CA Technologies
CA, INC. (Form: 10-Q, Received: 07/27/2012 16:18:57)
Table of Contents

 

 

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 June 30, 2012

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission File Number 1-9247

 

 

CA, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   13-2857434

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

One CA Plaza

Islandia, New York

  11749
(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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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   ¨

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 July 20, 2012
par value $0.10 per share   469,040,589

 

 

 


Table of Contents

CA, INC. AND SUBSIDIARIES

INDEX

 

         Page  
PART I.   Financial Information   
  Report of Independent Registered Public Accounting Firm      1   
Item 1.   Unaudited Condensed Consolidated Financial Statements      2   
  Condensed Consolidated Balance Sheets – June 30, 2012 and March 31, 2012      2   
  Condensed Consolidated Statements of Operations – Three Months Ended June 30, 2012 and 2011      3   
  Condensed Consolidated Statements of Comprehensive Income – Three Months Ended June 30, 2012 and 2011      4   
  Condensed Consolidated Statements of Cash Flows – Three Months Ended June 30, 2012 and 2011      5   
  Notes to the Condensed Consolidated Financial Statements      6   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      21   
  Overview      22   
  Executive Summary      23   
  Performance Indicators      25   
  Results of Operations      28   
  Liquidity and Capital Resources      34   
  Critical Accounting Policies and Business Practices      38   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      39   
Item 4.   Controls and Procedures      39   
PART II.   Other Information   
Item 1.   Legal Proceedings      39   
Item 1A.   Risk Factors      39   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      40   
Item 3.   Defaults Upon Senior Securities      40   
Item 4.   Mine Safety Disclosures      40   
Item 5.   Other Information      40   
Item 6.   Exhibits      41   
  Signatures      42   


Table of Contents

PART I. FINANCIAL INFORMATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

CA, Inc.:

We have reviewed the condensed consolidated balance sheet of CA, Inc. and subsidiaries as of June 30, 2012, and the related condensed consolidated statements of operations and cash flows for the three-month periods ended June 30, 2012 and 2011. These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of 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 Public Company Accounting Oversight Board (United States), 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.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of CA, Inc. and subsidiaries as of March 31, 2012, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated May 11, 2012, 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, 2012, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

New York, New York

July 27, 2012

 

1


Table of Contents

Item 1.

CA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)

 

     June 30,
2012
    March 31,
2012
 
     (unaudited)        

ASSETS

    

CURRENT ASSETS

    

Cash and cash equivalents

   $ 2,541      $ 2,679   

Trade accounts receivable, net

     491        902   

Deferred income taxes

     236        231   

Other current assets

     151        153   
  

 

 

   

 

 

 

TOTAL CURRENT ASSETS

   $ 3,419      $ 3,965   

Property and equipment, net of accumulated depreciation of $720 and $707, respectively

   $ 363      $ 386   

Goodwill

     5,855        5,856   

Capitalized software and other intangible assets, net

     1,348        1,389   

Deferred income taxes

     127        151   

Other noncurrent assets, net

     247        250   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 11,359      $ 11,997   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

CURRENT LIABILITIES

    

Current portion of long-term debt

   $ 15      $ 14   

Accounts payable

     95        95   

Accrued salaries, wages and commissions

     206        350   

Accrued expenses and other current liabilities

     419        444   

Deferred revenue (billed or collected)

     2,313        2,658   

Taxes payable, other than income taxes payable

     33        80   

Federal, state and foreign income taxes payable

     59        96   

Deferred income taxes

     14        14   
  

 

 

   

 

 

 

TOTAL CURRENT LIABILITIES

   $ 3,154      $ 3,751   

Long-term debt, net of current portion

   $ 1,283      $ 1,287   

Federal, state and foreign income taxes payable

     450        430   

Deferred income taxes

     43        44   

Deferred revenue (billed or collected)

     882        972   

Other noncurrent liabilities

     110        116   
  

 

 

   

 

 

 

TOTAL LIABILITIES

   $ 5,922      $ 6,600   
  

 

 

   

 

 

 

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; 463,158,153 and 466,183,134 shares outstanding, respectively

     59        59   

Additional paid-in capital

     3,555        3,491   

Retained earnings

     4,986        4,865   

Accumulated other comprehensive loss

     (134     (108

Treasury stock, at cost, 126,536,928 and 123,511,947 shares, respectively

     (3,029     (2,910
  

 

 

   

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

   $ 5,437      $ 5,397   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 11,359      $ 11,997   
  

 

 

   

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

 

2


Table of Contents

CA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in millions, except per share amounts)

 

     For the Three
Months Ended
June 30,
 
     2012     2011  

REVENUE

    

Subscription and maintenance revenue

   $ 977      $ 1,007   

Professional services

     91        90   

Software fees and other

     77        66   
  

 

 

   

 

 

 

TOTAL REVENUE

   $ 1,145      $ 1,163   
  

 

 

   

 

 

 

EXPENSES

    

Costs of licensing and maintenance

   $ 69      $ 67   

Cost of professional services

     86        88   

Amortization of capitalized software costs

     64        50   

Selling and marketing

     305        326   

General and administrative

     110        114   

Product development and enhancements

     125        118   

Depreciation and amortization of other intangible assets

     41        47   

Other (gains) expenses, net

     (36     11   
  

 

 

   

 

 

 

TOTAL EXPENSES BEFORE INTEREST AND INCOME TAXES

   $ 764      $ 821   
  

 

 

   

 

 

 

Income from continuing operations before interest and income taxes

   $ 381      $ 342   

Interest expense, net

     11        9   
  

 

 

   

 

 

 

Income from continuing operations before income taxes

   $ 370      $ 333   

Income tax expense

     130        105   
  

 

 

   

 

 

 

INCOME FROM CONTINUING OPERATIONS

   $ 240      $ 228   

Income from discontinued operations, net of income taxes

     —          13   
  

 

 

   

 

 

 

NET INCOME

   $ 240      $ 241   
  

 

 

   

 

 

 

BASIC INCOME PER SHARE

    

Income from continuing operations

   $ 0.51      $ 0.45   

Income from discontinued operations

     —          0.03   
  

 

 

   

 

 

 

Net income

   $ 0.51      $ 0.48   
  

 

 

   

 

 

 

Basic weighted average shares used in computation

     465        500   

DILUTED INCOME PER SHARE

    

Income from continuing operations

   $ 0.51      $ 0.45   

Income from discontinued operations

     —          0.02   
  

 

 

   

 

 

 

Net income

   $ 0.51      $ 0.47   
  

 

 

   

 

 

 

Diluted weighted average shares used in computation

     467        501   

See accompanying Notes to the Condensed Consolidated Financial Statements

 

3


Table of Contents

CA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(in millions)

 

     For the Three
Months Ended
June 30,
 
     2012     2011  

Net income

   $ 240      $ 241   

OTHER COMPREHENSIVE (LOSS)/INCOME

    

Foreign currency translation adjustments

   $ (26   $ 17   
  

 

 

   

 

 

 

TOTAL OTHER COMPREHENSIVE INCOME

   $ (26   $ 17   
  

 

 

   

 

 

 

COMPREHENSIVE INCOME

   $ 214      $ 258   
  

 

 

   

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

 

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Table of Contents

CA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)

 

    For the Three Months
Ended June 30,
 
    2012     2011  

OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:

   

Net income

  $ 240      $ 241   

Income from discontinued operations

    —          (13
 

 

 

   

 

 

 

Income from continuing operations

  $ 240      $ 228   

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:

   

Depreciation and amortization

    105        97   

Provision for deferred income taxes

    25        71   

Provision for bad debts

    1        —     

Share-based compensation expense

    23        25   

Asset impairments and other non-cash items

    1        2   

Foreign currency transaction losses

    12        2   

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

   

Decrease in trade accounts receivable

    398        274   

Decrease in deferred revenue

    (394     (214

Decrease in taxes payable, net

    (93     (241

Increase (decrease) in accounts payable, accrued expenses and other

    18        (6

Decrease in accrued salaries, wages and commissions

    (141     (84

Changes in other operating assets and liabilities

    (12     (11
 

 

 

   

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES – CONTINUING OPERATIONS

  $ 183      $ 143   

INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:

   

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

  $ (5   $ (29

Purchases of property and equipment

    (22     (19

Capitalized software development costs

    (36     (50

Purchases of marketable securities

    —          (37

Proceeds from the sale of marketable securities

    —          18   

Maturities of marketable securities

    —          11   

Other investing activities

    2        (1
 

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES – CONTINUING OPERATIONS

  $ (61   $ (107

FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:

   

Dividends paid

  $ (119   $ (25

Purchases of common stock

    (86     (153

Debt borrowings

    253        154   

Debt repayments

    (248     (338

Exercise of common stock options and other

    17        9   
 

 

 

   

 

 

 

NET CASH USED IN FINANCING ACTIVITIES – CONTINUING OPERATIONS

  $ (183   $ (353

Effect of exchange rate changes on cash

  $ (77   $ 37   
 

 

 

   

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS – CONTINUING OPERATIONS

  $ (138   $ (280

CASH USED IN OPERATING ACTIVITIES – DISCONTINUED OPERATIONS

  $ —        $ (12

CASH PROVIDED BY INVESTING ACTIVITIES – DISCONTINUED OPERATIONS

    —          4   
 

 

 

   

 

 

 

NET EFFECT OF DISCONTINUED OPERATIONS ON CASH AND CASH EQUIVALENTS

  $ —        $ (8
 

 

 

   

 

 

 

DECREASE IN CASH AND CASH EQUIVALENTS

  $ (138   $ (288

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

  $ 2,679      $ 3,049   
 

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 2,541      $ 2,761   
 

 

 

   

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

 

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Table of Contents

CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – ACCOUNTING POLICIES

Basis of Presentation: The accompanying unaudited Condensed Consolidated Financial Statements of CA, Inc. (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 with the instructions to Rule 10-01 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. For further information, refer to 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, 2012 (2012 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 months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2013.

Divestitures: In June 2011, the Company sold its Internet Security business. The results of operations for this business and the related gain on disposal have been presented as discontinued operations in the accompanying Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2011. See Note B, “Divestitures,” for additional information.

Cash and Cash Equivalents: The Company’s cash and cash equivalents are held in numerous locations throughout the world, with approximately 64% being held by the Company’s foreign subsidiaries outside the United States at June 30, 2012.

Fair Value Measurements: Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants. The Company is required to classify certain assets and liabilities based on the following fair value hierarchy:

 

   

Level 1: Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

 

   

Level 2: Quoted prices for identical assets and liabilities in markets that are not active, or quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and

 

   

Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

See Note H, “Fair Value Measurements,” for additional information.

Deferred Revenue (Billed or Collected): The Company accounts for unearned revenue on billed amounts due from customers on a gross basis. Unearned revenue on billed installments (collected or uncollected) is reported as deferred revenue in the liability section of the Company’s Condensed Consolidated Balance Sheets. Deferred revenue (billed or collected) excludes unbilled contractual commitments executed under license and maintenance agreements that will be billed in future periods.

Statements of Cash Flows: For the three months ended June 30, 2012 and 2011, interest payments, net were approximately $26 million and $25 million, respectively, and income taxes paid were approximately $125 million and $198 million, respectively. For the three months ended June 30, 2012 and 2011, the excess tax benefits from options exercised included in financing activities from continuing operations were approximately $5 million and $3 million, respectively.

Non-cash financing activities for the three months ended June 30, 2012 and 2011 consisted of treasury shares issued in connection with the following: share-based incentive awards granted under the Company’s equity compensation plans of approximately $57 million (net of approximately $30 million of taxes withheld) and $51 million (net of approximately $25 million of taxes withheld), respectively; and discretionary stock contributions to the CA, Inc. Savings Harvest Plan of approximately $29 million and $13 million, respectively.

 

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Table of Contents

CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company uses a notional pooling arrangement with an international bank to help manage global liquidity requirements. 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 the bank 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 cash pooling arrangement for the three months ended June 30, 2012 was as follows:

 

(in millions)       

Total borrowing position outstanding at March 31, 2012 (1)

   $ 139   

Borrowings

     253   

Repayments

     (247

Foreign currency exchange effect

     (5
  

 

 

 

Total borrowing position outstanding at June 30, 2012 (1)

   $ 140   
  

 

 

 

 

(1)  

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

For the three months ended June 30, 2011, borrowings and repayments related to the notional pooling arrangement were approximately $154 million and $86 million, respectively, and are presented within the financing activities section of the Condensed Consolidated Statements of Cash Flows.

Other Matters: As part of the Company’s efforts to more fully utilize its intellectual property assets, in the first quarter of fiscal 2013, the Company closed a transaction that assigned the rights to certain of these assets to a large technology company for $35 million. The entire contract amount is included in the “Other (gains) expenses, net” line of the Company’s Condensed Consolidated Statement of Operations for the three months ended June 30, 2012. The Company will continue to have the ability to use these intellectual property assets in current and future product offerings.

New Accounting Pronouncements Recently Adopted:  In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220) — Presentation of Comprehensive Income (ASU 2011-05), requiring an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. The Company has adopted ASU 2011-05 for the three months ended June 30, 2012 by including the required disclosures in two separate but consecutive statements.

 

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Table of Contents

CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE B – DIVESTITURES

In June 2011, the Company sold its Internet Security business for approximately $14 million and recognized a gain on disposal of approximately $23 million, including tax expense of approximately $18 million.

The income from discontinued components for the sale of the Company’s Internet Security business, which occurred during the first quarter of fiscal 2012, consisted of the following:

 

     Three Months Ended
June 30, 2011
 
     (in millions)  

Subscription and maintenance revenue

   $ 15   
  

 

 

 

Total revenue

   $ 15   
  

 

 

 

Loss from operations of discontinued components, net of tax benefit of $6 million

   $ (10

Gain on disposal of discontinued components, net of taxes

     23   
  

 

 

 

Income from discontinued operations, net of taxes

   $ 13   
  

 

 

 

 

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Table of Contents

CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE C – SEVERANCE AND EXIT COSTS

Fiscal year 2012 workforce reduction : The fiscal year 2012 workforce reduction plan (Fiscal 2012 Plan) was announced in July 2011 and consisted of a workforce reduction of approximately 400 positions. This action is part of the Company’s efforts to reallocate resources and divest non-strategic parts of the business. The total amount incurred for severance under the Fiscal 2012 Plan was $39 million. Actions under the Fiscal 2012 Plan were substantially completed by the end of fiscal year 2012.

Fiscal year 2010 restructuring plan : The fiscal year 2010 restructuring plan (Fiscal 2010 Plan) was announced in March 2010 and consisted of a workforce reduction of approximately 1,000 positions and global facilities consolidations. These actions were intended to better align the Company’s cost structure with the skills and resources required to more effectively pursue opportunities in the marketplace and execute the Company’s long-term growth strategy. The total amounts incurred for severance and facilities abandonment under the Fiscal 2010 Plan were $43 million and $2 million, respectively. Actions under the Fiscal 2010 Plan were substantially completed by the end of fiscal year 2011.

Fiscal year 2007 restructuring plan: In August 2006, the Company announced the fiscal year 2007 restructuring plan (Fiscal 2007 Plan) to significantly improve the Company’s expense structure and increase its competitiveness. The Fiscal 2007 Plan consisted of a workforce reduction of approximately 3,100 employees, global facilities consolidations and other cost reductions. The total amounts incurred for severance and facilities abandonment under the Fiscal 2007 Plan were $220 million and $121 million, respectively. Actions under the Fiscal 2007 Plan were substantially completed by the end of fiscal year 2010.

