CA Technologies
CA, INC. (Form: 10-Q, Received: 02/09/2006 06:01:54)
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 December 31, 2005
or
     
o   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   (I.R.S. Employer Identification Number)
incorporation or organization)    
     
One CA Plaza    
Islandia, New York   11749
(Address of principal executive offices)   (Zip Code)
(631) 342-6000
(Registrant’s telephone number, including area code)
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, New York 11749

(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 the filing requirements for at least the past 90 days: Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 February 6, 2006
par value $0.10 per share   577,553,086
 
 

 


 

CA, INC. AND SUBSIDIARIES
INDEX
             
        Page
  Financial Information        
 
           
 
  Review Report of Independent Registered Public Accounting Firm     1  
 
           
  Consolidated Condensed Financial Statements        
 
           
 
  Consolidated Condensed Balance Sheets – December 31, 2005 and March 31, 2005 (restated)     2  
 
           
 
  Consolidated Condensed Statements of Operations – Three and Nine Months Ended December 31, 2005 and 2004 (restated)     3  
 
           
 
  Consolidated Condensed Statements of Cash Flows – Nine Months Ended December 31, 2005 and 2004 (restated)     4  
 
           
 
  Notes to the Consolidated Condensed Financial Statements     5  
 
           
  Management’s Discussion and Analysis of Financial Condition and Results of Operations        
 
           
 
  Quarterly Update     28  
 
           
 
  Business Unit Structure     29  
 
           
 
  Performance Indicators     31  
 
           
 
  Results of Operations     33  
 
           
 
  Liquidity and Capital Resources     40  
 
           
 
  Outlook     46  
 
           
 
  Critical Accounting Policies and Business Practices     46  
 
           
  Quantitative and Qualitative Disclosures About Market Risk     49  
 
           
  Controls and Procedures     50  
 
           
  Other Information        
 
           
  Legal Proceedings     53  
 
           
  Risks Factors     53  
 
           
  Unregistered Sales of Equity Securities and Use of Proceeds     56  
 
           
  Exhibits     57  
 
           
 
  Signatures     58  
  EX-3.1: RESTATED CERTIFICATE OF INCORPORATION
  EX-15.1: ACCOUNTANTS' ACKNOWLEDGEMENT LETTER
  EX-31.1: CERTIFICATION
  EX-31.2: CERTIFICATION
  EX-32: CERTIFICATIONS

 


Table of Contents

PART I. FINANCIAL INFORMATION
REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
CA, Inc.
We have reviewed the accompanying consolidated condensed balance sheet of CA, Inc. and subsidiaries as of December 31, 2005, the related consolidated condensed statements of operations for the three-month and nine-month periods ended December 31, 2005 and 2004, and the related consolidated condensed statements of cash flows for the nine-month periods ended December 31, 2005 and 2004. These consolidated condensed financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with standards established by 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 consolidated condensed 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 standards established by the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of CA, Inc. and subsidiaries as of March 31, 2005, 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 June 29, 2005, except as to notes 9 and 12 (b) to the consolidated financial statements, which are as of October 18, 2005, we expressed an unqualified opinion on those consolidated financial statements. As discussed in that report, the consolidated financial statements as of March 31, 2005 and 2004 and for each of the years in the three-year period ended March 31, 2005 have been restated. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of March 31, 2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
As discussed in Note D to the consolidated condensed financial statements, the Company has restated the consolidated condensed balance sheet at March 31, 2005, the consolidated condensed statements of operations for the three-month and nine-month periods ended December 31, 2004 and the consolidated condensed statement of cash flows for the nine-month period ended December 31, 2004 to reflect the Company’s adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” on April 1, 2005 under the modified retrospective application method and to reflect the effects of certain prior period restatements that were previously disclosed in Note 12 of the consolidated financial statements in the Company’s Form 10-K/A for the fiscal year ended March 31, 2005.
New York, New York
February 8, 2006

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Item 1. Consolidated Condensed Financial Statements.
CA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
(in millions, except share amounts)
                 
    December 31,     March 31,  
    2005     2005  
            (restated)  
ASSETS
               
CURRENT ASSETS
               
Cash and cash equivalents
  $ 1,762     $ 2,829  
Marketable securities
    71       296  
Trade and installment accounts receivable, net
    409       674  
Federal and state income taxes receivable
    53       55  
Deferred income taxes
    131       79  
Other current assets
    66       102  
 
           
TOTAL CURRENT ASSETS
    2,492       4,035  
Installment accounts receivable, due after one year, net
    496       595  
Property and equipment, net
    626       622  
Purchased software products, net
    507       726  
Goodwill, net
    5,141       4,544  
Deferred income taxes
    123       105  
Other noncurrent assets, net
    672       536  
 
           
TOTAL ASSETS
  $ 10,057     $ 11,163  
 
           
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES
               
Current portion of long-term debt and loans payable
  $ 1     $ 826  
Government investigation settlement
    77       153  
Accounts payable
    348       177  
Salaries, wages, and commissions
    214       258  
Accrued expenses and other current liabilities
    330       323  
Deferred subscription revenue (collected) — current
    1,244       1,407  
Taxes payable, other than income taxes payable
    105       119  
Federal, state, and foreign income taxes payable
    445       342  
Deferred income taxes
    1       89  
 
           
TOTAL CURRENT LIABILITIES
    2,765       3,694  
Long-term debt, net of current portion
    1,810       1,810  
Deferred income taxes
    42       121  
Deferred subscription revenue (collected) — noncurrent
    272       273  
Deferred maintenance revenue
    238       270  
Other noncurrent liabilities
    53       53  
 
           
TOTAL LIABILITIES
    5,180       6,221  
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; 630,920,596 shares issued
    63       63  
Additional paid-in capital
    4,292       4,191  
Retained earnings
    1,961       1,837  
Accumulated other comprehensive loss
    (147 )     (76 )
Unearned compensation
    (8 )     (11 )
Treasury stock, at cost, 51,895,692 shares and 43,933,590 shares, respectively
    (1,284 )     (1,062 )
 
           
TOTAL STOCKHOLDERS’ EQUITY
    4,877       4,942  
 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 10,057     $ 11,163  
 
           
See Notes to the Consolidated Condensed Financial Statements.

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CA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(in millions, except per share amounts)
                                 
    For the Three     For the Nine  
    Months Ended     Months Ended  
    December 31,     December 31,  
    2005     2004     2005     2004  
            (restated)             (restated)  
REVENUE
                               
 
                               
Subscription revenue
  $ 713     $ 650     $ 2,104     $ 1,875  
Maintenance
    108       112       328       332  
Software fees and other
    49       74       129       196  
Financing fees
    11       17       38       62  
Professional services
    86       64       230       178  
 
                       
TOTAL REVENUE
    967       917       2,829       2,643  
 
                               
EXPENSES
                               
 
                               
Amortization of capitalized software costs
    111       112       335       335  
Cost of professional services
    69       57       194       167  
Selling, general, and administrative
    405       352       1,175       1,005  
Product development and enhancements
    171       172       521       524  
Commissions and royalties
    87       91       217       226  
Depreciation and amortization of other intangible assets
    33       33       95       97  
Charge for in-process research and development
                18        
Other (gains) losses, net
    (10 )     6       (17 )     9  
Restructuring and other
    21             66       28  
Government investigation and shareholder litigation settlement
          18             234  
 
                       
TOTAL EXPENSES BEFORE INTEREST AND TAXES
    887       841       2,604       2,625  
 
                               
Income from continuing operations before interest and taxes
    80       76       225       18  
Interest expense, net
    12       29       31       79  
 
                       
 
                               
Income (loss) from continuing operations before income taxes
    68       47       194       (61 )
Income tax expense (benefit), net
    12       16       3       (43 )
 
                       
 
                               
INCOME (LOSS) FROM CONTINUING OPERATIONS
    56       31       191       (18 )
 
                               
Discontinued operations, net of income taxes
    3             3       (2 )
 
                       
 
                               
NET INCOME (LOSS)
  $ 59     $ 31     $ 194     $ (20 )
 
                       
 
                               
BASIC EARNINGS (LOSS) PER SHARE
                               
 
                               
Income (loss) from continuing operations
  $ 0.09     $ 0.05     $ 0.32     $ (0.03 )
 
Discontinued operations
    0.01             0.01        
 
                       
Net income (loss)
  $ 0.10     $ 0.05     $ 0.33     $ (0.03 )
 
                       
 
Basic weighted average shares used in computation
    579       589       583       587  
 
                               
DILUTED EARNINGS (LOSS) PER SHARE
                               
 
                               
Income (loss) from continuing operations
  $ 0.09     $ 0.05     $ 0.31     $ (0.03 )
Discontinued operations
    0.01             0.01        
 
                       
Net income (loss)
  $ 0.10     $ 0.05     $ 0.32     $ (0.03 )
 
                       
 
                               
Diluted weighted average shares used in computation
    606       594       610       587  
See Notes to the Consolidated Condensed Financial Statements.

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CA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
                 
    For the Nine Months  
    Ended December 31,  
    2005     2004  
            (restated)  
OPERATING ACTIVITIES:
               
Net income (loss)
  $ 194     $ (20 )
Discontinued operations, net of income taxes
    (3 )     2  
 
           
Income (loss) from continuing operations
    191       (18 )
Adjustments to reconcile income (loss) from continuing operations to net cash provided by continuing operating activities:
               
Depreciation and amortization
    430       432  
Provision for deferred income taxes
    (262 )     (215 )
Non-cash compensation expense related to stock and pension plans
    93       77  
Non-cash gain on asset divestiture
    (8 )      
Non-cash charge for in-process research and development
    18        
Foreign currency transaction (gain) loss
    (10 )     6  
Shareholder litigation settlement
          16  
Changes in other operating assets and liabilities, net of effect of acquisitions:
               
Decrease in noncurrent installment accounts receivable, net
    121       121  
Increase (decrease) in deferred subscription revenue (collected) — noncurrent
    5       (52 )
Decrease in deferred maintenance revenue
    (27 )     (61 )
Decrease in trade and current installment accounts receivable, net
    232       299  
Decrease in deferred subscription revenue (collected) — current
    (115 )     (59 )
Increase in taxes payable
    82       108  
Restitution fund
    (75 )     143  
Restructuring and other
    41       8  
Increase (decrease) in accounts payable, accrued expenses and other
    110       (26 )
Changes in other operating assets and liabilities, net of effect of acquisitions
    (12 )     10  
 
           
NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES
    814       789  
INVESTING ACTIVITIES:
               
Acquisitions, primarily goodwill, purchased software, and other intangible assets, net of cash acquired
    (680 )     (458 )
Settlements of purchase accounting liabilities
    (30 )     (16 )
Purchases of property and equipment, net
    (111 )     (42 )
Proceeds from the sale of assets
    41       14  
Sales (purchases) of marketable securities, net
    301       (217 )
Decrease in restricted cash
    (3 )     (2 )
Capitalized software development costs and other
    (65 )     (47 )
 
           
NET CASH USED IN INVESTING ACTIVITIES
    (547 )     (768 )
 
FINANCING ACTIVITIES:
               
Dividends paid
    (70 )     (23 )
Purchases of treasury stock
    (367 )     (11 )
Debt issuance costs
          (12 )
Debt (repayments) borrowings
    (911 )     997  
Exercise of common stock options and other
    105       81  
 
           
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    (1,243 )     1,032  
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH
    (976 )     1,053  
Effect of exchange rate changes on cash
    (91 )     79  
 
           
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    (1,067 )     1,132  
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    2,829       1,793  
 
           
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 1,762     $ 2,925  
 
           
See Notes to the Consolidated Condensed Financial Statements.

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
NOTE A — BASIS OF PRESENTATION
The accompanying unaudited Consolidated Condensed Financial Statements of CA, Inc. (the Company), formerly named Computer Associates International, Inc., have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. 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 Consolidated Condensed Balance Sheet at March 31, 2005, the Consolidated Condensed Statements of Operations for the three and nine-month periods ended December 31, 2004, and the Consolidated Condensed Statements of Cash Flows for the nine-month period ended December 31, 2004 included in this Form 10-Q have been restated to reflect the Company’s adoption of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)), on April 1, 2005 under the modified retrospective application method (refer to Note D, “Accounting For Share-Based Compensation” for additional information) and to reflect the effects of certain prior period restatements that were previously disclosed in Note 12 of the Notes to the Consolidated Financial Statements in the Company’s amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005.
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 nine month periods ended December 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2006. For further information, refer to the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005.
Basis of Revenue Recognition: The Company derives revenue from licensing software products, providing customer technical support and software updates (referred to as maintenance) and providing professional services, such as consulting and education. The Company licenses the right to use its software products pursuant to software license agreements. Under the Company’s business model, software license agreements include flexible contractual provisions that, among other things, allow customers to receive certain unspecified future software products for no additional fee. These agreements typically combine the right to use the software product with maintenance for the term of the agreement. Under these agreements, the Company recognizes revenue ratably over the term of the license agreement beginning upon satisfaction of the four revenue recognition criteria noted in Statement of Position 97-2, “Software Revenue Recognition,” issued by the American Institute of Certified Public Accountants. Since the Company recognizes subscription revenue from software license agreements evenly (or ratably) over the applicable license agreement term, the timing and amount of such revenue recognized during an accounting period is determined by the license agreement duration and value reflected in each software license agreement. For license agreements signed prior to October 2000 (the prior business model), once all four of the revenue recognition criteria were met, software license fees were recognized as revenue up-front, and the maintenance fees were deferred and subsequently recognized as revenue over the term of the license.
Revenue from sales to distributors, resellers, and value-added resellers (VARs) is generally recognized when those partners sell the software products to their customers. Beginning July 1, 2004, sales of the Company’s

