CA, Inc. F4Q08 (Qtr End 03/31/08) Earnings Call Transcript

CA, Inc. (CA)

F4Q08 Earnings Call

May 22, 2008 5:00 pm ET

Executives

Joseph Doncheski – Vice President Investor Relations

John A. Swainson - Chief Executive Officer

Nancy E. Cooper - Chief Financial Officer and Executive Vice President

Analysts

Sarah Friar – Goldman Sachs

Philip Winslow – Credit Suisse

Thomas Curlin – RBC Capital Markets

John Difucci – Bear Stearns

Walter Pritchard – Cowen & Company

Katherine Egbert – Jefferies & Co.

Presentation

Operator

Welcome to the CA fourth quarter and full fiscal year 2008 financial results conference call. (Operator Instructions) At this time it is my pleasure to introduce Joseph Doncheski, Vice President of Investor Relations.

Joseph Doncheski

I’m 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 Thursday, May 22, 2008, 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 file on Form 8-K earlier today and the supplemental information package. The documents 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 review to our SEC filings for a detailed discussion of potential risks.

With that, I’ll turn the call over to John Swainson.

John A. Swainson

Q4 marks CA’s sixth quarter in a row of solid performance and caps off a fiscal year in which the company made significant progress by virtually every measure. In the fourth quarter revenue was up 8%, total products and services bookings were up 30%, non-GAAP operating margin was up 6%, non-GAAP diluted earnings per share were up 10%, and cash flow from operations was up 32%.

For the full fiscal year revenue was up 8%, total products and services bookings were up 15%, non-GAAP operating margin was up 6%, non-GAAP diluted earnings per share were up 35%, and cash flow from operations was up 3%.

We also added $280 million to our total billings backlog in FY2008, which is a very good indication that our sales force executed in the marketplace.

Our GAAP and non-GAAP income from continuing operations were affected by several tax charges we took in the fourth quarter, after an assessment of our tax position during the quarter. This resulted in a reduction of GAAP earnings by $0.02 a share and non-GAAP earnings by $0.06 a share. Our CFO, Nancy Cooper, will give you more details but I’m confident we’re taking the right steps to improve our tax position.

Now let me spend a few minutes talking about our operational performance. At the onset of the call, I stated that we were proud of our results and the operational consistency we’ve showed over the past six quarters. But we’re prouder still of the story behind the numbers. In fiscal 2008 the people of CA focused and executed on the right things to move the company forward.

We’ve built momentum through the year, driven by an energized direct and indirect sales force focusing on selling new software licenses to new and existing customers. We made this a priority and we delivered, recording the highest level of software sales at CA in many years.

We made further advances in our product portfolio based on our enterprise IT management strategy and we executed on our commitment to expense management, making significant year-over-year improvements both in our GAAP and non-GAAP operating margins.

We’re taking that momentum into fiscal 2009. Nancy will discuss this in a few minutes, but our outlook for FY2009 fiscal year calls for both healthy top line and bottom line growth, and good growth in cash flow from operations.

CA continues to find success with customers by delivering leading edge IT solutions in the contest of our EITM strategy. It’s catching on with customers because it speaks to real world business issues.

Let me share with you a couple of examples of deals that we closed in the fourth quarter and our customers are embracing EITM and deriving business values from CA’s solutions.

Sempra Energy is a $14 billion energy company serving nearly 30 million customers in southern California. They’re transforming their IT resorts from a support function to a business enabler. Sempra needed it’s IT to better respond to business priorities and changes. After a competitive bid that included all the major systems management players, CA won with a comprehensive solution that included our service desk, our CMDB, our network management products, our security products, our application performance management products, and Clarity for project and portfolio management.

Here’s another. When Saudi Arabia opened up its domestic air travel market, Saudi Arabian Airlines realized it had to make changes in its service to be competitive. Saudi Arabian Airlines embarked on a multi-year business transformation to modernize its fleet and streamline operations, quickly understanding to improve service it also had to revamp IT.

