STOCKHOLDERS OF CA ARE URGED TO READ
THESE MATERIALS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND
ANY OTHER RELEVANT DOCUMENTS IN CONNECTION WITH THE PROPOSED TRANSACTION
THAT CA WILL FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY
WILL CONTAIN IMPORTANT INFORMATION ABOUT CA AND THE PROPOSED
TRANSACTION. The definitive proxy statement and other relevant materials
in connection with the proposed transaction (when they become
available), and any other documents filed by CA with the SEC, may be
obtained free of charge at the SEC's website (http://www.sec.gov)
or at CA's website (http://www.ca.com)
or by contacting CA's Investor Relations at traci.tsuchiguchi@ca.com.

Participants in the Solicitation

CA and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from CA's stockholders with
respect to the proposed transaction with Broadcom. Information about
CA's directors and executive officers and their ownership of CA's common
stock is set forth in CA's proxy statement on Schedule 14A filed with
the SEC on June 29, 2018, and CA's Annual Report on Form 10-K for the
fiscal year ended March 31, 2018, which was filed with the SEC on May 9,
2018. Additional information regarding the potential participants, and
their direct or indirect interests in the proposed transaction, by
security holdings or otherwise, will be set forth in the definitive
proxy statement and other materials to be filed with SEC in connection
with the proposed transaction.

Copyright © 2018 CA, Inc. All Rights Reserved. All other trademarks,
trade names, service marks, and logos referenced herein belong to their
respective companies.

Table 1
CA Technologies
Consolidated Statements of Operations
(unaudited)
(in millions, except per share amounts)
     
Three Months Ended
June 30,
2018 2018 2017
Under Under Under
ASC 606 ASC 605 ASC 605
Revenue:
Software licenses and maintenance $ 870 $ 978 $ 950
Professional services   68   74   75
Total revenue $ 938 $ 1,052 $ 1,025
Expenses:
Costs of licensing and maintenance $ 76 $ 76 $ 71
Cost of professional services 70 73 73
Amortization of capitalized software costs 60 60 70
Selling and marketing 235 225 246
General and administrative 104 103 107
Product development and enhancements 162 162 158
Depreciation and amortization of other intangible assets 26 26 26
Other expenses, net (1)   103   108   11
Total expenses before interest and income taxes $ 836 $ 833 $ 762
Income before interest and income taxes $ 102 $ 219 $ 263
Interest expense, net   20   20   25
Income before income taxes $ 82 $ 199 $ 238
Income tax (benefit) expense   (84)   (62)   60
Net income $ 166 $ 261 $ 178
 
Basic income per common share $ 0.40 $ 0.62 $ 0.42
Basic weighted average shares used in computation 413 413 415
 
Diluted income per common share $ 0.40 $ 0.62 $ 0.42
Diluted weighted average shares used in computation 415 415 417
(1)   Other expenses, net for the three months ended June 30, 2018
includes costs associated with the Fiscal 2019 Plan of $114 million.
 
As of April 1, 2018, CA Technologies adopted Accounting Standard
Codification 606 (ASC 606) using the modified retrospective method.
First quarter fiscal 2019 financial results are presented under ASC
606 and under previous accounting standard (ASC 605) for comparison
to prior periods.

Table 2
CA Technologies
Condensed Consolidated Balance Sheets
(in millions)
     
June 30, March 31,
2018 2018 2018
Under Under Under
ASC 606 ASC 605 ASC 605
(unaudited) (unaudited)
Cash and cash equivalents $ 3,328 $ 3,328 $ 3,405
Trade accounts receivable, net 525 523 793
Contract assets 797 - -
Other current assets   112   164   210
Total current assets $ 4,762 $ 4,015 $ 4,408
 
Property and equipment, net 222 222 237
Goodwill 6,792 6,792 6,804
Capitalized software and other intangible assets, net 1,044 1,044 1,111
Deferred income taxes 121 336 346
Contract assets 117 - -
Contract costs 408 - -
Other noncurrent assets, net   128   145   154
Total assets $ 13,594 $ 12,554 $ 13,060
 
Current portion of long-term debt $ 270 $ 270 $ 269
Deferred revenue and advanced payments 1,108 2,070 2,289
Other current liabilities   776   653   763
Total current liabilities $ 2,154 $ 2,993 $ 3,321
 