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
products made by distributors, resellers, and VARs to their customers incorporate the right for the end user to receive certain unspecified future software products for no additional fee. Accordingly, revenue from these contracts is also recognized on a ratable basis.
Revenue from professional services arrangements is generally recognized as the services are performed. Revenue from committed professional services arrangements that are sold as part of a software transaction is deferred and recognized on a ratable basis over the life of the related software transaction and is reported as Professional Services revenue in the Consolidated Condensed Statements of Operations.
For a more detailed description of the Company’s revenue recognition policy, refer to Note 1 of the Notes to the Consolidated Financial Statements included in the Company’s amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005.
Cash Dividends: In November 2005, the Company’s Board of Directors declared a quarterly cash dividend of $0.04 per share. The dividend totaled approximately $23 million and was paid on December 30, 2005 to stockholders of record on December 15, 2005. In August 2005, the Company’s Board of Directors declared a quarterly cash dividend of $0.04 per share. The dividend totaled approximately $23 million and was paid on September 30, 2005 to stockholders of record on September 16, 2005. In May 2005, the Company’s Board of Directors declared a quarterly cash dividend of $0.04 per share. The dividend totaled approximately $24 million and was paid on June 30, 2005 to stockholders of record on June 15, 2005.
In October 2004, the Company’s Board of Directors declared a cash dividend of $0.04 per share. The dividend totaled approximately $24 million and was paid on January 5, 2005 to stockholders of record as of December 20, 2004. In June 2004, the Company’s Board of Directors declared a cash dividend of $0.04 per share. The dividend totaled approximately $23 million and was paid on July 15, 2004 to stockholders of record as of June 30, 2004.
Statements of Cash Flows: For the nine-month periods ended December 31, 2005 and 2004, interest payments were $113 million and $103 million, respectively, and income taxes paid were $162 million and $55 million, respectively. The increase in taxes paid was primarily attributable to an Internal Revenue Service (IRS) Revenue Procedure which reduced the amount the Company paid for income taxes in fiscal year 2005. The Revenue Procedure granted taxpayers a twelve-month deferral for cash received from customers to the extent such receipts were not recognized in revenue for financial statement purposes.
For the nine month period ended December 31, 2004, the Company reclassified certain short-term auction rate notes from cash and cash equivalents to marketable securities. As a result, the Consolidated Condensed Statement of Cash Flows for the nine-month period ended December 31, 2004 has been adjusted to increase cash used in investing activities and to decrease the balance of cash and cash equivalents by approximately $229 million.
Derivatives : Derivatives are accounted for in accordance with U.S. GAAP and the Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities” (FAS 133). The Company does not and will not use derivative financial instruments for speculative purposes. For the quarter ended December 31, 2005, the Company entered into derivative contracts with a total notional value of 40 million euros, with the intent of mitigating a certain portion of the Company’s euro operating exposure. As these contracts did not qualify for hedging treatment under FAS 133, these contracts resulted in a gain of approximately $0.2 million, which was recorded as Other (gains) losses, net in the Consolidated Condensed Statements of Operations. As of December 31, 2005, we had no derivative contracts outstanding.
NOTE B — COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes unrealized gains and losses on the Company’s available-for-sale securities, net of related taxes, and foreign currency translation adjustments. The components of

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
comprehensive income (loss) for the three and nine-month periods ended December 31, 2005 and 2004 are as follows:
                                 
    For the Three Months     For the Nine Months  
    Ended December 31,     Ended December 31,  
    2005     2004     2005     2004  
            (restated)             (restated)  
    (in millions)  
Net income (loss)
  $ 59     $ 31     $ 194     $ (20 )
Unrealized gains (losses) on marketable securities, net of tax
          2             (2 )
Foreign currency translation adjustments
    (18 )     56       (71 )     56  
 
                       
Total comprehensive income
  $ 41     $ 89     $ 123     $ 34  
 
                       
NOTE C — EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share and diluted loss per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing (i) the sum of net income and the after-tax amount of interest expense recognized in the period associated with outstanding, dilutive Convertible Senior Notes by (ii) the sum of the weighted average number of common shares outstanding for the period and dilutive common share equivalents.
                                 
    For the Three     For the Nine  
    Months Ended     Months Ended  
    December 31,     December 31,  
    2005     2004     2005     2004  
            (restated)             (restated)  
    (in millions, except per share amounts)  
Net income (loss)
  $ 59     $ 31     $ 194     $ (20 )
Interest expense associated with Convertible Senior Notes, net of tax
    1       (1)     4       (1)
 
                       
Numerator in calculation of diluted earnings (loss) per share
  $ 60     $ 31     $ 198     $ (20 )
 
                       
 
                               
Weighted average shares outstanding and common share equivalents
                               
Weighted average common shares outstanding
    579       589       583       587  
Weighted average Convertible Senior Note shares outstanding
    23             23        
Weighted average stock awards outstanding
    4       5       4        
 
                       
Denominator in calculation of diluted earnings per share
    606       594 (2)     610       587 (2)
 
                       
 
                               
Diluted earnings (loss) per share
  $ 0.10     $ 0.05     $ 0.32     $ (0.03 )
 
                       
 
(1)   If for the three and nine month periods ended December 31, 2004 the common share equivalents for the 5% Convertible Senior Notes (convertible into 27 million shares) issued in March 2002 and the 1.625% Convertible Senior Notes (23 million shares) issued in December 2002 (collectively, the Notes) had been dilutive, interest expense, net of tax, related to the Notes would have been added back to net income in order to calculate diluted earnings per share. The interest expense for the Notes, net of tax, for the three and nine-month periods ended December 31, 2004 totaled approximately $7 million and $20 million, respectively.
 
(2)   Common share equivalents related to the Notes, stock awards, and shareholder settlement shares are not included in the diluted share computation when their effect is antidilutive. If the common share equivalents related to the Notes had been dilutive for the three month period ended December 31, 2004, the number of shares used in the calculation of diluted earnings per share for the three month period ended December 31, 2004 would have been 644 million. If the nine month period ended December 31, 2004 had resulted in net income and had the common share equivalents related to the Notes, stock awards, and shareholder settlement shares been dilutive, the number of shares used in the calculation of diluted earnings per share for the nine month period ended December 31, 2004 would have been 641 million.

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
NOTE D — ACCOUNTING FOR SHARE-BASED COMPENSATION
Effective April 1, 2005, the Company adopted, under the modified retrospective basis, the provisions of SFAS No. 123(R), which establishes accounting for share-based awards exchanged for employee services. Under the provisions of SFAS No. 123(R), share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee requisite service period (generally the vesting period of the award). The application of the modified retrospective method of SFAS No. 123(R) provides that the financial statements of prior periods are adjusted to reflect the fair value method of expensing share-based compensation for all awards granted on or after April 1, 1995, and accordingly, financial statement amounts for the prior periods presented in this Form 10-Q have been restated to reflect the fair value method of expensing share-based compensation, which was materially consistent with the pro-forma disclosures required for those periods by SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), as amended.
The Company previously applied the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations for share-based awards granted prior to April 1, 2003 and, for fiscal years 2005 and 2004, applied the fair value recognition provisions of SFAS No. 123 under the prospective transition method, which applied the fair value recognition provisions only to awards granted on or after April 1, 2003.
In accordance with SFAS No. 123(R), the Company is required to base initial compensation cost on the estimated number of awards for which the requisite service is expected to be rendered. Historically, and as permitted under SFAS No. 123, the Company chose to record reductions in compensation expense in the periods the awards were forfeited. The cumulative effect on prior periods of the change to an estimated number of awards for which the requisite service is expected to be rendered generated an approximate $1 million credit to the “Selling, general, and administrative” expense line item on the Consolidated Condensed Statements of Operations during the first quarter of fiscal year 2006. In addition, as a result of the Company’s adoption of SFAS No. 123(R), an additional deferred tax asset of $51 million was recorded at March 31, 2005.
The Company recognized share-based compensation in the following line items on the Consolidated Condensed Statements of Operations for the periods indicated:
                                 
    For the Three Months     For the Nine Months  
    Ended December 31,     Ended December 31,  
    2005     2004     2005     2004  
            (restated)             (restated)  
    (in millions)  
Cost of professional services
  $ 1     $ 1     $ 3     $ 3  
Selling, general, and administrative
    16       17       51       37  
Product development and enhancements
    8       8       26       22  
 
                       
Share-based compensation expense before tax
    25       26       80       62  
Income tax benefit
    6       7       19       10  
 
                       
Net compensation expense
  $ 19     $ 19     $ 61     $ 52  
 
                       
Total unrecognized compensation costs related to non-vested awards expected to be recognized over a weighted average period of 1.5 years, amounted to $133 million at December 31, 2005.

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
The following tables detail the modified retrospective application impact of SFAS No. 123(R) on previously reported results:
                                 
    For the Three     For the Nine  
    Months Ended     Months Ended  
    December 31, 2004     December 31, 2004  
    Previously             Previously        
    Reported (1)     Restated (2)     Reported (1)     Restated (2)  
    (in millions)  
Income (loss) before income taxes
  $ 58     $ 47     $ (34 )   $ (61 )
Income (loss) from continuing operations
    39       31       6       (18 )
Basic income (loss) per share
  $ 0.07     $ 0.05     $ 0.01     $ (0.03 )
Diluted income (loss) per share
    0.07       0.05       0.01       (0.03 )
 
                               
Net cash provided by operating activities
    366       365       791       789  
Net cash provided by financing activities
    1,016       1,017       1,030       1,032  
                 
    March 31, 2005  
    Previously        
    Reported (1)     Restated (2)  
    (in millions)  
Deferred income tax liability
  $ 172     $ 121  
Total liabilities
    6,272       6,221  
 
Additional paid-in capital
    3,970       4,191  
Retained earnings
    2,007       1,837  
Stockholders’ equity
    4,891       4,942  
 
               
Total liabilities and stockholders’ equity
  $ 11,163     $ 11,163  
 
(1)   As adjusted for the restatements that were previously disclosed in paragraphs “a” and “b” of Note 12 of the Notes to the Consolidated Financial Statements included in the Company’s amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005.
 
(2)   Includes minor corrections made to the Company’s previously reported pro-forma SFAS No. 123 disclosures as a result of the Company’s adoption of SFAS No. 123(R).
There were no capitalized share-based compensation costs at December 31, 2005 and 2004.
Share-based incentive awards are provided to employees under the terms of the Company’s plans (the Plans). The Plans are administered by the Compensation and Human Resource Committee of the Board of Directors (the Committee). Awards under the Plans may include at-the-money stock options, premium-priced stock options, restricted stock awards (RSAs), restricted stock units (RSUs), performance share units (PSUs), unrestricted stock, or any combination thereof. The non-management members of the Company’s Board of Directors also receive deferred stock units under a separate director compensation plan.
RSAs are stock awards issued to employees that are subject to specified restrictions and a risk of forfeiture. The restrictions typically lapse over a two or three year period. The fair value of the awards is determined and fixed based on the Company’s stock price on the grant date.
RSUs are stock awards that are issued to employees that entitle the holder to receive shares of common stock as the awards vest, typically over a two or three year period. The fair value of the awards is determined and fixed based on the Company’s stock price on the grant date, except that for RSUs not entitled to dividend equivalents, the stock price is reduced by the present value of the expected dividend stream during the vesting period using the risk-free interest rate.
PSUs are awards granted under the long-term incentive plan for senior executives where the number of shares ultimately received by the employee depends on Company performance measured against specified targets and will be determined after a three-year or one-year period as applicable. The fair value of each award is

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
estimated on the date that the performance targets are established based on the fair value of the Company’s stock and the Company’s estimate of the level of achievement of its performance targets, as described below.
Stock options are awards which allow the employee to purchase shares of the Company’s stock at a fixed price. Stock options are granted at an exercise price equal to or greater than the Company’s stock price on the date of grant. Awards granted after fiscal year 2000 generally vest one-third per year, become fully vested two or three years from the grant date and have a contractual term of ten years.
Beginning with awards granted in fiscal year 2006, the Company changed its equity-based compensation strategy to provide the general population of employees with RSUs as opposed to stock options, which had been the Company’s previous practice. Awards associated with the fiscal year 2005 performance cycle were granted in the first quarter of fiscal year 2006, whereas awards associated with the fiscal year 2004 performance cycle were granted in the fourth quarter of fiscal year 2004.
Equity based compensation granted to senior management employees is apportioned between RSAs, RSUs and stock options. Additionally, under the Company’s long-term incentive plan for fiscal year 2006, which is more fully described in the Company’s proxy statement dated July 26, 2005, senior executives were granted stock options and PSUs, under which the senior executives and are eligible to receive RSAs or RSUs and unrestricted shares in the future if certain targets are achieved. Each quarter, the Company compares the actual performance the Company expects to achieve with the performance targets. As of December 31, 2005, the Company believes its actual performance will not materially deviate from the previously established performance targets, and as such, has continued to accrue compensation cost based on the initial estimate of the number of awards expected to be earned under the long-term incentive plan. The estimated compensation cost is amortized over the requisite service period of the awards. At the conclusion of the applicable performance period, the number of shares of RSAs or RSUs and unrestricted stock, as applicable, issued may vary based upon the level of achievement of the performance targets. The ultimate number of shares issued and the related compensation cost recognized will be based on a comparison of the final performance metrics to the specified targets.
The following table summarizes stock option activity during the first nine months of fiscal year 2006:
                 
            Weighted  
            Average  
    Number     Exercise  
    of Shares     Price  
    (in millions)          
Outstanding at March 31, 2005
    33.6     $ 28.50  
Options granted
    2.5       28.65  
Options converted — Concord acquisition
    1.5       22.51  
Options exercised
    (2.3 )     19.06  
Options expired or terminated
    (0.8 )     31.83  
 
             
 
Outstanding at June 30, 2005
    34.5     $ 28.80  
Options granted
    0.1       27.61  
Options converted — Niku acquisition
    0.8       17.06  
Options exercised
    (1.0 )     20.33  
Options expired or terminated
    (0.7 )     31.39  
 
             
 
