CA Technologies
CA, INC. (Form: 10-Q, Received: 10/26/2012 16:26:38)
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 September 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 October 22, 2012
par value $0.10 per share
 
459,287,341


Table of Contents

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


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 September 30, 2012 , and the related condensed consolidated statements of operations and comprehensive income for the three-month and six-month periods ended September 30, 2012 and 2011, and the condensed consolidated statements of cash flows for the six-month periods ended September 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
October 26, 2012     


1


Item 1.
CA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
 
 
September 30,
2012
 
March 31,
2012
 
(unaudited)
 
 
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
2,086

 
$
2,679

Short-term investments
162

 

Trade accounts receivable, net
584

 
902

Deferred income taxes
228

 
231

Other current assets
144

 
153

TOTAL CURRENT ASSETS
$
3,204

 
$
3,965

Property and equipment, net of accumulated depreciation of $750 and $707, respectively
$
350

 
$
386

Goodwill
5,856

 
5,856

Capitalized software and other intangible assets, net
1,312

 
1,389

Deferred income taxes
169

 
151

Other noncurrent assets, net
249

 
250

TOTAL ASSETS
$
11,140

 
$
11,997

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Current portion of long-term debt
$
14

 
$
14

Accounts payable
90

 
95

Accrued salaries, wages and commissions
236

 
350

Accrued expenses and other current liabilities
435

 
444

Deferred revenue (billed or collected)
2,101

 
2,658

Taxes payable, other than income taxes payable
39

 
80

Federal, state and foreign income taxes payable
204

 
96

Deferred income taxes
14

 
14

TOTAL CURRENT LIABILITIES
$
3,133

 
$
3,751

Long-term debt, net of current portion
$
1,280

 
$
1,287

Federal, state and foreign income taxes payable
417

 
430

Deferred income taxes
44

 
44

Deferred revenue (billed or collected)
826

 
972

Other noncurrent liabilities
110

 
116

TOTAL LIABILITIES
$
5,810

 
$
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; 453,908,420 and 466,183,134 shares outstanding, respectively
59

 
59

Additional paid-in capital
3,566

 
3,491

Retained earnings
5,092

 
4,865

Accumulated other comprehensive loss
(118
)
 
(108
)
Treasury stock, at cost, 135,786,661 and 123,511,947 shares, respectively
(3,269
)
 
(2,910
)
TOTAL STOCKHOLDERS’ EQUITY
$
5,330

 
$
5,397

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
11,140

 
$
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
September 30,
 
For the Six
Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
REVENUE
 
 
 
 
 
 
 
Subscription and maintenance revenue
$
963

 
$
1,022

 
$
1,940

 
$
2,029

Professional services
95

 
96

 
186

 
186

Software fees and other
94

 
82

 
171

 
148

TOTAL REVENUE
$
1,152

 
$
1,200

 
$
2,297

 
$
2,363

EXPENSES
 
 
 
 
 
 
 
Costs of licensing and maintenance
$
69

 
$
71

 
$
138

 
$
138

Cost of professional services
88

 
91

 
174

 
179

Amortization of capitalized software costs
67

 
55

 
131

 
105

Selling and marketing
317

 
370

 
622

 
696

General and administrative
98

 
104

 
208

 
218

Product development and enhancements
123

 
140

 
248

 
258

Depreciation and amortization of other intangible assets
40

 
43

 
81

 
90

Other (gains) expenses, net
13

 
(7
)
 
(23
)
 
4

TOTAL EXPENSES BEFORE INTEREST AND INCOME TAXES
$
815

 
$
867

 
$
1,579

 
$
1,688

Income from continuing operations before interest and income taxes
$
337

 
$
333

 
$
718

 
$
675

Interest expense, net
10

 
6

 
21

 
15

Income from continuing operations before income taxes
$
327

 
$
327

 
$
697

 
$
660

Income tax expense
105

 
91

 
235

 
196

INCOME FROM CONTINUING OPERATIONS
$
222

 
$
236

 
$
462

 
$
464

Income from discontinued operations, net of income taxes

 

 

 
13

NET INCOME
$
222

 
$
236

 
$
462

 
$
477

BASIC INCOME PER SHARE
 
 
 
 
 
 
 
Income from continuing operations
$
0.48

 
$
0.47

 
$
0.99

 
$
0.92

Income from discontinued operations

 

 

