Summary of CA, INC. - Yahoo! Finance

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statement
This Quarterly Report on Form 10-Q (Form 10-Q) contains certain forward-looking information relating to CA, Inc. (the "Company," "Registrant," "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 "anticipate," "believe," "estimate," "expect" and similar expressions are intended to identify forward-looking information. Such information includes, for example, the statements made in this Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A), but also appears 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.
A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements, including:
given the global nature of our business, economic factors or political events beyond our control and other business risks associated with non-U.S. operations can affect our business in unpredictable ways; general economic conditions, including concerns regarding a global recession and credit constraints, or unfavorable economic conditions in a particular region, business or industry sector, may lead our customers to delay or forgo technology investments and could have other impacts, any of which could adversely affect our business, financial condition, operating results and cash flow; changes to the compensation of our sales organization could materially adversely affect our business, financial condition, operating results and cash flow; failure to expand our channel partner programs related to the sale of CA solutions may result in lost sales opportunities, increases in expenses and weakening in our competitive position; if we do not adequately manage and evolve our financial reporting and managerial systems and processes, including the successful implementation of our enterprise resource planning software, our ability to manage and grow our business may be harmed; we may encounter difficulties in successfully integrating companies and products that we have acquired or may acquire into our existing business and, therefore, such failed integration could materially adversely affect our infrastructure, market presence, or results of operations; we are subject to intense competition in product and service offerings and pricing, and we expect to face increased competition in the future, which could either diminish demand for or inhibit growth of our products and, therefore, reduce our sales, revenue and market presence; our business may suffer if we are not able to retain and attract qualified personnel, including key managerial, technical, marketing and sales personnel; failure to adapt to technological change in a timely manner could materially adversely affect our business; if our products do not remain compatible with ever-changing operating environments we could lose customers and the demand for our products and services could decrease, which could materially adversely affect our business, financial condition, operating results and cash flow; certain software that we use in our products is licensed from third parties and thus may not be available to us in the future, which has the potential to delay product development and production and, therefore, could materially adversely affect our business, financial condition, operating results and cash flow; certain software we use is from open source code sources, which, under certain circumstances, may lead to unintended consequences and, therefore, could materially adversely affect our business, financial condition, operating results and cash flow; discovery of errors in our software could materially adversely affect our revenue and earnings and subject us to product liability claims, which may be costly and time consuming; we have a significant amount of debt; changes in market conditions or our ratings could increase our interest costs and adversely affect the cost of refinancing our debt and our ability to refinance our debt, which could materially adversely affect our business, financial condition, operating results and cash flow; failure to protect our intellectual property rights and source code would weaken our competitive position; the number, terms and duration of our license agreements as well as the timing of orders from our customers and channel partners, may cause fluctuations in some of our key financial metrics, which may affect our quarterly financial results; we may become dependent upon large transactions, and the failure to close such transactions on a satisfactory basis could materially adversely affect our business, financial condition, operating results and cash flow; our sales to government clients subject us to risks, including early termination, audits, investigations, sanctions and penalties; our customers' data centers and IT environments may be subject to hacking or other breaches, harming the market perception of the