Accrued severance and exit costs and changes in the accruals during the three months ended June 30, 2012 and 2011 associated with the Fiscal 2012, Fiscal 2010 and Fiscal 2007 Plans were as follows:

 

(in millions)

   Accrued
Balance at
March 31,
2012
     Expense      Change
in
Estimate
    Payments     Accretion
and Other
    Accrued
Balance at
June 30,
2012
 

Severance

   $ 13       $ —         $ (3   $ (5   $ —        $ 5   

Facilities Abandonment

     40         —           —          (3     (1     36   
  

 

 

             

 

 

 

Total Accrued Liabilities

   $ 53                $ 41   
  

 

 

             

 

 

 

 

(in millions)

   Accrued
Balance at
March 31,
2011
     Expense      Change
in
Estimate
    Payments     Accretion
and Other
     Accrued
Balance at
June 30,
2011
 

Severance

   $ 8       $ —         $ (1   $ (2   $ —         $ 5   

Facilities Abandonment

     47         —           1        (4     1         45   
  

 

 

              

 

 

 

Total Accrued Liabilities

   $ 55                 $ 50   
  

 

 

              

 

 

 

The severance liability is included in “Accrued salaries, wages and commissions” in the Condensed Consolidated Balance Sheets. The facilities abandonment liability is included in “Accrued expenses and other current liabilities” and “Other noncurrent liabilities” in the Condensed Consolidated Balance Sheets.

Accretion and other includes accretion of the Company’s lease obligations related to facilities abandonment as well as changes in the assumptions related to future sublease income. These costs are included in “General and administrative” expense in the Condensed Consolidated Statements of Operations.

 

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE D – TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable, net represents amounts due from the Company’s customers and is presented net of allowances. These balances include revenue recognized in advance of customer billings but do not include unbilled contractual commitments executed under license agreements. The components of “Trade accounts receivable, net” were as follows:

 

     June 30,
2012
    March 31,
2012
 
     (in millions)  

Accounts receivable – billed

   $ 450      $ 812   

Accounts receivable – unbilled

     44        80   

Other receivables

     14        26   

Less: Allowances

     (17     (16
  

 

 

   

 

 

 

Trade accounts receivable, net

   $ 491      $ 902   
  

 

 

   

 

 

 

NOTE E – GOODWILL, CAPITALIZED SOFTWARE AND OTHER INTANGIBLE ASSETS

The gross carrying amounts and accumulated amortization for capitalized software and other intangible assets at June 30, 2012 were as follows:

 

     At June 30, 2012  
     Gross
Amortizable
Assets
     Less: Fully
Amortized
Assets
     Remaining
Amortizable
Assets
     Accumulated
Amortization
on Remaining
Amortizable
Assets
     Net
Assets
 
     (in millions)  

Purchased software products

   $ 5,628       $ 4,737       $ 891       $ 250       $ 641   

Internally developed software products

     1,402         596         806         273         533   

Other intangible assets

     812         429         383         209         174   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total capitalized software costs and other intangible assets

   $ 7,842       $ 5,762       $ 2,080       $ 732       $ 1,348   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The gross carrying amounts and accumulated amortization for capitalized software and other intangible assets at March 31, 2012 were as follows:

 

     At March 31, 2012  
     Gross
Amortizable
Assets
     Less: Fully
Amortized
Assets
     Remaining
Amortizable
Assets
     Accumulated
Amortization
on Remaining
Amortizable
Assets
     Net
Assets
 
     (in millions)  

Purchased software products

   $ 5,628       $ 4,733       $ 895       $ 228       $ 667   

Internally developed software products

     1,366         574         792         258         534   

Other intangible assets

     814         412         402         214         188   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total capitalized software costs and other intangible assets

   $ 7,808       $ 5,719       $ 2,089       $ 700       $ 1,389   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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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, 2012, the projected annual amortization expense for fiscal year 2013 and the next four fiscal years is expected to be as follows:

 

     Year Ended March 31,  
     2013      2014      2015      2016      2017  
     (in millions)  

Capitalized software:

              

Purchased

   $ 107       $ 98       $ 88       $ 86       $ 84   

Internally developed

     155         145         119         88         55   

Other intangible assets

     54         48         40         26         9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 316       $ 291       $ 247       $ 200       $ 148   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Goodwill activity for the three months ended June 30, 2012 was as follows:

 

(in millions)

      

Balance at March 31, 2012

   $ 5,856   

Foreign currency translation adjustment

     (1
  

 

 

 

Balance at June 30, 2012

   $ 5,855   
  

 

 

 

NOTE F – DEFERRED REVENUE

The current and noncurrent components of “Deferred revenue (billed or collected)” at June 30, 2012 and March 31, 2012 were as follows:

 

       June 30,        March 31,  
     2012      2012  
     (in millions)  

Current:

     

Subscription and maintenance

   $ 2,146       $ 2,479   

Professional services

     151         162   

Financing obligations and other

     16         17   
  

 

 

    

 

 

 

Total deferred revenue (billed or collected) – current

   $ 2,313       $ 2,658   
  

 

 

    

 

 

 

Noncurrent:

     

Subscription and maintenance

   $ 844       $ 935   

Professional services

     36         35   

Financing obligations and other

     2         2   
  

 

 

    

 

 

 

Total deferred revenue (billed or collected) – noncurrent

   $ 882       $ 972   
  

 

 

    

 

 

 

Total deferred revenue (billed or collected)

   $ 3,195       $ 3,630   
  

 

 

    

 

 

 

NOTE G – 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.

Interest Rate Swaps: The Company has interest rate swaps with a total notional value of $500 million, that swap a total of $500 million of its 6.125% Senior Notes due December 2014 into floating interest rate debt through December 1, 2014. These swaps are designated as fair value hedges.

 

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

At June 30, 2012, the fair value of these derivatives was an asset of approximately $25 million, of which approximately $11 million is included in “Other current assets” and approximately $14 million is included in “Other noncurrent assets, net” in the Company’s Condensed Consolidated Balance Sheet.

At March 31, 2012, the fair value of these derivatives was an asset of approximately $27 million, of which approximately $11 million is included in “Other current assets” and approximately $16 million is included in “Other noncurrent assets, net” in the Company’s Condensed Consolidated Balance Sheet.

Foreign Currency Contracts: The Company enters into foreign currency option and forward contracts to manage foreign currency risks. The Company has not designated its foreign exchange derivatives as hedges. Accordingly, changes in fair value from these contracts are recorded as “Other (gains) expenses, net” in the Company’s Condensed Consolidated Statements of Operations. At June 30, 2012, foreign currency contracts outstanding consisted of purchase and sales contracts with a total notional value of approximately $857 million, which includes hedges on U.S. dollar investments held by a non-U.S. subsidiary outside of that subsidiary’s functional currency, and durations of less than nine months. The net fair value of these contracts at June 30, 2012 was a net liability of approximately $3 million, of which approximately $14 million is included in “Other current assets” and approximately $17 million is included in “Accrued expenses and other current liabilities” in the Company’s Condensed Consolidated Balance Sheet.

At March 31, 2012, foreign currency contracts outstanding consisted of purchase and sales contracts with a total notional value of approximately $893 million and durations of less than six months. The net fair value of these contracts at March 31, 2012 was a net liability of approximately $2 million, of which approximately $2 million is included in “Other current assets” and approximately $4 million is included in “Accrued expenses and other current liabilities” in the Company’s Condensed Consolidated Balance Sheet.

A summary of the effect of the interest rate and foreign exchange derivatives on the Company’s Condensed Consolidated Statements of Operations is as follows:

 

Location of Amounts Recognized

   Amount of Net (Gain)/Loss Recognized in the
Condensed Consolidated  Statements of Operations

(in millions)
 
   Three Months Ended
June 30, 2012
    Three Months Ended
June 30, 2011
 

Interest expense, net – interest rate swaps designated as fair value hedges

   $ (3   $ (3

Other (gains) expenses, net – foreign currency contracts

   $ 8      $ 7   

The Company is subject to collateral security arrangements with most of its major counterparties. These arrangements require the Company or the counterparty to post collateral when the derivative fair values exceed contractually established thresholds. The aggregate fair values of all derivative instruments under these collateralized arrangements were in a net asset position at June 30, 2012 and March 31, 2012. The Company posted no collateral at June 30, 2012 or March 31, 2012. 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.

 

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE H – FAIR VALUE MEASUREMENTS

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2012 and March 31, 2012:

 

     At June 30, 2012     At March 31, 2012  
     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

   $ 1,418       $ —         $ 1,418 (1)     $ 1,374       $ —         $ 1,374 ((2)  

Foreign exchange derivatives ( 3 )

     —           14         14        —           2         2   

Interest rate derivatives ( 3 )

     —           25         25        —           27         27   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total Assets

   $ 1,418       $ 39       $ 1,457      $ 1,374       $ 29       $ 1,403   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Liabilities:

                

Foreign exchange derivatives ( 3 )

   $ —         $ 17       $ 17      $ —         $ 4       $ 4   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total Liabilities

   $ —         $ 17       $ 17      $ —         $ 4       $ 4   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

(1)  

At June 30, 2012, the Company had approximately $1,368 million and $50 million of investments in money market funds classified as “Cash and cash equivalents” and “Other noncurrent assets, net” for restricted cash amounts, respectively, in its Condensed Consolidated Balance Sheet.

(2)  

At March 31, 2012, the Company had approximately $1,324 million and $50 million of investments in money market funds classified as “Cash and cash equivalents” and “Other noncurrent assets, net” for restricted cash amounts, respectively, in its Condensed Consolidated Balance Sheet.

(3)  

See Note G, “Derivatives” for additional information.

At June 30, 2012 and March 31, 2012, the Company did not have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis at June 30, 2012 and March 31, 2012:

 

     At June 30, 2012      At March 31, 2012  

(in millions)

     Carrying  
Value
     Estimated
Fair Value
       Carrying  
Value
     Estimated
Fair Value
 

Liabilities:

           

Total debt (1)

   $ 1,298       $ 1,422       $ 1,301       $ 1,408   

Facilities abandonment reserve (2)

   $ 37       $ 43       $ 42       $ 48   

 

(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 facilities abandonment reserve is determined using the Company’s incremental borrowing rate at June 30, 2012 and March 31, 2012. At June 30, 2012 and March 31, 2012, the facilities abandonment reserve included approximately $15 million and $16 million, respectively, in “Accrued expenses and other current liabilities” and approximately $22 million and $26 million, respectively, in “Other noncurrent liabilities” in the Company’s Condensed Consolidated Balance Sheets (Level 3).

The carrying values of financial instruments classified as current assets and current liabilities, such as cash and cash equivalents, accounts payable, accrued expenses, and short-term debt, approximate fair value due to the short-term maturity of the instruments. The fair values of total debt, including current maturities, have been based on quoted market prices.

 

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE I – COMMITMENTS AND CONTINGENCIES

The Company, various subsidiaries, and certain current and former officers have been named as defendants in various lawsuits and claims arising in the normal course of business. The Company believes that it has meritorious defenses in connection with these lawsuits and claims, and intends to vigorously contest each of them.

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.

In the opinion of the Company’s management based upon information currently available to the Company, while the outcome of these lawsuits and claims is uncertain, the likely results of these lawsuits and claims against the Company, either individually or in the aggregate, are not expected 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 of these 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 is from zero to $30 million. This is in addition to amounts, if any, that have been accrued for those matters.

The Company is obligated to indemnify its officers and directors under certain circumstances to the fullest extent permitted by Delaware law. As a part of that obligation, the Company has advanced and will continue to advance certain attorneys’ fees and expenses incurred by current and former officers and directors in various lawsuits and investigations.

NOTE J – STOCKHOLDERS’ EQUITY

Stock Repurchases:  In January 2012, the Company entered into an Accelerated Share Repurchase (ASR) agreement with a bank to repurchase $500 million of its common stock. Under the agreement, the Company paid $500 million to the bank for an initial delivery of approximately 15 million shares in the fourth quarter of fiscal year 2012. The fair market value of the initially delivered shares on the date of purchase was approximately $375 million and was included in “Treasury stock” in the Company’s Condensed Consolidated Balance Sheet at March 31, 2012. The remaining $125 million was included in “Additional paid-in capital” in the Company’s Condensed Consolidated Balance Sheet at March 31, 2012.

The ASR transaction was completed in the first quarter of fiscal year 2013, with the Company receiving approximately 3.7 million additional shares, at which time the initial amount recorded as additional paid-in capital was reclassified to treasury stock. The final number of shares delivered upon settlement of the agreement was determined based on the average price of the Company’s common stock over the term of the ASR agreement.

In addition to the settlement of the ASR agreement, the Company repurchased approximately 3.8 million shares of its common stock for approximately $96 million during the first quarter of fiscal year 2013. At June 30, 2012, the Company remained authorized to purchase approximately $904 million of its common stock under its current stock repurchase program.

Accumulated Other Comprehensive Loss: Accumulated other comprehensive loss at June 30, 2012 and March 31, 2012 was approximately $134 million and $108 million, respectively, due to foreign currency translation losses.

 

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Cash Dividends: The Company’s Board of Directors declared the following dividends during the three months ended June 30, 2012 and 2011:

Three Months Ended June 30, 2012:

(in millions, except per share amounts)

 

Declaration Date

   Dividend Per Share      Record Date      Total Amount      Payment Date  

May 8, 2012

   $ 0.25         May 22, 2012       $ 119         June 12, 2012   

Three Months Ended June 30, 2011:

(in millions, except per share amounts)

 

Declaration Date

   Dividend Per Share      Record Date      Total Amount      Payment Date  

May 12, 2011

   $ 0.05         May 23, 2011       $ 25         June 16, 2011   

NOTE K – INCOME FROM CONTINUING OPERATIONS 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 at the balance sheet date, as adjusted for the potential dilutive effect of non-participating share-based awards.

The following table presents basic and diluted income from continuing operations per common share information for the three months ended June 30, 2012 and 2011.

 

     Three Months Ended
June 30,
 
     2012     2011  

Basic income from continuing operations per common share:

    

Income from continuing operations

   $ 240      $ 228   

Less: Income from continuing operations allocable to participating securities

     (3     (3
  

 

 

   

 

 

 

Income from continuing operations allocable to common shares

   $ 237      $ 225   
  

 

 

   

 

 

 

Weighted-average common shares outstanding

     465        500   

Basic income from continuing operations per common share

   $ 0.51      $ 0.45   

Diluted income from continuing operations per common share:

    

Income from continuing operations

   $ 240      $ 228   

Less: Income from continuing operations allocable to participating securities

     (3     (3
  

 

 

   

 

 

 

Income from continuing operations allocable to common shares

   $ 237      $ 225   
  

 

 

   

 

 

 

Weighted average shares outstanding and common share equivalents:

    

Weighted average common shares outstanding

     465        500   

Weighted average effect of share-based payment awards

     2        1   
  

 

 

   

 

 

 

Denominator in calculation of diluted income per share

     467        501   
  

 

 

   

 

 

 

Diluted income from continuing operations per common share

   $ 0.51      $ 0.45   

For the three months ended June 30, 2012 and 2011, respectively, approximately 3 million and 5 million shares of Company common stock underlying restricted stock awards 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 restricted stock awards of approximately 6 million and 7 million for the three months ended June 30, 2012 and 2011, respectively, were considered participating securities in the calculation of net income allocable to common stockholders.