 
0.03

Net income
$
0.48

 
$
0.47

 
$
0.99

 
$
0.95

Basic weighted average shares used in computation
458

 
493

 
462

 
497

DILUTED INCOME PER SHARE
 
 
 
 
 
 
 
Income from continuing operations
$
0.48

 
$
0.47

 
$
0.99

 
$
0.92

Income from discontinued operations

 

 

 
0.03

Net income
$
0.48

 
$
0.47

 
$
0.99

 
$
0.95

Diluted weighted average shares used in computation
459

 
494

 
463

 
498

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
September 30,
 
For the Six
Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Net income
$
222

 
$
236

 
$
462

 
$
477

OTHER COMPREHENSIVE (LOSS)/INCOME
 
 
 
 
 
 
 
Foreign currency translation adjustments
16

 
(85
)
 
(10
)
 
(68
)
TOTAL OTHER COMPREHENSIVE INCOME
$
16

 
$
(85
)
 
$
(10
)
 
$
(68
)
COMPREHENSIVE INCOME
$
238

 
$
151

 
$
452

 
$
409

See accompanying Notes to the Condensed Consolidated Financial Statements

4

Table of Contents

CA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
 
For the Six
Months Ended
September 30,
 
2012
 
2011
OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:
 
 
 
Net income
$
462

 
$
477

Income from discontinued operations

 
(13
)
Income from continuing operations
$
462

 
$
464

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
 
 
 
Depreciation and amortization
212

 
195

Provision for deferred income taxes
(2
)
 
123

Provision for bad debts
3

 

Share-based compensation expense
44

 
41

Asset impairments and other non-cash items
3

 
9

Foreign currency transaction losses (gains)
19

 
(1
)
Changes in other operating assets and liabilities, net of effect of acquisitions:
 
 
 
Decrease in trade accounts receivable
306

 
255

Decrease in deferred revenue
(677
)
 
(483
)
Increase (decrease) in taxes payable, net
17

 
(215
)
Increase in accounts payable, accrued expenses and other
11

 
10

Decrease in accrued salaries, wages and commissions
(113
)
 
(21
)
Changes in other operating assets and liabilities
(13
)
 
(44
)
NET CASH PROVIDED BY OPERATING ACTIVITIES – CONTINUING OPERATIONS
$
272

 
$
333

INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:
 
 
 
Acquisitions of businesses, net of cash acquired, and purchased software
$
(12
)
 
$
(369
)
Purchases of property and equipment
(32
)
 
(40
)
Proceeds from divestiture of assets

 
7

Capitalized software development costs
(78
)
 
(96
)
Purchases of investments
(154
)
 
(71
)
Proceeds from sale of investments

 
27

Maturities of investments

 
43

Other investing activities
2

 
(1
)
NET CASH USED IN INVESTING ACTIVITIES – CONTINUING OPERATIONS
$
(274
)
 
$
(500
)
FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:
 
 
 
Dividends paid
$
(235
)
 
$
(50
)
Purchases of common stock
(344
)
 
(353
)
Debt borrowings
513

 
164

Debt repayments
(487
)
 
(353
)
Exercise of common stock options and other
22

 
11

NET CASH USED IN FINANCING ACTIVITIES – CONTINUING OPERATIONS
$
(531
)
 
$
(581
)
Effect of exchange rate changes on cash
$
(60
)
 
$
(85
)
NET CHANGE IN CASH AND CASH EQUIVALENTS – CONTINUING OPERATIONS
$
(593
)
 
$
(833
)
CASH USED IN OPERATING ACTIVITIES – DISCONTINUED OPERATIONS
$

 
$
(17
)
CASH PROVIDED BY INVESTING ACTIVITIES – DISCONTINUED OPERATIONS

 
4

NET EFFECT OF DISCONTINUED OPERATIONS ON CASH AND CASH EQUIVALENTS
$

 
$
(13
)
DECREASE IN CASH AND CASH EQUIVALENTS
$
(593
)
 
$
(846
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
$
2,679

 
$
3,049

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
2,086

 
$
2,203

See accompanying Notes to the Condensed Consolidated Financial Statements

5

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 and six months ended September 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 six months ended September 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 73% being held by the Company’s foreign subsidiaries outside the United States at September 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 I, “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. See Note G, “Deferred Revenue,” for additional information.
Statements of Cash Flows: For the six months ended September 30, 2012 and 2011, interest payments, net were approximately $31 million and $30 million , respectively, and income taxes paid were approximately $150 million and $221 million , respectively. For the six months ended September 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 six months ended September 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 $62 million (net of approximately $34 million of taxes withheld) and $53 million (net of approximately $26 million of taxes withheld), respectively; and discretionary stock contributions to the CA, Inc. Savings Harvest Plan of approximately $29 million and $13 million , respectively.