Long-term debt, net of current portion 2,510 2,510 2,514
Deferred income taxes 179 105 111
Deferred revenue and advanced payments 481 738 820
Other noncurrent liabilities   409   299   399
Total liabilities $ 5,733 $ 6,645 $ 7,165
 
Common stock $ 59 $ 59 $ 59
Additional paid-in capital 3,699 3,699 3,744
Retained earnings 9,134 7,125 6,971
Accumulated other comprehensive loss (440) (383) (290)
Treasury stock   (4,591)   (4,591)   (4,589)
Total stockholders' equity $ 7,861 $ 5,909 $ 5,895
Total liabilities and stockholders' equity $ 13,594 $ 12,554 $ 13,060
As of April 1, 2018, CA Technologies adopted Accounting Standard
Codification 606 (ASC 606) using the modified retrospective method.
First quarter fiscal 2019 financial results are presented under ASC
606 and under previous accounting standard (ASC 605) for comparison
to prior periods.

Table 3
CA Technologies
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions)
 
  Three Months Ended
June 30,
2018   2018   2017
Under Under Under
ASC 606 ASC 605 ASC 605
Operating activities:
Net income $ 166 $ 261 $ 178
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 86 86 96
Deferred income taxes (3 ) (1 ) 5
Provision for bad debts - (1 ) 2
Share-based compensation expense 33 33 32
Other non-cash items 3 3 1
Foreign currency transaction (gains) losses (5 ) 1 1
Changes in other operating assets and liabilities, net of effect of
acquisitions:
Decrease in trade accounts receivable 262 257 308
Increase in contract assets (6 ) - -
Decrease in contract costs 11 - -
Decrease in deferred revenue (148 ) (260 ) (172 )
Decrease in taxes payable, net (179 ) (159 ) (56 )
Increase (decrease) in accounts payable, accrued expenses and other 44 45 (5 )
Decrease in accrued salaries, wages and commissions (36 ) (36 ) (102 )
Changes in other operating assets and liabilities, net   34     33     10  
Net cash provided by operating activities $ 262   $ 262   $ 298  
Investing activities:
Acquisitions of businesses, net of cash acquired, and purchased
software
$ (25 ) $ (25 ) $ (6 )
Purchases of property and equipment   (12 )   (12 )   (12 )
Net cash used in investing activities $ (37 ) $ (37 ) $ (18 )
Financing activities:
Dividends paid $ (107 ) $ (107 ) $ (107 )
Purchases of common stock (80 ) (80 ) -
Notional pooling borrowings (repayments), net 24 24 (18 )
Debt repayments (4 ) (4 ) (5 )
Debt issuance costs - - (3 )
Exercise of common stock options 14 14 1
Payments related to tax withholding for share-based compensation (37 ) (37 ) (31 )
Other financing activities   (9 )   (9 )   (3 )
Net cash used in financing activities (199 ) (199 ) (166 )
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
  (104 )   (104 )   88  
(Decrease) increase in cash, cash equivalents and restricted cash $ (78 ) $ (78 ) $ 202
Cash, cash equivalents and restricted cash at beginning of period   3,407     3,407     2,772  
Cash, cash equivalents and restricted cash at end of period $ 3,329   $ 3,329   $ 2,974  
As of April 1, 2018, CA Technologies adopted Accounting Standard
Codification 606 (ASC 606) using the modified retrospective method.
First quarter fiscal 2019 financial results are presented under ASC
606 and under previous accounting standard (ASC 605) for comparison
to prior periods.

Table 4
CA Technologies
Operating Segments
(unaudited)
(dollars in millions)
   
Three Months Ended
June 30,
2018 2017
Revenue by segment:
Mainframe Solutions $ 553 $ 536
Enterprise Solutions 425 414
Services   74     75
Total segment revenue $ 1,052   $ 1,025
Impact of segment policies that differ from U.S. GAAP (1)   (114 )   -
Total consolidated revenue $ 938   $ 1,025
 
Segment profit:
Mainframe Solutions $ 370 $ 349
Enterprise Solutions 60 33
Services   -     1
Total segment profit $ 430   $ 383
Impact of segment policies that differ from U.S. GAAP (1) (117 ) -
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)  

The manner in which the Company measures and recognizes revenues
and expenses, including commissions, for segment reporting was not
revised upon adoption of ASC 606. For segment reporting purposes,
commissions are expensed in the period earned by the employee.