 

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE L – 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 June 30,
 
     2012     2011  

Costs of licensing and maintenance

   $ —        $ 1   

Cost of professional services

     1        1   

Selling and marketing

     10        10   

General and administrative

     8        8   

Product development and enhancements

     4        5   
  

 

 

   

 

 

 

Share-based compensation expense before tax

     23        25   

Income tax benefit

     (8     (8
  

 

 

   

 

 

 

Net share-based compensation expense

   $ 15      $ 17   
  

 

 

   

 

 

 

The following table summarizes information about unrecognized share-based compensation costs at June 30, 2012:

 

     Unrecognized
Compensation
Costs
     Weighted
Average Period
Expected to be
Recognized
 
     (in millions)      (in years)  

Stock option awards

   $ 8         2.5   

Restricted stock units

     22         2.3   

Restricted stock awards

     94         2.3   

Performance share units

     42         3.0   
  

 

 

    

Total unrecognized share-based compensation costs

   $ 166         2.5   
  

 

 

    

There were no capitalized share-based compensation costs for the three months ended June 30, 2012 or 2011.

Under the Company’s long-term incentive plans, the value of performance share unit (PSU) awards is determined using the closing price of the Company’s common stock on the last trading day of the quarter until the PSUs are granted. Compensation costs for the PSUs are amortized over the requisite service periods based on the expected level of achievement of the performance targets. At the conclusion of the performance periods for the PSUs, the applicable number of shares of restricted stock awards (RSAs), restricted stock units (RSUs) or unrestricted shares granted may vary based upon the level of achievement of the performance targets and the approval of the Company’s Compensation and Human Resources Committee (which may reduce any award for any reason in its discretion).

 

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

For the three months ended June 30, 2012 and 2011, the Company issued options for approximately 0.7 million shares and 0.6 million shares, respectively. The weighted average fair values and assumptions used for the options granted were as follows:

 

     Three Months
Ended June 30,
 
     2012     2011  

Weighted average fair value

   $ 9.09      $ 6.00   

Dividend yield

     3.96     0.91

Expected volatility factor (1)

     59     33

Risk-free interest rate (2)

     0.8     1.7

Expected life (in years) (3)

     4.5        4.5   

 

(1)  

Expected volatility is measured using historical daily price changes of the Company’s 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, based primarily on historical experience, 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).

The 1-year PSU awards for the fiscal year 2012 and 2011 incentive plan years under the Company’s long-term incentive plans were granted in the first quarter of fiscal years 2013 and 2012, respectively. The table below summarizes the RSAs and RSUs granted under these PSUs:

 

         

RSAs

  

RSUs

Incentive Plans

for Fiscal Years

  

Performance

Period

  

Shares

(in millions)

  

Weighted

Average Grant

Date Fair Value

  

Shares

(in millions)

  

Weighted Average
Grant Date Fair

Value

2012

   1-year    1.2    $ 26.39    0.2    $ 25.40

2011

   1-year    1.1    $ 24.68    0.1    $ 24.48

The 3-year PSUs for the fiscal year 2010 and 2009 incentive plan years under the Company’s long-term incentive plans were granted in the first quarter of fiscal years 2013 and 2012, respectively. Unrestricted shares of common stock were issued in settlement immediately upon grant as follows:

 

Incentive Plans

for Fiscal Years

  

Performance Period

  

Unrestricted Shares

(in millions)

  

Weighted Average Grant Date

Fair Value

2010

   3-year    0.2    $ 26.39

2009

   3-year    0.2    $ 24.68

Share-based awards were granted under the Company’s fiscal year 2012 and 2011 Sales Retention Equity Programs in the first quarter of fiscal years 2013 and 2012, respectively. These awards vest at the end of a three-year period beginning on the first anniversary of the grant date. The table below summarizes the RSAs and RSUs granted under these programs:

 

         

RSAs

  

RSUs

Incentive Plans

for Fiscal Years

  

Performance

Period

  

Shares

(in millions)

  

Weighted

Average Grant

Date Fair Value

  

Shares

(in millions)

  

Weighted Average
Grant Date Fair Value

2012

   1-year    0.2    $ 26.39    0.1    $ 23.41

2011

   1-year    0.3    $ 24.68    0.1    $ 24.09

 

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The table below summarizes all of the RSUs and RSAs, including grants made pursuant to the long-term incentive plans discussed above, granted during the three months ended June 30, 2012 and 2011:

 

     Three Months
Ended June 30,
 
     2012      2011  
     (shares in millions)  

RSUs

     

Shares

     0.7         0.6   

Weighted Avg. Grant Date Fair Value ( 1 )

   $ 24.30       $ 24.27   

RSAs

     

Shares

     3.5         3.5   

Weighted Avg. Grant Date Fair Value ( 2 )

   $ 26.23       $ 24.66   

 

(1)  

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.

(2)  

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

Employee Stock Purchase Plan: The Company maintains the 2012 Employee Stock Purchase Plan (ESPP) for all eligible employees. The ESPP offer period is semi-annual and allows participants to purchase the Company’s common stock at 95% of the closing price of the stock on the last day of the offer period. The ESPP is non-compensatory. For the six-month offer period ending June 30, 2012, the Company issued approximately 0.1 million shares under the ESPP at an average price of $25.74 per share. As of June 30, 2012, approximately 29.9 million shares are available for future issuances under the ESPP.

NOTE M – INCOME TAXES

Income tax expense for the three months ended June 30, 2012 was $130 million compared with income tax expense of $105 million for the three months ended June 30, 2011.

In April 2011, the U.S. Internal Revenue Service (IRS) completed its examination of the Company’s federal income tax returns for the tax years ended March 31, 2005, 2006 and 2007 and issued a report of its findings in connection with the examination. The Company disagrees with certain proposed adjustments in the report and is vigorously disputing these matters through the IRS appellate process. The IRS is also examining the Company’s federal income tax returns for the tax years ended March 31, 2008, 2009 and 2010.

While it is difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes that its financial statements reflect the probable outcome of uncertain tax positions. The Company may adjust these uncertain tax positions, as well as any related interest or penalties, in light of changing facts and circumstances, including the settlement of income tax audits and the expirations of statutes of limitation. To the extent a settlement differs from the amounts previously reserved, that difference generally would be recognized as a component of income tax expense in the period of resolution. Although the timing of the resolution of income tax examinations is highly uncertain, it is reasonably possible that settlements, payments and new information in the next 12 months related to certain federal, foreign and state tax issues may result in changes to the Company’s uncertain tax positions, including issues involving taxation of international operations, certain state tax issues and other matters. The Company believes that such reasonably possible changes within the next 12 months may reduce the balance of unrecognized tax benefits, net of the effects of refunds and other affirmative claims, by an amount up to $200 million.

 

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company’s effective income tax rate, excluding the impact of discrete items, for the three months ended June 30, 2012 and 2011 was 32.4% and 32.3%, respectively. Legislative 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 2013, 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 quarters of fiscal year 2013 and the Company is anticipating a fiscal year 2013 effective tax rate of approximately 30% to 31%.

NOTE N – SEGMENT INFORMATION

The Company’s Mainframe Solutions and Enterprise Solutions operating segments comprise its software business organized by the nature of the Company’s software offerings and the product hierarchy in which the platform operates. The Services operating segment comprises implementation, consulting, education and training services, including those directly related to the Mainframe Solutions and Enterprise Solutions software that the Company sells to its customers. A measure of segment assets is not currently provided to the Company’s Chief Executive Officer and has therefore not been disclosed.

The Company’s segment information for the three months ended June 30, 2012 and 2011 is as follows:

 

Three Months Ended June 30, 2012

(in millions)

   Mainframe
Solutions
    Enterprise
Solutions
    Services     Total  

Revenue

   $ 628      $ 426      $ 91      $ 1,145   

Expenses

     260        359        87        706   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment profit

   $ 368      $ 67      $ 4      $ 439   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment operating margin

     59     16     4     38

Depreciation and amortization

   $ 26      $ 38      $ —        $ 64   

Reconciliation of segment profit to income from continuing operations before income taxes for the three months ended June 30, 2012:

 

Segment profit

            $ 439   

Less:

           

Purchased software amortization

              27   

Other intangibles amortization

              14   

Share-based compensation expense

              23   

Other (gains) expenses, net (1)

              (6

Interest expense, net

              11   
           

 

 

 

Income from continuing operations before income taxes

            $ 370   
           

 

 

 

 

(1)  

Other (gains) expenses, net consists of other unallocated costs including foreign exchange derivative (gains) losses, and other miscellaneous costs.

 

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CA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Three Months Ended June 30, 2011

(in millions)

   Mainframe
Solutions
    Enterprise
Solutions
    Services     Total  

Revenue

   $ 646      $ 427      $ 90      $ 1,163   

Expenses

     276        382        88        746   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment profit

   $ 370      $ 45      $ 2      $ 417   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment operating margin

     57     11     2     36

Depreciation and amortization

   $ 24      $ 31      $ —        $ 55   

Reconciliation of segment profit to income from continuing operations before income taxes for the three months ended June 30, 2011:

 

Segment profit

   $ 417   

Less:

  

Purchased software amortization

     23   

Other intangibles amortization

     19   

Share-based compensation expense

     25   

Other (gains) expenses, net (1)

     8   

Interest expense, net

     9   
  

 

 

 

Income from continuing operations before income taxes

   $ 333   
  

 

 

 

 

(1)  

Other (gains) expenses, net consists of other unallocated costs including foreign exchange derivative (gains) losses, and other miscellaneous costs.

The table below summarizes the Company’s revenue from the United States and from international (i.e., non-U.S.) locations:

 

(in millions)    Three Months Ended
June 30, 2012
     Three Months Ended
June 30, 2011
 

United States

   $ 683       $ 672   

Europe

     273         299   

Other

     189         192   
  

 

 

    

 

 

 

Total revenue

   $ 1,145       $ 1,163   
  

 

 

    

 

 

 

 

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Item 2: 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. (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 are intended to identify forward-looking information. Forward-looking information includes, for example, the statements made in this Management’s 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.

The declaration and payment of future dividends is subject to the determination of the Company’s Board of Directors, in its sole discretion, after considering various factors, including the Company’s financial condition, historical and forecast operating results, and available cash flow, as well as any applicable laws and contractual covenants and any other relevant factors. The Company’s practice regarding payment of dividends may be modified at any time and from time to time.

Repurchases under the Company’s stock repurchase program are expected to be made with cash on hand and 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, which is authorized through the fiscal year ending March 31, 2014, 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.

A number of important factors could cause actual results or events to differ materially from those indicated by forward-looking statements, including: the ability to achieve success in the Company’s strategy by, among other things, effectively rebalancing the Company’s sales force to increase penetration in growth markets and with large enterprises that have not historically been significant customers, enabling the sales force to sell new products, improving the Company’s brand in the marketplace and ensuring the Company’s set of cloud computing, Software-as-a-Service and other new offerings address the needs of a rapidly changing market, while not adversely affecting the demand for the Company’s traditional products or its profitability; global economic factors or political events beyond the Company’s control; general economic conditions and credit constraints, or unfavorable economic conditions in a particular region, industry or business sector; the failure to adapt to technological changes and introduce new software products and services in a timely manner; competition in product and service offerings and pricing; the failure to expand partner programs; the ability to retain and attract adequate qualified personnel; the ability to integrate acquired companies and products into existing businesses; the ability to adequately manage and evolve financial reporting and managerial systems and processes; the ability of the Company’s products to remain compatible with ever-changing operating environments; breaches of the Company’s software products and the Company’s and customers’ data centers and IT environments; discovery of errors in the Company’s software and potential product liability claims; the failure to protect the Company’s intellectual property rights and source code; risks associated with sales to government customers; access to software licensed from third parties; risks associated with the use of software from open source code sources; access to third-party code and specifications for the development of code; third-party claims of intellectual property infringement 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 channel partners; the failure to renew large license transactions on a satisfactory basis; changes in market conditions or the Company’s credit ratings; fluctuations in foreign currencies; the failure to effectively execute the Company’s workforce reductions; successful outsourcing of various functions to third parties; events or circumstances that would require us to record a goodwill impairment charge; potential tax liabilities; acquisition opportunities that may or may not arise; 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 our assumptions

 

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prove incorrect, actual results may vary materially from those described in this Form 10-Q as believed, planned, anticipated, expected, estimated, targeted or similarly expressed in a forward-looking manner. 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 read in conjunction with, our financial statements and the accompanying notes to the financial statements. References in this Form 10-Q to fiscal 2013 and fiscal 2012 are to our fiscal years ending on March 31, 2013 and 2012, respectively.

OVERVIEW

We are the leading independent enterprise information technology (IT) management software and solutions company with expertise across a wide range of IT environments. We develop and deliver software and services that help organizations accelerate, transform and secure their IT infrastructures to deliver flexible IT services. This allows customers to respond faster to business demands for new services, manage the quality of services, increase efficiency and reduce risk. Our products and solutions are designed to operate in a wide range of IT environments – from mainframe and physical to virtual and cloud.

We license our products worldwide. We serve companies across most major industries around the world, including banks, insurance companies, other financial services providers, government agencies, telecommunication providers, manufacturers, technology companies, retailers, educational organizations and health care institutions. These customers typically maintain IT infrastructures across platforms, from physical to virtual and cloud, and from multiple vendors. These environments are complex and critical to our customers’ operations.

As business demands increase and new technologies evolve, demands on IT continue to increase. Organizations expect more from technology and many want to use IT to gain a competitive edge. This means companies are using IT to deliver products to market faster, reach new customers and respond to changes in the competitive environment. To achieve their desired business outcomes and gain business advantages, many organizations are improving the efficiency, mobility and availability of their IT resources and applications by adopting next-generation technologies like virtualization and cloud computing and consuming IT as Software-as-a-Service (SaaS). They are also extending their legacy physical environments to virtual and cloud environments. Virtualization lets users run multiple virtual machines on each physical machine. Cloud computing is a shared pool of computing resources that can be accessed, configured and used as needed. With SaaS, customers can obtain software on a subscription, “pay-as-you-go” model.

While these technologies can reduce operating costs tied to physical infrastructure, this evolution in computing is a transformative opportunity that is also making IT environments more complex. Data centers are evolving to include mainframes, physical servers, virtualized servers and private, public and hybrid (a combination of public and private) cloud environments.

We believe it is vital for companies to effectively accelerate, transform and secure all of their various computing environments, while being able to deliver new services quickly based on their business needs. Our core strengths in IT management and security, combined with our investments in innovative technologies, position us to serve a range of customers which we divided into three customer segments in the fourth quarter of fiscal 2012: (1) approximately 1,000 core large existing enterprise customers with annual revenue in excess of $2 billion (Large Existing Enterprises), which currently account for approximately 80% of our revenue; (2) enterprises with revenue in excess of $2 billion that have not historically been significant customers of ours (Large New Enterprises), a customer segment that we believe includes 4,500 potential new customers but where we intend to initially focus on approximately 1,000 of these customers selected based on our current geographical and vertical strengths; and (3) approximately 7,000 enterprises with revenue between $300 million and $2 billion and in fast growing geographies like Latin America and Asia (Growth Markets). During the first quarter of fiscal 2013, we made organizational changes to allow us to focus better on our customer segmentation. Key aspects of these changes include: consolidating all disciplines associated with our Growth Market initiatives into

 

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one general manager, consolidating our business operations into our finance team, enhancing the processes for evaluating sales opportunities by region and customer segment and increasing executive oversight over key transactions. In addition, we expect to introduce new products and solutions in the second quarter and throughout the second half of fiscal 2013 that we believe should create selling opportunities across all customer segments. All these efforts are designed to accelerate new product sales outside of our contract renewal cycle. We believe by targeting these customer segments, we are more than doubling our total addressable market.

Our broad and deep portfolio of software solutions addresses customer needs across computing platforms. We deliver these solutions on-premises or, for certain products, using SaaS. During fiscal 2012, we began an effort to more fully realize the value of our intellectual property by strategically licensing and/or assigning selected assets within our portfolio. This effort is intended to better position us in the marketplace and allow us the flexibility to reinvest in improving our overall business.