6

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 six months ended September 30, 2012 was as follows:
(in millions)
 
Total borrowing position outstanding at March 31, 2012 (1)
$
139

Borrowings
513

Repayments
(481
)
Foreign currency exchange effect
(7
)
Total borrowing position outstanding at September 30, 2012 (1)
$
164

 
(1)
Included in “Accrued expenses and other current liabilities” in the Company’s Condensed Consolidated Balance Sheets.
For the six months ended September 30, 2011 , borrowings and repayments related to the notional pooling arrangement were approximately $164 million and $97 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 six months ended September 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 eliminated the option to present the components of other comprehensive income as part of the statement of equity. The Company adopted ASU 2011-05 in the first quarter of fiscal year 2013 by including the required disclosures in two separate but consecutive 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:
 
 
Six Months Ended
September 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




7

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 r e duction 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 $119 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 six months ended September 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 September 30, 2012
Severance
$
13

 
$

 
$
(3
)
 
$
(7
)
 
$

 
$
3

Facilities abandonment
40

 

 

 
(5
)
 
(3
)
 
32

Total accrued liabilities
$
53

 
 
 
 
 
 
 
 
 
$
35

 
(in millions)
Accrued
Balance at March 31, 2011
 
Expense
 
Change
in
Estimate
 
Payments
 
Accretion
and Other
 
Accrued
Balance at September 30, 2011
Severance
$
8

 
$
44

 
$

 
$
(15
)
 
$

 
$
37

Facilities abandonment
47

 

 

 
(6
)
 
1

 
42

Total accrued liabilities
$
55

 
 
 
 
 
 
 
 
 
$
79

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.

NOTE D - INVESTMENTS
At September 30, 2012, short-term investments consisted of time deposits held by foreign entities that are denominated in currencies other than the U.S. dollar.  These investments have maturities greater than three months, but less than one year.
At March 31, 2012, short-term investments were less than $1 million .








8

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


NOTE E – 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:
 
September 30,
2012
 
March 31,
2012
 
(in millions)
Accounts receivable – billed
$
511

 
$
812

Accounts receivable – unbilled
72

 
80

Other receivables
21

 
26

Less: Allowances
(20
)
 
(16
)
Trade accounts receivable, net
$
584

 
$
902


NOTE F – GOODWILL, CAPITALIZED SOFTWARE AND OTHER INTANGIBLE ASSETS
The gross carrying amounts and accumulated amortization for capitalized software and other intangible assets at September 30, 2012 were as follows:
 
At September 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
$
5,631

 
$
4,740

 
$
891

 
$
275

 
$
616

Internally developed software products
1,444

 
615

 
829

 
293

 
536

Other intangible assets
812

 
429

 
383

 
223

 
160

Total capitalized software costs and other intangible assets
$
7,887

 
$
5,784

 
$
2,103

 
$
791

 
$
1,312

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 September 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

 
$
99

 
$
88

 
$
86

 
$
84

Internally developed
157

 
152

 
128

 
97

 
63

Other intangible assets
54

 
48

 
40

 
26

 
9

Total
$
318

 
$
299

 
$
256

 
$
209

 
$
156


At both September 30, 2012 and March 31, 2012, the goodwill balance was $5,856 million .

NOTE G – DEFERRED REVENUE
The current and noncurrent components of “Deferred revenue (billed or collected)” at September 30, 2012 and March 31, 2012 were as follows:
 
September 30,
2012
 
March 31,
2012
 
(in millions)
Current:
 
 
 
Subscription and maintenance
$
1,943

 
$
2,479

Professional services
140

 
162

Financing obligations and other
18

 
17

Total deferred revenue (billed or collected) – current
$
2,101

 
$
2,658

Noncurrent:
 
 
 
Subscription and maintenance
$
787

 
$
935

Professional services
37

 
35

Financing obligations and other
2

 
2

Total deferred revenue (billed or collected) – noncurrent
$
826

 
$
972

Total deferred revenue (billed or collected)
$
2,927

 
$
3,630


NOTE H – 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 , which 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.
At September 30, 2012 , the fair value of these derivatives was an asset of approximately $25 million , of which approximately $12 million is included in “Other current assets” and approximately $13 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.

