CA, Inc. F3Q09 (Qtr End 12/31/08) Earnings Call Transcript

CA, Inc. (CA)

F3Q09 Earnings Call

January 29, 2008 5:00 pm ET

Executives

Joseph Doncheski - Vice President of Investor Relations

John Swainson - Chief Executive Officer

Nancy Cooper - Chief Financial Officer

Analysts

John DiFucci - JP Morgan

Sarah Friar - Goldman Sachs

Todd Raker - Deutsche Bank

Walter Pritchard – Cowen and Company

Michael Turits - Raymond James

Abhey Lamba - UBS

Phil Winslow - Credit Suisse

Katherine Egbert - Jefferies & Company

Richard Sherman - MKM Partners

Kevin Buttigieg – Stanford Group Company

Scott Zeller – Needham & Co.

Presentation

Operator

I would like to welcome everyone to CA's third quarter fiscal year 2009 financial results conference call. After the speakers remarks there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to Joseph Doncheski, Vice President of Investor Relations. Please go ahead, sir.

Joseph Doncheski

Thank you and good afternoon everyone. Welcome to CA’s third quarter 2009 earnings call. I am Joseph Doncheski, Vice President of Investor Relations for CA. Joining me today are John Swainson, our Chief Executive Officer and Nancy Cooper, our Chief Financial Officer.

As a reminder this conference call is being broadcast on Thursday, January 29, 2009 over the phone and the Internet to all interested parties. The information shared in this call is effective as of today’s date and will not be updated. All content is the property of CA and is protected by U.S. and International Copyright Law and may not be reproduced, transcribed or produced in any way without the expressed written consent of CA. We consider your continued participation in this call as consent to our recording.

During this call non-GAAP financial measures will be discussed. Reconciliations to the most directly comparable GAAP financial measures are included in the earnings release which was filed on Form 8-K earlier today as well as in our supplemental earnings material, all of which are available on our website at investor.ca.com. Today’s discussion will include forward-looking statements subject to risks and uncertainties and actual results could differ materially from these forward-looking statements. Please refer to our SEC filings for a detailed discussion of potential risks.

With that, I’ll turn the call over to Nancy Cooper.

Nancy Cooper

Thanks Joe and thanks everyone for joining us today. By now you have seen our press release on our third quarter financials. Overall we had another solid quarter and I am pleased about our results. Clearly the actions we have taken over the past three years are paying off and I feel good about the progress we are making, our position in the marketplace and our performance going forward.

I will begin by reviewing our third quarter financials and then provide our updated outlook for fiscal 2009. John will then follow me with a discussion about our business and what we expect going forward before turning it over to Q&A.

There is a lot to cover this afternoon so let’s get started with bookings. We are pleased with our total bookings in this challenging environment. They were $1.248 billion in total, down 2% when compared to the prior-year period or up 3% on a constant currency basis. Strength in bookings was seen in North America, primarily due to strong renewals and the continued demand for mainframe capacity. This was partially offset by EMEA which faced unfavorable currency movements, three large deals signed in the prior-year period and more renewals being outside the third quarter.

In the quarter the weighted average life of subscription and maintenance bookings were 3.1 years as compared to 2.94 years in the prior-year period. Annualized subscription and maintenance bookings were $359 million a year-over-year decrease of 5% or flat on a constant currency basis. On a year-to-date basis total bookings grew 18% to $3.78 billion which was why we are comfortable reaffirming our full year bookings guidance of 10-15% growth. Year-to-date annualized subscription and maintenance bookings grew 1% both on a reported as well as on a constant currency basis.

As I stated, we are pleased with our bookings performance in the current environment.

Total revenue was $1.024 billion, down 5% from the prior-year or flat on a constant currency basis. From a geographic perspective, North American revenue was up 1% as compared to the prior-year period or up 2% on a constant currency basis while international revenue decreased 13% or 3% on a constant currency basis.

Overall performance was driven by the composition of our bookings as well as lower revenue from professional services some of which was the result of the current economic environment and some of it as a result of a more selective approach to driving more profitable contracts. We are also pleased that our focus on more profitable services and engagements is contributing positively to margin expansion.