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Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS effectiveness of our product; our software products, data centers and IT environments may be subject to hacking or other breaches, harming the market perception of the effectiveness of our products; the use of third party microcode could negatively affect our product development; we may lose access to third-party operating systems, which could materially adversely affect future product development; third parties could claim that our products infringe their intellectual property rights or that we owe royalty payments, which could result in significant litigation expense or settlement with unfavorable terms, which could materially adversely affect our business, financial condition, operating results and cash flow; fluctuations in foreign currencies could result in translation losses; any failure by us to execute our restructuring plans and related sales model changes successfully could result in total costs that are greater than expected or revenues that are less than anticipated; we have outsourced various functions to third parties and these arrangements may not be successful, thereby resulting in increased costs, or may adversely affect service levels and our public reporting; potential tax liabilities may materially adversely affect our results; and these factors and the other factors described more fully in our filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties occur, or should our assumptions prove incorrect, actual results may vary materially from those described in this Form 10-Q as anticipated, believed, estimated, or expected. 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 that speak only as of the date hereof. This MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements. References in this Form 10-Q to fiscal 2010 and fiscal 2009 are to our fiscal years ended on March 31, 2010 and 2009, respectively.
OVERVIEW
CA, Inc. is the world's leading independent information technology (IT) management software company. We help organizations manage IT to become lean and more productive (Lean IT), which can help them better compete, innovate and grow. We develop and deliver software that makes it easier for organizations to manage IT throughout complex computing environments. With our vision for Enterprise IT Management (EITM) and our expertise, organizations can more effectively govern, manage and secure the services IT delivers to their businesses to reduce costs and risks, improve service and ensure IT is integrated with their businesses.
We address the entire computing environment, which includes all of the people, information, processes, systems, networks, applications and databases from a Web service to the mainframe to a virtualized "cloud", regardless of the hardware or software customers are using. We serve the majority of the Forbes Global 2000 companies, who rely on our software, in part, to manage mission-critical aspects of their businesses. We have a broad portfolio of software products and services that address our customers' needs for mainframe and distributed environments, spanning IT governance, IT management and IT security. Key focus areas include:
infrastructure management, project and portfolio management, security management, service management, application performance management, and data center automation and virtualization.
For further discussion of our business and business model, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2009 (the 2009 Form 10-K). For further discussion of our Critical Accounting Policies and Business Practices, see "Critical Accounting Policies and Business Practices."

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Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS QUARTERLY UPDATE
• In April 2009, CA rolled out 13 new and enhanced EITM products, aimed at helping CIOs achieve Lean IT. The launch included products across our entire portfolio from network and infrastructure management to application performance management, from security and compliance management to project and portfolio management.

• In June 2009, CA announced the acquisition of data center automation and policy-based optimization assets from Cassatt Corporation, a provider of innovative cloud computing software that makes data centers more efficient.

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Item 2:
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS
PERFORMANCE INDICATORS
Management uses several quantitative performance indicators to assess our
financial results and condition. Following is a summary of the principal
quantitative performance indicators that management uses to review performance:

                                                         Three Months
                                                        Ended June 30,                                 Percent
                                                  2009                2008              Change         Change
                                                                 (as adjusted)
                                                                    (dollars in millions)
Total revenue                                   $ 1,050          $      1,087          $  (37 )           (3 )%
Subscription and maintenance revenue            $   946          $        965          $  (19 )           (2 )%
Net income (1)                                  $   195          $        196          $   (1 )           (1 )%
Cash provided by operating activities           $   262          $         54          $  208            385 %
Total bookings                                  $ 1,198          $      1,030          $  168             16 %
Subscription and maintenance bookings           $ 1,090          $        918          $  172             19 %
Weighted average subscription and
maintenance license agreement duration in
years                                              4.21                  3.37            0.84             25 %
Annualized subscription and maintenance
bookings                                        $   259          $        272          $  (13 )           (5 )%



                                                                                      Change                               Change
                                             June 30,            March 31,             From           June 30,           From Prior
                                               2009                2009              Year End           2008            Year Quarter
                                                               (as adjusted)
                                                                                  (in millions)
Cash, cash equivalents and marketable
securities(2)                                $ 2,979           $      2,713           $  266          $ 2,411           $       568
Total debt (1)                               $ 1,919           $      1,908           $   11          $ 2,170           $      (251 )

Total expected future cash collections
from committed contracts(3)                  $ 5,036           $      4,914           $  122          $ 4,292           $       744
Total revenue backlog                        $ 7,723           $      7,378           $  345          $ 6,826           $       897

(1) Adjusted for the adoption of FSP APB 14-1. Refer to Note A "Basis of Presentation" for additional information.

(2) Marketable securities were less than $1 million as of June 30, 2009, March 31, 2009 and June 30, 2008.

(3) 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, billings backlog and revenue backlog.