Global Systems Integrator, Ripro, SAA’s IT service provider, approached CA for a security point solution. SAA was already a CA mainframe customer and upon seeing the value proposition that CA brought to the table with EITM and our unique mainframe expertise, SAA and Ripro broadened the project’s scope with CA. With this win, CA expands into a broad EITM solution suite that will manage the full infrastructure from networks to systems, databases and clients, virtual systems, along with end-to-end systems management based upon ITIL best practices.

These customers are representative of the kind of wins that CA is experiencing in the marketplace against the best competition in the industry. We are winning because of the clarity of our EITM strategy, the strength of our products, solutions, and services, and the dedication of our employees to partnering with our customers and making them successful.

Now I would like to share a few thoughts about what lies ahead. I am confident in CA’s ability to be successful in fiscal year 2009 and beyond. The reasons for my optimism are quite simple. The first is that we believe our technology is essential to our customers’ continued viability.

As I have said many times, our customers are being challenged by complexities as never before because new applications, platforms, and hardware are being added into the network all the time. Our customers recognize the importance of governing, managing, and securing these complex IT environments and that it’s critical to their business success. I believe the customers will increasingly turn to CA to help them manage their IT environment and continue to invest in IT solutions that will enable their success.

The second reason for my confidence is our increasing ability to execute. And in fiscal 2008 we made a number of significant strides in improving our business processes and being more disciplined and efficient. And we will do more of that in fiscal 2009.

With that, I’ll turn it over to Nancy to take you through the details of the quarter and our financials.

Nancy E. Cooper

Before discussing our operating results for the fourth quarter and full year, let me first spend a few minutes talking about the tax impact on these results and then discuss how these results relate to the updated guidance we provided on our third quarter conference call.

As John stated, our non-GAAP EPS for the full year was up 35% and while this is a very strong EPS performance for the full year, at $1.19, it was lower than the updated guidance range of $1.22 to $1.26 provided on our Q3 earnings call. Let me explain why.

As we discussed at Analyst Day, we needed to take a different and more disciplined approach with taxes to better align us with industry performance over the long term. So in December we hired a new head of tax and undertook an assessment of our tax division. This assessment led to several tax charges in the fourth quarter, which when combined, resulted in a 52.6% tax rate on non-GAAP for the fourth quarter and final tax rate for the year of 39.5% versus guidance of 36%.

From an EPS perspective, the tax impact on full year non-GAAP earnings was $0.07 per share, with $0.06 attributable to discrete items and the remaining $0.01 related to ongoing tax performance. When excluding the impact of these discrete tax items from our full year non-GAAP figures our tax rate would have been 36.5% for the full year and our non-GAAP EPS performance would have been $1.25 per share, representing a 42% growth year-over-year and at the higher end of our guidance.

I believe that this provides better insight into our true operating performance for the year and I am confident we have taken the steps necessary to improve our tax planning and better position the company going forward.

Now let me expand further on our strong operational performance. I will begin by reviewing fourth quarter and full year financials. Then I will conclude with our outlook for fiscal 2009.

Before I begin, let me go over a few housekeeping items. As part of our ongoing effort to promote transparency and simplification, we have taken the following steps toward making CA easier to understand: starting with the P&L, we increased income statement conformity with the industry by breaking out items for cost of goods sold, sales and marketing, and G&A; for cash flow, we will add the direct method presentation to the MB&A section of the 10-K to show the major factors of CFFO generation; in the balance sheet, we will introduce the gross method presentation of accounts receivables in both our 10-K and supplemental presentation.

This simplifies the presentation of total billing backlog, total revenue backlog, and expected total future cash collections, all of which are important gauges of the future health of the business. And finally, we’ve simplified our supplemental, which includes CA’s key metrics and we will continue to find ways to continue to make CA easier to understand.

CA’s continued momentum in the fourth quarter lent a strong finish to the fiscal year for bookings, revenue, non-GAAP operating income, and cash flow, and now for the financials.

Total product and services bookings grew 30% to $1.5 billion in the quarter and 15% to $4.5 billion for fiscal 2008, which is in line with our guidance of mid-teens growth. During the year we signed 61 license agreements greater than $10 million, which aggregated to $1.4 billion compared to 42 such contracts aggregating to $1.1 billion in the prior year.