Outstanding at September 30, 2005
    33.7     $ 28.71  
Options granted
    0.1       28.23  
Options exercised
    (0.9 )     20.91  
Options expired or terminated
    (0.8 )     32.96  
 
             
 
Outstanding at December 31, 2005
    32.1     $ 28.81  
 
             

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
The following table summarizes information about options granted under the Plans as of December 31, 2005:
                                                                 
    Options Outstanding     Options Exercisable  
                    Weighted                             Weighted        
                    Average     Weighted                     Average        
Range of           Aggregate     Remaining     Average             Aggregate     Remaining     Weighted  
Exercise           Intrinsic     Contractual     Exercise             Intrinsic     Contractual     Average  
Prices   Shares     Value     Life     Price     Shares     Value     Life     Exercise Price  
    (shares and aggregate intrinsic value in millions)      
$1.37 – $20.00
    3.9     $ 57.4     7.0 years   $ 13.59       2.3     $ 33.5     6.8 years   $ 13.40  
$20.01–$30.00
    19.8       41.8     5.5 years     26.21       14.1       36.9     4.3 years     25.67  
$30.01–$40.00
    4.4       0     3.3 years     34.72       3.7       0     2.3 years     35.37  
$40.01–$50.00
    1.8       0     2.1 years     47.11       1.8       0     2.1 years     47.11  
$50.01–$74.69
    2.2       0     3.6 years     52.09       2.2       0     3.6 years     52.09  
 
                                                       
 
    32.1     $ 99.2             $ 28.81       24.1     $ 70.4             $ 30.07  
 
                                                       
The Company estimates the fair value of stock options using the Black-Scholes valuation model, consistent with the provisions of SFAS No. 123(R), Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 107, and the Company’s prior period pro-forma disclosures of net earnings, including share-based compensation (determined under a fair value method as prescribed by SFAS No. 123). Key input assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the Company’s stock, the risk-free rate, and the Company’s dividend yield. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options granted in the period ended December 31, 2005. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards.
For the quarters ended December 31, 2005 and 2004, the Company issued options covering approximately 45,000 and 380,000 shares of common stock, with weighted average fair values of $15.39 and $16.56, respectively. The weighted average fair value at the date of grant for options granted during the nine-month periods ended December 31, 2005 and 2004 was $15.06 and $15.94 per share, respectively. The weighted average assumptions used for option grants in the respective periods are listed in the table below.
                                 
    For the Three Months   For the Nine Months
    Ended December 31,   Ended December 31,
    2005   2004   2005   2004
                               
Dividend yield
    0.57 %     0.27 %     0.57 %     0.28 %
Expected volatility factor (1)
    0.56       0.67       0.56       0.67  
Risk-free interest rate (2)
    4.4 %     3.6 %     4.1 %     3.6 %
Expected term (3)
    6.0       4.5       6.0       4.5  
 
(1)   Measured using historical daily price changes of the Company’s stock over the respective expected term of the option 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 share option is based on the U.S. Treasury yield curve in effect at the time of grant.
 
(3)   The expected term is the number of years that the Company estimates, based primarily on historical experience, that options will be outstanding prior to exercise. The increase in expected term in fiscal year 2006 as compared with fiscal year 2005 was largely related to a change in the demographics of the recipients of stock options. In fiscal year 2005, stock options were granted to a broad base of employees. In fiscal year 2006, stock options were primarily granted to executive management who historically hold options longer than the broad base of employees.

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
The following table summarizes restricted stock activity (RSAs, RSUs and PSUs) during the first nine months of fiscal year 2006:
                 
            Weighted  
            Average  
    Number     Grant Date  
    of Shares     Fair Value  
    (in millions)  
Outstanding at March 31, 2005
    0.9     $ 29.26  
Restricted stock granted
    3.0       27.77  
Restricted stock vested or cancelled
    (0.1 )     26.05  
 
             
Outstanding at June 30, 2005
    3.8       28.17  
 
             
 
Restricted stock vested or cancelled
    (0.1 )     26.67  
 
             
Outstanding at September 30, 2005
    3.7       28.26  
 
Restricted stock granted
    0.1       28.55  
Restricted stock vested or cancelled
    (0.1 )     27.48  
 
             
Outstanding at December 31, 2005
    3.7     $ 28.27  
 
             
The total cash received from employees as a result of employee stock option exercises for the nine-month periods ended December 31, 2005 and December 31, 2004 was approximately $82 million and $63 million, respectively. The Company settles employee stock option exercises with stock held in treasury. The total intrinsic value of options exercised and restricted awards vested during the nine-month periods ended December 31, 2005 and December 31, 2004 was $40 million and $31 million, respectively. The tax benefits realized by the Company for the nine-month periods ended December 31, 2005 and 2004 were $13 million and $9 million, respectively.
Upon adoption of SFAS No. 123(R), the Company has elected to treat awards with graduated vesting for which the grant-date fair value of an individual award is computed for each vesting tranche as one award. Consequently, the total compensation expense is recognized ratably over the entire vesting period, so long as compensation cost recognized at any date at least equals the portion of the grant-date value of the award that is vested at that date.
The Company completed its acquisition of Niku Corporation (Niku) during the quarter ended September 30, 2005. Pursuant to the merger agreement, options to purchase Niku common stock were converted (using a ratio of 0.732) into options to purchase approximately 0.8 million shares of the Company’s stock. The weighted average fair value of the options on the date of acquisition was $15.96.
The Company completed its acquisition of Concord Communications, Inc. (Concord) during the quarter ended June 30, 2005. Pursuant to the merger agreement, options to purchase Concord common stock were converted (using a ratio of 0.626) into options to purchase approximately 1.5 million shares of the Company’s stock. The weighted average fair value of the options on the date of acquisition was $11.38.
The fair value of each option grant was estimated on the date of acquisition using the Black-Scholes option pricing model with the following assumptions:
                 
    Niku   Concord
Dividend yield
    0.58 %     0.59 %
Expected volatility factor
    0.45       0.46  
Risk-free interest rate
    4.0 %     3.6 %
Expected term
    3.8       3.2  
Refer to Note G, “Acquisitions,” for additional information concerning the Company’s acquisitions of Niku and Concord.

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
NOTE E — TRADE AND INSTALLMENT ACCOUNTS RECEIVABLE
The Company uses installment license agreements as a standard business practice and has a history of successfully collecting substantially all amounts due under the original payment terms without making concessions on payments, software products, maintenance, or professional services. Net trade and installment accounts receivable represent financial assets derived from the committed amounts due from the Company’s customers that have been earned by the Company. These accounts receivable balances are reflected net of unamortized discounts based on imputed interest for the time value of money for license agreements under our prior business model, unearned revenue attributable to maintenance, unearned professional services contracted for in the license agreement, and allowances for doubtful accounts. These balances do not include unbilled contractual commitments executed under the Company’s current business model. Such committed amounts are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Trade and Installment Accounts Receivable are comprised of the following components:
                 
    December 31,     March 31,  
    2005     2005  
            (restated)  
    (in millions)  
Current:
               
Billed accounts receivable
  $ 703     $ 829  
Unbilled amounts due within the next 12 months — prior business model
    329       389  
Less: Allowance for doubtful accounts
    (15 )     (33 )
Less: Unearned revenue — current
    (608 )     (511 )
 
           
Net trade and installment accounts receivable — current
  $ 409     $ 674  
 
           
 
               
Noncurrent:
               
Unbilled amounts due beyond the next 12 months — prior business model
    564       741  
Less: Allowance for doubtful accounts
    (15 )     (35 )
Less: Unearned revenue — noncurrent
    (53 )     (111 )
 
           
Net installment accounts receivable — noncurrent
  $ 496     $ 595  
 
           
The components of unearned revenue consist of the following:
                 
    December 31,     March 31,  
    2005     2005  
            (restated)  
    (in millions)  
Current:
               
Unamortized discounts
  $ 42     $ 62  
Unearned maintenance
    5       23  
Deferred subscription revenue (billed, uncollected)
    473       369  
Unearned professional services
    88       57  
 
           
Total unearned revenue — current
  $ 608     $ 511  
 
           
 
               
Noncurrent:
               
Unamortized discounts
  $ 44     $ 79  
Unearned maintenance
    9       32  
 
           
Total unearned revenue — noncurrent
  $ 53     $ 111  
 
           
NOTE F — IDENTIFIED INTANGIBLE ASSETS
In the tables below, capitalized software includes both purchased and internally developed software costs, and other identified intangible assets include both purchased customer relationships and trademarks/trade name costs. Internally developed capitalized software costs and other identified intangible asset costs are included in “Other noncurrent assets, net” on the Consolidated Condensed Balance Sheets.

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
The gross carrying amounts and accumulated amortization for identified intangible assets are as follows:
                         
    At December 31, 2005  
    Gross     Accumulated     Net  
    Assets     Amortization     Assets  
    (in millions)  
Capitalized software:
                       
Purchased
  $ 4,706     $ 4,199     $ 507  
Internally developed
    544       354       190  
Other identified intangible assets subject to amortization
    502       252       250  
Other identified intangible assets not subject to amortization
    26             26  
 
                 
Total
  $ 5,778     $ 4,805     $ 973  
 
                 
                         
    At March 31, 2005  
    Gross     Accumulated     Net  
    Assets     Amortization     Assets  
    (in millions)  
Capitalized software:
                       
Purchased
  $ 4,625     $ 3,899     $ 726  
Internally developed
    494       330       164  
Other identified intangible assets subject to amortization
    415       215       200  
Other identified intangible assets not subject to amortization
    26             26  
 
                 
Total
  $ 5,560     $ 4,444     $ 1,116  
 
                 
In connection with the acquisition of Concord in June 2005, Niku in July 2005, iLumin Software Services, Inc. (iLumin) in October 2005, and Control F-1 Corporation (Control F-1) in December 2005, the Company capitalized approximately $18 million, $23 million, $2 million, and $14 million of purchased software, respectively. In connection with the acquisition of Concord in June 2005, Niku in July 2005, and iLumin in October 2005, the Company capitalized approximately $22 million, $44 million and $21 million of other identified intangible assets subject to amortization, respectively. Refer to Note G, “Acquisitions” for additional information relating to the Concord, Niku, iLumin, and Control F-1 acquisitions. In addition, the Company recorded approximately $24 million of purchase software costs related to smaller acquisitions during the first nine months of fiscal year 2006.
In the third quarter of fiscal years 2006 and 2005, amortization of capitalized software costs was $111 million and $112 million, respectively. Amortization of other identified intangible assets was $14 million and $10 million, respectively.
For the first nine months of fiscal years 2006 and 2005, amortization of capitalized software costs was $335 million in each period. Amortization of other identified intangible assets for the periods ending December 31, 2005 and December 31, 2004 was $37 million and $30 million, respectively.
Based on the identified intangible assets recorded through December 31, 2005, annual amortization expense is expected to be as follows:
                                                 
    Year Ended March 31,  
    2006     2007     2008     2009     2010     2011  
    (in millions)  
Capitalized software:
                                               
Purchased
  $ 400     $ 292     $ 43     $ 33     $ 21     $ 11  
Internally developed
    41       50       43       36       28       18  
Other identified intangible assets subject to amortization
    50       37       37       37       37       37  
 
                                   
Total
  $ 491     $ 379     $ 123     $ 106     $ 86     $ 66  
 
                                   

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
The carrying value of goodwill was $5.14 billion and $4.54 billion as of December 31, 2005 and March 31, 2005, respectively. During the nine-month period ended December 31, 2005, goodwill increased by approximately $345 million, $226 million and $36 million principally as a result of the Company’s acquisitions of Concord, Niku and iLumin, respectively (see Note G, “Acquisitions”, for additional information). The goodwill balances for Concord and Niku were subsequently increased (decreased) by approximately $3 million and ($6) million, respectively, in order to adjust balances based on revisions to the purchase price allocations after the acquisition date. In addition, goodwill was reduced by $8 million for the sale of Multigen-Paradigm, Inc. (see Note K, “Divestitures” for additional information).
NOTE G — ACQUISITIONS
During the third quarter of fiscal year 2006, the Company completed its acquisition of iLumin. Total consideration for the acquisition was approximately $48 million. iLumin was a privately held provider of enterprise message management and archiving software. iLumin’s Assentor product line will be added to the Company’s BrightStor solutions. The acquisition of iLumin has been accounted for as a purchase and accordingly, its results of operations have been included in the Consolidated Condensed Financial Statements since the date of its acquisition, October 14, 2005 (the iLumin Acquisition Date).
The acquisition cost of iLumin has been allocated to assets acquired and liabilities assumed based on estimated fair values at the date of acquisition as follows:
         
    (in millions)  
Deferred income tax liability
  $ (9 )
Other liabilities assumed
    (6 )
Purchased software products
    2  
Other assets
    4  
Customer relationships
    21  
Goodwill
    36  
 
     
Purchase price
  $ 48  
 
     
Purchased software products will be amortized over an estimated life of seven years, and customer relationships will be amortized over ten years.
The allocation of the purchase price is based upon estimates which may be revised within one year of the date of acquisition as additional information becomes available. It is anticipated that the final purchase price allocation will not differ materially from the preliminary allocation presented above. In addition, the analysis of the fair value of acquired net operating losses (NOLs) is not yet complete. Such analysis is expected to be complete by the fourth quarter of fiscal year 2006.
During the second quarter of fiscal year 2006, the Company acquired the common stock of Niku, including its leading information technology governance (ITG) solution, in a cash transaction of approximately $337 million. In addition, the Company converted options to acquire the common stock of Niku and incurred acquisition costs of approximately $5 million and $3 million, respectively, for an aggregate purchase price of $345 million. Niku was a provider of information technology management and governance (IT-MG) solutions, and the Company is in the process of integrating Niku’s ITG solutions with the Business Service Optimization (BSO) unit. The acquisition of Niku has been accounted for as a purchase and accordingly, its results of operations have been included in the Consolidated Condensed Financial Statements since the date of its acquisition, July 29, 2005 (the Niku Acquisition Date).
The acquisition cost of Niku has been allocated to assets acquired, liabilities assumed and in-process research and development based on estimated fair values at the date of acquisition as follows:
         