 
(2) Other expenses, net for the three months ended June 30, 2018
consists 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 consists of costs associated with
certain foreign exchange derivative hedging gains and losses, and
other miscellaneous costs.

Table 5
CA Technologies
Constant Currency Summary
(unaudited)
(dollars in millions)
         
 
Three Months Ended June 30,
2018 2018 2017 % Increase

(Decrease)

in $ US

 

% Increase
(Decrease)
in Constant
Currency (1)

Under Under Under Under Under
ASC 606 ASC 605 ASC 605   ASC 605 ASC 605
 
Revenue:
North America $ 600 $ 697 $ 690 1% 1%
International   338   355   335 6% 1%
Total revenue $ 938 $ 1,052 $ 1,025 3% 1%
 
Revenue:
Software licenses and maintenance $ 870 $ 978 $ 950 3% 1%
Professional services   68   74   75 (1)% (3)%
Total revenue $ 938 $ 1,052 $ 1,025 3% 1%
 
Segment Revenue:
Mainframe solutions $ 440 $ 553 $ 536 3% 1%
Enterprise solutions 430 425 414 3% 1%
Services 68 74 75 (1)% (3)%
 
Total expenses before interest and income taxes:
Total GAAP $ 836 $ 833 $ 762 9% 10%
Total non-GAAP (2) 625 622 642 (3)% (4)%
(1)   Constant currency information is presented to provide a framework
for assessing how the Company's underlying businesses performed
excluding the effect of foreign currency rate fluctuations. To
present this information, current and comparative prior period
results for entities reporting in currencies other than U.S. dollars
are converted into U.S. dollars at the exchange rate in effect on
March 31, 2018, which was the last day of the prior fiscal year.
Constant currency excludes the impacts from the Company's hedging
program.
 
(2) Refer to Table 7 for a reconciliation of total expenses before
interest and income taxes to total non-GAAP operating expenses.
 
Certain non-material differences may arise versus actual from impact
of rounding.
 
As of April 1, 2018, CA Technologies adopted Accounting Standard
Codification 606 (ASC 606) using the modified retrospective method.
First quarter fiscal 2019 financial results are presented under ASC
606 and under previous accounting standard (ASC 605) for comparison
to prior periods.

Table 6
CA Technologies
Reconciliation of Select GAAP Measures to Non-GAAP Measures
(unaudited)
(dollars in millions)
     
Three Months Ended
June 30,
2018 2018 2017
Under Under Under
ASC 606 ASC 605 ASC 605
 
 
GAAP net income $ 166 $ 261 $ 178
GAAP income tax (benefit) expense (84) (62) 60
Interest expense, net   20   20   25
GAAP income before interest and income taxes $ 102 $ 219 $ 263
GAAP operating margin (% of revenue) (1) 11% 21% 26%
 
Non-GAAP adjustments to expenses:
Costs of licensing and maintenance (2) $ 2 $ 2 $ 2
Cost of professional services (2) 1 1 1
Amortization of capitalized software costs (3) 60 60 70
Selling and marketing (2) 10 10 10
General and administrative (2) 12 12 12
Product development and enhancements (2) 8 8 7
Depreciation and amortization of other intangible assets (4) 10 10 10
Other expenses, net (5)   108   108   8
Total Non-GAAP adjustment to operating expenses $ 211 $ 211 $ 120
Non-GAAP income before interest and income taxes $ 313 $ 430 $ 383
Non-GAAP operating margin (% of revenue) (6) 33% 41% 37%
 
Interest expense, net 20 20 25
GAAP income tax (benefit) expense (84) (62) 60
Non-GAAP adjustment to income tax expense (7) 50 54 42
Non-GAAP adjustment US Tax Reform (8)   98   98   -
Non-GAAP income tax expense $ 64 $ 90 $ 102
Non-GAAP net income $ 229 $ 320 $ 256
(1)   GAAP operating margin is calculated by dividing GAAP income before
interest and income taxes by total revenue (refer to Table 1 for
total revenue).
 
(2) Non-GAAP adjustment consists of share-based compensation.
 
(3) For the three month periods ending June 30, 2018 and 2017, non-GAAP
adjustment consists of $55 million and $58 million of purchased
software amortization and $5 million and $12 million of internally
developed software products amortization, respectively.
 