The weighted average duration of new direct bookings in fiscal 2008 was 3.22 years as compared to 3.29 years in the prior year. When annualized, the year-over-year increase in direct bookings for the full year was 23%. We are encouraged by the initial results of improved pricing discipline coupled with focused sales execution. We will continue to build on this momentum.

Total revenue in the quarter was $1.1 billion, up 8% from the prior year, or 2% on a constant currency basis. For the full year total revenue was $4.3 billion, which is at the high end of our guidance and is up 8% from the prior year, or 4% on a constant currency basis.

Together subscription and maintenance revenue grew 8% for the quarter and 9% for the full year from the prior year period. From a geographic perspective, North American revenue in the fourth quarter was up 2% over the prior year and international revenue grew 16%, or 3% on a constant currency basis. EMEA continued to gain traction in the quarter as a result of better sales execution and we continue to be encouraged by the success of the new team.

Non-GAAP operating expenses for the fourth quarter were $831 million, flat when compared to the prior year period. For the full year, non-GAAP operating expenses were $3.2 billion, up 1% when compared to the prior year period. Excluding an approximate $100 million unfavorable currency impact, full year non-GAAP operating expenses would have been down 35 year-over-year. I am very proud of our expense management initiatives and we will continue to pursue all areas that allow us to optimize our cost structures.

Non-GAAP operating income before interest and income taxes, for the fourth quarter was $254 million up 45% from the prior year. For the full year non-GAAP operating income before interest and income taxes, was $1.1 billion, up 40% from the prior year. Even with variable expenses, such as commission, hitting the back end of the year non-GAAP operating margin for the fourth quarter was 23% reflecting a 6% improvement year-over-year.

Full year non-GAAP operating margin inclusive of stock-based compensation was 26%, also reflecting a 6% improvement year-over-year. Excluding stock-based compensation, full year non-GAAP operating margin was 28%.

Non-GAAP income for the fourth quarter increased 7% to $117 million compared to $109 million in the prior year period. For the full year non-GAAP income increased 29% to $642 million compared to $499 million in the prior year period.

And this translates into non-GAAP EPS for the fourth quarter of $0.22 compared to $0.20 in the prior year. For the full year non-GAAP EPS of $1.19 grew 35% when comparing to $0.88 in the prior year. When excluding the discrete tax items of $0.06, full year non-GAAP EPS would have been $1.25.

Now let’s turn to our GAAP results, which included purchased software, intangible amortization, restructuring and other. Including these items, total expenses before interest and taxes were $935 million for the fourth quarter, which is down 8% from the prior year. For the full year total expenses before interest and taxes were $3.4 billion, down 8% from the prior year.

During the fourth quarter restructuring and other expenses were $74 million for the quarter and $121 million for the full year, which is compared to $100 million and $201 million in the prior years.

Now to finish up the income statement, GAAP income from continuing operations for the fourth quarter was $71 million, or $0.13 per diluted common share, which compares to a loss of ($20) million, or a loss of ($0.04) per share, in the prior year period. For the full year GAAP income from continuing operations was $500 million, or $0.93 per share, which compares to $121 million, or $0.22, in the prior year period.

From an EPS perspective, the tax impact on full year GAAP earnings was $0.03 per share with $0.02 attributable to discrete items and the remaining $0.01 related to ongoing tax performance. When excluding the impact of these discrete tax items from our full year GAAP figures, our tax rate would have been 36.7% for the full year and our GAAP EPS performance would have been $0.95 per share. In addition, GAAP earnings per share in the fourth quarter were reduced by $0.04 due to increased restructuring expenses.

Cash flow from operations in the fourth quarter was $690 million compared to $521 million in the prior year period. For the full year cash flow from operations was $1.1 billion, up 3% from the prior year and exceeds the high end of guidance.

A number of factors impacted fourth quarter cash flow. Among these cash flow was negatively impacted by increased taxes and lowered DPO, which together totaled approximately $125 million.