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


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 September 30, 2012 , foreign currency contracts outstanding consisted of purchase and sales contracts with a total notional value of approximately $881 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 six months . The net fair value of these contracts at September 30, 2012 was a net asset of approximately $3 million , of which approximately $8 million is included in “Other current assets” and approximately $5 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:
   
Amount of Net (Gain)/Loss Recognized in the
Condensed Consolidated  Statements of Operations
(in millions)
 
Three Months Ended
September 30, 2012
 
Three Months Ended
September 30, 2011
Interest expense, net – interest rate swaps designated as fair value hedges
$
(3
)
 
$
(3
)
Other (gains) expenses, net – foreign currency contracts
$
2

 
$
(6
)
   
Amount of Net (Gain)/Loss Recognized in the
Condensed Consolidated  Statements of Operations
(in millions)
 
Six Months Ended
September 30, 2012
 
Six Months Ended
September 30, 2011
Interest expense, net – interest rate swaps designated as fair value hedges
$
(6
)
 
$
(6
)
Other (gains) expenses, net – foreign currency contracts
$
10

 
$
1

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 September 30, 2012 and March 31, 2012 . The Company posted no collateral at September 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.


11

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


NOTE I – FAIR VALUE MEASUREMENTS
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2012 and March 31, 2012 :
 
 
At September 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
$
977

 
$

 
$
977

(1)  
$
1,374

 
$

 
$
1,374

(2)  
Foreign exchange derivatives (3)

 
8

 
8

 

 
2

 
2

  
Interest rate derivatives (3)

 
25

 
25

 

 
27

 
27

  
Total Assets
$
977

 
$
33

 
$
1,010

 
$
1,374

 
$
29

 
$
1,403

  
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange derivatives (3)
$

 
$
5

 
$
5

 
$

 
$
4

 
$
4

  
Total Liabilities
$

 
$
5

 
$
5

 
$

 
$
4

 
$
4

  
 
(1)
At September 30, 2012 , the Company had approximately $927 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 H, “Derivatives” for additional information. Interest rate derivatives fair value excludes accrued interest.

At September 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 September 30, 2012 and March 31, 2012 :
 
 
At September 30, 2012
 
At March 31, 2012
(in millions)
  Carrying  
Value
 
Estimated
Fair Value
 
  Carrying  
Value
 
Estimated
Fair Value
Liabilities:
 
 
 
 
 
 
 
Total debt (1)
$
1,294

 
$
1,437

 
$
1,301

 
$
1,408

Facilities abandonment reserve (2)
$
33

 
$
38

 
$
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 September 30, 2012 and March 31, 2012 . At September 30, 2012 and March 31, 2012 , the facilities abandonment reserve included approximately $14 million and $16 million , respectively, in “Accrued expenses and other current liabilities” and approximately $19 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, short-term investments, accounts payable, accrued expenses, and short-term borrowings, 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.

NOTE J– 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 also routinely addresses contract issues and disputes with customers, including government customers. The Company believes that it has meritorious defenses in connection with these lawsuits, claims and disputes, and intends to vigorously contest each of them.

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


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 K – 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.
During the six months ended September 30, 2012, excluding the ASR transaction, the Company repurchased approximately 13.5 million shares of its common stock for approximately $346 million . At September 30, 2012 , the Company remained authorized to purchase approximately $654 million of its common stock under its current stock repurchase program.
Accumulated Other Comprehensive Loss: Accumulated other comprehensive loss at September 30, 2012 and March 31, 2012 was approximately $118 million and $108 million , respectively, due to foreign currency translation losses.
Cash Dividends: The Company’s Board of Directors declared the following dividends during the six months ended September 30, 2012 and 2011:
Six Months Ended September 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
August 2, 2012
 
$
0.25

 
August 14, 2012
 
$
116

 
September 11, 2012
Six Months Ended September 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
August 3, 2011
 
$
0.05

 
August 16, 2011
 
$
25

 
September 14, 2011


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


NOTE L – 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 and six months ended September 30, 2012 and 2011.
 