    (in millions)  
Cash
  $ 44  
Marketable securities
    19  
Other assets acquired
    20  

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
         
    (in millions)  
Deferred revenue
    (4 )
Deferred income taxes, net
    (4 )
Other liabilities assumed
    (37 )
Purchased software products
    23  
Customer relationships
    42  
Trademarks/tradenames
    2  
Goodwill
    226  
In-process research and development
    14  
 
     
Purchase price
  $ 345  
 
     
Approximately $14 million of the purchase price represents the estimated fair value of projects that, as of the Niku Acquisition Date, had not reached technological feasibility and had no alternative future use. Accordingly, this amount was immediately expensed and has been included in the “Other (gains) losses, net” line item on the Consolidated Condensed Statements of Operations.
Purchased software products will be amortized over approximately five years, trademarks/tradenames will be amortized over seven years, and customer relationships will be amortized over eight years.
The allocation of a significant portion of the Niku purchase price to goodwill was predominantly due to the relatively short lives of the developed technology assets; whereby a substantial amount of the purchase price was based on earnings beyond the estimated lives of the intangible assets.
The allocation of the purchase price is based upon estimates which may be revised within one year of the date of acquisition as additional information becomes available. Based upon additional information received subsequent to the Niku Acquisition Date, net liabilities assumed and goodwill were adjusted downward by approximately $6 million. It is anticipated that the final purchase price allocation will not differ materially from the preliminary allocation presented above. Additionally, the analysis of the fair value of acquired net operating losses (NOLs) is not yet complete. Such analysis is expected to be completed by the fourth quarter of fiscal year 2006.
The following unaudited pro-forma financial information presents the combined results of operations of the Company, Niku and iLumin as if the acquisitions had occurred at April 1, 2005 and 2004. The historical results of the Company for the three and nine month periods ended December 31, 2005 include the results of Niku and iLumin from their respective acquisition dates. The pro-forma results presented below for the three and nine month periods ended December 31, 2005 combine the results of the Company for the three and nine month periods ended December 31, 2005 and the historical results of Niku and iLumin for their comparable reporting periods. The pro-forma results for the three and nine month periods ended December 31, 2004 combine the historical results of the Company for the three and nine month periods ended December 31, 2004 with the combined historical results for the comparable reporting periods for Niku and iLumin. The unaudited pro-forma financial information is not intended to represent or be indicative of the Company’s consolidated results of operations or financial condition that would have been reported had the acquisition of Niku and iLumin been completed as of the beginning of the periods presented and should not be taken as indicative of the Company’s future consolidated results of operations or financial condition. Pro-forma adjustments are tax-effected at the Company’s statutory tax rate.
                                 
    For the Three Months     For the Nine Months  
    Ended December 31,     Ended December 31,  
    2005     2004     2005     2004  
    (unaudited)  
    (in millions)  
Revenue
  $ 968     $ 937     $ 2,865     $ 2,700  
Income (loss) from continuing operations
    56       25       174       (36 )
Net income (loss)
    59       24       177       (37 )

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
                                 
    For the Three Months     For the Nine Months  
    Ended December 31,     Ended December 31,  
    2005     2004     2005     2004  
    (unaudited)  
    (in millions)  
Basic earnings (loss) per share:
                               
Income (loss) from continuing operations
  $ 0.09     $ 0.04     $ 0.29     $ (0.06 )
Discontinued operations
    0.01             0.01        
 
                       
Net income (loss)
  $ 0.10     $ 0.04     $ 0.30     $ (0.06 )
 
                       
 
                               
Diluted earnings (loss) per share:
                               
Income (loss) from continuing operations
  $ 0.09     $ 0.04     $ 0.28     $ (0.06 )
Discontinued operations
    0.01             0.01        
 
                       
Net income (loss)
  $ 0.10     $ 0.04     $ 0.29     $ (0.06 )
 
                       
During the first quarter of fiscal year 2006, the Company acquired the common stock of Concord, including its Aprisma Management Technologies subsidiary, in a cash transaction of approximately $337 million. In addition, the Company converted options to acquire the common stock of Concord and incurred acquisition costs of approximately $15 million and $7 million, respectively, for an aggregate purchase price of $359 million. Concord was a provider of network service management software solutions, and the Company is in the process of making Concord’s network management products available both as independent products and as integrated components of the Company’s Unicenter Enterprise Systems Management suite. The acquisition of Concord has been accounted for as a purchase and, accordingly, its results of operations have been included in the Consolidated Condensed Financial Statements since the date of its acquisition, June 7, 2005 (the Concord Acquisition Date). The pro-forma results shown above do not include the results of Concord as Concord was not considered a significant subsidiary at the time of acquisition.
The acquisition cost of Concord has been allocated to assets acquired, liabilities assumed, and in-process research and development based on estimated fair values at the date of acquisition as follows:
         
    (in millions)  
Cash
  $ 18  
Marketable securities
    58  
Deferred income taxes, net
    2  
Other assets acquired
    41  
Deferred revenue
    (19 )
3% convertible notes payable
    (86 )
Other liabilities assumed
    (44 )
Purchased software products
    18  
Customer relationships
    19  
Trademarks/tradenames
    3  
Goodwill
    345  
In-process research and development
    4  
 
     
Purchase price
  $ 359  
 
     
Approximately $4 million of the purchase price represents the estimated fair value of projects that, as of Concord Acquisition Date, had not reached technological feasibility and had no alternative future use. Accordingly, this amount was immediately expensed and has been included in the “Other (gains) losses, net” line item on the Consolidated Condensed Statements of Operations.
Purchased software products will be amortized over five years, trademarks/tradenames will be amortized over six years, and customer relationships will be amortized over seven years.
The allocation of a significant portion of the Concord purchase price to goodwill was predominantly due to the relatively short lives of the developed technology assets; whereby a substantial amount of the purchase price was based on earnings beyond the estimated lives of the intangible assets.
The allocation of the purchase price is based upon estimates which may be revised within one year of the date of acquisition as additional information becomes available. Based upon additional information received subsequent to the Concord Acquisition Date, net liabilities assumed and goodwill was adjusted

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
upward by approximately $3 million. It is anticipated that the final purchase price allocation will not differ materially from the preliminary allocation presented above.
In connection with the acquisition of Concord, the Company assumed $86 million in 3% convertible senior notes payable due 2023. In accordance with the notes’ terms, the Company redeemed (for cash) the notes in full in July 2005.
Accrued acquisition-related costs and changes in these accruals, including additions related to the Company’s acquisitions of Niku, Concord, iLumin, and Netegrity, Inc. (Netegrity) during the third quarter of fiscal year 2005, were as follows:
                 
    Duplicate        
    Facilities &     Employee  
    Other Costs     Costs  
    (in millions)  
Balance at March 31, 2004
  $ 58     $ 12  
Additions
    8       3  
Settlements
    (15 )     (6 )
Adjustments
    (10 )      
 
           
Balance at March 31, 2005
  $ 41     $ 9  
Additions
    14       21  
Settlements
    (15 )     (19 )
Adjustments
    4        
 
           
Balance at December 31, 2005
  $ 44     $ 11  
 
           
The duplicate facilities and other costs relate to operating leases which expire at various times through 2010, negotiated buyouts of operating lease commitments, taxes, and other contractual liabilities. The employee costs consist of involuntary termination benefits. The adjustments, which reduced the corresponding liability and related goodwill asset accounts, relate to obligations that were settled at amounts less than originally estimated. The remaining liability balances are included in “Accrued expenses and other current liabilities” on the Consolidated Condensed Balance Sheets.
In December 2005, the Company acquired Control F-1 in a cash transaction valued at approximately $14 million which was paid in January 2006. Control F-1 as a privately held provider of support automation solutions that automatically prevent, detect, and repair end-user computer problems before they disrupt critical IT services.
NOTE H — RESTRUCTURING AND OTHER
Restructuring Plan
In July 2005, the Company announced a restructuring plan to increase efficiency and productivity and to more closely align its investments with strategic growth opportunities. In accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS No. 146), the Company accounted for the individual components of the restructuring plan as follows:
Severance : The plan includes a workforce reduction of approximately five percent or 800 positions worldwide. The termination benefits the Company has offered in connection with this workforce reduction are substantially the same as the benefits the Company has provided historically for non-performance-based workforce reductions, and in certain countries have been provided based upon statutory minimum requirements. Accordingly, the employee termination obligations incurred in connection with the restructuring plan did not meet the definition of a “one-time benefit arrangement” under SFAS No. 146 and the Company therefore accounted for such obligations in accordance with SFAS No. 112, “Employers’ Accounting for Post Employment Benefits, an Amendment of FASB Statements No. 5 and 43.” The

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
Company incurred approximately $5 million and $29 million of severance costs in the three months and nine month periods ended December 31, 2005, respectively. The Company anticipates the severance portion of the restructuring plan will cost approximately $45 million and anticipates that the remaining amount will be incurred by the end of the fiscal year or shortly thereafter.
Facilities Abandonment : The Company recorded the costs associated with lease termination and/or abandonment when the Company ceased to utilize the leased property. Under SFAS No. 146, the liability associated with lease termination and/or abandonment is measured as the present value of the total remaining lease costs and associated operating costs, less probable sublease income. The Company incurred approximately $8 million and $21 million of facilities abandonment related costs in the three months and nine months ended December 31, 2005, respectively. The Company will accrete its obligations related to the facilities abandonment to the then-present value and, accordingly, will recognize accretion expense as a restructuring expense in future periods. The Company anticipates the facilities abandonment portion of the restructuring plan will cost up to a total of $40 million, and anticipates that the remaining amount will be incurred by the end of the fiscal year or shortly thereafter.
As part of its restructuring initiatives, the Company also entered into two sale/leaseback transactions during the third quarter of fiscal year 2006. One of these transactions resulted in a loss of approximately $3 million which was recorded under Restructuring and other in the Consolidated Condensed Statements of Operations. The second sale/leaseback transaction resulted in a gain of approximately $5 million which will be recognized ratably as a reduction to rent expense over the life of the lease term. Both of these transactions were recorded in accordance with SFAS 28, “ Accounting for Sales with Leasebacks—an amendment of FASB Statement No. 13” .
Accrued restructuring costs and changes in these accruals for the nine months ending December 31, 2005 were as follows:
                 
            Facilities  
    Severance     Abandonment  
    (in millions)  
Balance at March 31, 2005
  $     $  
 
Additions
    29       21  
Payments
    (13 )     (1 )
 
           
 
Balance at December 31, 2005
  $ 16     $ 20  
 
           
The liability balance is included in “Accrued expenses and other current liabilities” on the Consolidated Condensed Balance Sheet at December 31, 2005.
Other
During the three month period ended December 31, 2005, the Company incurred approximately $4 million in connection with certain Deferred Prosecution Agreement related costs. During the nine month period ended December 31, 2005, the Company incurred approximately $5 million associated with the termination of a non-core application development professional services project, and $7 million in connection with certain Deferred Prosecution Agreement related costs.
NOTE I — INCOME TAXES
Income tax expense for the three and nine-month periods ended December 31, 2005 includes $25 million of tax benefits mostly arising from the recognition of certain foreign tax credits partially offset by an $18 million increase in taxes associated with a prior period tax audit. Income tax expense for the nine month period ended December 31, 2005 also includes tax benefits of $36 million associated with the American Jobs Creation Act of 2004 (AJCA). The AJCA introduced a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, provided that certain criteria are met. During fiscal year 2005, the Company recorded an estimate of this tax charge of $55 million based on an

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
estimated repatriation amount up to $500 million. The income tax benefit of $36 million for the nine month period ended December 31, 2005 reflects clarification of the AJCA in May 2005, which permitted the utilization of additional foreign tax credits to reduce the estimated taxes associated with repatriating the funds. The cash repatriation is expected to occur on or before March 31, 2006. Additionally, the Company recognized a tax benefit of approximately $16 million in the nine months ended December 31, 2005 resulting primarily from the favorable conclusion of an international tax examination and the reduction of a valuation allowance related to a certain foreign jurisdiction’s net operating loss carry forwards.
The Company also incurred $4 million and $14 million of in-process research and development charges associated with the acquisition of Concord and Niku for the nine months ended December 31, 2005, respectively, which is non-deductible for income tax purposes.
Income tax expense for the nine month period ended December 31, 2004 includes a tax benefit of $26 million which was attributable to an IRS refund received for additional tax benefits arising from foreign export sales in prior fiscal years.
NOTE J — COMMITMENTS AND CONTINGENCIES
Certain legal proceedings in which we are involved are discussed in Note 7, “Commitments and Contingencies,” of the Notes to the Consolidated Financial Statements included in our amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005 (the Form 10-K/A), filed with the Securities and Exchange Commission. The following discussion should be read in conjunction with the Form 10-K/A.
Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004
The Company, its former Chairman and CEO Charles B. Wang, its former Chairman and CEO Sanjay Kumar, its former Chief Financial Officer Ira Zar, and its Executive Vice President Russell M. Artzt were defendants in one or more stockholder class action lawsuits, filed in July 1998, February 2002, and March 2002, alleging, among other things, that a class consisting of all persons who purchased the Company’s common stock during the period from January 20, 1998 until July 22, 1998 were harmed by misleading statements, misrepresentations, and omissions regarding the Company’s future financial performance. In addition, in May 2003, a class action lawsuit captioned John A. Ambler v. Computer Associates International, Inc., et al. was filed in the United States District Court for the Eastern District of New York (the Federal Court). The complaint in this matter, a purported class action on behalf of the Computer Associates Savings Harvest Plan (the CASH Plan) and the participants in, and beneficiaries of, the CASH Plan for a class period running from March 30, 1998, through May 30, 2003, asserted claims of breach of fiduciary duty under the federal Employee Retirement Income Security Act (ERISA). The named defendants were the Company, the Company’s Board of Directors, the CASH Plan, the Administrative Committee of the CASH Plan, and the following current or former employees and/or former directors of the Company: Messrs. Wang; Kumar; Zar; Artzt; Peter A. Schwartz; and Charles P. McWade; and various unidentified alleged fiduciaries of the CASH Plan. The complaint alleged that the defendants breached their fiduciary duties by causing the CASH Plan to invest in Company securities and sought damages in an unspecified amount.
A derivative lawsuit was filed against certain current and former directors of the Company, based on essentially the same allegations as those contained in the February and March 2002 stockholder lawsuits discussed above. This action was commenced in April 2002 in Delaware Chancery Court, and an amended complaint was filed in November 2002. The defendants named in the amended complaint were the Company as a nominal defendant, current Company directors Mr. Lewis S. Ranieri, and The Honorable Alfonse M. D’Amato, and former Company directors Ms. Shirley Strum Kenny and Messrs. Wang, Kumar, Artzt, Willem de Vogel, Richard Grasso, and Roel Pieper. The derivative suit alleged breach of fiduciary duties on the part of all the individual defendants and, as against the former management director defendants, insider trading on the basis of allegedly misappropriated confidential, material information. The amended complaint sought an accounting and recovery on behalf of the Company of an unspecified amount of damages, including recovery of the profits allegedly realized from the sale of common stock of the Company.