Fourth quarter cash flow benefited from strong collections driven by the following three items: first, we had very strong bookings in the quarter, as demonstrated by the year-over-year growth of 30%; second, as we mentioned in third quarter, we had a very large receivables swap into the fourth quarter; and third, we had an increase in single-installment payments of approximately $200 million year-over-year.

We think this was a balance approach to cash collections since collections from single installments for the full year were down as a percentage of total product bookings year-over-year.

Additionally, our future long-term health looks as good as it has for some time as evidenced in our balance sheet by the total billings backlog and total revenue backlog, which respectively increased 10% and 11% for the full year.

Now completing the balance sheet, we ended fiscal 2008 with $2.8 billion in cash and cash equivalents and $2.6 billion of total debt, bringing our net cash position to $214 million.

In summary, fiscal year 2008 was highlighted by the following successes: strong double-digit growth in both product and services bookings; non-GAAP operating margin expansion of 6%; growth in cash flow from operations exceeding the high end of our guidance; and balance sheet strength, in terms of our net cash position as well as our total billings backlog and total revenue backlog.

Now with that, I would like to provide our current guidance for fiscal year 2009: total product and services growth in the mid to high-single digits; total revenue growth of 2% to 4% in constant currency or $4.5 billion to $4.6 billion when translated at today’s foreign currency exchange rates, representing a 5% to 7% reported growth; non-GAAP EPS of $1.45 to $1.52, which represents 22% to 28% growth; GAAP EPS of $1.28 to $1.35, which represents 38% to 45% growth, inclusive of approximately $30 million of restructuring charges, the majority of which are facilities and which we expect to take in the first quarter.

And now the last part of our guidance, cash flow from operations of $1.15 billion to $1.18 billion, which represents 4% to 7% growth. This includes about $120 million in restructuring payments and relatively flat cash taxes. Except as previously stated, guidance reflects current foreign currency exchange rates, assumes no acquisitions, and a partial hedge of our operating income.

Finally, we expect approximately 570 million actual shares outstanding, a weighted average diluted share count of approximately 541 million shares, and a full year tax rate on non-GAAP income of approximately 37%. Given CA’s improving fundamentals I am encouraged by the future health of the business and look forward to fiscal year 2009.

And with that, we’ll open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Sarah Friar - Goldman Sachs.

Sarah Friar – Goldman Sachs

First, given that the bookings have been growing here in the mid-teens, it seems like the revenue guides are still a little conservative, that should just flow straight off the balance sheet, I’m assuming. And then a nuance on that mainframe cycle obviously compromised for a lot of people when they’re looking and thinking about your stock. How does that impact you until we start to see some more tail wind from that as we move through the year?

John A. Swainson

We certainly do expect to see an improving mainframe environment. We are at the beginning of what we think will be a strong mainframe upgrade cycle with the Z10. We are very well positioned in that. We’re the only ISD that I know that had early delivery of Z10 machine a month a two before the products were actually announced and available. We’re the only ISD that I know that has all its products tested on that environment. And we certainly expect the cyclical trend towards the mainframe to give us, as you said, a strong tail wind.

I am going to let Nancy talk a little bit about the translation of bookings into revenue.

Nancy E. Cooper

Sarah, the way we think about CA is revenue tends to be a lagging indicator. So we always have to look in the past and what the past was doing in terms of what renewals we’ll have this year. So what you find is the fiscal year 2009 is looking back to fiscal year 2006 in which we had a lower level of bookings. So renewals are growing but at a more modest level.

What is very encouraging to us is new product sales are growing in solid double-digit growth and this will now be the third year we’re getting that kind of performance. So if you would say for future indicators, for coming through what 2009 represents there is still some impact from the past, but all the future indicators are good and when you add to that we’re improving our pricing disciplines, we’re quite encouraged because we feel we’ve taken the right actions.

You may also remember that in APJ we decided to go to a channel model. And so you’ll get a little bit of impact of that. And we’ve done some refinement in Europe. So there’s some short-term impact, but the indicators for the future on new product sales and improving pricing discipline, we’re very encourage by.