 
Three
Months Ended
September 30,
 
Six
Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
 
(in millions, except per share amounts)
Basic income from continuing operations per common share:
 
 
 
 
 
 
 
Income from continuing operations
$
222

 
$
236

 
$
462

 
$
464

Less: Income from continuing operations allocable to participating securities
(2
)
 
(3
)
 
(5
)
 
(6
)
Income from continuing operations allocable to common shares
$
220

 
$
233

 
$
457

 
$
458

Weighted average common shares outstanding
458

 
493

 
462

 
497

Basic income from continuing operations per common share
$
0.48

 
$
0.47

 
$
0.99

 
$
0.92

Diluted income from continuing operations per common share:
 
 
 
 
 
 
 
Income from continuing operations
$
222

 
$
236

 
$
462

 
$
464

Less: Income from continuing operations allocable to participating securities
(2
)
 
(3
)
 
(5
)
 
(6
)
Income from continuing operations allocable to common shares
$
220

 
$
233

 
$
457


$
458

Weighted average shares outstanding and common share equivalents:
 
 
 
 
 
 
 
Weighted average common shares outstanding
458

 
493

 
462

 
497

Weighted average effect of share-based payment awards
1

 
1

 
1

 
1

Denominator in calculation of diluted income per share
459

 
494

 
463

 
498

Diluted income from continuing operations per common share
$
0.48

 
$
0.47

 
$
0.99

 
$
0.92


For the three months ended September 30, 2012 and 2011 , respectively, approximately 4 million and 9 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 5 million and 6 million for the three months ended September 30, 2012 and 2011 , respectively, were considered participating securities in the calculation of net income allocable to common stockholders.
For the six months ended September 30, 2012 and 2011 , respectively, approximately 3 million and 5 million 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 6 million for the six months ended September 30, 2012 and 2011 , respectively, were considered participating securities in the calculation of net income allocable to common stockholders.


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


NOTE M – 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 September 30,
 
Six Months
Ended September 30,
 
2012
 
2011
 
2012
 
2011
 
(in millions)
Costs of licensing and maintenance
$
1

 
$
1

 
$
1

 
$
2

Cost of professional services
1

 
1

 
2

 
2

Selling and marketing
8

 
6

 
18

 
16

General and administrative
7

 
4

 
15

 
12

Product development and enhancements
4

 
4

 
8

 
9

Share-based compensation expense before tax
$
21

 
$
16

 
$
44

 
$
41

Income tax benefit
(8
)
 
(6
)
 
(16
)
 
(14
)
Net share-based compensation expense
$
13

 
$
10

 
$
28

 
$
27

The following table summarizes information about unrecognized share-based compensation costs at September 30, 2012 :
 
Unrecognized
Compensation
Costs
 
Weighted
Average Period
Expected to be
Recognized
 
(in millions)
 
(in years)
Stock option awards
$
7

 
2.3
Restricted stock units
19

 
2.1
Restricted stock awards
81

 
2.1
Performance share units
30

 
2.8
Total unrecognized share-based compensation costs
$
137

 
2.3
There were no capitalized share-based compensation costs for the three and six months ended September 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).


15

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


For the six months ended September 30, 2012 and 2011, the Company issued options for 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:
 
 
Six Months
Ended September 30,
 
2012
 
2011
Weighted average fair value
9.09

 
5.99

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 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 and six months ended September 30, 2012 and 2011:
 
 
Three Months
Ended September 30,
 
Six Months
Ended September 30,
 
2012
 
2011
 
2012
 
2011
 

 
(shares in millions)
 
 
RSUs
 
 
 
 
 
 
 
Shares

(1)  

 
0.7

 
0.7

Weighted avg. grant date fair value (2)
$
23.63

 
$

 
$
24.29

 
$
24.08

RSAs
 
 
 
 
 
 
 
Shares

(1)  

(1)  
3.6

 
3.6

Weighted avg. grant date fair value (3)
$
25.54

 
$
22.47

 
$
26.23

 
$
24.65

 
(1)
Less than 0.1 million .
(2)
The fair value is based on the quoted market value of the Company’s common stock on the grant date reduced by the present value of dividends expected to be paid on the Company’s common stock prior to vesting of the RSUs, which is calculated using a risk-free interest rate.
(3)
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 September 30, 2012 , approximately 29.9 million shares are available for future issuances under the ESPP.