(4) Non-GAAP adjustment consists of other intangibles amortization.
 
(5) Other expenses, net for the three months ended June 30, 2018
consists 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 consists of costs associated with
certain foreign exchange derivative hedging gains and losses, and
other miscellaneous costs.
 
(6) Non-GAAP operating margin is calculated by dividing non-GAAP income
before interest and income taxes by total revenue (refer to Table 1
for total revenue).
 
(7) The full year non-GAAP income tax expense is different from GAAP
income tax expense because of the difference in non-GAAP income
before income taxes. On an interim basis, this difference would also
include a difference in the impact of discrete and permanent items
where for GAAP purposes the effect is recorded in the period such
items arise, but for non-GAAP such items are recorded pro rata to
the fiscal year's remaining reporting periods.
 
(8) The Company's tax expense from enactment of the US Tax Reform in the
third quarter of fiscal 2018 was recorded as a discrete item in
second half of fiscal 2018 and the first quarter of fiscal 2019 only
for purposes of the GAAP income tax expense, and was excluded from
the non-GAAP income tax expense.
 
Refer to the discussion of non-GAAP financial measures included in
the accompanying press release for additional information.
 
Certain non-material differences may arise versus actual from impact
of rounding.
 
As of April 1, 2018, CA Technologies adopted Accounting Standard
Codification 606 (ASC 606) using the modified retrospective method.
First quarter fiscal 2019 financial results are presented under ASC
606 and under previous accounting standard (ASC 605) for comparison
to prior periods.

Table 7
CA Technologies
Reconciliation of GAAP to Non-GAAP
Operating Expenses and Diluted Earnings per Share
(unaudited)
(in millions, except per share amounts)
     
Three Months Ended
June 30,
2018 2018 2017
Under Under Under

Operating Expenses

ASC 606 ASC 605 ASC 605
 
Total expenses before interest and income taxes $ 836 $ 833 $ 762
 
Non-GAAP operating adjustments:
Purchased software amortization 55 55 58
Other intangibles amortization 10 10 10
Internally developed software products amortization 5 5 12
Share-based compensation 33 33 32
Restructuring expense 114 114 -
Other (gains) expenses, net (1)   (6)   (6)   8
Total non-GAAP operating adjustment $ 211 $ 211 $ 120
 
Total non-GAAP operating expenses $ 625 $ 622 $ 642
 
 
Three Months Ended
June 30,
2018 2018 2017
Under Under Under

Diluted EPS

ASC 606 ASC 605 ASC 605
 
GAAP diluted EPS $ 0.40 $ 0.62 $ 0.42
 
Non-GAAP adjustments:
Purchased software amortization 0.13 0.13 0.14
Other intangibles amortization 0.02 0.02 0.02
Internally developed software products amortization 0.01 0.01 0.03
Share-based compensation 0.08 0.08 0.08
Restructuring expense 0.27 0.27 -
Other (gains) expenses, net (1) (0.01) (0.01) 0.02
Tax effect of non-GAAP adjustments (0.09) (0.09) (0.07)
Non-GAAP effective tax rate adjustments (2)   (0.27)   (0.27)   (0.03)
Total non-GAAP adjustment $ 0.14 $ 0.14 $ 0.19
 
Non-GAAP diluted EPS $ 0.54 $ 0.76 $ 0.61
(1)   Other expenses, net consists of costs associated with certain
foreign exchange derivative hedging gains and losses, and other
miscellaneous costs.
 
(2)

The effective tax rate on GAAP and non-GAAP income from operations
is the Company's provision for income taxes expressed as a
percentage of pre-tax GAAP and non-GAAP income from operations,
respectively. These tax rates are determined based on an estimated
effective full year tax rate, with the effective tax rate for GAAP
including the impact of discrete items in the period in which such
items arise and the effective tax rate for non-GAAP allocating the
impact of discrete items pro rata to the fiscal year's remaining
reporting periods. The non-GAAP effective tax rate is typically
equal to the full year GAAP effective tax rate, therefore no
adjustment is required on an annual basis. However, to minimize
certain distortions that otherwise would have resulted from
applying this methodology to the significant non-recurring impact
on the Company's tax expense from enactment of the US Tax Reform
in the third quarter of fiscal 2018, such impact was recorded as a
discrete item in second half of fiscal 2018 and the first quarter
of fiscal 2019 only for purposes of the GAAP effective tax rate,
but excluded from the non-GAAP effective tax rate, which also
yields different full-year effective tax rates for the Company's
GAAP and non-GAAP results in fiscal 2018 and fiscal 2019.