As we highlighted last quarter revenue can be impacted by the attributes of bookings including duration, timing of renewals and whether a license is up front or ratable. While the composition was a bit different than expected, we are pleased with our bookings performance which is driving growth in our total revenue backlog which I will discuss in a moment.

Turning to operating expenses our non-GAAP operating expenses were $704 million, down $94 million or 12% from the prior year or down approximately 8% on a constant currency basis. As we continue to push for increased operating efficiency we realized savings across the areas we have been focusing on which include G&A, selling and marketing and professional services. We expect to continue to drive savings throughout our corporate infrastructure.

Expenses also benefited from our operating income hedging program instituted at the beginning of the fiscal year. While the impact of this program varies depending on the fluctuation of currencies we believe it is prudent to have this approach to our international business. As a reminder, we were able to partially mitigate the impact of currency fluctuations with our hedging program this fiscal year. Any future impact of currency fluctuations and hedging programs will be based on then current foreign exchange rates.

Non-GAAP operating income before interest and taxes was $338 million, up 12% from the prior year and non-GAAP operating margin was 32%, a year-over-year increase of 5 percentage points. Non-GAAP operating margin excluding stock based compensation continues to be two points higher. Since benefits continue to be realized at an accelerated pace, we now expect full-year non-GAAP operating margin between 30-31% or 4-5 points higher than last year based on current foreign exchange rates.

Interest income started to be negatively impacted by declining interest rates on our cash balances and we expect this to continue. Non-GAAP net income was $233 million and non-GAAP EPS was $0.43, increasing 21% and 19% from the prior year respectively.

Now let’s turn to our GAAP results which include purchased software, intangible amortization, restructuring and other expenses and gains and losses on hedges of operating income related to the remainder of the fiscal year. Including these items, total expenses before interest and taxes was $733 million, down 14% from the prior year or down 10% on a constant currency basis. We continue to benefit from the many cost-cutting programs that we put in place three years ago and we expect to continue to focus on driving more cost and expense out of our business. This is the right thing to do especially in today’s environment.

Now to finish up the income statement, GAAP net income was $213 million or $0.40 per diluted common share increasing 31% and 29% from the prior year respectively. In the quarter tax was positively impacted year-over-year by some discrete items which dropped the tax rate on non-GAAP and GAAP income to 30% and 29% respectively and which served to increase non-GAAP EPS by $0.03 and GAAP EPS by $0.01. Our forecasted full-year tax rate on non-GAAP income of approximately 37% remains unchanged.

As we work to better align our tax structure with the industry, quarterly fluctuations can occur. The steps we are, and continue to take, helps our ongoing progression towards our long-term goal of 30-32%.

Cash flow from operations was $292 million, a year-over-year increase of $59 million. Cash flow strength was driven primarily by lower disbursements tied to our continued focus on cost control. We are pleased that in the current environment our ability to collect cash has remained efficient as evidenced by our decline in our DSO. We are particularly pleased that we were able to drive this cash performance when on a quarterly and a year-to-date basis cash collections from single installments decreased on an absolute basis as well as on a percentage of total product bookings. We expect this trend to continue.

Our balance sheet continues to be strong. We ended the quarter with $2.4 billion in cash and cash equivalents and $2.1 billion of total debt bringing our net cash position to $251 million. Currently, domestic and international cash balances are evenly split. In particular, we continue to be mindful of our December 2009 maturities of $500 million 4.75 senior notes and the $360 million 1-5/8 convert. With that being said, market dislocations presented the opportunity to repurchase some of the 4.75 notes at a discount to par in the quarter. We were able to retire approximately $150 million of the $500 million 4.75 notes maturing in December of this year. We may repurchase additional amounts of our debt subject to market and other conditions.