Analyses of our performance indicators, including general trends, can be found in the "Results of Operations" and "Liquidity and Capital Resources" sections of this MD&A.
Subscription and Maintenance Revenue - Subscription and maintenance revenue is the amount of revenue recognized ratably during the reporting period from both:
(i) subscription license agreements that were in effect during the period, generally including maintenance that is bundled with and not separately identifiable from software usage fees or product sales, and (ii) maintenance agreements associated with providing customer technical support and access to software fixes and upgrades that are separately identifiable from software usage fees or product sales. These amounts include the sale of products directly by us, as well as by distributors, resellers and value-added resellers to end-users, where the contracts incorporate the right for end-users to receive unspecified future software products and other contracts entered into in close proximity or contemplation of such agreements.

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Total Bookings - Total bookings includes the incremental value of all subscription, maintenance and professional service contracts and software fees and other contracts entered into during the reporting 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 directly by us, as well as indirectly by distributors, resellers and value-added resellers to end-users, where the contracts incorporate the right for end-users to receive unspecified future software products and other contracts without these rights entered into in close proximity or contemplation of such agreements. These amounts are expected to be recognized ratably as subscription and maintenance revenue over the applicable term of the agreement. Subscription and maintenance bookings excludes the value associated with certain perpetual based licenses, license-only indirect sales, and professional services arrangements.
The license and maintenance agreements that contribute to subscription and maintenance bookings represent binding payment commitments by customers over periods that range generally from three to five years, although in certain cases customer commitments can be for longer or shorter periods. The amount of new subscription and maintenance bookings recorded in a period is affected by the volume and value of contracts renewed during that period. Our subscription and maintenance bookings typically increase in each consecutive quarter during a fiscal year, with the first quarter being the least and the fourth quarter being the most. However, subscription and maintenance bookings may not always follow the pattern of increasing in consecutive quarters during a fiscal year, and the quarter to quarter differences in subscription and maintenance bookings may vary. Additionally, period-to-period changes in subscription and maintenance bookings do not necessarily correlate to changes in billings or 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.
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 license agreements executed during a period, weighted by the total contract value of each individual agreement.
Annualized Subscription and Maintenance Bookings - Annualized subscription and maintenance bookings is an indicator that normalizes the bookings recorded in the current period as compared with the same metric in the prior 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 of all such license and maintenance 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 associated with balances yet to be billed under subscription and maintenance and software fees and other agreements. Amounts are classified as current or non-current depending on when they are expected to be earned and therefore recognized as revenue. 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. "Deferred revenue (billed or collected)" is composed of: (i) amounts received from customers in advance of revenue recognition, (ii) amounts billed but not collected for which revenue has not yet been earned, and (iii) amounts received in advance of revenue recognition from financial institutions where we have transferred our

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interest in committed installments (referred to as "Financing obligations" in the Deferred Revenue table in Note A, "Basis of Presentation" in the Notes to the Condensed Consolidated Financial Statements).

RESULTS OF OPERATIONS
The following table presents changes in the line items on our Condensed
Consolidated Statement of Operations for the three-month periods ended June 30,
2009 and 2008 measured by Dollar Change, Percentage of Dollar Change, and
Percentage of Total Revenue. These comparisons of past financial results are not
necessarily indicative of future results.

                                                              Three Months Ended June 30,
                                                                               Percentage            Percentage
                                                                  Dollar           of                    of
                                                                  Change         Dollar                Total
                                                                   2009/         Change               Revenue
                                      2009         2008 (1)        2008         2009/2008        2009         2008
                                                            (dollars in millions)
Revenue
Subscription and maintenance
revenue                             $   946        $   965        $ (19 )           (2 )%          90 %         89 %
Professional services                    71             93          (22 )          (24 )            7            9
Software fees and other                  33             29            4             14              3            2

Total revenue                       $ 1,050        $ 1,087        $ (37 )           (3 )%         100 %        100 %