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
On August 25, 2003, the Company announced the settlement of all outstanding litigation related to the above-referenced stockholder and derivative actions as well as the settlement of an additional derivative action filed in the Federal Court in connection with the settlement. As part of the class action settlement, which was approved by the Federal Court in December 2003, the Company agreed to issue a total of up to 5.7 million shares of common stock to the stockholders represented in the three class action lawsuits, including payment of attorneys’ fees. The Company has completed the issuance of the settlement shares as well as payment of $3.3 million to the plaintiffs’ attorneys in legal fees and related expenses.
In settling the derivative suit, which settlement was also approved by the Federal Court in December 2003, the Company committed to maintain certain corporate governance practices. Under the settlement, the Company and the individual defendants were released from any potential claim by stockholders arising from accounting-related or other public statements made by the Company or its agents from January 1998 through February 2002 (and from January 1998 through May 2003 in the case of the employee ERISA action), and the individual defendants were released from any potential claim by the Company or its stockholders relating to the same matters.
On October 5, 2004 and December 9, 2004, four purported Company stockholders served motions to vacate the Order of Final Judgment and Dismissal entered by the Federal Court in December 2003 in connection with the settlement of the derivative action. These motions primarily seek to void the releases that were granted to the individual defendants under the settlement. On December 7, 2004, a motion to vacate the Order of Final Judgment and Dismissal entered by the Federal Court in December 2003 in connection with the settlement of the 1998 and 2002 stockholder lawsuits discussed above was filed by Sam Wyly and certain related parties. The motion seeks to reopen the settlement to permit the moving stockholders to pursue individual claims against certain present and former officers of the Company. The motion states that the moving stockholders do not seek to file claims against the Company. These motions (the 60(b) Motions) have been fully briefed. On June 14, 2005, the Federal Court granted movants’ motion to be allowed to take limited discovery prior to the Federal Court’s ruling on the 60(b) Motions. No hearing date is currently set for the 60(b) Motions.
The Government Investigation
In 2002, the United States Attorney’s Office for the Eastern District of New York (USAO) and the staff of the Northeast Regional Office of the Securities and Exchange Commission (SEC) commenced an investigation concerning certain of the Company’s past accounting practices, including the Company’s revenue recognition procedures in periods prior to the adoption of the Company’s business model in October 2000.
In response to the investigation, the Board of Directors authorized the Audit Committee (now the Audit and Compliance Committee) to conduct an independent investigation into the timing of revenue recognition by the Company. On October 8, 2003, the Company reported that the ongoing investigation by the Audit and Compliance Committee had preliminarily found that revenues were prematurely recognized in the fiscal year ended March 31, 2000, and that a number of software license agreements appeared to have been signed after the end of the quarter in which revenues associated with such software license agreements had been recognized in that fiscal year. Those revenues, as the Audit and Compliance Committee found, should have been recognized in the quarter in which the software license agreements were signed. Those preliminary findings were reported to government investigators.
Following the Audit and Compliance Committee’s preliminary report and at its recommendation, four executives who oversaw the relevant financial operations during the period in question, including Ira Zar, resigned at the Company’s request. On January 22, 2004, one of these individuals pled guilty to federal criminal charges of conspiracy to obstruct justice in connection with the ongoing investigation. On April 8, 2004, Mr. Zar and two other former executives pled guilty to charges of conspiracy to obstruct justice and conspiracy to commit securities fraud in connection with the investigation, and Mr. Zar also pled guilty to committing securities fraud. The SEC filed related actions against each of the four former executives alleging that they participated in a widespread practice that resulted in the improper recognition of revenue by the

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
Company. Without admitting or denying the allegations in the complaints, Mr. Zar and two other executives each consented to a permanent injunction against violating, or aiding and abetting violations of, the securities laws, and also to a permanent bar from serving as an officer or director of a publicly held company. Litigation with respect to the SEC’s claims for disgorgement and penalties is continuing.
A number of other employees, primarily in the Company’s legal and finance departments were terminated or resigned as a result of matters under investigation by the Audit and Compliance Committee, including Steven Woghin, the Company’s former General Counsel. Stephen Richards, the Company’s former Executive Vice President of Sales, resigned from his position and was relieved of all duties in April 2004, and left the Company at the end of June 2004. Additionally, on April 21, 2004, Sanjay Kumar resigned as Chairman, director and Chief Executive Officer of the Company, and assumed the role of Chief Software Architect. Thereafter, Mr. Kumar resigned from the Company effective June 30, 2004.
In April 2004, the Audit and Compliance Committee completed its investigation and determined that the Company should restate certain financial data to properly reflect the timing of the recognition of license revenue for the Company’s fiscal years ended March 31, 2001 and 2000. The Audit and Compliance Committee believes that the Company’s financial reporting related to contracts executed under its current business model is unaffected by the improper accounting practices that were in place prior to the adoption of the business model in October 2000 and that had resulted in the restatement, and that the historical issues it had identified in the course of its independent investigation concerned the premature recognition of revenue. However, certain of these prior period accounting errors have had an impact on the subsequent financial results of the Company as described in Note 12 to the Consolidated Financial Statements in the Company’s amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005. The Company continues to implement and consider additional remedial actions it deems necessary.
On September 22, 2004, the Company reached agreements with the USAO and the SEC by entering into a Deferred Prosecution Agreement (the DPA) with the USAO and consenting to the entry of a Final Consent Judgment in a parallel proceeding brought by the SEC (the Consent Judgment, and together with the DPA, the Agreements). The Federal Court approved the DPA on September 22, 2004 and entered the Consent Judgment on September 28, 2004. The Agreements resolve the USAO and SEC investigations into certain of the Company’s past accounting practices, including its revenue recognition policies and procedures, and obstruction of their investigations.
Under the DPA, the Company has agreed to establish a $225 million fund for purposes of restitution to current and former stockholders of the Company, with $75 million to be paid within 30 days of the date of approval of the DPA by the Federal Court, $75 million to be paid within one year after the approval date and $75 million to be paid within 18 months after the approval date. The Company made the first $75 million restitution payment into an interest-bearing account under terms approved by the USAO on October 22, 2004. The Company made the second $75 million restitution payment into an interest-bearing account under terms approved by the USAO in September 2005. The Company is required to make a third deposit of $75 million on or about March 16, 2006. Pursuant to the Agreements, the Company proposed and the USAO accepted, on or about November 4, 2004, the appointment of Kenneth R. Feinberg as Fund Administrator. Also, pursuant to the Agreements, Mr. Feinberg submitted to the USAO on or about June 28, 2005, a Plan of Allocation for the Restitution Fund (the Plan). The Plan was approved by the Federal Court on August 18, 2005. The payment of these restitution funds is in addition to the amounts that the Company previously agreed to provide current and former stockholders in settlement of certain private litigation in August 2003 (see “—Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004”). This amount was paid by the Company in December 2004 in shares at a then total value of approximately $174 million.
The Company also agreed, among other things, to take the following actions by December 31, 2005: (1) add a minimum of two new independent directors to its Board of Directors; (2) establish a Compliance Committee of the Board of Directors; (3) implement an enhanced compliance and ethics program, including appointment of a Chief Compliance Officer; (4) reorganize its Finance and Internal Audit Departments; and (5) establish an executive disclosure committee. The reorganization of the Finance and Internal Audit

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2005
Departments are substantially completed. On December 9, 2004, the Company announced that Patrick J. Gnazzo had been named Senior Vice President, Business Practices, and Chief Compliance Officer, effective January 10, 2005. On February 11, 2005, the Board of Directors elected William McCracken to serve as a new independent director, and also changed the name of the Audit Committee of the Board of Directors to the Audit and Compliance Committee of the Board of Directors and amended the Committee’s charter. On April 11, 2005, the Board of Directors elected Ron Zambonini to serve as a new independent director. On November 11, 2005, the Board of Directors elected Christopher Lofgren to serve as a new independent director. Under the Agreements, the Company has also agreed to the appointment of an Independent Examiner to examine the Company’s practices for the recognition of software license revenue, its ethics and compliance policies and other matters. Under the Agreements, the Independent Examiner also reviews the Company’s compliance with the Agreements and periodically reports findings and recommendations to the USAO, SEC and Board of Directors. On March 16, 2005, the Federal Court appointed Lee S. Richards III, Esq. of Richards Spears Kibbe & Orbe LLP, to serve as Independent Examiner. Mr. Richards will serve for a term of 18 months unless his term of appointment is extended under conditions specified in the DPA. On September 15, 2005, Mr. Richards issued his six-month report concerning his recommendations regarding best practices. On December 15, 2005, Mr. Richards issued his first quarterly report concerning the Company’s compliance with the DPA.
Pursuant to the DPA, the USAO will defer and subsequently dismiss prosecution of a two-count information filed against the Company charging it with committing securities fraud and obstruction of justice if the Company abides by the terms of the DPA, which currently is set to expire within 30 days after the Independent Examiner’s term of engagement is completed. Pursuant to the Consent Judgment with the SEC, the Company is permanently enjoined from violating Section 17(a) of the Securities Act of 1933 (the Securities Act), Sections 10(b), 13(a) and 13(b)(2) of the Securities Exchange Act of 1934 (the Exchange Act) and Rules 10b-5, 12b-20, 13a-1 and 13a-13 under the Exchange Act. Pursuant to the Agreements, the Company has also agreed to comply in the future with federal criminal laws, including securities laws. In addition, the Company has agreed not to make any public statement, in litigation or otherwise, contradicting its acceptance of responsibility for the accounting and other matters that are the subject of the investigations, or the related allegations by the USAO, as set forth in the DPA.
Under the Agreements, the Company also is required to cooperate fully with the USAO and SEC concerning their ongoing investigations into the misconduct of any present or former employees of the Company. The Company has also agreed to fully support efforts by the USAO and SEC to obtain disgorgement of compensation from any present or former officer of the Company who engaged in any improper conduct while employed at the Company.
After the Independent Examiner’s term expires, the USAO will seek to dismiss its charges against the Company. However, the Company shall be subject to prosecution at any time if the USAO determines that the Company has deliberately given materially false, incomplete or misleading information pursuant to the DPA, has committed any federal crime after the date of the DPA or has knowingly, intentionally and materially violated any provision of the DPA (including any of those described above). Also, as indicated above, the USAO and SEC may require that the term of the DPA be extended beyond 18 months.
On September 22, 2004, Mr. Woghin, the Company’s former General Counsel, pled guilty to conspiracy to commit securities fraud and obstruction of justice under a two-count information filed against him by the USAO. The SEC also filed a complaint in the Federal Court against Mr. Woghin alleging that he violated Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-1 thereunder. The complaint further alleged that under Section 20(e) of the Exchange Act, Mr. Woghin aided and abetted the Company’s violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. Mr. Woghin consented to a partial judgment imposing a permanent injunction against him from committing such violations in the future and a permanent bar from being an officer or director of a public company. The SEC’s claims for disgorgement and civil penalties against Mr. Woghin are pending.