In the quarter revenue backlog grew 11%. Billings’s backlog grew 20% and expected future cash collections grew 10%. This growth highlights the visibility of our subscription model which continues to be a pillar in the economic climate and we feel good about our results to date and going forward. The ability to maintain but also grow our backlog speaks to the value and importance of our software and solutions. Our customers remain committed to look to CA to solve their complex IT requirements and this continues to bode well for CA’s growth in the future.

With that I would like to provide an update to our guidance for fiscal year 2009. Total revenue growth is now expected to range from 1-2% in constant currency as compared to previous guidance of 2%. At current foreign currency exchange rates this translates to reported revenue of $4.2 billion to $4.3 billion. As we discussed earlier, revenue was impacted by lower than expected professional services revenue as well as the composition of bookings. While this mix was a bit different than expected we are still pleased to be able to forecast constant currency revenue growth in this economic environment.

Total bookings growth of 10-15% remains unchanged. Non-GAAP EPS increase by $0.02 on the high end bringing our outlook to $1.48 to $1.57 and representing year-over-year growth of 24-32%. The range on GAAP EPS changes to $1.29 to $1.40 from $1.31 to $1.38 and this represents a year-over-year growth of 39-51% inclusive of approximately $30-50 million of restructuring charges which is up from our previous forecast of $30 million.

In light of the current economic environment we are accelerating our restructuring efforts primarily relating to facilities and we continue to expect cash flow from operations in the range of $1.15 billion to $1.2 billion representing 4-9% growth. This includes approximately $120 million in restructuring payments; relatively flat cash taxes and anticipates that while margins improve cash collections from single installments will be lower than last year.

Except as previously stated, guidance reflects current foreign currency exchange rates, assumes no material acquisitions and a partial hedge of our operating income. We expect approximately 513 million actual shares outstanding and weighted average diluted share count of approximately 539 million shares.

With that I will go to John to talk about CA’s continued [audio break] in challenging times and how the strength in our product portfolio positions CA well for the future.

John?

John Swainson

Thanks Nancy. As you just heard, CA turned in another solid quarter in an economic environment that continues to offer abundant challenges. Nancy gave you the numbers. Now I would like to spend a few minutes talking about what is behind them.

Let’s start with our bookings performance which is a considerable achievement in an environment where customers are being extremely cautious. Our ability to close deals in this climate tells me that our customers recognize that CA’s product contribute to the increased productivity, improved efficiency and reduced risk, vital considerations in these challenging economic times.

During the quarter we signed several large contracts including a number with financial institutions and insurers. That is important because even as these customers were confronting unprecedented market turmoil they concluded that CA’s products and services were critical to their operations going forward.

Among the benefits that CA’s products deliver are rapid return on investment, often less than a year and that has become a crucial selling point. Nancy told you that our margins are up. That improvement testifies to our effectiveness in managing our business and controlling costs. We began a drive for improved efficiency more than three years ago, well before the current economic crisis. Our initiatives proved to be prescient and our results have positioned us well with a strong balance sheet and strong cash flows.

We will continue to look for savings and efficiencies in everything we do. At CA World in November we showcased the strongest portfolio of products in CA’s history. Many of you walked the floor and talked to customers. You saw that our customers came out in impressive numbers to learn about how our products can make their IT environment more effective. We are continuing to build out both our distributed and mainframe product portfolios. Let me take a few minutes to highlight our mainframe business which did particularly well last quarter.

More than a year ago we created the mainframe business unit because we saw increased opportunities for CA in this important market. It has proven to be a good decision. The unique scalability, reliability, security, cost effectiveness and energy efficiency offered by the IBM Mainframe are absolutely tailor made for the particular challenges that enterprise IT organizations currently face. The mainframe capacity of our customers has grown significantly in terms of total MIPS on a year-over-year basis.

Today CA’s mainframe business goes well beyond the maintenance renewal of assets we have developed and acquired over the last 30 years. With more than 5,000 engineers building some of the industry’s most compelling, distributed and mainframe products we are introducing strategic new products designed to make the mainframe an even more cost competitive computing platform. We have made a number of announcements in the mainframe space recently including a major initiative which we call Mainframe 2.0 which is going to help customers maximize the unique advantages of that platform.