EXECUTIVE SUMMARY

The following is a summary of the analysis of our results contained in our MD&A.

Total revenue for the first quarter of fiscal 2013 decreased 2% to $1,145 million compared with $1,163 million in the year-ago period, primarily due to an unfavorable foreign exchange effect of $32 million compared with the first quarter of fiscal 2012. Partially offsetting the unfavorable foreign exchange effect was an increase in our software fees and other revenue. Excluding the unfavorable foreign exchange effect, revenue would have increased 1%. Revenue decreased 2% from existing products and services and increased less than 1% from acquired technologies (which we define as technologies acquired within the prior 12 months). Excluding the foreign exchange effect, revenue from existing products and services was flat and revenue increased 1% from acquired technologies.

Total bookings in the first quarter of fiscal 2013 decreased 36% from the year-ago period to $553 million primarily due to a decline in subscription and maintenance renewals and, to a lesser extent, a decrease in new product and mainframe capacity sales and professional services bookings. Total new product and mainframe capacity sales in the first quarter of fiscal 2013 declined by approximately 30% compared with the first quarter of 2012. Bookings decreased in all regions except the Asia Pacific Japan region. Bookings performance was also unexpectedly disrupted by our efforts to align our sales force to execute our customer segmented go-to-market initiative and was unfavorably affected by a difficult macroeconomic environment. We continue to expect our fiscal 2013 renewal portfolio to decline in the single digits compared with fiscal 2012 and we expect a majority of our renewals to occur in the second half of fiscal 2013. For the first quarter of fiscal 2013, our renewal yield was in the low 80% range. This was primarily due to a single transaction where the effect was amplified by the lower level of renewals in the quarter. Excluding this one transaction, our renewal yield would have been approximately 90%.

Total expenses before interest and income taxes of $764 million for the first quarter of fiscal 2013 decreased 7%, compared with $821 million in the first quarter of fiscal 2012. As part of our efforts to more fully utilize our intellectual property assets, in the first quarter of fiscal 2013 we closed a transaction that assigned the rights to certain of these assets to a large technology company for $35 million. We will continue to have the ability to use these intellectual property assets in current and future product offerings. For the first quarter of fiscal 2013, total expenses before interest and income taxes included the income from this transaction. The decrease in total expenses before interest and income taxes was also attributable, to a lesser extent, to a favorable foreign exchange effect and a decrease in the commission expense of our selling and marketing costs, partially offset by increased costs from our fiscal 2012 acquisitions.

Income from continuing operations before interest and income taxes increased $39 million, or 11%, in the first quarter of fiscal 2013 compared with the year-ago period.

Income tax expense increased $25 million for the first quarter of fiscal 2013 compared with the year-ago period as a result of an increase in income from continuing operations before income taxes in the first quarter of fiscal 2013 and also discrete items that occurred in the first quarter of fiscal 2012 that were favorable but did not reoccur in the first quarter of fiscal 2013.

 

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Diluted income from continuing operations per share for the first quarter of fiscal 2013 was $0.51, compared with $0.45 in the year-ago period, reflecting an increase in operating income as a result of the income from the aforementioned $35 million intellectual property transaction and our repurchases of common shares.

For the first quarter of fiscal 2013, our segment performance results were as follows:

Mainframe Solutions revenue decreased $18 million primarily due to an unfavorable foreign exchange effect for the first quarter of fiscal 2013 compared with the first quarter of fiscal 2012. Mainframe Solutions operating margin for the first quarter of fiscal 2013 was 59% compared with 57% in the first quarter of fiscal 2012.

Enterprise Solutions revenue decreased $1 million from the year-ago period primarily due to a decrease in revenue from our service assurance and virtualization and service automation products. This decrease was partially offset by an increase in revenue from our security (identity and access management) products and an increase in revenue from acquired technologies. Enterprise Solutions operating margin for the first quarter of fiscal 2013 was 16% compared with 11% in the first quarter of fiscal 2012. The increase in operating margin for the period was attributable to the income from the aforementioned $35 million intellectual property transaction, which was partially offset by an increase in expenses relating to our fiscal 2012 acquisitions.

Services revenue and expense for the first quarter of fiscal 2013 were consistent with the first quarter of fiscal 2012. Services operating margin increased to 4% in the first quarter of fiscal 2013 compared with 2% in the first quarter of fiscal 2012 as a result of the slight increase in revenue and slight reduction in expense.

Total revenue backlog of $7,771 million at June 30, 2012 decreased 9% compared with $8,508 million at June 30, 2011. The current portion of revenue backlog of $3,527 million at June 30, 2012 decreased by 5% compared with the balance of $3,699 million at June 30, 2011. Revenue backlog in the quarter was unfavorably affected by a decline in year-over-year bookings performance. We expect a continued decline in revenue backlog year-over-year through fiscal 2013 prior to an expected increase in our renewal portfolio in fiscal 2014. Generally, we believe that a change in the current portion of revenue backlog on a year-over-year basis is an indicator of future subscription and maintenance revenue performance due to the high percentage of our revenue that is recognized from license agreements that are already committed and being recognized ratably.

Cash provided by continuing operating activities for the first quarter of fiscal 2013 was $183 million, representing an increase of $40 million compared with the first quarter of fiscal 2012. The increase was primarily due to a decrease in income tax payments, an increase in receipts related to single installments, the $35 million in cash proceeds received from the aforementioned intellectual property transaction and an increase from gains on U.S. dollar-based cash equivalents held by our foreign subsidiaries. These increases were partially offset by lower cash collections and higher disbursements for the first quarter of fiscal 2013.

 

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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:

 

     First Quarter Comparison         
     Fiscal      Dollar     Percent  
     2013      2012      Change     Change  
     (dollars in millions)  

Total revenue

   $ 1,145       $ 1,163       $ (18     (2 )% 

Income from continuing operations

   $ 240       $ 228       $ 12          5% 

Cash provided by operating activities – continuing operations

   $ 183       $ 143       $ 40        2 8% 

Total bookings

   $ 553       $ 865       $ (312     (36 )% 

Subscription and maintenance bookings

   $ 383       $ 688       $ (305     (44 )% 

Weighted average subscription and maintenance license agreement duration in years

     2.79         3.28         (0.49     (15 )% 

 

     June 30,
2012
     March 31,
2012
     Change
From
Year End
    June 30,
2011
     Change
From Prior
Year Quarter
 
    

(in millions)

 

Cash, cash equivalents and marketable securities ( 1 )

   $ 2,541       $ 2,679       $ (138   $ 2,950       $ (409

Total debt

   $ 1,298       $ 1,301       $ (3   $ 1,307       $ (9

Total expected future cash collections from committed contracts ( 2 )

   $ 5,067       $ 5,745       $ (678   $ 5,724       $ (657

Total revenue backlog ( 2 )

   $ 7,771       $ 8,473       $ (702   $ 8,508       $ (737

Total current revenue backlog ( 2 )

   $ 3,527       $ 3,714       $ (187   $ 3,699       $ (172

 

(1 )  

At each of June 30, 2012 and March 31, 2012, marketable securities were less than $1 million. At June 30, 2011, marketable securities were $189 million.

(2)  

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

Total Revenue — Total revenue is the amount of revenue recognized during the reporting period from the sale of license, maintenance 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 license. Software fees and other revenue generally represents license fee revenue recognized at the inception of a license agreement (up-front basis) and also includes our SaaS revenue, which is recognized as services are provided.

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. Revenue for bookings attributed to sales of software products for which license fee revenue is recognized on an up-front basis is reflected in “Software fees and other” in the Condensed Consolidated Statements of Operations.

 

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As our business strategy has evolved, our management also looks within bookings at total new product and capacity sales, which we define as sales of products or mainframe capacity that are new or in addition to products or mainframe capacity previously contracted for by a customer. The amount of new product and capacity sales for a period, as currently tracked by us, requires estimation by management and has not been historically reported. Within a given period, the amount of new product and capacity sales may not be material to the change in our total bookings or revenue compared with prior periods. New product and capacity 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 directly by us and may include additional products, services or other fees for which we have not established vendor specific objective evidence (VSOE). Subscription and maintenance bookings also includes indirect sales by distributors and volume partners, value-added resellers and exclusive representatives 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 agreements. Subscription and maintenance bookings exclude the value associated with certain perpetual licenses, license-only indirect sales, SaaS offerings 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. 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 bookings recorded in a period is affected by the volume, duration and value of contracts renewed during that period. Subscription and maintenance bookings typically increases in each consecutive quarter during a fiscal year, with the first 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 in consecutive quarters during a fiscal year, and the quarter-to-quarter differences in subscription and maintenance bookings may vary. Given the varying durations of the contracts being renewed, year-over-year comparisons of bookings are not always indicative of the overall bookings trend.

Generally, we believe that a change in the current portion of revenue backlog on a year-over-year basis is an indicator of future subscription and maintenance revenue performance due to the high percentage of our revenue that is recognized from license agreements that are already committed and being recognized ratably. Within bookings, we also consider the yield on our renewal portfolio. We define “renewal yield” as the percentage of the renewable portion of the prior contract ( i.e., the maintenance value) realized in current period bookings. The baseline for calculating renewal yield is an estimate affected by various factors including contractual renewal terms, price increases and other conditions. We estimate the yield based on a review of material transactions representing a substantial majority of the dollar value of renewals during the current period. Year-over-year changes in renewal yield may not be materially correlated to year-over-year changes in bookings.

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.

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.

 

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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 and 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 a change in the current portion of revenue backlog on a year-over-year basis is an indicator of future subscription and maintenance revenue performance due to the high percentage of our revenue that is recognized from license agreements that are already committed and being recognized ratably.

“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 interest in committed installments (referred to as “Financing obligations and other” in Note F, “Deferred Revenue” in the Notes to the Condensed Consolidated Financial Statements).

 

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RESULTS OF OPERATIONS

The following table presents revenue and expense line items reported in our Condensed Consolidated Statements of Operations for the first quarter of fiscal 2013 and fiscal 2012 and the period-over-period dollar and percentage changes for those line items. These comparisons of past financial results are not necessarily indicative of future results.

 

     First Quarter Comparison – Fiscal 2013 versus Fiscal 2012  
     2013     2012      Dollar
Change
2013/2012
    Percentage
Change
2013/2012
    Percentage of
Total
Revenue
 
              2013     2012  
    

(dollars in millions)

                   

Revenue

             

Subscription and maintenance revenue

   $ 977      $ 1,007       $ (30     (3 )%      85     87

Professional services

     91        90         1        1        8        8   

Software fees and other

     77        66         11        17        7        5   
  

 

 

 

Total revenue

   $ 1,145      $ 1,163       $ (18     (2 )%      100     100
  

 

 

 

Expenses

             

Costs of licensing and maintenance

   $ 69      $ 67       $ 2        3     6     6

Cost of professional services

     86        88         (2     (2     8        8   

Amortization of capitalized software costs

     64        50         14        28        6        4   

Selling and marketing

     305        326         (21     (6     27        28   

General and administrative

     110        114         (4     (4     10        10   

Product development and enhancements

     125        118         7        6        11        10   

Depreciation and amortization of other intangible assets

     41        47         (6     (13     4        4   

Other (gains) expenses, net

     (36     11         (47     NM        (3     1   
  

 

 

 

Total expenses before interest and income taxes

   $ 764      $ 821       $ (57     (7 )%      67     71
  

 

 

 

Income from continuing operations before interest and income taxes

   $ 381      $ 342       $ 39        11     33     29

Interest expense, net

     11        9         2        22        1        1   
  

 

 

 

Income from continuing operations before income taxes

   $ 370      $ 333       $ 37        11     32     29

Income tax expense

     130        105         25        24        11        9   
  

 

 

 

Income from continuing operations

   $ 240      $ 228       $ 12        5     21     20

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

Revenue

Total Revenue

As more fully described below, the decrease in total revenue in the first quarter of fiscal 2013 compared with the first quarter of fiscal 2012 was primarily attributable to an unfavorable foreign exchange effect of $32 million compared with the first quarter of fiscal 2012, partially offset by the increase in software fees and other revenue.

 

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Subscription and Maintenance Revenue

Subscription and maintenance revenue is the amount of revenue recognized ratably during the reporting period from: (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, (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, and (iii) license agreements bundled with additional products, maintenance or professional services for which VSOE has not been established. These amounts include the sale of products directly by us, as well as by distributors and volume partners, value-added resellers and exclusive representatives 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 these agreements.

The decrease in subscription and maintenance revenue for the first quarter of fiscal 2013 compared with the first quarter of fiscal 2012 was due to an unfavorable foreign exchange effect of $29 million.

Professional Services

Professional services revenue primarily includes product implementation, consulting, customer training and customer education. Professional services revenue for the first quarter of fiscal 2013 was slightly higher compared with the first quarter of fiscal 2012.

Software Fees and Other

Software fees and other revenue primarily consists of revenue that is recognized on an up-front basis. This includes revenue associated with enterprise solutions products sold on an up-front basis directly by our sales force or through transactions with distributors and volume partners, value-added resellers and exclusive representatives (sometimes referred to as our “indirect” or “channel” revenue). It also includes our SaaS revenue, which is recognized as the services are provided rather than up-front.

Software fees and other revenue increased for the first quarter of fiscal 2013 compared with the first quarter of fiscal 2012 primarily due to an increase of $7 million in revenue from our perpetual enterprise solutions products and $6 million in revenue from our SaaS offerings. Within the increase in perpetual enterprise solutions product sales, $19 million was attributable to products that became eligible for up-front revenue recognition in the second half of fiscal 2012 and $5 million was from our fiscal 2012 acquisition of Interactive TKO, Inc. These increases were mostly offset against a decrease in the sales of other perpetual enterprise products.

Total Revenue by Geography

The following table presents 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 2013 and the first quarter of fiscal 2012.

 

     First Quarter Comparison – Fiscal 2013 versus Fiscal 2012  
     2013      %     2012      %     Dollar
Change
    Percentage
Change
 
     (dollars in millions)  

United States

   $ 683         60   $ 672         58   $ 11        2

International

     462         40     491         42     (29     (6 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Total Revenue

   $ 1,145         100   $ 1,163         100   $ (18     (2 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Revenue in the United States increased by $11 million, or 2%, for the first quarter of fiscal 2013 compared with the first quarter of fiscal 2012 primarily due to higher software fees and other revenue, as described above. International revenue decreased by $29 million, or 6%, for the first quarter of fiscal 2013 compared with the first quarter of fiscal 2012. The decrease was due to an unfavorable foreign exchange effect of $32 million, mostly related to the Europe, Middle East and Africa region.

Price changes do not have a material effect on revenue in a given period as a result of our ratable subscription model.

 

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Expenses

Operating expenses for the first quarter of fiscal 2013 decreased from the first quarter of fiscal 2012 primarily due to the $35 million of income from the intellectual property transaction recognized in “Other (gains) expenses, net.” The decrease was also attributable to a favorable foreign exchange effect and a decrease in the commission expense of our selling and marketing costs, partially offset by increased costs from our fiscal 2012 acquisitions.

Costs of Licensing and Maintenance

Costs of licensing and maintenance include technical support, royalties, and other manufacturing and distribution costs. Costs of licensing and maintenance for the first quarter of fiscal 2013 were consistent with the first quarter of fiscal 2012.

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 first quarter of fiscal 2013 was consistent with the first quarter of fiscal 2012. Operating margin for professional services increased to 5% in the first quarter of fiscal 2013 compared with 2% in the first quarter of fiscal 2012 as a result of the slight increase in revenue and slight reduction in expense. Operating margin for professional services does not include certain additional costs that are allocated to the Services segment (see “Performance of Segments” below).