NOTE N – INCOME TAXES
Income tax expense for the three and six months ended September 30, 2012 was $105 million and $235 million , respectively, compared with the three and six months ended September 30, 2011 of $91 million and $196 million , respectively. For the three and six months ended September 30, 2011, the Company recognized a net tax benefit of $15 million and $18 million , respectively, resulting primarily from the recognition of tax benefits related to an investment in a foreign subsidiary.

16

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


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 .
  The Company’s effective income tax rate, excluding the impact of discrete items, for the six months ended September 30, 2012 and 2011 was 33.0% and 32.4% , 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 O – 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.
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 Enterprise Solutions segment for the six months ended September 30, 2012 . The Company will continue to have the ability to use these intellectual property assets in current and future product offerings.
During the second quarter of fiscal 2012, the Company incurred severance costs associated with the Fiscal 2012 Plan, of which $23 million , $20 million and $1 million were assigned to the Mainframe Solutions, Enterprise Solutions and Services segments, respectively.  Refer to Note C, “Severance and Exit Costs.”

17

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


The Company’s segment information for the three and six months ended September 30, 2012 and 2011 is as follows:
Three Months Ended September 30, 2012
 
Mainframe
Solutions
 
Enterprise
Solutions
 
Services
 
Total
(dollars in millions)
 
 
 
 
Revenue
 
$
619

 
$
438

 
$
95

 
$
1,152

Expenses
 
247

 
410

 
89

 
746

Segment profit
 
$
372

 
$
28

 
$
6

 
$
406

Segment operating margin
 
60
%
 
6
%
 
6
%
 
35
%
Depreciation and amortization
 
$
27

 
$
40

 
$

 
$
67

Reconciliation of segment profit to income from continuing operations before income taxes for the three months ended September 30, 2012 :
 
Segment profit
$
406

Less:
 
Purchased software amortization
27

Other intangibles amortization
13

Share-based compensation expense
21

Other (gains) expenses, net (1)
8

Interest expense, net
10

Income from continuing operations before income taxes
$
327

 
(1)
Other (gains) expenses, net consists of other unallocated costs including foreign exchange derivative (gains) losses, and other miscellaneous costs.

18

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



Six Months Ended September 30, 2012
 
Mainframe
Solutions
 
Enterprise
Solutions
 
Services
 
Total
(dollars in millions)
Revenue
 
$
1,247

 
$
864

 
$
186

 
$
2,297

Expenses
 
507

 
769

 
176

 
1,452

Segment profit
 
$
740

 
$
95

 
$
10

 
$
845

Segment operating margin
 
59
%
 
11
%
 
5
%
 
37
%
Depreciation and amortization
 
$
53

 
$
78

 
$

 
$
131

Reconciliation of segment profit to income from continuing operations before income taxes for the six months ended September 30, 2012 :
 
Segment profit
$
845

Less:
 
Purchased software amortization
54

Other intangibles amortization
27

Share-based compensation expense
44

Other (gains) expenses, net (1)
2

Interest expense, net
21

Income from continuing operations before income taxes
$
697


(1)
Other (gains) expenses, net consists of other unallocated costs including foreign exchange derivative (gains) losses, and other miscellaneous costs.

Three Months Ended September 30, 2011
 
Mainframe
Solutions
 
Enterprise
Solutions
 
Services
 
Total
(dollars in millions)
Revenue
 
$
655

 
$
449

 
$
96

 
$
1,200

Expenses
 
308

 
422

 
92

 
822

Segment profit
 
$
347

 
$
27

 
$
4

 
$
378

Segment operating margin
 
53
%
 
6
%
 
4
%
 
32
%
Depreciation and amortization
 
$
25

 
$
32

 
$

 
$
57

Reconciliation of segment profit to income from continuing operations before income taxes for the three months ended September 30, 2011 :
 
Segment profit
$
378

Less:
 
Purchased software amortization
26

Other intangibles amortization
15

Share-based compensation expense
16

Other (gains) expenses, net (1)
(12
)
Interest expense, net
6

Income from continuing operations before income taxes
$
327

 
(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



Six Months Ended September 30, 2011
 
Mainframe
Solutions
 
Enterprise
Solutions
 
Services
 
Total
(dollars in millions)
Revenue
 
$
1,301

 
$
876

 
$
186

 
$
2,363

Expenses
 
584

 
804

 
180

 
1,568

Segment profit
 
$
717

 
$
72

 
$
6

 
$
795

Segment operating margin
 
55
%
 
8
%
 
3
%
 
34
%
Depreciation and amortization
 
$
49

 
$
63

 
$

 
$
112

Reconciliation of segment profit to income from continuing operations before income taxes for the six months ended September 30, 2011 :
 