We are doing this because the mainframe is experiencing a major renaissance as customers recognize how valuable its performance, scalability, reliability and energy efficiency can be. I will give you just one example. One of our major Telco customers has just replaced its existing mainframe network management software, which came from another leading vendor, because CA’s NetMaster offered greater functionality with a lower total cost of ownership.

With respect to CA’s distributed EITM portfolio, in the third quarter we saw a considerable demand for CA Wily, which I will talk about in a few moments, or CA Workload Automation which enables customers to deliver crucial business services across the enterprise more reliably and cost effectively. CA Workload Automation won a number of significant engagements in both the financial services and healthcare industries including a big win at Loblaw Companies, Canada’s largest food distributor and a leading provider of general merchandise products, drugstore and financial products and services.

We are building and buying technology to strengthen our portfolio. To that end over the past couple of months we have made two significant acquisitions in the security market, Eurikify, who are a pioneer in identity and role management which we acquired in November and Orchestria, the leading provider of data loss prevention technology which we announced early this month.

These acquisitions further CA’s strategy to deliver integrated, end-to-end identity and access management technologies for its customers. CA is providing capabilities that are unmatched by any other identity and access management vendor. The breadth and depth of our security portfolio enables CA to help organizations manage their security needs and meet business challenges.

At our annual financial analyst meeting last month we highlighted the strength of our product portfolio and of the leadership team. We talked about our long-term plan and our roadmap for growing the company and increasing shareholder value. Part of our long-term plan for success is prudent management of our [audio break] where they will have the greatest positive impact for our customers and our shareholders.

I look back at Q3 with considerable satisfaction and a determination to build on our success. As we move forward we recognize there is no secret to performance in tough times, it is about focus and execution. We are focusing on the things that we believe will bring us success in the current environment and position us for further greater success as the economy begins to recover. That is, we are providing the industry’s most innovated, governance infrastructure and security management solutions and working with our customers to deploy those solutions in ways that drive their business success.

Focus must be backed up by solid execution. In Q3 we executed well which enabled us to improve our operating margin driving cash flow and profit. We will continue to drive for improved execution as we finish out the fiscal year. Our efforts in these first three quarters of fiscal 2009 have positioned CA well for future growth. The role CA’s products play in the data center will be even more important as customers improve their IT operations to enable business success.

The rapid pace of IT innovation continues and I see every indication that our customers are continuing to be eager to adopt new technology that promises them improved efficiency and functionality. Technologies like virtualization, cloud computing and software as a service. As I have noted many times, these innovations while beneficial can also add layers of complexity to already complex systems. CA helps our customer manage that complexity and get the biggest possible return from their IT investment. I don’t see these dynamics changing in the foreseeable future. In fact, I see them intensifying.

Without question we operate in a very competitive market but we are winning with customers in a wide variety of industries. For example, a year ago we established a sales unit to focus on winning government contracts which has proven very effective and is now poised to help CA compete for further opportunities arising from that sector. In December we secured a multi-million dollar application performance management deal with the U.S. Social Security Administration, beating our IBM in one of the largest wins ever for CA Wily.

As the U.S. population ages, the Social Security Agency is deploying mission critical web applications to handle the expected increase of more than 285% in some of their key workloads. Increasingly, the SSA relies on web applications to initiate and administer retirement and disability workloads and the Agency came to us seeking the ability to monitor these transactions. Just as they chose CA’s Wily Intrascope product because it provided a single solution that offered real time visibility to all their transactions regardless of the hardware or software platforms.

Clearly CA’s products are meeting the needs of our customers in both the public and private sector. We feel good about our position in the marketplace and our prospects for the future.

With that I would like to open up the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of John DiFucci - JP Morgan.