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December 31, 2005
Additionally on September 22, 2004, the SEC filed complaints in the Federal Court against Sanjay Kumar and Stephen Richards alleging that they violated Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-1 thereunder. The complaints further alleged that under Section 20(e) of the Exchange Act, Messrs. Kumar and Richards aided and abetted the Company’s violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. The complaint seeks to enjoin Messrs. Kumar and Richards from further violations of the Securities Act and the Exchange Act and for disgorgement of gains they received as a result of these violations.
On September 23, 2004, the USAO filed, in the Federal Court, a ten-count indictment charging Messrs. Kumar and Richards with conspiracy to commit securities fraud and wire fraud, committing securities fraud, filing false SEC filings, conspiracy to obstruct justice and obstruction of justice. Additionally, Mr. Kumar was charged with one count of making false statements to an agent of the Federal Bureau of Investigation and Mr. Richards was charged with one count of perjury in connection with sworn testimony before the SEC. On or about June 29, 2005, the USAO filed a superseding indictment against Messrs. Kumar and Richards, dropping one count and adding several allegations to certain of the nine remaining counts. The Federal Court has set an April 24, 2006 date for the trial of Messrs. Kumar and Richards.
As required by the Agreements, the Company continues to cooperate with the USAO and SEC in connection with their ongoing investigations of the conduct described in the Agreements and in the superseding indictment of Messrs. Kumar and Richards, including providing documents and other information to the USAO and SEC. The Company cannot predict at this time the outcome of the USAO’s and SEC’s ongoing investigations, including any actions the Company may have to take in response to these investigations.
Derivative Actions Filed in 2004
In June 2004, a purported derivative action was filed in the Federal Court by Ranger Governance Ltd. against certain current or former employees and/or directors of the Company. In July 2004, two additional purported derivative actions were filed in the Federal Court by purported Company stockholders against certain current or former employees and/or directors of the Company. In November 2004, the Federal Court issued an order consolidating these three derivative actions. The plaintiffs filed a consolidated amended complaint (the Consolidated Complaint) on January 7, 2005. The Consolidated Complaint names as defendants Messrs. Wang, Kumar, Zar, Artzt, D’Amato, Richards, Ranieri and Woghin; David Kaplan; David Rivard; Lloyd Silverstein; Michael A. McElroy; Messrs. McWade and Schwartz; Gary Fernandes; Robert E. La Blanc; Jay W. Lorsch; Kenneth Cron; Walter P. Schuetze; Messrs. de Vogel and Grasso; Roel Pieper; KPMG LLP; and Ernst & Young LLP. The Company is named as a nominal defendant. The Consolidated Complaint alleges a claim against Messrs. Wang, Kumar, Zar, Kaplan, Rivard, Silverstein, Artzt, D’Amato, Richards, McElroy, McWade, Schwartz, Fernandes, La Blanc, Ranieri, Lorsch, Cron, Schuetze, de Vogel, Grasso, Pieper and Woghin for contribution towards the consideration the Company had previously agreed to provide current and former stockholders in settlement of certain class action litigation commenced against the Company and certain officers and directors in 1998 and 2002 (see “—Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004”) and seeks on behalf of the Company compensatory and consequential damages in an amount no less than $500 million in connection with the USAO and SEC investigations (see “—The Government Investigation”). The Consolidated Complaint also alleges a claim seeking unspecified relief against Messrs. Wang, Kumar, Zar, Kaplan, Rivard, Silverstein, Artzt, D’Amato, Richards, McElroy, McWade, Fernandes, La Blanc, Ranieri, Lorsch, Cron, Schuetze, de Vogel and Woghin for violations of Section 14(a) of the Exchange Act for alleged false and material misstatements made in the Company’s proxy statements issued in 2002 and 2003. The Consolidated Complaint also alleges breach of fiduciary duty by Messrs. Wang, Kumar, Zar, Kaplan, Rivard, Silverstein, Artzt, D’Amato, Richards, McElroy, McWade, Schwartz, Fernandes, La Blanc, Ranieri, Lorsch, Cron, Schuetze, de Vogel, Grasso, Pieper and Woghin. The Consolidated Complaint also seeks unspecified compensatory, consequential and punitive damages against Messrs. Wang, Kumar, Zar, Kaplan, Rivard, Silverstein, Artzt, D’Amato, Richards, McElroy, McWade, Schwartz, Fernandes, La Blanc, Ranieri, Lorsch, Cron, Schuetze, de Vogel, Grasso, Pieper and Woghin based

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December 31, 2005
upon allegations of corporate waste and fraud. The Consolidated Complaint also seeks unspecified damages against Ernst & Young LLP and KPMG LLP, for breach of fiduciary duty and the duty of reasonable care, as well as contribution and indemnity under Section 14(a) of the Exchange Act. The Consolidated Complaint requests restitution and rescission of the compensation earned under the Company’s executive compensation plan by Messrs. Artzt, Kumar, Richards, Zar, Woghin, Kaplan, Rivard, Silverstein, Wang, McElroy, McWade and Schwartz. Additionally, pursuant to Section 304 of the Sarbanes-Oxley Act, the Consolidated Complaint seeks reimbursement of bonus or other incentive-based equity compensation received by defendants Wang, Kumar, Schwartz and Zar, as well as alleged profits realized from their sale of securities issued by the Company during the time periods they served as the Chief Executive Officer (Messrs. Wang and Kumar) and Chief Financial Officer (Mr. Zar) of the Company. Although no relief is sought from the Company, the Consolidated Complaint seeks monetary damages, both compensatory and consequential, from the other defendants, including current or former employees and/or directors of the Company, KPMG LLP and Ernst & Young LLP in an amount totaling not less than $500 million.
The consolidated derivative action has been stayed pending resolution of the 60(b) Motions (see “—Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004”). Also, on February 1, 2005, the Company established a Special Litigation Committee of independent members of its Board of Directors to control and determine the Company’s response to this litigation. The Special Litigation Committee has moved for a stay of the consolidated derivative action until it completes its investigation of the claims alleged in the derivative action. That motion is pending.
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 litigations and investigations arising out of similar allegations, including the litigation described above.
Texas Litigation
On August 9, 2004, a petition was filed by Sam Wyly and Ranger Governance, Ltd. against the Company in the District Court of Dallas County, Texas, seeking to obtain a declaratory judgment that plaintiffs did not breach two separation agreements they entered into with the Company in 2002 (the 2002 Agreements). Plaintiffs seek to obtain this declaratory judgment in order to file a derivative suit on behalf of the Company (see “—Derivative Actions Filed in 2004” above). On September 3, 2004, the Company filed an answer to the petition and on September 10, 2004, the Company filed a notice of removal seeking to remove the action to federal court. On February 18, 2005, Mr. Wyly filed a separate lawsuit in Texas federal court alleging that he is entitled to attorneys’ fees in connection with the original litigation filed in Texas. The two actions have been consolidated. On March 31, 2005, the plaintiffs amended their complaint to allege a claim that they were defrauded into entering the 2002 Agreements and to seek rescission of those agreements and damages. The amended complaint in the Ranger Governance litigation seeks rescission of the 2002 Agreements, unspecified compensatory, consequential and exemplary damages and a declaratory judgment that the 2002 Agreements are null and void and that plaintiffs did not breach the 2002 Agreements. On May 11, 2005, the Company moved to dismiss the Texas litigation. On July 21, 2005, plaintiffs filed a motion for summary judgment. On July 22, 2005, the Texas federal court dismissed the latter two motions without prejudice to refiling the motions later in the action. On September 1, 2005, the Texas federal court granted the Company’s motion to transfer the action to the Federal Court.
Other Civil Actions
In June 2004, a lawsuit captioned Scienton Technologies, Inc. et al. v. Computer Associates International, Inc. , was filed in the Federal Court. The complaint seeks monetary damages in various amounts, some of which are unspecified, but which are alleged to exceed $868 million, based upon claims for, among other things, breaches of contract, misappropriation of trade secrets, and unfair competition. This matter is in the early stages of discovery. Although the ultimate outcome cannot be determined, the Company believes that the claims are unfounded and that the Company has meritorious defenses. In the opinion of management, the

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December 31, 2005
resolution of this lawsuit is not likely to result in the payment of any amount approximating the alleged damages and in any event, is not expected to have a material adverse effect on the financial position of the Company.
In September 2004, two complaints to compel production of the Company’s books and records, including files that have been produced by the Company to the USAO and SEC in the course of their joint investigation of the Company’s accounting practices (see “—The Government Investigation”) were filed by two purported stockholders of the Company in Delaware Chancery Court pursuant to Section 220 of the Delaware General Corporation Law. The first complaint was filed on September 15, 2004, after the Company denied the purported stockholder access to some of the files requested in her initial demand, in particular files that had been produced by the Company to the USAO and SEC during the course of their joint investigation. This complaint concerns the inspection of certain Company documents to determine whether the Company has been involved in obstructing the joint investigation by the USAO and SEC and whether certain Company employees have breached their fiduciary duties to the Company and wasted corporate assets; these individuals include Messrs. Kumar, Wang, Zar, Silverstein, Woghin, Richards, Artzt, Cron, D’Amato, La Blanc, Ranieri, Lorsch, Schuetze, Vieux, Fernandes, de Vogel, Richard Grasso and Goldstein and Ms. Kenny. The Company filed its answer to this complaint on October 15, 2004. On October 11, 2005, the Special Litigation Committee (see “—Derivative Actions Filed in 2004”) moved to stay this action. On December 13, 2005, the Delaware state court denied that motion. The second complaint, filed on September 21, 2004, concerns the inspection of documents related to Mr. Kumar’s compensation, the independence of the Board of Directors and ability of the Board of Directors to sue for return of that compensation. The Company filed its answer to this complaint on October 15, 2004.
The Company, various subsidiaries, and certain current and former officers have been named as defendants in various other lawsuits and claims arising in the normal course of business. The Company believes that it has meritorious defenses in connection with such lawsuits and claims, and intends to vigorously contest each of them. In the opinion of the Company’s management, the results of these other lawsuits and claims, either individually or in the aggregate, are not expected to have a material effect on the Company’s financial position, results of operations, or cash flow.
NOTE K — DIVESTITURES
Discontinued Operations: In December 2005, the Company sold its wholly-owned subsidiary MultiGen-Paradigm, Inc. (MultiGen) to Parallax Capital Partners. MultiGen is a provider of real-time, end-to-end 3D solutions for visualizations, simulations and training applications used for both civilian and government purposes. The sales price was approximately $6 million, which includes reimbursements for certain employee-related costs. The purchase price was received in the form of an interest bearing note receivable that is scheduled to be paid by June 2007. MultiGen had revenues of $9 million and $11 million for the nine month periods ending December 31, 2005 and December 31, 2004, respectively. As a result of the sale in the third quarter, the Company recorded a $3 million gain, net of a tax benefit of approximately $10 million. The Company has separately presented the gain on the disposal of MultiGen as a discontinued operation for the current period presented. The impact of MultiGen’s results on prior periods was considered immaterial.
In March 2004, the Company sold its approximate 90% interest in ACCPAC to The Sage Group, plc. The Company’s net proceeds totaled $104 million for all of the outstanding equity interests of ACCPAC. The Company received approximately $90 million of the net proceeds in fiscal year 2004 and the remainder in the first quarter of fiscal year 2005. The sale completes the Company’s multi-year effort to exit the business applications market. In the fourth quarter of fiscal year 2004, the Company recorded a gain on the disposition of ACCPAC of $60 million, net of tax. In the second quarter of fiscal year 2005, the Company recorded an adjustment to the gain on disposal of $2 million, net of tax.
Other: In November 2005, the Company announced an agreement with Garnett & Helfrich Capital, a private equity firm to create an independent corporate entity. As part of the agreement, the Company

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December 31, 2005
contributed intellectual property, support contracts, services of certain employees and other assets used exclusively in the business of the intellectual property contributed. The contributions from the Company and Garnett & Helfrich Capital, L.P., formed Ingres Corporation (“Ingres”). The Company has a 25% ownership interest in the newly formed entity, in which it received an equity stake of $15 million. As a result of the transaction, the Company recorded a non-cash pre-tax gain for the three months ended December 31, 2005 of approximately $8 million due to the value of assets that were contributed during the formation of Ingres in accordance with Emerging Issues Task Force (EITF) Issue No. 01-2 Interpretations of APB Opinion No. 29 . The gain is recorded as Other (gains) losses, net in the Consolidated Condensed Statements of Operations.
NOTE L — SUBSEQUENT EVENTS
In January 2006, the Company announced the acquisition of Wily Technology Inc., a leading provider of enterprise application management solutions, in a cash transaction valued at approximately $375 million. The acquisition is expected to be completed during the Company’s fourth quarter of fiscal year 2006, pending regulatory approval.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q (Form 10-Q) contains certain forward-looking information relating to CA, Inc. (the “Company,” “Registrant,” “CA,” “We,” “Our,” or “Us”), formerly known as Computer Associates International, Inc., 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 “anticipate,” “believe,” “estimate,” “expect,” and similar expressions are intended to identify forward-looking information. Such information includes, for example, the statements made under the caption “Outlook” in this 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, some of which are described in Part II, Item 1A of this report and in our amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005 filed 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 Report as anticipated, believed, estimated, or expected. We do not intend to update these forward-looking statements.
QUARTERLY UPDATE
    We recorded charges of approximately $13 million in the third quarter of fiscal year 2006 for severance and other termination benefits and facility closures in connection with our restructuring plan. The restructuring plan is designed to more closely align our investments with strategic growth opportunities and includes a workforce reduction of approximately five percent or 800 positions worldwide. The plan is expected to yield about $75 million in savings on an annualized basis, once the reductions are fully implemented. We anticipate the total restructuring plan will cost up to $80 million.
 
    In October 2005, we completed the acquisition of iLumin, a privately held provider of enterprise message management and archiving software, in a transaction valued at approximately $48 million. iLumin’s Assentor product line will be added to our BrightStor solutions.
 
    In October 2005, we announced that our Board of Directors authorized us to buy back an additional $200 million in Company shares during fiscal year 2006 for an annual total of up to $600 million. During the nine-month period ended December 31, 2005, we repurchased approximately $367 million in Company stock.
 
    In November 2005, we announced that we entered into an agreement with Garnett & Helfrich Capital, a private equity firm, to create an independent corporate entity, Ingres Corporation. We divested our Ingres open source database unit into Ingres Corporation, in which Garnett & Helfrich Capital is the majority shareholder. As a result of this transaction, we recognized a non-cash pre-tax gain of approximately $8 million.
 
    In November 2005, we held CA World where we unveiled our Enterprise IT Management, or EITM, strategy and announced 26 EITM-enabled products, including the release of Unicenter r11. This was CA’s first Unicenter upgrade in 4 years, and CA’s biggest product launch ever.
 
    In November 2005, we announced our name change from Computer Associates International, Inc. to CA, Inc., which was legally effective February 1, 2006.
 
    In November 2005, our Board of Directors elected Christopher B. Lofgren, Ph.D. as an independent director of the Company. Dr. Lofgren’s election brings the number of directors on CA’s Board to twelve, including eleven non-employee directors and one employee director.
 
    In December 2005, we completed two separate sale leaseback transactions which provided approximately $40 million in cash from investing activities.

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    In December 2005, the Company sold its wholly-owned subsidiary MultiGen-Paradigm, Inc. (MultiGen) to Parallax Capital Partners. MultiGen was a provider of real-time, end-to-end 3D solutions for visualizations, simulations and training applications used for both civilian and government purposes. As a result, we recognized a gain on the disposal of $3 million, net of taxes, which is classified in discontinued operations on the Condensed Consolidated Statements of Operations.
 