Sarah Friar – Goldman Sachs

On the margin, really on the cash flow side and so on, it’s really getting into taxes, though, given that that was the one off again this quarter. Where are you in finally getting your arms around the tax rate? And you’re guiding back to a 37% tax rate. Obviously for a company like CA that’s very high. And I know that you’re trying to fix it vis-à-vis bringing in good quality people and so on. But how quickly could we start to see that tax rate really start to come down to levels that we would see more from your competitors?

Nancy E. Cooper

Well, I hope you see that we are trying to do all the right things. We’ve hired a very seasoned head of tax and we did this review that resulted in the fourth quarter hit. But what it helps us do is provide a much more solid foundation for us to begin some tax planning.

We are really subject to income taxes in a number of jurisdictions and we have to be very prudent how we migrate over to this new foundation for taxes. And so there may be some short-term costs that would position us better for long-term savings and that’s what you’re really seeing in the fiscal year 2009 tax rate. We believe that represents a fair and realistic risk-adjusted view of our ability to proceed on tax.

But the point you made is a relevant one. We are setting ourselves up to get ourselves more in industry position. I really can’t give you a finite time, although I know we will get there over time.

Operator

Your next question comes from Phil Winslow - Credit Suisse.

Philip Winslow – Credit Suisse

I just wanted to focus a little bit on the sales force. Obviously that’s been a big focus for you over the past 12-36 months now. I wonder if you can give us a sense of sales productivity, where it is right now, where it’s going to come from, and how you expect that going forward.

John A. Swainson

Phil, I can’t give you a quantitative view, but I’ll try and give you a qualitative view. We started really transforming ourselves as far as now two years ago and completed that effort in the U.S. in that first year and completed it in the rest of the world a year ago. So we’ve had one full year of the sales force operating in the point end that we would like.

And we’ve clearly seen some improvement in their productivity. We think we have more productivity improvement to come. We continue to spend a lot of money on education for our sales force. We’ve spent a fair bit of time improving the quality of people in our direct sales organization. And so we’re quite optimistic that the sales force itself can deliver more. And that will translate for us into new product sales.

Philip Winslow – Credit Suisse

General administrative, you mentioned Analyst Day, it being one of the main focus areas over the next couple of years bringing that percentage down. I’m just wondering how you think you see that stepping forward just over the course of this year and then maybe longer term?

Nancy E. Cooper

Phil, we do see that stepping out. It has to do with as we continue to move away from an absolute country structure and more a regional. You probably heard me mention we set up hubs for finance in parts of the world. That will help us get it. We keep consolidating space. That will help us get there. So we really have activities on all those G&A line items. You’re hearing more efficiency, more centralization and we have a long way we can still go.

We rolled out SAT in the United States. We have that to come in the rest of the world and that will give us even additional efficiencies.

Operator

Your next question comes from Tom Curlin - RBC Capital Markets.

Thomas Curlin – RBC Capital Markets

Just on the topic of efficiencies, could you perhaps walk us through the non-cash charges on a trailing 12 months and then as you go forward have looked like? What regions or pieces of the operation that’s coming out of.

Nancy E. Cooper

Are you referring to restructuring?

Thomas Curlin – RBC Capital Markets

Yes, the restructuring, the cash-based charges.

Nancy E. Cooper

The $120 million I mentioned in guidance?

Thomas Curlin – RBC Capital Markets

Yes, and also just trailing. What I’m getting at is how you’re making your way through the business ride and changing things and taking charges as you go.

Nancy E. Cooper

You may remember we started with refinement on our sales force and getting focused on our large 4000 customers. That was the first starting of the restructuring. And then we started some more regional focus. That helped with it. I mentioned earlier in the call, in Asia we went to an indirect model. That really reduced the number of people we had in Asia by over 500. We’re looking for efficiencies around the world.

Many of you may have heard me said, when we entered, we were ending the year, we knew we had about a $70 million cash charge coming into fiscal year 2009 and we were in the process of doing our budget. And our budget is really the final refinement. In Asia, in Europe, and the United States, it’s really pervasive although larger in terms of a percentage, in Asia. So those are the large items.