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.

The increase in amortization of capitalized software costs for the first quarter of fiscal 2013 compared with the first quarter of fiscal 2012 was primarily due to the increase in projects that have reached general availability in recent periods and amortization from assets acquired from our fiscal 2012 acquisitions.

Selling and Marketing

Selling and marketing expenses include the costs relating to our sales force, channel partners, corporate and business marketing and customer training programs. The decrease in selling and marketing expenses was primarily attributable to a decrease in commission expenses of $13 million as a result of lower sales for the first quarter of fiscal 2013 and a favorable foreign exchange effect, partially offset by an increase in costs associated with our fiscal 2012 acquisitions.

General and Administrative

General and administrative expenses include the costs of corporate and support functions, including our executive leadership and administration groups, finance, legal, human resources, corporate communications and other costs such as provisions for doubtful accounts. For the first quarter of fiscal 2013, general and administrative expenses decreased slightly from the first quarter of fiscal 2012. Excluding the favorable effect of foreign exchange, general and administrative expenses were consistent with the prior year period.

Product Development and Enhancements

For the first quarter of fiscal 2013 and fiscal 2012, product development and enhancements expenses represented approximately 11% and 10% of total revenue, respectively. The increase in product development and enhancements expenses was primarily due to a decrease in the proportion of expenditures that were capitalized during the first quarter of fiscal 2013 as compared with the first quarter of fiscal 2012.

Depreciation and Amortization of Other Intangible Assets

The decrease in depreciation and amortization of other intangible assets for the first quarter of fiscal 2013 compared with the first quarter of fiscal 2012 was primarily due to the decrease in the amount of intangible assets acquired that are subject to amortization as a result of intangible assets becoming fully amortized.

 

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Other (Gains) Expenses, Net

Other (gains) expenses, net includes gains and losses attributable to divested assets, foreign currency, exchange rate changes, impairment charges and other miscellaneous items.

As part of our efforts to more fully utilize our intellectual assets, in the first quarter of fiscal 2013, we closed a transaction that assigned the rights to certain of these assets to a large technology company for $35 million. We will continue to have the ability to use these intellectual property assets in current and future product offerings. During the first quarter of fiscal 2013, other (gains) expenses, net included the income from this transaction. In addition, other (gains) expenses, net included $12 million of gains from foreign currency exchange rate fluctuations and $8 million of expenses relating to our foreign exchange derivative contracts.

Interest Expense, Net

Interest expense, net for the first quarter of fiscal 2013 was consistent with the first quarter of fiscal 2012.

Income Taxes

Income tax expense for the first quarter of fiscal 2013 was $130 million, compared with income tax expense of $105 million for the first quarter of fiscal 2012. Income tax expense increased $25 million for the first quarter of fiscal 2013 compared with the year-ago period, as a result of an increase in income from continuing operations before income taxes in the first quarter of fiscal 2013 and also discrete items that occurred in the first quarter of fiscal 2012 that were favorable but did not reoccur in the first quarter of fiscal 2013.

In April 2011, the U.S. Internal Revenue Service (IRS) completed its examination of our federal income tax returns for the tax years ended March 31, 2005, 2006 and 2007 and issued a report of its findings in connection with the examination. We disagree with certain proposed adjustments in the report and are vigorously disputing these matters through the IRS appellate process. The IRS is also examining our federal income tax returns for the tax years ended March 31, 2008, 2009 and 2010.

While it is difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our financial statements reflect the probable outcome of uncertain tax positions. We may adjust these uncertain tax positions, as well as any related interest or penalties, in light of changing facts and circumstances, including the settlement of income tax audits and the expirations of statutes of limitation. To the extent a settlement differs from the amounts previously reserved, that difference generally would be recognized as a component of income tax expense in the period of resolution. Although the timing of the resolution of income tax examinations is highly uncertain, it is reasonably possible that settlements, payments and new information in the next 12 months related to certain federal, foreign and state tax issues may result in changes to our uncertain tax positions, including issues involving taxation of international operations, certain state tax issues and other matters. We believe that such reasonably possible changes within the next 12 months may reduce the balance of unrecognized tax benefits, net of the effects of refunds and other affirmative claims, by an amount up to $200 million.

Our effective income tax rate, excluding the impact of discrete items, for the three months ended June 30, 2012 and 2011 was 32.4% and 32.3%, respectively. Legislative 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 2013 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 quarters of fiscal 2013 and we are anticipating a fiscal 2013 effective tax rate closer to the high end of a 30% to 31% range.

 

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Performance of Segments

Segment financial information for the first quarter of fiscal 2013 and fiscal 2012 is as follows:

 

Mainframe Solutions

   First Quarter
Fiscal 2013
    First Quarter
Fiscal 2012
 

Revenue

   $ 628      $ 646   

Expense

     260        276   
  

 

 

   

 

 

 

Segment profit

   $ 368      $ 370   
  

 

 

   

 

 

 

Segment operating margin

     59     57

For the first quarter of fiscal 2013, Mainframe Solutions revenue decreased from the year-ago period primarily due an unfavorable foreign exchange effect of $19 million. Mainframe Solutions profit and operating margin for the first quarter of fiscal 2013 increased slightly compared with the first quarter of fiscal 2012 as a result of decreased expenses from the effect of favorable foreign exchange, offset by an unfavorable foreign exchange effect on revenue for the period.

 

Enterprise Solutions

   First Quarter
Fiscal 2013
    First Quarter
Fiscal 2012
 

Revenue

   $ 426      $ 427   

Expense

     359        382   
  

 

 

   

 

 

 

Segment profit

   $ 67      $ 45   
  

 

 

   

 

 

 

Segment operating margin

     16     11

Enterprise Solutions revenue for the first quarter of fiscal 2013 decreased $1 million from the first quarter of fiscal 2012, primarily due to a decrease in revenue from our service assurance and virtualization and service automation products. This decrease was partially offset by an increase in revenue from our security (identity and access management) products, which is reflected as software fees and other revenue, and an increase in revenue from products acquired from our fiscal 2012 acquisition of Interactive TKO, Inc. (ITKO). For the first quarter of fiscal 2013, Enterprise Solutions revenue reflected an unfavorable foreign exchange effect of $10 million compared with the first quarter of fiscal 2012. Enterprise Solutions operating margin for the first quarter of fiscal 2013 increased compared with the first quarter of fiscal 2012, primarily due to the income from the aforementioned $35 million intellectual property transaction, which contributed eight percentage points to the margin growth. This improvement was partially offset by an increase in expenses relating to our acquisition of ITKO.

 

Services

   First Quarter
Fiscal 2013
    First Quarter
Fiscal 2012
 

Revenue

   $ 91      $ 90   

Expenses

     87        88   
  

 

 

   

 

 

 

Segment profit

   $ 4      $ 2   
  

 

 

   

 

 

 

Segment operating margin

     4     2

Services revenue and expense for the first quarter of fiscal 2013 were consistent with the first quarter of fiscal 2012. Operating margin for Services increased to 4% in the first quarter of fiscal 2013 compared with 2% in the first quarter of fiscal 2012 as a result of the slight increase in revenue and slight reduction in expense.

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

 

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Bookings

Total Bookings

For the first quarter of fiscal 2013 and fiscal 2012, total bookings were $553 million and $865 million, respectively. The decrease in bookings reflected a year-over-year decline in subscription and maintenance renewals, new product and mainframe capacity sales and professional services bookings. Professional services bookings decreased due to a lower number of engagements, which are largely dependent on new product sales. Total bookings decreased in all regions except the Asia Pacific Japan region. Total new product and mainframe capacity sales in the first quarter of fiscal 2013 declined by approximately 30% compared with the first quarter of fiscal 2012. Within these bookings, new product sales decreased in the United States and the Europe, Middle East and Africa region while they increased in the Asia Pacific Japan region. New product sales in our Latin America region decreased slightly but increased when excluding the unfavorable effect of foreign exchange. Mainframe new product and capacity sales are generally aligned with renewals and were down largely due to our lower renewals in the quarter. Enterprise solutions new product sales declined primarily due to our lower-than-expected sales of new products outside of a renewal process. Bookings performance was also unexpectedly disrupted by our efforts to align our sales force to execute our customer segmented go-to-market initiative and unfavorably affected by a difficult macroeconomic environment. We expect these customer segmentation efforts to show favorable results in the second half of fiscal 2013.

Subscription and Maintenance Bookings

For the first quarter of fiscal 2013 and fiscal 2012, subscription and maintenance bookings were $383 million and $688 million, respectively. The decrease in subscription and maintenance bookings was primarily attributable to a 43% decline in renewal bookings, which was primarily reflective of our smaller renewal portfolio, and to a lesser extent a decrease in new product and mainframe capacity sales.

During the first quarter of fiscal 2013, we renewed a total of four license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $61 million. During the first quarter of fiscal 2012, we renewed a total of eight license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $255 million. The decrease is primarily a result of the aforementioned decline in renewal portfolio. We continue to expect our fiscal 2013 renewal portfolio to decline in the single digits compared with fiscal 2012 and we expect a majority of our renewals to occur in the second half of fiscal 2013. We anticipate that the expected increase in renewals in the second half of fiscal 2013 will result in an increase in mainframe new product and capacity sales compared with the first quarter of fiscal 2013.

Generally, quarters with smaller renewal inventories result in a lower level of bookings both because renewal bookings will be lower and, to a lesser extent, because renewals also remain an important selling opportunity for new products. Renewal bookings for the first quarter of fiscal 2013, which generally do not include new product and capacity sales and professional services arrangements, decreased compared with the prior year period primarily due to the timing of our renewal portfolio. For the first quarter of fiscal 2013, our renewal yield was in the low 80% range. This was primarily due to a single transaction where the effect was amplified by the lower level of renewals in the quarter. Excluding this one transaction, our renewal yield would have been approximately 90%. Subscription and maintenance bookings declined in all regions except the Asia Pacific Japan region.

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. For the first quarter of fiscal 2013, annualized subscription and maintenance bookings decreased from $210 million in the prior year period to $137 million. The weighted average subscription and maintenance license agreement duration in years decreased from 3.28 in the first quarter of fiscal 2012 to 2.79 in the first quarter of fiscal 2013. This decrease was primarily attributable to the duration associated with the contracts in the renewal portfolio, the decrease in large contract renewals and the overall decrease in the number of renewals for the first quarter of fiscal 2013.

 

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Although each contract is subject to terms negotiated by the respective parties, we do not currently expect the weighted average subscription and maintenance agreement duration in years to change materially from historical levels for end-user contracts.

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalent balances are held in numerous locations throughout the world, with 64% held in our subsidiaries outside the United States at June 30, 2012. Cash and cash equivalents totaled $2,541 million at June 30, 2012, representing a decrease of $138 million from the March 31, 2012 balance of $2,679 million. The decrease in cash was primarily a result of the cash payments associated with our payment of dividends and repurchases of our common stock during the first quarter of fiscal 2013. During the first quarter of fiscal 2013, there was a $77 million unfavorable translation effect from foreign currency exchange rates on cash held outside the United States in currencies other than the U.S. dollar.

Although 64% of our cash and cash equivalents is held by foreign subsidiaries, we currently neither intend nor anticipate a need to repatriate these funds to the United States in the foreseeable future. We expect existing domestic cash, cash equivalents, short-term investments, and cash flows from operations 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 expect existing 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 for capital expenditures for acquisitions and research and development, for at least the next 12 months and for the foreseeable future thereafter.

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 up-front 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. Alternatively, we may decide to transfer our rights to the future committed installment payments due under the license agreement to a third-party financial institution in exchange for a cash payment. Once transferred, the future committed installments are payable by the customer to the third-party financial institution. Whether the future committed installments have been financed directly by the customer with our assistance or by the transfer of our rights to future committed installments to a third party, these financing agreements may contain limited recourse provisions with respect to our continued performance under the license agreements. Based on our historical experience, we believe that any liability that we may incur as a result of these limited recourse provisions will be immaterial.

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

 

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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 first quarter of fiscal 2013, gross receipts related to single installments for the entire contract value, or a substantial portion of the contract value, were $123 million, of which $75 million was billed in the fourth quarter of fiscal 2012. For the first quarter of fiscal 2012, gross receipts related to single installments for the entire contract value, or a substantial portion of the contract value, were $64 million, of which $14 million was billed in the fourth quarter of fiscal 2011.

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 the balance sheets for such 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.

We can estimate the total amounts to be billed from committed contracts, referred to as our “billings backlog,” and the total amount to be recognized as revenue from committed contracts, referred to as our “revenue backlog.” The aggregate amounts of our billings backlog and trade receivables already reflected in our Condensed Consolidated Balance Sheets represent the amounts we expect to collect in the future from committed contracts.

 

(in millions)    June 30,
2012
     March 31,
2012
     June 30,
2011
 

Billings backlog:

        

Amounts to be billed – current

   $ 2,208       $ 2,220       $ 2,233   

Amounts to be billed – noncurrent

     2,368         2,623         2,894   
  

 

 

    

 

 

    

 

 

 

Total billings backlog

   $ 4,576       $ 4,843       $ 5,127   
  

 

 

    

 

 

    

 

 

 

Revenue backlog:

        

Revenue to be recognized within the next 12 months – current

   $ 3,527       $ 3,714       $ 3,699   

Revenue to be recognized beyond the next 12 months – noncurrent

     4,244         4,759         4,809   
  

 

 

    

 

 

    

 

 

 

Total revenue backlog

   $ 7,771       $ 8,473       $ 8,508   
  

 

 

    

 

 

    

 

 

 

Deferred revenue (billed or collected)

   $ 3,195       $ 3,630       $ 3,381   

Unearned revenue yet to be billed

     4,576         4,843         5,127   
  

 

 

    

 

 

    

 

 

 

Total revenue backlog

   $ 7,771       $ 8,473       $ 8,508   
  

 

 

    

 

 

    

 

 

 

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

 

 

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We can also estimate the total cash to be collected in the future from committed contracts, referred to as our “Expected future cash collections,” by adding the total billings backlog to the trade accounts receivable, which represent amounts already billed but not collected, from our Condensed Consolidated Balance Sheets.

 

(in millions)    June 30,
2012
     March 31,
2012
     June 30,
2011
 

Expected future cash collections:

        

Total billings backlog

   $ 4,576       $ 4,843       $ 5,127   

Trade accounts receivable, net

     491         902         597   
  

 

 

    

 

 

    

 

 

 

Total expected future cash collections

   $ 5,067       $ 5,745       $ 5,724   
  

 

 

    

 

 

    

 

 

 

The decrease in billings backlog from June 30, 2012 compared with March 31, 2012 and June 30, 2011 was primarily driven by a decrease in total bookings in the first quarter of fiscal 2013.

The decrease in expected future cash collections from June 30, 2012 compared with March 31, 2012 and June 30, 2011 was primarily driven by a decrease in trade accounts receivable as a result of lower customer billings in the first quarter of fiscal 2013, as well as a decrease in billings backlog as described above.

The decrease in total revenue backlog from June 30, 2012 compared with March 31, 2012 and June 30, 2011 was primarily due to the decline of total bookings in the first quarter of fiscal 2013 and the increase in the percentage of bookings recognized as software fees and other revenue in the first quarter of fiscal 2013, which is not included in revenue backlog at June 30, 2012.

Revenue to be recognized in the next 12 months decreased by 5% at June 30, 2012 compared with March 31, 2012. Excluding the effect of foreign exchange, revenue to be recognized in the next 12 months decreased by 4% at June 30, 2012 compared with March 31, 2012.

Revenue to be recognized in the next 12 months decreased by 5% at June 30, 2012 compared with June 30, 2011. Excluding the effect of foreign exchange, revenue to be recognized in the next 12 months decreased by 1% at June 30, 2012 compared with June 30, 2011.