John DiFucci - JP Morgan

You both talked about the difficult environment out there and we have been hearing it from other companies and we see it out there. It is obvious. You have managed to put up some decent top line numbers and even better on the bottom line. Can you talk to us a little bit more about what you are seeing, you said you are going to re-accelerate or accelerate your restructuring, you obviously see it is getting tough out there. Just talk a little bit about what you expect going forward and perhaps maybe you can talk a little bit about your bookings too because even though as you point out it is a real tough environment it looks like flat year-over-year looks pretty good but it is harder for us to look…everybody looks at it year-over-year but perhaps that is not the best way to look at it given these are typically about 3-year contracts.

Nancy Cooper

Let me take your first question on the restructuring. We talked a lot about it and we have been on this road kind of for three years. I think anyone who was looking outside would have said the situation we are all in required us to go back and our senior management team as a team decided that we needed to accelerate the actions we were taking to remove costs out of the business. I am actually quite pleased with our team in terms of not waiting and deciding to move ahead and what you are seeing in the results is that speeding up of activity.

John DiFucci - JP Morgan

So that speeding up of activity had more to do with what you are seeing out there in the environment versus the progression of the internal operations?

Nancy Cooper

Well, I think what you had a company that has been working on streamlining its cost structure for years so we had a plan in place. What you had was a management team that decided to accelerate that.

John Swainson

It is very hard for companies other than cutting obvious things like marketing; it is very hard to start cutting costs out in ways that are really intelligent. What Nancy is alluding to is the fact we have a long-term plan. We have been executing that plan. You have seen our margin improve quarter-over-quarter for several years and we were able to go on the right items to continue to improve margin without having to start new things from scratch or do things in sort of a knee jerk way.

To move to your more macro economic question about bookings, we are pleased. Particularly when you take the effect of currency into account, the fact that we are up 3% on our total bookings number and are still able to reconfirm our total bookings for the full year of low double digits I think is encouraging given the overall environment. There is no doubt about the fact that it is tough out there and we are seeing customers take longer to make decisions. That being said, things that have a good pay back or that are helpful in terms of managing risk and compliance or are essential to driving the top line are all the things that are getting kind of funded even in tough times. I would further add that the nature of our business being highly renewals oriented, the annuity like characteristic of that business is one that makes it probably more predictable.

As you point out, these contracts do renew on sort of 3-year cycles so there is a little bit of quarter-to-quarter difference and clearly the quarter before this one we had a couple of very large deals that made that quarter quite large. This quarter we didn’t have as many large deals although as you see from the press release we still had a substantial number of large contracts but no really mega contracts in the way we did the quarter before. We are encouraged but we are being cautious given the obvious macro economic challenges.

Operator

The next question comes from Sarah Friar - Goldman Sachs.

Sarah Friar - Goldman Sachs

Nancy, again back on the cost reduction can you give us some indication what are those next sets of low hanging fruit for cost reduction, particularly as we think about the March quarter I know it typically tends to be a sequentially down margin quarter but could you walk us through some of the puts and takes there? What are some of the incremental expenses that come at year-end that we should be mindful of?

Nancy Cooper

First let me answer the margin question. If you look at our results over the last couple of years as you said you are going to see the fourth quarter typically comes down and it is due to things that hit in the fourth quarter like commissions hit very heavily in fourth, you have your FICA hits in the fourth and we have a lot of variable expenses that tend to hit that fourth quarter and I don’t see this year being any different than that.

I believe you asked me on the restructuring what we are really encouraged about is we have talked all throughout the year about taking a million square feet out of the business and what we have identified is another half million square feet that we are looking and working through the next quarter to see how much of that we can do in the quarter.

Sarah Friar - Goldman Sachs

On the tax rate, clearly tax rate is down this quarter but you kept a full year guidance of 37% which would actually mean it goes up again higher than 37% in March. Is that right? Should we assume back to 37%?

Nancy Cooper

You read that totally correctly. If you remember the discussion I had this whole year has been this is a year of cleaning up our taxes and getting us well positioned for the future. Taxes come in lumpily and a lot of the things you clean up get cleaned up in the fourth quarter and that is what we are anticipating again this year although it will be lower than last year.

Operator

The next question comes from Todd Raker - Deutsche Bank.