    In December 2005, we acquired Control-F-1 in a transaction valued at approximately $14 million. Control-F-1 was a privately held provider of support automation solutions that automatically prevent, detect, and repair end-user computer problems before they disrupt critical IT services.
 
    In January 2006, we announced a definitive agreement to acquire Wily Technology, Inc., a leading provider of enterprise application management solutions, in a cash transaction valued at approximately $375 million.
BUSINESS UNIT STRUCTURE
We recently aligned the Company’s product development into five business units. The business unit general managers are accountable for the management and performance of their business unit, including product development and innovation, product marketing, quality, staffing, strategic planning and execution, and customer satisfaction. Our business units are Enterprise Systems Management, Security Management, Storage Management, Business Service Optimization, and the CA Products Group. This new structure allows us to become more closely aligned with our customers’ needs, drive more accountability for the performance of each software area, and to be more responsive to the changing dynamics of the management software marketplace. We do not presently maintain profit and loss data on a business unit basis and therefore they are not considered business segments.
Enterprise Systems Management
Our products for Enterprise Systems Management optimize the availability and capacity of Information Technology (IT) assets and provide a complete, integrated, and open solution for policy-driven, adaptive IT management. The comprehensive set of solutions is built on a framework of common services so that the solutions work together to simplify the complexity present in medium to large enterprises and public sector organizations. Our Enterprise Systems Management solutions help IT organizations:
    Discover business assets and map to operational processes;
 
    Monitor and optimize health, availability, and performance;
 
    Automate tedious or error-prone manual procedures;
 
    Provision assets dynamically according to business priorities or consumption rates; and
 
    Distill management events and data into business-relevant intelligence.
Our Enterprise Systems Management products manage across the entire IT environment including networks, systems, middleware, servers/operating systems, desktops, databases, and applications. The acquisition of Concord significantly strengthened our network management offering and further augments our comprehensive Enterprise Systems Management portfolio.
Security Management
Our solutions for Security Management provide an innovative and comprehensive approach to IT security. The products protect information assets and resources; provide appropriate system and information access to employees, customers, and partners; and centrally manage security-related administration. We offer Security Management products in the following three categories:

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    Identity and Access Management — these products empower IT organizations to manage growing internal and external user populations; secure an increasingly complex array of resources and services; and comply with critical regulatory mandates.
 
    Threat Management — these products are designed to help customers identify and eliminate internal and external threats such as harmful computer viruses; unauthorized access into computing systems; and security weaknesses associated with operating systems, databases, networks, and passwords.
 
    Security Information Management — these products help to integrate and prioritize security event information created by CA and third-party security products and enables customers to increase operational efficiencies, help ensure business continuity, adhere to regulatory compliance, and mitigate risks.
Storage Management
Our Storage Management solutions simplify the protection and management of business information, data, and storage resources to support business priorities. Customers use our solutions to proactively optimize storage operations and infrastructure — achieving operational efficiencies, risk mitigation, compliance, business flexibility, and investment protection. We offer Storage Management solutions in the following two categories:
    Data Availability — these solutions help customers mitigate risk and improve business continuity in a cost-effective manner by providing backup/recovery, tape and media management, and high-availability solutions.
 
    Storage Management — these solutions help customers achieve operational efficiency and gain business flexibility. They enable customers to identify information, data and storage resources; monitor the storage environment; classify data, information and resources based on their value to the business; and define and automate storage processes.
Our storage management and data availability solutions support networks, systems, servers, operating systems, desktops, databases, applications, arrays, and tape libraries across mainframe and distributed environments.
Business Service Optimization
Our solutions for Business Service Optimization help organizations manage their IT investments. These products help translate business needs into IT requirements; provide visibility into the services being delivered and the cost of delivering those services; enable more effective management of an IT organization’s people, processes, and assets; and help the business make informed decisions about issues such as investment priorities and outsourcing. We offer Business Service Optimization products in the following three categories:
    Business Process Management — these solutions help companies reduce costs and mitigate risk by achieving process efficiency and agility through automation and the understanding and management of IT and business processes and policies.
 
    Service Management — these solutions enable IT and business alignment by defining IT service offerings in business terms; provisioning, supporting, and costing these service offerings; improving service levels; and managing change.
 
    IT Governance — these solutions help assure operational excellence by linking IT decisions with business objectives, providing strong financial control, optimizing IT resources and assets, and controlling software changes.

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CA Products
In addition to our leadership offerings in the above areas, we also offer products that address other aspects of the IT environment. This diverse group of solutions includes products that deliver value throughout the IT spectrum, grouped in the following four categories:
    Database Management systems— these solutions enable reliable management of large data and transaction volumes, exploit advances in database technology, and integrate these information stores to distributed and web-based business needs, leveraging database process integrity across the enterprise.
 
    Application Development systems — these solutions enable customers to build custom business applications in a variety of environments, using technology-neutral business process definitions, and to test and deploy those applications across an evolving IT infrastructure.
 
    Enterprise Reporting and Information Management systems — these solutions enable customers to efficiently and rapidly report on and process business information.
 
    Other solutions — these solutions include a wide variety of tools and utilities to optimize the IT environment.
Office of the CTO
The Office of the CTO drives technology strategy across all of the business units and leads research and development for emerging technologies.
    Common Technologies — Our Foundation Services and Management Database (MDB) are technologies common across CA products that enable our products to work together easily and also to work with other vendors’ management software products to deliver an IT environment that is simpler, more secure, less costly to maintain, and more agile.
 
    Research — CA Labs drives research in advanced technologies related to management and security by performing research internally and working with major universities and standards bodies. Current areas of focus include securing and managing on-demand computing, grids, virtualized environments, and service-oriented architectures.
 
    Emerging Technology Incubator — The Office of the CTO also runs incubator projects to create and bring to market management and security solutions that enable customer adoption of new technologies. Current incubation projects focus on management of wireless networks, smartphones, and radio frequency identification technologies.
PERFORMANCE INDICATORS
Management uses several quantitative performance indicators to assess our financial results and condition. Each provides a measurement of the performance of our business model and how well we are executing our plan.
Our subscription-based business model is unique among our competitors in the software industry and it may be difficult to compare the results for many of our performance indicators with those of our competitors. The following is a summary of the principal quantitative performance indicators that management uses to review our performance:

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CONDITION AND RESULTS OF OPERATIONS
                                 
    For the Three Months            
    Ended December 31,           Percent
    2005   2004   Change   Change
            (restated)                
    (dollars in millions)
Subscription revenue
  $ 713     $ 650     $ 63       10 %
Total revenue
  $ 967     $ 917     $ 50       5 %
Subscription revenue as a percent of total revenue
    74 %     71 %     3 %     4 %
New deferred subscription value (direct)
  $ 730     $ 845     $ (115 )     (14 %)
New deferred subscription value (indirect)
  $ 53     $ 53     $        
Weighted average license agreement duration in years (direct)
    3.46       2.95       0.51       17 %
Cash provided by continuing operations
  $ 422     $ 365     $ 57       16 %
Income from continuing operations
  $ 56     $ 31     $ 25       81 %
                                 
    For the Nine Months            
    Ended December 31,           Percent
    2005   2004   Change   Change
            (restated)                
    (dollars in millions)
Subscription revenue
  $ 2,104     $ 1,875     $ 229       12 %
Total revenue
  $ 2,829     $ 2,643     $ 186       7 %
Subscription revenue as a percent of total revenue
    74 %     71 %     3 %     4 %
New deferred subscription value (direct)
  $ 1,641     $ 2,024     $ (383 )     (19 %)
New deferred subscription value (indirect)
  $ 143     $ 94     $ 49       52 %
Weighted average license agreement duration in years (direct)
    3.12       2.88       .24       8 %
Cash provided by continuing operations
  $ 814     $ 789     $ 25       3 %
Income (loss) from continuing operations
  $ 191     $ (18 )   $ 209     NA
                                 
    Dec. 31,   March 31,           Percent
    2005   2005   Change   Change
            (restated)                
    (dollars in millions)
Total cash, cash equivalents, and marketable securities
  $ 1,833     $ 3,125     $ (1,292 )     (41 %)
Total debt
  $ 1,811     $ 2,636     $ (825 )     (31 %)
Analyses of our performance indicators, including general trends, can be found in the “Results of Operations” and “Liquidity and Capital Resources” sections of this MD&A. The performance indicators discussed below are those that we believe are appropriate because of our subscription-based business model.
Subscription Revenue — Subscription revenue is the ratable revenue recognized in a period from amounts previously recorded as deferred subscription revenue. If the weighted average life of our license agreements remains constant, an increase in deferred subscription revenue will result in an increase in subscription revenue in the future.
Deferred Subscription Value — Under our business model, the portion of the license contract value that has not yet been earned creates what we refer to as deferred subscription value. Deferred subscription value is recognized as revenue evenly on a monthly basis over the duration of the license agreements. When recognized, this amount is reported on the “Subscription revenue” line item in our Consolidated Condensed Statements of Operations. If a customer pays for software prior to the recognition of revenue, the amount is reported as a liability entitled “Deferred subscription revenue (collected)” on our Consolidated Condensed Balance Sheets. Customers do not always pay for software in equal annual installments over the life of a

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license agreement. The amount collected under a license agreement for the next twelve months but not yet recognized as revenue is reported as a liability entitled “Deferred subscription revenue (collected) — current” on our Consolidated Condensed Balance Sheets. The amount paid under a license agreement for periods subsequent to the next twelve months, which will be recognized as revenue on a monthly basis only in those future years, is reported as a liability entitled “Deferred subscription revenue (collected) — noncurrent” on our Consolidated Condensed Balance Sheets. The increase or decrease in current payments attributable to future years is reported as an operating activity entitled “Deferred subscription revenue (collected) — noncurrent” in our Consolidated Condensed Statements of Cash Flows.
Payments received in the current period that are attributable to later years of a license agreement have a positive impact in the current period on billings and cash provided by continuing operating activities. However, to the extent such payments are attributable to later years of a license agreement, the license would provide a correspondingly reduced contribution to billings and cash from operating activities during the license’s later years.
New Deferred Subscription Value — New deferred subscription value represents the total incremental value (contract value) of software licenses sold in a period for which we provide the customer the right to receive certain unspecified future software products for no additional fee. In the second quarter of fiscal year 2005, we began offering more flexible license terms to our channel partners’ end users, necessitating ratable recognition of revenue for the majority of our indirect business. Prior to July 1, 2004, such channel license revenue had been recorded on a sell-through basis (when a distributor, reseller, or value-added reseller (“VARs”) sells the software product to their customers) and reported on the “Software fees and other” line item on the Consolidated Condensed Statements of Operations. New deferred subscription value excludes the value associated with single-year maintenance-only license agreements, license-only indirect sales, and professional services arrangements and does not include that portion of bundled maintenance or unamortized discounts that are converted into subscription revenue upon renewal of prior business model contracts.
New deferred subscription value is what we expect to collect over time from our customers based upon contractual license agreements. This amount is recognized as subscription revenue ratably over the applicable software license term. The license agreements that contribute to new deferred subscription value represent binding payment commitments by customers over periods generally up to three years. New deferred subscription value is sometimes referred to as “bookings” and is used by management as a gauge of the level of business activity in a particular quarter. Our bookings typically increase in each consecutive fiscal quarter, with the fourth quarter being the strongest. However, since the level of bookings is impacted by the volume and dollar amount of contracts coming up for renewal, the change in bookings, relative to previous periods, does not necessarily correlate to the change in billings or cash receipts, relative to previous periods. The contribution to current period revenue from new deferred subscription value from any single license agreement is relatively small, since revenue is recognized ratably over the applicable license agreement term.
Weighted Average License Agreement Duration in Years — The weighted average license agreement duration in years reflects the duration of substantially all software licenses executed during a period, weighted to reflect the contract value of each individual software license.
RESULTS OF OPERATIONS
The following table presents the percentage of total revenue and the percentage of period-over-period dollar change for the revenue line items on our Consolidated Condensed Statements of Operations for the three and nine-month periods ended December 31, 2005 and 2004. These comparisons of past financial results are not necessarily indicative of future results. In addition, after we complete an acquisition, there is usually a period of time required to integrate the acquired business’ products with our other products into our subscription licenses. As these acquired products begin to be licensed with our existing products, we cannot separately identify the impact of these acquired business products on total revenue.