Revenue backlog in the quarter was unfavorably affected by a decline in year-over-year bookings performance. We expect a continued decline in revenue backlog year-over-year through fiscal 2013 prior to an expected increase in our renewal portfolio in fiscal 2014. Generally, we believe that a change in the current portion of revenue backlog on a year-over-year basis is an indicator of future subscription and maintenance revenue performance due to the high percentage of our revenue that is recognized from license agreements that are already committed and being recognized ratably.

Cash Generated by Operating Activities

 

     First Quarter of Fiscal     Change  
     2013     2012     2013/2012  
     (in millions)  

Cash collections from billings ( 1 )

   $ 1,179      $ 1,262      $ (83

Vendor disbursements and payroll ( 1 )

     (918     (887     (31

Income tax (payments) receipts, net

     (125     (198     73   

Other disbursements, net ( 2 )

     47        (34     81   
  

 

 

   

 

 

   

 

 

 

Cash generated by continuing operating activities

   $ 183      $ 143      $ 40   
  

 

 

   

 

 

   

 

 

 

 

(1)

Amounts include VAT and sales taxes.

(2)

Amounts include interest, restructuring, $35 million in cash proceeds received from the aforementioned intellectual property transaction and miscellaneous receipts and disbursements.

 

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Operating Activities:

Cash provided by continuing operating activities for the first quarter of fiscal 2013 was $183 million, representing an increase of $40 million compared with the first quarter of fiscal 2012. The increase was primarily due to a decrease in income tax payments of $73 million, an increase in up-front cash collections of $59 million, the $35 million in cash proceeds received as other income from the aforementioned intellectual property transaction and an increase of $18 million from gains on U.S. dollar-based cash equivalents held by our foreign subsidiaries. These increases were partially offset by lower cash collections and higher disbursements for the first quarter of fiscal 2013. We currently expect the gains on U.S. dollar-based cash equivalents for the first quarter of fiscal 2013 to be offset and unfavorably affect cash provided by continuing operating activities in the second quarter of fiscal 2013 upon settlement of certain derivative contracts.

Investing Activities:

Cash used in investing activities for the first quarter of fiscal 2013 was $61 million compared with $107 million for the first quarter of fiscal 2012. The decrease in cash used in investing activities was primarily due to the decrease in cash paid for acquisitions for the first quarter of fiscal 2013 as compared with the first quarter of fiscal 2012 and a decrease in capitalized software development costs.

Financing Activities:

Cash used in financing activities for the first quarter of fiscal 2013 was $183 million compared with $353 million in the first quarter of fiscal 2012. The decrease in cash used in financing activities was primarily due to the repayment of $250 million under our revolving credit facility due August 2012 during the first quarter of fiscal 2012 and a decrease in common shares repurchased of $67 million, offset by an increase in cash dividends paid of $94 million and a decrease in net borrowings relating to our notional pooling arrangement as compared with the first quarter of fiscal 2012.

Debt Obligations

As of June 30, 2012 and March 31, 2012, our debt obligations consisted of the following:

 

     June 30, 2012     March 31, 2012  
     (in millions)  

Revolving credit facility due August 2016

   $ —        $ —     

5.375% Senior Notes due November 2019

     750        750   

6.125% Senior Notes due December 2014, net of unamortized premium from fair value hedge of $25 and $27

     525        527   

Other indebtedness, primarily capital leases

     28        29   

Unamortized discount for Notes

     (5     (5
  

 

 

   

 

 

 

Total debt outstanding

     1,298        1,301   
  

 

 

   

 

 

 

Less the current portion

     (15     (14
  

 

 

   

 

 

 

Total long-term debt portion

   $ 1,283      $ 1,287   
  

 

 

   

 

 

 

Other Indebtedness

We have available an unsecured and uncommitted multi-currency line of credit to meet short-term working capital needs for our subsidiaries operating outside the United States. We use guarantees and letters of credit issued by financial institutions to guarantee performance on certain contracts. At June 30, 2012 and March 31, 2012, approximately $54 million and $55 million, respectively, was pledged in support of bank guarantees and other local credit lines and none of these arrangements had been drawn down by third parties.

 

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We use a notional pooling arrangement with an international bank to help manage global liquidity requirements. 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. For the first quarter of fiscal 2013, the activity under this cash pooling arrangement was as follows:

 

(in millions)

      

Total borrowing position outstanding at March 31, 2012 (1)

   $ 139   

Borrowings

     253   

Repayments

     (247

Foreign currency exchange effect

     (5
  

 

 

 

Total borrowing position outstanding at June 30, 2012 (1)

   $ 140   
  

 

 

 

 

(1)  

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

For the first quarter of fiscal 2012, borrowings and repayments related to this notional pooling arrangement were approximately $154 million and $86 million, respectively, and are presented within the financing activities section of our Condensed Consolidated Statements of Cash Flows.

For additional information concerning our debt obligations, refer to our Consolidated Financial Statements and Notes thereto included in our 2012 Form 10-K.

Effect of Exchange Rate Changes

There was a $77 million unfavorable impact to our cash balances in the first quarter of fiscal 2013 predominantly due to the strengthening of the U.S. dollar against the euro, the Brazilian real and the Israeli shekel of 5%, 9%, and 6%, respectively.

There was a $37 million favorable impact to our cash balances in the first quarter of fiscal 2012 predominantly due to the weakening of the U.S. dollar against the Swiss franc, the Australian dollar, the Brazilian real and the euro of 9%, 4%, 4% and 2%, respectively.

CRITICAL ACCOUNTING POLICIES AND BUSINESS PRACTICES

The preparation of financial statements in accordance with generally 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 2012 Form 10-K under Management’s Discussion and Analysis of Financial Condition and Results of Operations. At June 30, 2012, there has been no material change to this information.

New Accounting Pronouncements Recently Adopted

Presentation of Comprehensive Income:  In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220) — Presentation of Comprehensive Income (ASU 2011-05), to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. We have adopted ASU 2011-05 effective for the first quarter of fiscal 2013 and included the required disclosures in two separate but consecutive statements.

 

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Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a variety of risks, including foreign currency exchange rate fluctuations, interest rate changes and changes in the market value of our investments. In the normal course of business, we employ established policies and procedures to manage these risks including the use of derivative instruments. There have been no material changes in our financial risk management strategy or our portfolio management strategy, which is described in our 2012 Form 10-K, subsequent to March  31, 2012.

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 Chief Executive Officer and the Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

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.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Refer to Note I, “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 2012 Form 10-K. We believe that as of June 30, 2012, there has been no material change to this information. 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.

 

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Table of Contents

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 first quarter of fiscal 2013:

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period

   Total Number
of Shares
Purchased
    Average
Price Paid
per Share
     Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans

or  Programs
    Approximate
Dollar Value of
Shares that
May Yet Be
Purchased Under
the Plans
or Programs
 
     (amounts in thousands, except average price paid per share)  

April 1, 2012 - April 30, 2012

     —          —           —        $ 1,000,000   

 May 1, 2012 - May 31, 2012

     4,238 (1)     $ 25.13         4,238 (1)     $ 986,834   

 June 1, 2012 - June 30, 2012

     3,242      $ 25.67         3,242      $ 903,616   
  

 

 

      

 

 

   

Total

     7,480           7,480     
  

 

 

      

 

 

   

 

(1)  

Includes 3,713,746 shares received under the Accelerated Share Repurchase agreement described below.

On January 23, 2012, our Board of Directors approved a capital allocation program that authorized us to acquire up to $1.5 billion of our common stock through our fiscal year ending March 31, 2014.

In January 2012, we entered into an Accelerated Share Repurchase (ASR) agreement with a bank to repurchase $500 million of our common stock. Under the agreement, we paid $500 million to the bank for an initial delivery of approximately 15 million shares in the fourth quarter of fiscal 2012. The fair market value of the initially delivered shares on the date of purchase was approximately $375 million. The remaining $125 million was included in “Additional paid-in capital” in our Condensed Consolidated Balance Sheet at March 31, 2012.

The ASR transaction was completed in the first quarter of fiscal 2013, during which time we received approximately 3.7 million additional shares. As a result, the initial amount of $125 million recorded as additional paid-in capital during the fourth quarter of fiscal 2012 was reclassified to treasury stock. The final number of shares delivered upon settlement of the agreement was determined based on the average price of our common stock over the term of the ASR agreement.

In addition to the settlement of the ASR agreement, we repurchased approximately 3.8 million shares of our common stock for approximately $96 million during the first quarter of fiscal 2013. At June 30, 2012, we remained authorized to purchase approximately $904 million of our common stock under the capital allocation program.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

 

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Table of Contents

Item 6. EXHIBITS

Regulation S-K

Exhibit Number

 

    3.1    Amended and Restated Certificate of Incorporation.    Filed as Exhibit 3.3 to the
Company’s Current Report
on Form 8-K dated March  6,
2006.*
    3.2    By-Laws of the Company, as amended.    Filed as Exhibit 3.1 to the
Company’s Current Report
on Form 8-K dated
February 23, 2007.*
  10.1**    Separation Agreement and General Claims Release dated May 1, 2012 between the Company and David C. Dobson.    Filed herewith.
  10.2**    General Claims Release dated May 24, 2012 between the Company and Nancy E. Cooper.    Filed herewith.
  10.3**    Bring-down General Claims Release dated July 18, 2012 between the Company and David C. Dobson.    Filed herewith.
  12.1    Statement of Ratio of Earnings to Fixed Charges.    Filed herewith.
  15    Accountants’ acknowledgment letter.    Filed herewith.
  31.1    Certification of the Principal Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.    Filed herewith.
  31.2    Certification of the Principal Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.    Filed herewith.
  32    Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002.    Furnished herewith.
101    The following financial statements from CA, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended, June 30, 2012 formatted in XBRL (eXtensible Business Reporting Language):    Filed herewith.
  

(i)     Unaudited Condensed Consolidated Balance Sheets — June 30, 2012 and March 31, 2012.

  
  

(ii)    Unaudited Condensed Consolidated Statements of Operations — Three Months Ended June 30, 2012 and 2011.

  
  

(iii)  Unaudited Condensed Consolidated Statements of Cash Flows — Three Months Ended June 30, 2012 and 2011.

  
  

(iv)   Notes to unaudited Condensed Consolidated Financial Statements — June 30, 2012.

  

 

* Incorporated herein by reference.
** Management contract or compensatory plan or arrangement.

 

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Table of Contents

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/ William E. McCracken

 

William E. McCracken

 

Chief Executive Officer

By:  

/s/ Richard J. Beckert

 

Richard J. Beckert

  Executive Vice President and Chief Financial Officer

Dated: July 27, 2012

 

42

Exhibit 10.1

SEPARATION AGREEMENT AND GENERAL CLAIMS RELEASE

CA, Inc., on behalf of its officers, directors, shareholders, employees, agents, representatives, parents, subsidiaries, affiliates, divisions, successors and assigns (hereinafter collectively referred to as the “Company”) and “I” David Dobson agree as follows:

1 . I acknowledge that the Company advised me to read this agreement and its appendices (collectively referred to as the “Agreement”) and carefully consider all of its terms before signing it. The Company gave me 21 calendar days to consider this Agreement. I acknowledge that:

 

  (a) To the extent I deemed appropriate, I took advantage of this period to consider this Agreement before signing it;

 

  (b) I carefully read this Agreement;

 

  (c) I fully understand it;

 

  (d) I am entering into it knowingly and voluntarily;

 

  (e) To the extent I decide to sign and return this Agreement to the Company prior to the 21 days that I have been provided to consider it, I acknowledge that I have done so voluntarily;

 

  (f) In the event the Company makes changes to the offer contained in this Agreement, whether material or immaterial, I understand that any such changes will not restart the 21 day consideration period provided for in Paragraph 1 above;

 

  (g) The Company advised me to discuss this Agreement with my attorney (at my own expense) before signing it and I decided to seek legal advice or not seek legal advice to the extent I deemed appropriate; and,

 

  (h) I understand that the waiver and release contained in this Agreement does not apply to any rights or claims that may arise after the date that I execute the Agreement.

2. I understand that I may revoke my release of claims under the Age Discrimination in Employment Act (“ADEA”) under Paragraph 5 of this Agreement within seven (7) days after I sign it by providing written notice on or before the seventh (7 th ) day after signing to the Company’s Chief Human Resources Officer, located at One CA Plaza, Islandia, New York, 11749. I understand and agree that the Company will not send me any of the consideration described in paragraph 3 below until the seven (7) day revocation period has expired. I further understand and agree that if I choose to revoke my release of claims under ADEA (a) I will only receive 10% of the Separation Payment being offered to me under Paragraph 4(a) of this Agreement; and, (b) all other provisions of this Agreement, including my release of non-ADEA claims shall remain in full force and effect.

3 . In early February, 2012 the Company notified me that it was terminating my employment without cause. Subject to my agreeing to and complying with the terms of this Agreement, the Company has agreed to extend my employment through 11:59 p.m. on July 15, 2012 (the “Termination Date”) to work on special projects.


In exchange for my full acceptance of the terms of this Agreement on or before April 30, 2012 the Company agrees to do the following:

 

  a. Keep me on its payroll with full pay and benefits through the Termination Date. I understand and agree that I will not receive incentive compensation for the Company’s fiscal year that begins on April 1, 2012 and that beginning April 1, 2012 I shall no longer receive executive transportation privileges.

 

  b. Pay me my CA Fiscal Year 2012 Annual Performance Cash Bonus based on the actual performance of the Company achieved as determined by the Company’s Compensation and Human Resources Committee of the Board of Directors (the “Compensation Committee”), with negative discretion only applied with respect to the Company financial performance if, and to the extent, it is applied generally to the executive management team.

 

  c. Offer me Senior Executive Outplacement Assistance for a period of six (6) months at a level and through an agency chosen by the Company. I understand and agree that the Company does not assign any cash value to these services and that I do not have the option of requesting a cash payment in lieu of these services;

 

  d.

Continue my participation in the Ayco Company LP Comprehensive Counseling Program for Company Executives until May 31, 2013, which shall include Tax Preparation Services through Ayco for my calendar year 2012 income tax return. 1

4. I understand and agree that the Company will require me to sign another release in a form substantially similar to this Agreement on or about July 15, 2012 (the “2 nd Release”). In exchange for my acceptance of and compliance with the terms of the 2 nd Release, the Company will do the following:

 

  a.

Pay me the sum of $1,400,000 (less appropriate withholdings) as a Separation Payment (“Separation Payment”) with the Company’s first full payroll cycle following my return of the executed 2 nd Release;

 

  b. Accelerate the vesting of the unvested portions of the Restricted Stock Award and Option Award (as defined in Sections 5(a) and (b) of my Employment Agreement, dated June 23, 2010), on or around the Termination Date.

5. To the greatest extent permitted by law, I release the Company from any and all known or unknown claims and obligations of any nature and kind, in law, equity or otherwise, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date I execute this Agreement. The claims I am waiving and releasing under this Agreement include, but are not limited to, any claims and demands that directly or indirectly arise out of or are in any way connected to my employment with the Company or the Company’s termination of my employment; any claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interest in the Company; and, any claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the New York State Human Rights Law, the New York State

 

1  

I understand and agree that in no event shall my participation in the Ayco Company LP Comprehensive Counseling Program for Company Executives extend beyond the second taxable year following the taxable year in which termination of employment occurred.

 

2


Labor Law and any other federal law, state law, local law, common law, or any other statute, regulation, or law of any type . I also waive any right to any remedy that has been or may be obtained from the Company through the efforts of any other person or any government agency.