Expenses
Costs of licensing and
maintenance                         $    66        $    75        $  (9 )          (12 )%           6 %          7 %
Costs of professional
services                                 67             79          (12 )          (15 )            6            7
Amortization of capitalized
software costs                           34             31            3             10              3            3
Selling and marketing                   281            297          (16 )           (5 )           27           27
General and administrative              110            122          (12 )          (10 )           10           11
Product development and
enhancements                            119            123           (4 )           (3 )           11           11
Depreciation and amortization
of other intangible assets               39             36            3              8              4            3
Other expenses, net                       7             12           (5 )          (42 )            1            1
Restructuring and other                   2              4           (2 )          (50 )            -            -

Total expenses before
interest and income taxes               725            779          (54 )           (7 )           69           72

Income before interest and
income taxes                            325            308           17              6             31           28 %
Interest expense, net                    17             11            6             55              2            1

Income before income taxes              308            297           11              4             29           27
Income tax expense                      113            101           12             12             11            9

Net income                          $   195        $   196        $  (1 )           (1 )%          19 %         18 %

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

(1) Adjusted for the adoption of FSP APB 14-1. Refer to Note A "Basis of Presentation" for additional information.

Bookings
Total Bookings
For the three months ended June 30, 2009 and 2008, total bookings were $1,198 million and $1,030 million, respectively. The increase in bookings was mainly attributable to the increase in Subscription and Maintenance bookings, as described further below.
Subscription and Maintenance Bookings
For the three months ended June 30, 2009 and 2008, we added subscription and maintenance bookings of $1,090 million and $918 million, respectively. The increase in subscription and maintenance bookings for the three-month period was primarily attributable to the length and dollar amounts of large contracts entered into

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during the first quarter of fiscal 2010 compared with the first quarter of fiscal 2009, partially offset by an unfavorable foreign exchange affect of $35 million. During the first quarter of fiscal 2010, we renewed a total of 13 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $634 million. During the first quarter of fiscal 2009, we renewed 13 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $371 million.
For the three-month period ended June 30, 2009, annualized subscription and maintenance bookings decreased $13 million from the prior year period to $259 million. The weighted average subscription and maintenance duration in years increased to 4.21 from 3.37 in the prior year period. This increase was primarily attributable to the execution of several contract extensions with terms greater than four and one half years, four of which had a combined contract value of approximately $521 million. Three of these four contracts were with managed service providers, who traditionally extend contracts for longer than average lengths. Although each contract is subject to terms negotiated by the respective parties, management does not currently expect the duration of contracts to increase materially beyond historical levels. Revenue
Total Revenue
As more fully described below, the decrease in total revenue in the first quarter of fiscal 2010 compared with the first quarter of fiscal 2009 was due to an unfavorable foreign exchange impact of $75 million and lower professional services revenues partially offset by higher subscription and maintenance revenues.
Price changes do not have a material impact on revenue in a given period as a result of our ratable subscription model. Subscription and Maintenance Revenue
The decrease in subscription and maintenance revenue for the three month period ended June 30, 2009 as compared with the prior year period was due to a $67 million negative effect from foreign exchange. Excluding foreign exchange, subscription and maintenance revenue increased by $48 million primarily due to an increase in the annual value of existing customer contracts. Professional Services
Professional services revenue decreased in the first quarter of fiscal 2010, as compared with the same period in fiscal 2009, primarily due to revenue decreases from customer delays in signing professional service contracts due to the difficult environment. Professional services also had an unfavorable foreign exchange effect of $7 million.
Software Fees and Other
Software fees and other revenue primarily consists of revenue that is recognized on an up-front basis as required by SOP 97-2. This includes revenue generated through transactions with distribution and original equipment manufacturer channel partners (sometimes referred to as our "indirect" or "channel" revenue) and certain revenue associated with new or acquired products sold on an up-front basis. Also included is financing fee revenue, which results from the discounting of product sales recognized on an up-front basis with extended payment terms to present value. Revenue recognized on an up-front basis results in higher revenue for the current period than if the same revenue had been recognized ratably under our subscription model.

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