 
Refer to the discussion of non-GAAP financial measures included in
the accompanying press release for additional information.
 
Certain non-material differences may arise versus actual from impact
of rounding.
 
As of April 1, 2018, CA Technologies adopted Accounting Standard
Codification 606 (ASC 606) using the modified retrospective method.
First quarter fiscal 2019 financial results are presented under ASC
606 and under previous accounting standard (ASC 605) for comparison
to prior periods.

Table 8
CA Technologies
Effective Tax Rate Reconciliation
GAAP and Non-GAAP
(unaudited)
(dollars in millions)
   
Three Months Ended
June 30, 2018
Under Under
ASC 606 ASC 606

GAAP

Non-GAAP

 
Income before interest and income taxes (1) $ 102 $ 313
Interest expense, net   20   20
Income before income taxes $ 82 $ 293
 
Statutory tax rate 21.00% 21.00%
 
Tax at statutory rate $ 17 $ 62
Adjustments for discrete and permanent items (2) (101) (96)
US Tax Reform Adjustment (2)   -   98
Total tax (benefit) expense $ (84) $ 64
 
Effective tax rate (2) (102.44)% 21.84%
 
Three Months Ended
June 30, 2018
Under Under
ASC 605 ASC 605

GAAP

Non-GAAP

 
Income before interest and income taxes (1) $ 219 $ 430
Interest expense, net   20   20
Income before income taxes $ 199 $ 410
 
Statutory tax rate 21.00% 21.00%
 
Tax at statutory rate $ 42 $ 86
Adjustments for discrete and permanent items (2) (104) (94)
US Tax Reform Adjustment (2)   -   98
Total tax (benefit) expense $ (62) $ 90
 
Effective tax rate (2) (31.16)% 21.95%
 
Three Months Ended
June 30, 2017
Under Under
ASC 605 ASC 605

GAAP

Non-GAAP

 
Income before interest and income taxes (1) $ 263 $ 383
Interest expense, net   25   25
Income before income taxes $ 238 $ 358
 
Statutory tax rate 35.00% 35.00%
 
Tax at statutory rate $ 83 $ 125
Adjustments for discrete and permanent items (2)   (23)   (23)
Total tax expense $ 60 $ 102
 
Effective tax rate (2) 25.21% 28.49%
(1)   Refer to Table 6 for a reconciliation of income before interest and
income taxes on a GAAP basis to income before interest and income
taxes on a non-GAAP basis.
 
(2) The effective tax rate on GAAP and non-GAAP income from operations
is the Company's provision for income taxes expressed as a
percentage of pre-tax GAAP and non-GAAP income from operations,
respectively. These tax rates are determined based on an estimated
effective full year tax rate, with the effective tax rate for GAAP
including the impact of discrete items in the period in which such
items arise and the effective tax rate for non-GAAP allocating the
impact of discrete items pro rata to the fiscal year's remaining
reporting periods. The non-GAAP effective tax rate is typically
equal to the full year GAAP effective tax rate, therefore no
adjustment is required on an annual basis. However, to minimize
certain distortions that otherwise would have resulted from applying
this methodology to the significant non-recurring impact on the
Company's tax expense from enactment of the US Tax Reform in the
third quarter of fiscal 2018, such impact was recorded as a discrete
item in second half of fiscal 2018 and the first quarter of fiscal
2019 only for purposes of the GAAP effective tax rate, but excluded
from the non-GAAP effective tax rate, which also yields different
full-year effective tax rates for the Company's GAAP and non-GAAP
results in fiscal 2018 and fiscal 2019.
 
Refer to the discussion of non-GAAP financial measures included in
the accompanying press release for additional information.
 
Certain non-material differences may arise versus actual from impact
of rounding.
 
As of April 1, 2018, CA Technologies adopted Accounting Standard
Codification 606 (ASC 606) using the modified retrospective method.
First quarter fiscal 2019 financial results are presented under ASC
606 and under previous accounting standard (ASC 605) for comparison
to prior periods.

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