Todd Raker - Deutsche Bank

Just want to address, if you look at the billings growth profile this year how should we be thinking about this going forward and how should we be thinking about billings correlating with the bookings growth over time?

Nancy Cooper

The billings growth you saw in the quarter really has more to do with the bill-to-book ratio and we feel really pretty good about that. If you think about it on the billings results we had a 25% increase in cash flow from operations which shows really strong management of cost and expense and then you couple that with looking at your deferred revenue and your billings backlog both growing in double digits and we feel very good about the results.

Todd Raker - Deutsche Bank

I guess if I look at this over time should we expect the billings growth profile to start to represent or come close to the annualized bookings growth?

Nancy Cooper

Well they are talking about two different time periods so your billings is a multi-year backlog you are looking at and your annualized is one so you have to do that quite carefully.

John Swainson

If you did it over a long enough period the answer has to be yes.

Nancy Cooper

Remember, we always bill a little in advance of our revenue recognition.

Todd Raker - Deutsche Bank

Can you walk me through that?

Nancy Cooper

I think for the call why don’t we plan on scheduling a call to go through that. I think that would probably be most helpful to you.

Operator

The next question comes from Walter Pritchard – Cowen and Company.

Walter Pritchard – Cowen and Company

You referred to kind of a change in the bookings contribution that was a little bit different than you expected. Could you just go into a little bit more specifics there on what you meant there?

Nancy Cooper

The bookings contribution had to do with, as I said, duration and ratable versus up front and you can imagine if it is a perpetual or a ratable that nature of that characteristic will change your revenue. If you don’t get it now you get it later. So we didn’t get it now but again you saw it show up. We will get it later. What we are very encouraged about is the placements. We are getting the placements in the areas that John articulated which make us feel good about the future.

Walter Pritchard – Cowen and Company

That makes sense. On the billings backlog I did notice on the short-term side it did decline a couple points year-over-year. I’m just wondering what drove that.

Nancy Cooper

You are seeing in this quarter like no surprise currency has quite a big impact. So the billings grew 20% and without currency it would have been 25% and the current portion has the same kind of swing with currency in it.

Walter Pritchard – Cowen and Company

So we are looking at maybe a point or two up instead of a point or two down?

Nancy Cooper

Flattish.

Operator

The next question comes from Michael Turits - Raymond James.

Michael Turits - Raymond James

On the mainframe side I can’t remember what you said over the last two or three quarters but I think you said you had seen 3% revenue growth in mainframe. First of all, is that continuing still on that same path? In prior IBM cycles we really didn’t see any pick up in growth for your mainframe revenues but they did sort of coincide this time. Now that IBM is easing off that cycle are you easing off the growth at all?

John Swainson

Again, the correlation between our mainframe cycle and theirs is not absolute. Remembering that our business is typically on a 3-year cycle, we are less than half way through the renewals of our contracts since they started to ship their current generation of hardware. So we have seen less than half of those contracts come back for an opportunity to renew. We see quite a different profile of growth of the mainframe in our business than they do in theirs. That being said as I have indicated in my remarks, the mainframe continued to be a strong source of bookings growth and we expect that to continue for some time.

Michael Turits - Raymond James

I just want to make sure, Nancy in the change, it is not a big change, but from 2% constant currency down to 1-2% constant currency revenue growth for this year how much of that is a function of just different rev rec and pushing things out in terms of what is ratable and how much of it is a function of something that is related to lower demand?

Nancy Cooper

You have the perpetual is definitely a factor. The other one was the comments I made on professional services because you are seeing two things happening. In this economy you are seeing people deciding to try to do it themselves more and you also see us managing contracts very carefully. So it really is a mixture of those two things.

Michael Turits - Raymond James

So can we split it up as 1/3 from rev rec, 1/3 from professional services, 1/3 from lower demand? How did it split up?

Nancy Cooper

I don’t think we have been quite that precise but you are in the ballpark. It is not that much revenue a point.

Operator

The next question comes from Abhey Lamba – UBS.