We’ve outsourced HR facilities, we’ve gone to shared resources in finance, and hopefully that will give you some color.

Thomas Curlin – RBC Capital Markets

And that includes the guide, or how would you describe the forward-looking 12 months?

Nancy E. Cooper

So the $120 million is a forward-looking 12 months. And you heard me mention in our outlook was, you will see in the first quarter, as you can imagine, as you’re exiting people from the business, you can’t exit the facilities until you’ve exited the people. So the first quarter, the number I mentioned of about a $30 million charge, not cash, is going to be taken as we get out of facilities.

Operator

Your next question comes from John Difucci - Bear Stearns.

John Difucci – Bear Stearns

Nancy, you said in your prepared remarks that single installment payments were up about $200 million year-over-year for the quarter. Just curious, and I know you give that data every quarter, but there’s a lot of information there, what the delta year-over-year on an annual basis? And is this something that will be, has your model shifted to just getting more single installments and payments and is that what we should expect going forward?

Nancy E. Cooper

No. What you heard me say is the quarter reflects a bookings growth of 30%. Whenever you have very strong bookings you may see larger amount of single installment payment. I think the number you should focus on is as a percentage of total bookings. The upfront payments stayed about the same percent of total bookings. And that really is what we are trying to manage the business to.

The other thing that is very important for you to look at is the balance sheet. And what we’ve provided for you is the metrics of are we balancing the short term and the long term appropriately? And when you look at our balance sheet and you see our total billings backlog, the total billings backlog is going up 11%. So that says we are building a future business at the same time we are managing the current year business.

John Difucci – Bear Stearns

And that’s fair, but what was the delta year-over-year on an annual basis.

Nancy E. Cooper

It’s about $64million.

John Difucci – Bear Stearns

So plus $64 million?

Nancy E. Cooper

Yes.

John A. Swainson

$200 million was the total for the quarter.

John Difucci – Bear Stearns

And $64 million is for the whole year.

Nancy E. Cooper

That’s right.

John Difucci – Bear Stearns

And what was, because you said the guidance for next quarter assumes a flat effective cash rate, what was the effective cash tax rate for 2007?

Nancy E. Cooper

We have not actually said that. We have flat cash taxes assumed in our CFFO model. And in fiscal year 2008 cash taxes were a little under 370.

Operator

Your next question comes from Walter Pritchard - Cowen & Company.

Walter Pritchard – Cowen & Company

John, on the product side, you gave some anecdotes in terms of a couple of deals. I’m just wondering if you could maybe summarize, on the new business side, where you are you seeing the greatest strength in terms of new product sales and what areas of the product line are you still looking for improvements on?

John A. Swainson

We saw a lot of strength, Walter, in our Wily Introscope family of products, application for its management. In fact, Wily, Clarity, and our security products were up on a bookings basis, almost a 100% in the quarter, versus the quarter the year before. So very strong performance there. We saw good performance in network management, up high into the double-digits. Our service desk product was up really across the board. We saw growth in bookings in our mainframe environment, in double-digits as well.

So we were very encouraged by the growth that we saw, really across the board. Currently there are some areas that we would like to see more and we’re making investments in those areas. But by and large we were extremely encouraged by the breadth of the bookings growth and the depth of that growth.

Walter Pritchard – Cowen & Company

And then, Nancy, just a reminder for us, on the booking side, current impact again this quarter, how significant was that on the bookings?

Nancy E. Cooper

We really have never discussed that, but it’s got to be at several points.

Walter Pritchard – Cowen & Company

And then on restructuring, I know you’ve given fiscal 2009 guidance and fiscal 2010 is way too premature, but just trying to get a sense of how much more cash needs to go out the door beyond the $120 million or so in fiscal 2009 to get done what you’re hoping to get done?

Nancy E. Cooper

We really feel we’ve taken, you never can say you’re not going to do some fine tuning, but we feel we’ve taken the large portion of the restructuring. And if you look at the accrual we’ve put up, or the charge, you would say about $40 million right now would flow into the next year.