I specifically acknowledge that I have been fully and completely compensated for all hours worked during my tenure with the Company and that I have been paid all wages, commissions, benefits, and payments due me from the Company, in accordance with the provisions of the Fair Labor Standards Act and any other federal, state, or local law governing my employment with the Company. I specifically acknowledge that satisfactory written notice regarding the termination of employment has been provided in accordance with Section 8 of my Employment Agreement.

6. I understand and agree that the waiver and release of claims contained in Paragraph 5 of this Agreement shall not apply to any of the following:

 

  a. Any rights I may have under this Agreement;

 

  b. Any rights I may have to continued health or dental benefits under a Company-sponsored benefit plan. Any such benefits shall be governed by the terms of the specific benefit plan under which such benefits are provided;

 

  c. Any rights I may have pertaining to the exercise of vested stock options or shares of restricted stock that I may have under a stock plan administered by the Company. Any such vested options or shares will be governed by the terms of the grant and the stock plan (and any amendments thereto) under which such options/shares were granted;

 

  d. Any rights I may have under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”);

 

  e. Any rights I may have related to vested monies that I may have within the Company’s 401(k) plan;

 

  f. Any claim I may have to reimbursement of business-related expenses that I incurred while performing my job for the Company. Such amounts will be paid if deemed owing in accordance with Company policy; and,

 

  g. Any claim I may have for indemnity under state law which cannot be waived by virtue of state law.

7. I acknowledge that the Company is under no obligation to make the payments or provide the benefits being provided to me under this Agreement, and that the Company will do so only subject to my agreement to, and compliance with, the terms of this Agreement. I understand and agree that if I choose not to accept this Agreement by signing and returning it to the Company on or before April 30, 2012, that my employment with the Company will terminate on April 30, 2012.

8. By signing this Agreement, I warrant that I have not filed and that I will not file any claim or lawsuit relating to my employment with the Company or any event that occurred prior to

 

3


my execution of this Agreement. I understand and agree that nothing in this Agreement shall be interpreted or applied in a manner that affects or limits my otherwise lawful ability to bring an administrative charge with the Equal Employment Opportunity Commission (“EEOC”) or other appropriate federal, state, or local administrative agency. However, I understand and agree that by signing this Agreement, I am releasing the Company from any and all liability arising from the laws, statutes, and common law, as more fully explained in Paragraph 5 of this Agreement. I further understand and agree that I am not and will not be entitled to any monetary or other comparable relief on my behalf resulting from any proceeding brought by me, the EEOC, or any other person or entity, including but not limited to any federal, state, or local agency. I understand that as part of my release of claims under this Agreement, I am specifically assigning to the Company my right to any recovery arising from any such proceeding. I also understand and agree that to the extent permitted by law, in the event I file any claim or lawsuit relating to my employment with the Company or any event that occurred prior to my execution of this Agreement, I shall be liable for any damages or costs incurred by the Company in defending against such lawsuit, including the Company’s reasonable attorney’s fees and costs.

9. I understand and agree that nothing in this Agreement, shall be interpreted or applied in a manner that affects or limits my otherwise lawful ability to challenge, under the Older Workers Benefit Protection Act (29 U.S.C. §626), the knowing and voluntary nature of my release of any age claims in this Agreement before a court, the EEOC, or any other federal, state, or local agency.

10. Except as set forth in this Agreement, I understand, acknowledge, and voluntarily agree that this Agreement is a total and complete release by me of any and all claims which I have against the Company as of the effective date of this Agreement, both known or unknown, even though there may be facts or consequences of facts which are unknown to me.

11. I understand and agree that this Agreement is not an admission of guilt or wrongdoing by the Company and I acknowledge that the Company does not believe or admit that it has done anything wrong. I will not state that this Agreement is an admission of guilt or wrongdoing by the Company and also will not do anything to criticize, denigrate, or disparage the Company.

12. I certify that I have complied with the provisions of the Employment and Confidentiality Agreement (or similar agreement) that I signed when I began working for the Company (the “Confidentiality Agreement”) 2 , a copy of which is attached as Appendix B, and that I have not done or in any way been a party to, or knowingly permitted, any of the following:

 

  a. disclosure of any confidential information or trade secrets of the Company; and

 

  b. retention of any confidential materials (including product and marketing information, development documents or materials, drawings, or other intellectual property) created or used by me or others during my employment or any other property (intellectual or physical) that belongs to the Company.

13. I understand and agree that I have a continuing obligation to preserve as confidential (and not to reveal to anyone or use, for myself or anyone else) any trade secret, know-how or

 

2  

I understand and agree that any non-competition provision found in the Confidentiality Agreement is replaced in its entirety by Appendix A of this Agreement. In the event of a conflict or inconsistency between the terms of the Confidentiality Agreement and the terms of this Agreement, the terms of this Agreement shall govern.

 

4


confidential information created or learned by me during my employment with the Company. By signing this Agreement, I confirm my promise to perform each and every one of the obligations that I undertook in the Confidentiality Agreement. I expressly confirm that I know of no reason why any promise or obligation set forth in the Confidentiality Agreement should not be fully enforceable against me. I understand that the terms of the Confidentiality Agreement are incorporated into this Agreement by reference.

14. I acknowledge that any actual or threatened violation of Paragraphs 12 or 13 would irreparably harm the Company, and that the Company will be entitled to an injunction (without the need to post any bond) prohibiting me from committing any such violation. I further agree that the provisions of Paragraphs 12 and 13 are reasonable and necessary for the protection of the Company’s legitimate business interests, and I agree that I will not contend otherwise in any lawsuit or other proceeding. In the event the Company files a lawsuit against me to enforce its rights under this Agreement and a court of law determines that I have breached my obligations under paragraphs 12 or 13 of this Agreement, I agree that I will pay any damages awarded by the court as well as the reasonable attorney’s fees the Company incurs in connection with such lawsuit.

15. I agree that if I am notified that any claim has been filed against me or the Company that relates to my employment with the Company, I will provide prompt written notice of the same to the Company, and shall cooperate fully with the Company in resolving any such claim. Further, I agree that I will make myself reasonably available to Company representatives in connection with any and all claims, disputes, negotiations, investigations, lawsuits or administrative proceedings relating to my tenure with the Company. I further agree that I will provide the Company with any information and/or documentation in my possession or control that it may request in connection with any and all claims, disputes, negotiations, investigations, lawsuits or administrative proceedings related to my tenure with the Company. I further agree that if requested to do so by the Company, I will provide declarations or statements, will meet with attorneys or other representatives of the Company, and will prepare for and give depositions or testimony on behalf of the Company relating to any claims, disputes, negotiations, investigations, lawsuits or administrative proceedings related to my tenure with the Company. I understand and agree that to the extent my compliance with the terms of this paragraph 15 requires me to travel or otherwise incur out of pocket expenses, the Company will reimburse me for any such reasonable expenses that I incur. Finally, I understand that subject to and in accordance with applicable law and the Company Bylaws as in effect from time to time that I am entitled to indemnification from the Company with respect to any action, suit or proceeding to which I am made or threatened to be made a party that arises out of the good faith performance of my job responsibilities with the Company.

16. I acknowledge that, as a senior executive of the Company, I was privy to a wide range of confidential information and proprietary information. In furtherance of my duty of loyalty to the Company and in consideration for the payments specified in Appendix A, I promise to comply with the terms of the Non-Competition Agreement attached hereto as Appendix A.

17. This Agreement and the Confidentiality Agreement contain the entire agreement between me and the Company regarding the subjects addressed herein, and may be amended only by a writing signed by myself and the Company’s Chief Human Resources Officer. I acknowledge that the Company has made no representations or promises to me other than those in this Agreement. If any one or more of the provisions of this Agreement is determined to be illegal or unenforceable for any reason, such provision or other portion thereof will be modified or deleted in such manner as to make this Agreement, as modified, legal and enforceable to the fullest extent

 

5


permitted under applicable law. Further, any waiver by the Company of any breach by me of any provision of this Agreement, shall not operate or be construed as a waiver of any subsequent breach hereof.

18. This Agreement binds my heirs, administrators, representatives, executors, successors, and assigns, and will inure to the benefit of the Company.

19. This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (Section 409A) or an exemption thereunder and shall be construed and administered in accordance with Section 409A. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon my termination of employment shall only be made upon a “separation from service” under Section 409A. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that I may incur on account of non-compliance with Section 409A

20. This Agreement shall be governed by and, for all purposes, construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in such state. The federal or state courts of the State of New York, County of Suffolk shall have sole and exclusive jurisdiction over any claim or cause of action relating to this Agreement, my employment with the Company, or my separation from the Company. I will accept service of process as provided under New York law or by registered mail, return receipt requested, and waive any objection based upon forum non conveniens or as to personal jurisdiction over me in the state or federal courts of the State of New York, County of Suffolk. The choice of forum set forth in this paragraph shall not be deemed to preclude the enforcement of any judgment obtained in such forum in any other jurisdiction.

21. I understand and agree that if the Company is successful in a suit or proceeding to enforce any of the terms of this Agreement, I will pay the Company’s costs of bringing such suit or proceeding, including its reasonable attorney’s fees and litigation expenses (including expert witness and deposition expenses). Finally, this Agreement shall inure to the benefit of and may be enforced by CA, its successors and assigns. This Agreement is personal to me and I may not assign it.

22. I understand and agree that the terms and conditions of this Agreement are confidential. I will hold these terms and conditions in strict confidence and not disclose the content of this Agreement to anyone, except my spouse/domestic partner, as required by law, or as necessary to obtain financial or legal advice. My violation of this promise will be considered a material breach of this Agreement

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE TO FOLLOW

 

6


IN WITNESS WHEREFORE, the Company has caused this instrument to be executed in its corporate name, by an individual with full authorization to act on its behalf. Further, I sign my name and enter this Agreement on behalf of myself, my legal representatives, executors, heirs and assigns.

 

EMPLOYEE    
BY:  

/s/ David C. Dobson

   
  EMPLOYEE SIGNATURE    
 

David C. Dobson

    April 24, 2012
  EMPLOYEE NAME - PRINTED     DATE

Sworn and subscribed before me this the 24th day of April, 2012.

 

By:  

/s/ Chip Keating

  Notary Public

NOTARIAL STAMP OR SEAL

 

 

 

CA, INC.
BY:  

/s/ Guy Di Lella

DATE:   May 1, 2012

 

7


Appendix A

Non-Competition Agreement

 

  1. I acknowledge that in my capacity as a senior executive of the Company, I was privy to a wide range of confidential information. Some examples of the types of confidential information that I learned in my role include (but are not limited to): The Company’s short-term and long-term business and technology strategy and overall strategic plan; the strategies the Company utilized and the strategies the Company was developing to compete effectively in the marketplace; information about the Company’s growth strategy including entities it was considering acquiring or developing strategic partnerships with; information about the Company’s sales strategies and pricing plans; information concerning existing or prospective customers; and, information about the Company’s product roadmap.

 

  2. I agree that the Company would be severely damaged if I disclosed confidential information that I learned during my tenure to a competitor or if I accepted a position with a competitor that involved sales or sales-related activities or the development or oversight of corporate or technology strategy. I further acknowledge that it would be impossible for me to work in a sales or strategic position with the Company’s competitors without inevitably using and/or disclosing confidential information that I learned in my senior executive role with the Company. Therefore, in furtherance of my duty of loyalty to the Company and to prevent this harm, I promise that until July 31, 2014, I will not:

 

  a. accept an executive or senior position involving sales or sales-related activities or the development or oversight of corporate or technology strategy with any of the following companies or their affiliates or successors in interest (the “Restricted Companies”): BMC, IBM, HP, Oracle, or Compuware. The Company agrees that I may accept a position with a Restricted Company if it is in a line of business that does not compete with the Company (such as the printer business at HP);

 

  b. act as a consultant for any of the Restricted Companies in sales or sales-related activities or the development or oversight of corporate or technology strategy;

 

  c. solicit, call on, service or induce others to solicit, call on or service any “Customer” for the purpose of inducing it to license or lease a product or service which competes with a product or service offered by the Company. A “Customer,” for purposes of this Agreement, is any person or business entity that licensed or leased a CA product or service within the 24 months preceding my Termination Date;

 

  d. solicit, call on, or induce others to solicit or call on, any “Prospective Customer” for the purpose of inducing it to license or lease a product or service which competes with a product or service offered by the Company. A “Prospective Customer,” for purposes of this Agreement, is any person or business entity that I solicited (whether directly or through another CA agent at my direction) on behalf of the Company anytime within the 24 months preceding my Termination Date; and,

 

8


  e. solicit or encourage or endeavor to cause, directly or indirectly, any employee or contractor of the Company to leave his or her employment or placement with the Company, or breach his or her Confidentiality Agreement or employment or placement agreement with the Company.

I agree that the foregoing restrictions are severable, reasonable and necessary. I acknowledge that I can harm the Company from any geographic location by providing my acquired knowledge of the Company’s confidential information to any of the Restricted Companies.

 

  3. In exchange for the promises set forth in this Agreement, the Company agrees to award me a prorated portion of my CA Fiscal Year 2011 & 2012 Three-Year Performance Share Awards in accordance with the terms and conditions of the applicable Plan governing such awards, such pro-ration to be based upon the portion of the applicable performance periods that have been completed through my Termination Date. I understand and agree that such share grants (i) shall be made only after the end of the applicable performance cycle, (ii) shall be based upon actual performance achieved as determined in the sole discretion of the Compensation Committee (provided that negative discretion shall only be applied to the extent it is applied generally to the executive management team) and (iii) that nothing herein shall be construed to accelerate the vesting of any Performance Share Award. I understand that the Company anticipates that these awards will be made in June, 2013 and June, 2014 contemporaneous with awards made to other Company executives.

 

  4. I understand and agree that if I breach the provisions of this Non-Competition Agreement, that any future payment obligations that the Company may have under this Non-Competition Agreement at the time of the breach will immediately cease and that the Company will still have the ability to pursue any and all legal remedies available to it to address such breach.

 

  5. This Non-Competition Agreement shall be governed by and, for all purposes, construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in such state. The federal or state courts of the State of New York, County of Suffolk shall have sole and exclusive jurisdiction over any claim or cause of action relating to this Agreement, my employment with the Company, or my separation from the Company. I will accept service of process as provided under New York law or by registered mail, return receipt requested, and waive any objection based upon forum non conveniens or as to personal jurisdiction over me in the state or federal courts of the State of New York, County of Suffolk. The choice of forum set forth in this paragraph shall not be deemed to preclude the enforcement of any judgment obtained in such forum in any other jurisdiction.

 

  6. I understand and agree that if the Company is successful in a suit or proceeding to enforce any of the terms of this Non-Competition Agreement, I will pay the Company’s costs of bringing such suit or proceeding, including its reasonable attorney’s fees and litigation expenses (including expert witness travel and deposition expenses).

 

  7. This Non-Competition Agreement shall inure to the benefit of and may be enforced by CA, its successors and assigns. I understand and agree that this Non-Competition Agreement is personal to me and I may not assign it.