Abhey Lamba - UBS

Going a little bit down on your revenue and billings backlogs, the current portion of both of them is seen to be sort of decelerating whereas the non-current portion the growth is accelerating. Is there any shift in the kind of payment paradigms from your customers or was it a function of contract length? How should we think about that?

Nancy Cooper

I think what you should think about is first you have a currency impact in both of them that if you remember really started showing up in the quarter as a variance from the past. The other is you see us really managing our contracts for what is good for us and so that is why I had mentioned you have to look at collections both current and future as of managing greater discipline of when we renew our contracts for what is the right thing to do. We have had a contract in the quarter that we could have taken for multi-year. We didn’t like the terms so we took it on one-year. So you will have that kind of variability and I think the biggest thing is you see the total number growing.

Operator

The next question comes from Phil Winslow - Credit Suisse.

Phil Winslow - Credit Suisse

You talk a lot about the strength that you are seeing in the mainframe and that is not really a surprise given the cycle there but also the secular turnarounds. I wonder if you can spend some time discussing the distributed side of your business. How do you think that sort of bears in this type of macro environment? Also John when you do think about that distributed business longer term what do you think is the appropriate growth rate for that segment?

John Swainson

We have more than one distributed business so it is sort of difficult to give you an aggregated number. The strongest businesses we are seeing are ones that really have the characteristics that I talked about before. They have a one-year pay back. They have an immediate impact on the risk and compliance profile of the company or they help drive top line revenue. Things that look and feel more discretionary frankly are a little more challenged. That is, I think, as you would expect. Overall I think we expect that in the long-term guidance that we have given we expect to see the bulk of the growth coming from our distributed profile. I can tell you we are very happy in this environment to have a really strong mainframe business that has that annuity like characteristic I spoke of earlier.

Operator

The next question comes from Katherine Egbert - Jefferies & Company.

Katherine Egbert - Jefferies & Company

The weighted average life of the subscriptions and maintenance bookings has been trending up as has the number and size of larger deals. Are you actively marketing longer term deals?

John Swainson

Actually this quarter represents a trend down from over four last quarters to about 3.1 this time. Although it is a little higher than it was in the same quarter a year before. We are not actively changing our policy or strategy. It is still three years. That being said, one deal longer the three years would be enough to have the kind of change that you saw. When we see an opportunity to frankly commit a customer to the long-term for a portfolio of our products we will do that if we can get the right economic terms and there was at least one case this quarter where that did happen.

Katherine Egbert - Jefferies & Company

Nancy, the additional $20 million in restructuring, you said at the analyst meeting last month that your operating margin improvement over time would come from having an improved tax rate and better expense control. Does the additional $20 million restructuring mean that the operating margin expansion related to expense control happens first?

Nancy Cooper

I think what you have is all of these were part of a plan that we were going to do to improve margins. We may have accelerated it by doing this now but we had plans throughout G&A and SG&A of different things we are doing and facilities is definitely one. You can read in our K how many sites we had and that is a natural place of getting people more co-located and mobility and that is what is really driving this change.

Katherine Egbert - Jefferies & Company

The 30-31% operating margin pro forma this year, how much of that is related to foreign exchange versus your previous guidance? Is it meaningful?

Nancy Cooper

In this year we have hedged the currency shift that happened in the second half of the year and we have been able to hedge about 2/3 of it and it mitigated that impact. Of course that goes away at the end of the year.

Operator

The next question comes from Richard Sherman - MKM Partners.

Richard Sherman - MKM Partners

Back to this burdensome tax issue it seems like you had a larger amount of cash repatriated. I know at analyst day you talked about ongoing efforts to repatriate cash and that was about half of your cash back here in the U.S. You actually ended up with a tax rate that was low here. Is the snap back in taxes related at all to that repatriation effort? I was curious also I know there are a bunch of moving parts in taxes but with the domestic business being higher that the tax rate actually fell this quarter and I was wondering if business was shifting maybe a little bit more back home here in the short-term if the tax rate, I was kind of surprised to see the tax rate expecting to move back up significantly in March.