Operator

Your next question comes from Katherine Egbert - Jefferies & Co.

Katherine Egbert – Jefferies & Co.

Nancy, you said a couple of times that you’re including your pricing decisions. Can you just give us a couple of examples of that?

Nancy E. Cooper

What this has to do with is if you know about a large portion of our business is a renewals business, and the renewals pricing decision has been delegated to the field, which is usually not a good idea to get good pricing. So what Mike Christianson has done is brought that delegation back into much more centralized control and established rules and delegations to the fields on what products can be priced using like a more of a product life cycle and what that does over time is it helps you get a better renewal process. That’s what it means, Katherine.

Katherine Egbert – Jefferies & Co.

And John, it’s been a while since you have done any acquisitions and you just mentioned that the security products and Wiley and Clarity all were very good performers for you. Is it time to start looking at other acquisitions?

John A. Swainson

Katherine, we have always got acquisitions on our radar screen. We have a very good screening process. We think that we are reasonably astute buyers of technology. We continue to look at the question of build-versus-buy. Haven’t really liked much of what we’ve seen out there and, quite honestly, haven’t needed to do much because we think we’ve got a very complete portfolio.

That being said, we always are looking at things and are looking carefully at what it would take for us to improve our position. We’ve looked at some of the more recent deals and concluded that we certainly don’t need to spend $900 million or $1 billion of our precious cash on something that we can build ourselves for a small fraction of that. So, we’re not likely to get enticed into those kinds of environments.

Operator

Your next question is a follow up from John Difucci - Bear Stearns.

John Difucci – Bear Stearns

The restructuring seemed to be pretty high this quarter, $74 million on the income statement charges taken. It was about 3 times what we were modeling anyway. That finally sounds like it’s going to start to trail off, at least the charges. When do these things start to become recurring costs? I think it’s like the last 11 quarters in a row that you’ve had them. I just want to get a gauge on how confident you are that, Nancy just mentioned that you might be doing some tweaking, but just wanted to get gauge as to when this is going to be reducing expenses and just a normal, everyday course of business.

Nancy E. Cooper

Let me answer it in two different ways. First of all the numbers of changes I mentioned to streamline the business require people to have to move to different places in a lot of situations. In a lot of countries when you eliminate jobs in countries you need to add a restructuring charge. So part of the way we get ourselves more efficient is by having some of this restructuring, and by the way that’s how we got a 6% increase in our operating margin. So we felt that those decisions actually were very good payback decisions for the company.

Now, that said, we have made a lot of changes in the company over in the last two years, which is why I’m able to say we believe you will see that number trailing off in the future, although I would never tell you, there will be a number of things that we still have to do, that there won’t be small items that we have to do.

John Difucci – Bear Stearns

It’s just that like the $74 million versus what I was modeling, around $23 million, people have focused on non-GAAP numbers and that had a major affect in my model on the operating margins. We focus more on the cash flow statement and I know that these restructuring charges will come off in time so later on, but I just want to try to model it when it gets a little bit cleaner.

Nancy E. Cooper

Well, let’s just look economically. We’ve taken from 2006 to now restructuring charge of a little over $300 million, and we’ve gotten a payback that we anticipate through 2009 of $500 million. So, we are looking at this in a very economic fashion and we also believe it’s trailing down, so I believe that what we’re doing is very balanced and good for the company.

Operator

There are no further questions.

John A. Swainson

Thank you. In conclusion let me say that we are very proud of the progress that we made at CA in fiscal 2008. We continue to build stronger relationships and partnerships with our customers. These improved relationships are driving our business as we work to not only unify and simplify their IT environments but also to help them more closely align their IT resources with their business priorities. This was evident in our strong bookings for the year.

We are further organized around our development teams to deliver EITM governance and mainframe solutions. We created a common infrastructure team and are on our way to delivering an integration platform that will also tie together all our products. We are also starting to show the marketplace that CA stands for innovation. As a result, I believe that CA is well positioned in a market segment that is becoming even more important to our customers’ ability to drive business success. I am confident that FY 2009 will be able to execute and capture these opportunities.

Thank you very much.

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