Segment profit
$
795

Less:
 
Purchased software amortization
49

Other intangibles amortization
34

Share-based compensation expense
41

Other (gains) expenses, net (1)
(4
)
Interest expense, net
15

Income from continuing operations before income taxes
$
660


(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
September 30, 2012
 
Six Months Ended
September 30, 2012
 
Three Months Ended
September 30, 2011
 
Six Months Ended
September 30, 2011
United States
$
685

 
$
1,368

 
$
690

 
$
1,362

Europe
266

 
538

 
302

 
600

Other
201

 
391

 
208

 
401

Total revenue
$
1,152

 
$
2,297

 
$
1,200

 
$
2,363



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Table of Contents

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 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.


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Table of Contents

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 Markets initiatives into 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 introduced new products and solutions during the second quarter of fiscal 2013 and we expect to introduce new products and solutions 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 customer segmentation initiative has taken longer than anticipated to gain traction. As part of this initiative, we have also developed a new management process intended to improve the visibility and quality of our pipeline. We believe that these initiatives will benefit our performance in the long-term.
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.

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Table of Contents



EXECUTIVE SUMMARY
The following is a summary of the analysis of our results contained in our MD&A for the second quarter of fiscal 2013.
Total revenue for the second quarter of fiscal 2013 decreased 4% to $1,152 million compared with $1,200 million in the year-ago period, primarily due to an unfavorable foreign exchange effect. Within total revenue there was a decrease in subscription and maintenance revenue, which was partially offset by an increase in software fees and other revenue. Excluding the foreign exchange effect, revenue for the second quarter of fiscal 2013 was flat compared with the second quarter of fiscal 2012. Due to our performance in the first half of fiscal 2013, the macro-economic environment in which we believe customers are elongating their sales cycles, and the expectation of delaying the closing of some transactions in our pipeline until later in fiscal 2013 and after fiscal 2013, we currently expect a year-over-year decrease in total revenue for fiscal 2013 compared with fiscal 2012.
Total bookings in the second quarter of fiscal 2013 decreased 14% compared with the year-ago period to $837 million primarily due to a year-over-year decline in enterprise solutions new product and mainframe capacity sales, and to a lesser extent subscription and maintenance renewals and professional services bookings. These decreases were partially offset by an increase in software fees and other bookings, which are recognized as software fees and other revenue. Total new product and mainframe capacity sales in the second quarter of fiscal 2013 declined by approximately 25% compared with the second quarter of fiscal 2012. Within these bookings, enterprise solutions new product sales and mainframe capacity sales decreased, while mainframe new product sales increased slightly from the year-ago period. Mainframe capacity sales were negatively affected by lower mainframe renewals because renewals are an important opportunity to sell additional mainframe capacity. Enterprise solutions new product sales were affected by lower than expected sales outside of a renewal. In addition, mainframe capacity and enterprise solutions new product sales were negatively affected by a difficult macroeconomic environment, in which we saw our customers become cautious with capacity purchases, elongate sales cycles and move deals outside of the quarter. We now expect our fiscal 2013 renewal portfolio to decline by approximately 10% compared with fiscal 2012. We expect our fiscal 2013 third quarter renewals to decrease year-over-year and our fiscal 2013 fourth quarter renewals to increase year-over-year. For the second quarter of fiscal 2013, our percentage renewal yield was in the high 80s, which is slightly lower than historical levels primarily as a result of two transactions.
Total expenses before interest and income taxes of $815 million for the second quarter of fiscal 2013 decreased 6% compared with $867 million in the second quarter of fiscal 2012 . Total expenses for the second quarter of fiscal 2013 decreased compared with the second quarter of fiscal 2012 as a result of $44 million in severance costs incurred in the year-ago period that were associated with our fiscal 2012 workforce reduction (Fiscal 2012 Plan). In addition, the year-over-year decrease in expenses was partially attributable to a favorable effect of foreign exchange on operating expenses and a decrease in commission expense within selling and marketing expenses.
Income from continuing operations before interest and income taxes increased $4 million , or 1% , in the second quarter of fiscal 2013 compared with the year-ago period.
Income tax expense increased $14 million for the second quarter of fiscal 2013 compared with the year-ago period as a result of favorable discrete items that occurred in the second quarter of fiscal 2012 but did not reoccur in the second quarter of fiscal 2013.
Diluted income from continuing operations per share for the second quarter of fiscal 2013 was $0.48 , compared with $0.47 in the year-ago period, reflecting an increase in operating income as a result of the decrease in operating expenses and our repurchases of common shares.
For the second quarter of fiscal 2013 , our segment performance results were as follows:
Mainframe Solutions revenue for the second quarter of fiscal 2013 decreased $36 million from the year-ago period primarily due to an unfavorable foreign exchange effect of $25 million and a decrease in subscription and maintenance revenue, which is attributable to a decrease in subscription and maintenance bookings due to lower new product and mainframe capacity sales in prior periods. Mainframe Solutions operating margin for the second quarter of fiscal 2013 was favorably affected by a decrease in severance costs associated with the Fiscal 2012 Plan, which were incurred in the second quarter of fiscal 2012, and from the favorable effect of foreign exchange.
Enterprise Solutions revenue for the second quarter of fiscal 2013 decreased $11 million from the year-ago period, due to an unfavorable foreign exchange effect of $14 million compared with the year-ago period. Within Enterprise Solutions revenue, there was a decrease in service assurance and data management products, partially offset by an increase in revenue from our SaaS, ITKO and security products. Enterprise Solutions operating margin was favorably affected by a decrease in severance costs associated with the Fiscal 2012 Plan, which were incurred in the second quarter of fiscal 2012. This decrease in expenses was partially offset by our additional investments in ITKO and Nimsoft products. As a result of the decrease in expenses, Enterprise Solutions operating margin for the second quarter of fiscal 2013 remained consistent with the year-ago period.