Nancy Cooper

This is a year of tax clean up and what happens is it happens not in a linear fashion. So what you had in the third quarter, things that you have heard like R&D tax credits lots of people are having those and that was a good guy in the quarter, but we fully expect a lot of tax things do not come to closure until you reach the year end. Those we expect will go the other way and that is why we are trying to guide a full-year tax rate as the appropriate way to look at it.

Richard Sherman - MKM Partners

Will there be more cash repatriation? Do you expect to bring more cash back home beyond the 50/50 split? I imagine you need to do that for the debt repayment.

Nancy Cooper

Actually we feel very comfortable with our cash position to repay that debt with where we are now and future cash. The second part of your question of course I am always looking for ways to efficiently bring cash back to the U.S. but it has to be efficient.

Richard Sherman - MKM Partners

I missed this if you said it already, what was the headcount at the end of the quarter?

Nancy Cooper

We didn’t say the headcount but you will see it in our Q and it is a little over 13,000.

Operator

The next question comes from Kevin Buttigieg – Stanford Group Company.

Kevin Buttigieg – Stanford Group Company

Just a clarification. You mentioned in your comments that you had realized gains from your hedging program this quarter. Could you talk a little bit about how far out you hedge, what the gain was that was realized this quarter and how should we think about that as currency exchange rates move?

Nancy Cooper

We were able to hedge about 2/3 of the impact of currency in our operating income and we had some balance sheet hedges that took the volatility out of some of the inter-company positions we had. Those all come to conclusion at the end of the year because you are not allowed to hedge across a year and at that point you go to whatever the rates are. We feel it has been very effective. We put them in place to reduce volatility in a year we thought might be volatile. Sometimes you guess right.

Kevin Buttigieg – Stanford Group Company

Are those reflected as gains and losses on the income statement then or on the balance sheet?

Nancy Cooper

You will see them in the income statement. They are called out and you will see them in the Q as you read through it.

Kevin Buttigieg – Stanford Group Company

Do you recall what the amount of the gain was this quarter and where it is reflected on the income statement? Is it in the other gains and expenses category?

Nancy Cooper

Yes and it is around the $30 million-ish number.

Kevin Buttigieg – Stanford Group Company

What about the gain on the repurchase of the early retirement of debt? Is that likewise in that category?

Nancy Cooper

It is in there and it is $5 million.

Operator

The next question comes from Scott Zeller – Needham & Co.

Scott Zeller – Needham & Co.

I wonder if you could perhaps as you did at analyst day give us a sense for bookings trends. Remember you gave us the first half of the year bookings growth by grouping such as distributed or APM.

John Swainson

I think at this point all I can say is we are holding to our guidance of low double digits. I don’t think it is appropriate at this point to give any guidance beyond that. We will of course look to update you on those numbers come our May conference call. I think at this point, particularly given the volatility of the environment there is not much more I can or should say.

Scott Zeller – Needham & Co.

Anything specific, I’ll just ask about the application performance group. Any color you can tell us about that?

John Swainson

That was, as I called out, the strongest growth area in our business. We expect that strength to continue as do we expect to see strength in a number of our other areas. So application performance management has been the real star. In fact, for the last couple of years it has been our fastest growing area.

Operator

At this time we have no further questions in the question queue. I’d like to turn the call back over to your host today for any additional or closing remarks.

John Swainson

I’d like to just end with three points. First, to remind you that as Nancy said several years ago we started on a path to make CA a more streamlined and efficient organization and we are realizing the benefits of those efforts today in an economic environment where efficient operations are key to a competitive advantage. The second thing I would like to leave you with is we have outstanding products that compete as effectively as any in the industry today and our products help our customers improve their productivity, reduce their risk and that is a particularly compelling value proposition in this economic environment. The third thing I would like to leave you with is we are financially strong. Our strong balance sheet positions us well to weather these uncertain economic times and to take advantage of opportunities that will drive future growth. I am very pleased with what we have achieved and I look forward to building on this success and talking to you all next quarter. Thank you very much.

Operator

This does conclude today’s conference call. You may now disconnect.

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