1. Informatica PowerCenter 10.5
Developer Guide
Chapter 11: "Expression Transformation"
Section: "Variable Ports".
Reference Detail: This section states
"When you create a variable port in an Expression transformation
the Integration Service uses the value of the variable from the previous row to calculate the current row." This directly supports the logic that the value from row 1 ('CA') is used for the output in row 2.
2. Informatica PowerCenter 10.5
Transformation Language Reference
Chapter 10: "Variables"
Section: "Using Variables in Expressions".
Reference Detail: This section explains the evaluation order: "For each row
the Integration Service evaluates expressions in the following order: 1. Input port expressions. 2. Variable port expressions that do not depend on other variable ports. ... The Integration Service uses the result of the variable port from the previous row in the output port expression for the current row." This confirms the mechanism described in the explanation.