 

9

Exhibit 10.2

GENERAL CLAIMS RELEASE

CA, Inc., on behalf of its officers, directors, shareholders, employees, agents, representatives, parents, subsidiaries, affiliates, divisions, successors and assigns (hereinafter collectively referred to as the “Company”) and “I” Nancy Cooper (hereinafter referred to as “I” or “Releasor”) agree as follows:

1. I acknowledge that the Company advised me to read this agreement (the “Agreement”) and carefully consider all of its terms before signing it. The Company gave me 21 calendar days to consider this Agreement. I acknowledge that:

 

  (a) To the extent I deemed appropriate, I took advantage of this period to consider this Agreement before signing it;

 

  (b) I carefully read this Agreement;

 

  (c) I fully understand it;

 

  (d) I am entering into it knowingly and voluntarily;

 

  (e) To the extent I decide to sign and return this Agreement to the Company prior to the 21 days that I have been provided to consider it, I acknowledge that I have done so voluntarily;

 

  (f) In the event the Company makes changes to the offer contained in this Agreement, whether material or immaterial, I understand that any such changes will not restart the 21 day consideration period provided for in Paragraph 1 above;

 

  (g) The Company advised me to discuss this Agreement with my attorney (at my own expense) before signing it and I decided to seek legal advice or not seek legal advice to the extent I deemed appropriate; and,

 

  (h) I understand that the waiver and release contained in this Agreement does not apply to any rights or claims that may arise after the date that I execute the Agreement.

2. I understand that I may revoke my release of claims under the Age Discrimination in Employment Act (“ADEA”) under Paragraph 4 of this Agreement within seven (7) days after I sign this Agreement by providing written notice on or before the seventh (7 th ) day after signing this Agreement to the Company’s, Chief Human Resources Officer, located at One CA Plaza, Islandia, New York, 11749. I understand and agree that the Company will not send me any of the consideration described in paragraph 3 below until the seven (7) day revocation period has expired. I further understand and agree that if I choose to revoke my release of claims under ADEA (a) I will only receive 10% of the Release Payment being offered to me under Paragraph 3 of this Agreement; and, (b) all other provisions of this Agreement, including my release of non-ADEA claims shall remain in full force and effect.

3. In exchange for my full acceptance of the terms of this Agreement on or before June, 6, 2012, the Company agrees to pay me the sum of $600,000 (the “Release Payment”). I

 

1


acknowledge and agree that I have received all amounts due to me, including in respect of any salary, bonus, severance, benefits and incentive compensation (including any equity-based compensation).

I understand and agree that the Company will make normal withholdings from the Release Payment for things such as federal, state and local taxes and that such payment will be made to me in a lump sum payable with the Company’s first full payroll cycle following my return of this executed Agreement and the expiration of the 7 day revocation period referenced in paragraph 2 of this Agreement.

4. To the greatest extent permitted by law, I release the Company from any and all known or unknown claims and obligations of any nature and kind, in law, equity or otherwise, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date I execute this Agreement. The claims I am waiving and releasing under this Agreement include, but are not limited to, any claims and demands that directly or indirectly arise out of or are in any way connected to my employment with the Company or the Company’s termination of my employment; any claims or demands related to salary, bonuses, severance commissions, benefits, incentive compensation (including equity-based compensation), stock, stock options, or any other payments or ownership interest in the Company; and, any claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the New York State Human Rights Law, the New York State Labor Law and any other federal law, state law, local law, common law, or any other statute, regulation, or law of any type . I also waive any right to any remedy that has been or may be obtained from the Company through the efforts of any other person or any government agency.

I specifically acknowledge that I have been fully and completely compensated for all hours worked during my tenure with the Company and that I have been paid all wages, commissions, equity-based compensation, benefits, and payments due me from the Company, in accordance with the provisions of the Fair Labor Standards Act and any other federal, state, or local law governing my employment with the Company.

5. I understand and agree that the waiver and release of claims contained in paragraph 4 of this Agreement shall not apply to any of the following:

 

  a. Any rights I may have under this Agreement;

 

  b. Any rights I may have under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”);

 

  c. Any rights I may have related to vested monies that I may have within the Company’s 401(k) plan;

 

2


  d. Any claim I may have for indemnity under state law which cannot be waived by virtue of state law.

6. I acknowledge that the Company is under no obligation to make the payment being provided to me pursuant to paragraph 3 of this Agreement, and that the Company will do so only subject to my agreement to, and compliance with, the terms of this Agreement.

7. By signing this Agreement, I warrant that I have not filed and that I will not file any claim or lawsuit relating to my employment with the Company or any event that occurred prior to my execution of this Agreement. I understand and agree that nothing in this Agreement shall be interpreted or applied in a manner that affects or limits my otherwise lawful ability to bring an administrative charge with the Equal Employment Opportunity Commission (“EEOC”) or other appropriate federal, state, or local administrative agency. However, I understand and agree that by signing this Agreement, I am releasing the Company from any and all liability arising from the laws, statutes, and common law, as more fully explained in paragraph 4 of this Agreement. I further understand and agree that I am not and will not be entitled to any monetary or other comparable relief on my behalf resulting from any proceeding brought by me, the EEOC, or any other person or entity, including but not limited to any federal, state, or local agency. I understand that as part of my release of claims under this Agreement, I am specifically assigning to the Company my right to any recovery arising from any such proceeding. I also understand and agree that to the extent permitted by law, in the event I file any claim or lawsuit relating to my employment with the Company or any event that occurred prior to my execution of this Agreement, I shall be liable for any damages or costs incurred by the Company in defending against such lawsuit, including the Company’s reasonable attorney’s fees and costs.

8. I understand and agree that nothing in this Agreement, shall be interpreted or applied in a manner that affects or limits my otherwise lawful ability to challenge, under the Older Workers Benefit Protection Act (29 U.S.C. §626), the knowing and voluntary nature of my release of any age claims in this Agreement before a court, the EEOC, or any other federal, state, or local agency.

9. Except as set forth in this Agreement, I understand, acknowledge, and voluntarily agree that this Agreement is a total and complete release by me of any and all claims which I have against the Company as of the effective date of this Agreement, both known or unknown, even though there may be facts or consequences of facts which are unknown to me.

10. I understand and agree that this Agreement is not an admission of guilt or wrongdoing by the Company and I acknowledge that the Company does not believe or admit that it has done anything wrong. I will not state that this Agreement is an admission of guilt or wrongdoing by the Company and also will not do anything to criticize, denigrate, or disparage the Company.

 

3


11. I certify that I have complied with the provisions of the Employment and Confidentiality Agreement (or similar agreement) that I signed when I began working for the Company (the “Confidentiality Agreement”) and that I have not done or in any way been a party to, or knowingly permitted, any of the following:

 

  a. disclosure of any confidential information or trade secrets of the Company; and

 

  b. retention of any confidential materials (including product and marketing information, development documents or materials, drawings, or other intellectual property) created or used by me or others during my employment or any other property (intellectual or physical) that belongs to the Company.

12. I understand and agree that I have a continuing obligation to preserve as confidential (and not to reveal to anyone or use, for myself or anyone else) any trade secret, know-how or confidential information created or learned by me during my employment with the Company. By signing this Agreement, I confirm my promise to perform each and every one of the obligations that I undertook in the Confidentiality Agreement. I expressly confirm that I know of no reason why any promise or obligation set forth in the Confidentiality Agreement should not be fully enforceable against me. I understand that the terms of the Confidentiality Agreement are incorporated into this Agreement by reference.

13. I acknowledge that any actual or threatened violation of Paragraphs 11 or 12 would irreparably harm the Company, and that the Company will be entitled to an injunction (without the need to post any bond) prohibiting me from committing any such violation. I further agree that the provisions of Paragraphs 11 and 12 are reasonable and necessary for the protection of the Company’s legitimate business interests, and I agree that I will not contend otherwise in any lawsuit or other proceeding. I further agree that I will pay the reasonable attorney’s fees incurred by the Company as well as any damages the Company may incur as a result of my breaching the provisions of paragraphs 11 or 12.

14. I agree that if I am notified that any claim has been filed against me or the Company that relates to my employment with the Company, I will provide prompt written notice of the same to the Company, and shall cooperate fully with the Company in resolving any such claim. Further, I agree that I will make myself reasonably available to Company representatives in connection with any and all claims, disputes, negotiations, investigations, lawsuits or administrative proceedings relating to my tenure with the Company. I further agree that I will provide the Company with any information and/or documentation in my possession or control that it may request in connection with any and all claims, disputes, negotiations, investigations, lawsuits or administrative proceedings related to my tenure with the Company. I further agree that if requested to do so by the Company, I will provide declarations or statements, will meet with attorneys or other representatives of the Company, and will prepare for and give depositions or testimony

 

4


on behalf of the Company relating to any claims, disputes, negotiations, investigations, lawsuits or administrative proceedings related to my tenure with the Company. I understand and agree that to the extent my compliance with the terms of this paragraph 14 requires me to travel or otherwise incur out of pocket expenses, the Company will reimburse me for any such reasonable expenses that I incur.

15. This Agreement and the Confidentiality Agreement contain the entire agreement between me and the Company regarding the subjects addressed herein, and may be amended only by a writing signed by myself and the Company’s Chief Human Resources Officer. I acknowledge that the Company has made no representations or promises to me other than those in this Agreement. If any one or more of the provisions of this Agreement is determined to be illegal or unenforceable for any reason, such provision or other portion thereof will be modified or deleted in such manner as to make this Agreement, as modified, legal and enforceable to the fullest extent permitted under applicable law.

16. This Agreement binds my heirs, administrators, representatives, executors, successors, and assigns, and will inure to the benefit of the Company.

17. This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (Section 409A) or an exemption thereunder and shall be construed and administered in accordance with Section 409A. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that I may incur on account of non-compliance with Section 409A.

18. This Agreement shall be governed by and, for all purposes, construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in such state. The federal or state courts of the State of New York, County of Suffolk shall have sole and exclusive jurisdiction over any claim or cause of action relating to this Agreement, my employment with the Company, or my separation from the Company. I will accept service of process as provided under New York law or by registered mail, return receipt requested, and waive any objection based upon forum non conveniens or as to personal jurisdiction over me in the state or federal courts of the State of New York, County of Suffolk. The choice of forum set forth in this paragraph shall not be deemed to preclude the enforcement of any judgment obtained in such forum in any other jurisdiction.

19. I understand and agree that the terms and conditions of this Agreement are confidential. I will hold these terms and conditions in strict confidence and not disclose the content of this Agreement to anyone, except my spouse/domestic partner, as required by law, or as necessary to obtain financial or legal advice. My violation of this promise will be considered a material breach of this Agreement

 

5


IN WITNESS WHEREFORE, the Company has caused this instrument to be executed in its corporate name, by an individual with full authorization to act on its behalf. Further, I sign my name and enter this Agreement on behalf of myself, my legal representatives, executors, heirs and assigns.

 

RELEASOR    
BY:  

/s/ Nancy E. Cooper

   
  SIGNATURE    
 

Nancy E. Cooper

    May 23, 2012
  NAME – PRINTED     DATE

Sworn and subscribed before me this the 23rd day of May, 2012.

 

By:  

/s/ Kathie Young

  Notary Public

NOTARIAL STAMP OR SEAL

 

 

 

CA, INC.
BY:  

/s/ Guy Di Lella

DATE:   May 24, 2012

 

6

Exhibit 10.3

GENERAL CLAIMS RELEASE

CA, Inc., on behalf of its officers, directors, shareholders, employees, agents, representatives, parents, subsidiaries, affiliates, divisions, successors and assigns (hereinafter collectively referred to as the “Company”) and “I” David Dobson agree as follows:

 

  1. On or about April 24, 2012, I signed a Separation Agreement & General Claims Release (“Agreement”) presented to me by the Company;

 

  2.

Section 4 of the Agreement requires me to sign a 2 nd Release as a condition of receiving the payments described in Section 4 of the Agreement;

 

  3. To date, I have received all of the benefits that have come due as outlined in section 3 of the Agreement;

 

  4.

By signing this 2 nd Release, I reaffirm each and every provision of the Agreement as of today’s date and specifically acknowledge that I am waiving any and all claims of any nature or kind that I may have against the Company (whether known or unknown to me) that accrued or could have accrued between the time that I signed the Agreement and the time I sign this 2 nd Release.

 

  5.

Section 20 of the Agreement shall apply to this 2 nd Release.

IN WITNESS WHEREFORE, the Company has caused this instrument to be executed in its corporate name, by an individual with full authorization to act on its behalf. Further, I sign my name and enter this Agreement on behalf of myself, my legal representatives, executors, heirs and assigns.

 

EMPLOYEE    
BY:  

/s/ David C. Dobson

   
  EMPLOYEE SIGNATURE    
 

David C. Dobson

    July 18, 2012
  EMPLOYEE NAME – PRINTED     DATE

Sworn and subscribed before me this the 18th day of July, 2012.

 

By:  

/s/ Carole Wilkinson

  Notary Public

 

 

 

CA, INC.
BY:  

/s/ Guy Di Lella

DATE:   July 18, 2012

Exhibit 12.1

CA, Inc.

STATEMENT OF RATIOS OF EARNINGS TO FIXED CHARGES

(in millions, except ratios)

 

     Fiscal Year      Q1  
     2008      2009      2010      2011      2012      2013  

Earnings available for fixed charges:

                 

Earnings from continuing operations before income taxes, minority interest and discontinued operations

   $ 762       $ 1,049       $ 1,152       $ 1,209       $ 1,354       $ 370   

Add: Fixed charges

     248         191         156         121         123         25   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total earnings available for fixed charges

   $ 1,010       $ 1,240       $ 1,308       $ 1,330       $ 1,477       $ 395   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Fixed charges:

                 

Interest expense(1)

   $ 169       $ 130       $ 102       $ 68       $ 64       $ 16   

Interest portion of rental expense

     79         61         54         53         59         9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed charges

   $ 248       $ 191       $ 156       $ 121       $ 123       $ 25   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

RATIOS OF EARNINGS TO FIXED CHARGES

     4.07         6.49         8.38         10.99         12.01         15.80   

Deficiency of earnings to fixed charges

     n/a         n/a         n/a         n/a         n/a         n/a   

 

(1) Includes amortization of discount related to indebtedness

Exhibit 15

July 27, 2012

CA, Inc.

One CA Plaza

Islandia, New York 11749

Re: Registration Statement No. 333-174849 on Form S-3 and Registration Statement Nos. 333-177558, 333-176166, 333-146173, 333-120849, 333-108665, 333-100896, 333-88916, 333-32942, 333-31284, 333-83147, 333-80883, 333-79727, 333-62055, 333-19071, 333-04801, 333-127602, 333-127601, 333-126273, 33-64377, 33-53915, 33-53572, 33-34607, 33-18322, 33-20797, 2-92355, 2-87495 and 2-79751 on Form S-8.

With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated July 27, 2012 related to our review of interim financial information.

Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.

/s/ KPMG LLP

New York, New York

Exhibit 31.1

 

CEO CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William E. McCracken, certify that:

 

1. I have reviewed the Quarterly Report on Form 10-Q of CA, Inc. for its most recent fiscal quarter;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: July 27, 2012      

/s/ William E. McCracken

      William E. McCracken
      Chief Executive Officer
      CA, Inc.

Exhibit 31.2

CFO CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard J. Beckert, certify that:

 

1. I have reviewed the Quarterly Report on Form 10-Q of CA, Inc. for its most recent fiscal quarter;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: July 27, 2012      

/s/ Richard J. Beckert

      Richard J. Beckert
      Executive Vice President and Chief Financial Officer
      CA, Inc.

Exhibit 32

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report on Form 10-Q of CA, Inc., a Delaware corporation (the “Company”), for the fiscal quarter ended June 30, 2012 as filed with the Securities and Exchange Commission (the “Report”), each of William E. McCracken, Chief Executive Officer of the Company, and Richard J. Beckert, Executive Vice President and Chief Financial Officer of the Company, hereby certifies, pursuant to §906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350), that to his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ William E. McCracken

William E. McCracken
Chief Executive Officer
July 27, 2012

/s/ Richard J. Beckert

Richard J. Beckert
Executive Vice President and Chief Financial Officer
July 27, 2012

The foregoing certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that Section. The foregoing certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.