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Table of Contents

Services revenue and expenses for the second quarter of fiscal 2013 were consistent with the second quarter of fiscal 2012. Operating margin for Services increased to 6% in the second quarter of fiscal 2013 compared with 4% in the second quarter of fiscal 2012 as a result of the slight reduction in expenses.
Total revenue backlog of $7,460 million at September 30, 2012 decreased 8% compared with $8,067 million at September 30, 2011 . The current portion of revenue backlog of $3,453 million at September 30, 2012 decreased by 3% compared with the balance of $3,546 million at September 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 second quarter of fiscal 2013 was $89 million , representing a decrease of $101 million compared with the second quarter of fiscal 2012 . The decrease was primarily due to a decrease in cash collections of $142 million that was attributable to lower new product sales in the first quarter of fiscal 2013 that negatively affected billings for the second quarter of fiscal 2013. Due to our performance in the first half of fiscal 2013, the macro-economic environment in which we believe customers are elongating their sales cycles, and the expectation of delaying the closing of some transactions in our pipeline until later in fiscal 2013 and after fiscal 2013, we currently expect lower billings and collections for fiscal 2013 compared with fiscal 2012. As a result, we expect a year-over-year decrease in cash flows from operations for fiscal 2013 compared with fiscal 2012.

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:
 
Second Quarter Comparison Fiscal 2013 Versus Fiscal 2012
 
 
 
 
 
 
 
Percent
 
2013
 
2012
 
Change
 
Change
 
(dollars in millions)
 
 
Total revenue
$
1,152

 
$
1,200

 
$
(48
)
 
(4
)%
Income from continuing operations
$
222

 
$
236

 
$
(14
)
 
(6
)%
Cash provided by operating activities – continuing operations
$
89

 
$
190

 
$
(101
)
 
(53
)%
Total bookings
$
837

 
$
972

 
$
(135
)
 
(14
)%
Subscription and maintenance bookings
$
626

 
$
761

 
$
(135
)
 
(18
)%
Weighted average subscription and maintenance license agreement duration in years
3.11

 
3.59

 
(0.48
)
 
(13
)%
 
First Half Comparison Fiscal 2013 Versus Fiscal 2012
 
 
 
 
 
 
 
Percent
 
2013
 
2012
 
Change
 
Change
 
(dollars in millions)
 
 
Total revenue
$
2,297

 
$
2,363

 
$
(66
)
 
(3
)%
Income from continuing operations
$
462

 
$
464

 
$
(2
)
 
 %
Cash provided by operating activities – continuing operations
$
272