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CONDITION AND RESULTS OF OPERATIONS
                                                 
    For the Three Months   For the Nine Months
    Ended December 31,   Ended December 31,
    Percentage   Percentage   Percentage   Percentage
    of   of   of   of
    Total   Dollar   Total   Dollar
    Revenue   Change   Revenue   Change
                    2005/                   2005/
    2005   2004   2004   2005   2004   2004
    (restated)   (restated)
Revenue
                                               
Subscription revenue
    74 %     71 %     10 %     74 %     71 %     12 %
Maintenance
    11 %     12 %     (4 %)     12 %     13 %     (1 %)
Software fees and other
    5 %     8 %     (34 %)     5 %     7 %     (34 %)
Financing fees
    1 %     2 %     (35 %)     1 %     2 %     (39 %)
Professional services
    9 %     7 %     34 %     8 %     7 %     29 %
 
                                               
Total revenue
    100 %     100 %     5 %     100 %     100 %     7 %
 
                                               
Revenue:
Total Revenue
Total revenue for the quarter ended December 31, 2005 increased $50 million, or 5%, from the prior year comparable quarter to $967 million. This increase was partially a result of the transition to our business model, which contributed additional subscription revenue from the prior fiscal year period. The increase in total revenue was also partially attributable to sales of Concord, Niku and iLumin products, which contributed an aggregate of approximately $51 million of separately identifiable revenue. It is expected that software fees and other revenue and maintenance revenue attributable to acquisitions will decline as these acquired products transition to our business model, and the revenue attributable to these acquired products is reported as subscription revenue. In addition, revenue in the third quarter of fiscal year 2006 was negatively impacted by approximately $24 million compared with the third quarter of fiscal year 2005 due to fluctuations in foreign currency exchange rates.
Total revenue for the nine months ended December 31, 2005 increased $186 million, or 7%, from the prior year comparable period to $2.829 billion. Similar to the quarter ended December 31, 2005 compared to the quarter ended December 31, 2004, the increase was a result of the transition to our business model, which contributed additional subscription revenue from the prior fiscal year period. The increase in total revenue was also partially attributable to sales of Concord, Niku and iLumin products, which contributed approximately $94 million of combined revenue. In addition, there was a positive impact to revenue of approximately $7 million due to fluctuations in foreign currency rates. Our revenues were negatively impacted by the fact that since the beginning of the second quarter of fiscal year 2005, revenue from certain indirect sales contracts have been recorded as new deferred subscription revenue, which is ratably recognized into subscription revenue in future periods, compared to prior periods when the majority of such revenue was recognized on an up-front basis.
Subscription Revenue
Subscription revenue represents the portion of revenue ratably recognized on software license agreements entered into under our business model. Some of the licenses recorded between October 2000, when our business model was implemented, and the third quarter of fiscal year 2006 continued to contribute to subscription revenue on a monthly, ratable basis. As a result, subscription revenue for the quarter ended December 31, 2005 included the ratable recognition of bookings recorded in the third quarter of fiscal year 2006, as well as bookings recorded between October 2000 and the end of fiscal year 2005, depending on the

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contract length. This is the primary reason for the increase in subscription revenue in the quarter ended December 31, 2005 versus the comparable prior year quarter.
Subscription revenue for the quarter ended December 31, 2005 increased $63 million, or 10%, from the comparable prior year quarter to $713 million. The direct business contributed approximately $672 million to subscription revenue in the third quarter of fiscal year 2006 compared to $639 million in the third quarter of fiscal year 2005. The increase in subscription revenue was partially due to how we record maintenance revenue under our business model, as described below. The indirect business contributed approximately $41 million to subscription revenue for the quarter ended December 31, 2005, compared to approximately $11 million for the quarter ended December 31, 2004.
For the quarters ended December 31, 2005 and 2004, we added new deferred subscription value related to our direct business of $730 million and $845 million, respectively. The decrease in new deferred subscription value from the comparable prior year period was primarily due to the expected decrease in early contract renewals as a result of changes to our sales force compensation structure for fiscal year 2006, which places a greater emphasis on new product sales as opposed to renewals of existing contracts, and declines in mainframe contract values. Licenses executed under our business model in the quarters ended December 31, 2005 and 2004 had weighted average durations of 3.46 years and 2.95 years, respectively. The increase in duration is due to several individual long-term contracts signed during the quarter. The annual revenue that will be realized from the new subscriptions that have been booked during the period for the direct business decreased approximately 26% for the three months ended December 31, 2005 over the comparable prior year period to approximately $211 million. We also recorded $53 million of new deferred subscription value for the quarter ended December 31, 2005 related to our indirect business, which was unchanged from the prior year.
Subscription revenue for the nine months ended December 31, 2005 increased $229 million, or 12%, from the comparable prior year period to $2.104 billion. The increase for the nine month period is attributable to the same factors as described above for the third quarter increase. Annualized new deferred subscription value (direct) decreased approximately $171 million, or 24%, for the nine-month period ended December 31, 2005 over the comparable prior year period to approximately $532 million. The decrease in new deferred subscription value was due to the same factors as described above for the third quarter decrease.
Under the prior business model, maintenance revenue was separately identified and was reported on the “Maintenance” line item on the Consolidated Condensed Statements of Operations. Under our business model, maintenance that is bundled with product sales is not separately identified in our customers’ license agreements and therefore is included within the “Subscription revenue” line item on the Consolidated Condensed Statements of Operations. Under the prior business model, financing revenue was also separately identified on the Consolidated Condensed Statements of Operations. Under our business model, financing fees are no longer applicable and the entire contract value is now recognized as subscription revenue over the term of the contract. The quantification of the impact that each of these factors had on the increase in subscription revenue is not determinable.
Maintenance
Maintenance revenue for the quarter ended December 31, 2005 decreased $4 million, or 4%, from the comparable prior year quarter to $108 million. Maintenance revenue for the nine months ended December 31, 2005 decreased $4 million, or 1%, from the comparable prior year period to $328 million. We recorded approximately $16 million and $29 million of additional maintenance revenue in the three month and nine month periods ending December 31, 2005 as compared with the comparable periods in fiscal year 2005 as a result of our acquisitions. After excluding the impact of the acquisitions, the decrease in maintenance revenue is a result of our transition to, and increased number of license agreements under, our business model, where maintenance revenue, bundled along with license revenue, is reported on the “Subscription revenue” line item on the Consolidated Condensed Statements of Operations. The combined maintenance and license revenue on these types of license agreements is recognized on a monthly basis ratably over the

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term of the agreement. The quantification of the impact that our transition to the new business model had on maintenance revenue is not determinable since maintenance bundled with software licenses under our business model is not separately identified.
The amount of maintenance revenue reported on this line item from our indirect business for the three month periods ended December 31, 2005 and 2004 was $14 million and $15 million, respectively. Maintenance revenue from our indirect business for the nine month period ended December 31, 2005 decreased $4 million from the comparable prior year period to $40 million.
Software Fees and Other
Software fees and other revenue consist of revenue related to distribution and OEM partners that have been recorded on a sell-through basis, revenue associated with acquisitions and joint ventures, royalty revenues, and other revenue. Revenue related to distribution partners and OEMs is sometimes referred to as “indirect” or “channel” revenue. Software fees and other revenue for the third quarter of fiscal year 2006 decreased $25 million, or 34%, from the comparable prior year quarter to $49 million. This reduction is due to a $24 million decrease in prior business model related revenues. Additionally, we experienced a decrease in indirect revenues associated with our transition to our subscription model in July 2004 which was substantially offset by an increase in revenue from sales of acquisition related products. The decrease in prior business model related revenues is due to changes in revenue classification, as ratable revenues from our new business model contracts are taken as part of subscription revenues on the Consolidated Condensed Statements of Operations.
Software fees and other for the nine month period ended December 31, 2005 decreased $67 million, or 34%, from the comparable prior year period to $129 million. The decrease is attributable to the same factors as described above for the third quarter decrease. The decrease in software fees and other revenue was partially offset by license revenue associated with the sale of acquisition related products, sales of which have not yet fully transitioned to our subscription based business model.
Financing Fees
Financing fees result from the initial discounting to present value of product sales with extended payment terms under the prior business model, which required up-front recognition of revenue. This discount initially reduced the related installment accounts receivable and was referred to as “Unamortized discounts.” The related unamortized discount is amortized over the life of the applicable license agreement and is reported as financing fees. Under our business model, additional unamortized discounts are no longer recorded, since we no longer recognize revenue on an up-front basis for sales of products with extended payment terms. As expected, for the quarter ended December 31, 2005, these fees decreased $6 million, or 35%, from the comparable prior year quarter to $11 million. The decrease is attributable to the discontinuance of license agreements offered under the prior business model and is expected to decline to zero over the next several years.
Financing fees for the nine months ended December 31, 2005 decreased $24 million, or 39%, from the comparable prior year period to $38 million. The decrease for the nine month period is attributable to the same factors as described above for the third quarter decrease.
Professional Services
Professional services revenue for the quarter ended December 31, 2005 increased $22 million, or 34%, from the prior year comparable quarter to $86 million. The increase was attributable to professional service engagements relating to acquired companies of $11 million, growth in security software engagements which utilize Access Control and Identity Management solutions, growth in IT Service and Asset Management solutions, and project and portfolio management services tied to Clarity solutions.
Professional services revenue for the nine months ended December 31, 2005 increased $52 million, or 29%, from the comparable prior year period to $230 million. The increase for the nine month period is attributable

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to the same factors as described above for the third quarter increase, including approximately $18 million from engagements relating to acquired companies.
Total Revenue by Geography
The following table presents the amount of revenue earned from the North American and international geographic regions and corresponding percentage changes for the three and nine-month periods ended December 31, 2005 and 2004. These comparisons of financial results are not necessarily indicative of future results.
                                                 
    Three Months Ended     Nine Months Ended  
    December 31,     December 31,  
                    (dollars in millions)              
    2005     2004     Change     2005     2004     Change  
            (restated)                     (restated)          
North American
  $ 549     $ 496       11 %   $ 1,579     $ 1,463       8 %
International
    418       421       (1 )%     1,250       1,180       6 %
 
                                       
 
  $ 967     $ 917       5 %   $ 2,829     $ 2,643       7 %
International revenue decreased $3 million, or 1%, and increased $70 million, or 6%, respectively for the three and nine-month periods ended December 31, 2005 as compared with the prior fiscal year comparable periods. International revenue growth was adversely impacted due to restructurings in our international operations in which we made significant changes to local management. The decrease in revenues for the three months ended December 31, 2005 was due to a $24 million unfavorable impact related to foreign exchange fluctuations partially offset by an increase in revenue associated with an increase in contract bookings in prior periods. The increase for the nine month period ended December 31, 2005 was a result of increased contract bookings in prior periods associated with our European business as well as a $7 million favorable impact due to foreign exchange fluctuation. The increase in revenue from North America was primarily attributable to an increase in contract bookings in prior periods as well as an increase in professional services revenue. The increase was partially offset by decreases in revenue from finance fees and software fees and other revenue.
Price changes did not have a material impact on revenue in the three and nine-month periods ended December 31, 2005 as compared to the prior year periods.
Expenses:
The following table presents expenses as a percentage of total revenue and the percentage of period-over-period dollar change for the line items on our Consolidated Condensed Statements of Operations for the three and nine-month periods ended December 31, 2005. These comparisons of financial results are not necessarily indicative of future results.
                                                 
    For the Three Months   For the Nine Months
    Ended December 31,   Ended December 31,
    Percentage   Percentage   Percentage   Percentage
    of   of   of   of
    Total   Dollar   Total   Dollar
    Revenue   Change   Revenue   Change
                    2005/                   2005/
    2005   2004   2004   2005   2004   2004
    (restated)   (restated)
Operating expenses
                                               
Amortization of capitalized software costs
    11 %     12 %     (1 %)     12 %     13 %      
Cost of professional services
    7 %     6 %     21 %     7 %     6 %     16 %

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    For the Three Months   For the Nine Months
    Ended December 31,   Ended December 31,
    Percentage   Percentage   Percentage   Percentage
    of   of   of   of
    Total   Dollar   Total   Dollar
    Revenue   Change   Revenue   Change
                    2005/                   2005/
    2005   2004   2004   2005   2004   2004
    (restated)   (restated)
Selling, general, and administrative
    42 %     38 %     15 %     42 %     38 %     17 %
Product development and enhancements
    18 %     19 %     (1 %)     18 %     20 %     (1 %)
Commission and royalties
    9 %     10 %     (4 %)     8 %     9 %     (4 %)
Depreciation and amortization of other intangible assets
    3 %     4 %           3 %     4 %     (2 %)
Charge for in-process research and development
                      1 %         NA  
Other (gains)/losses, net
    (1 %)     1 %   NA                 NA  
Restructuring and other
    2 %           100 %     2 %     1 %     136 %
Shareholder litigation and government investigation settlements
          2 %     (100 %)           9 %     (100 %)
Total expenses before interest and taxes
    92 %     92 %     5 %     92 %     99 %     (1 %)
Interest expense, net
    1 %     3 %     (59 %)     1 %     3 %     (61 %)
 
Note — Amounts may not add to their respective totals due to rounding.  
Amortization of Capitalized Software Costs
Amortization of capitalized software costs consists of the amortization of both purchased software and internally generated capitalized software development costs. Internally generated capitalized software development costs are related to new products and significant enhancements to existing software products that have reached the technological feasibility stage.
Amortization of capitalized software costs for the nine months ended December 31, 2005 and 2004 was $335 million in each period.
Cost of Professional Services
Cost of professional services consists primarily of the personnel-related costs associated with providing professional services and training to customers. Cost of professional services for the quarter ended December 31, 2005 increased $12 million, or 21%, from the comparable prior year quarter to $69 million and was primarily attributable to the increase in professional services revenue noted above. The increase in the professional services business margins is largely due to an overall increase in total billable utilization of our professional services employees.
Cost of professional services for the nine months ended December 31, 2005 increased $27 million, or 16%, from the comparable prior year period to $194 million and was primarily attributable to the increase in professional services revenue noted above.
Selling, General and Administrative (SG&A)
SG&A expenses for the quarter ended December 31, 2005 increased $53 million, or 15%, from the comparable prior year quarter to $405 million. The increase was primarily attributable to employee and other costs associated with the Concord, Niku, and iLumin acquisitions of approximately $24 million and increases in legal, ERP implementation, and Sarbanes-Oxley consulting costs of approximately $24 million. SG&A for the quarters ended December 31, 2005 and 2004 included approximately $16 million and $17 million of share-based compensation expense, respectively, associated with our adoption of the provisions of SFAS No. 123(R) under the modified retrospective application method. SG&A for the quarters ended December 31, 2005 and 2004 included credits to the provision for doubtful accounts of approximately $4 million and $7 million, respectively.
SG&A expenses for the nine-month period ended December 31, 2005 increased $170 million, or 17%, compared to the prior fiscal year period to $1.175 billion. The increase was primarily attributable to increases in legal, ERP implementation, and Sarbanes-Oxley consulting costs of approximately $67 million, an increase in employee and other costs associated with the Concord, Niku and iLumin acquisitions of approximately $45 million, and an increase of approximately $14 million in share-based compensation expense. SG&A for the nine-month periods ended December 31, 2005 and 2004 included credits to the provision for doubtful accounts of approximately $17 million and $12 million, respectively.

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Product Development and Enhancements
For the quarter ended December 31, 2005, product development and enhancement expenditures, also referred to as research and development, decreased $1 million, or 1%, from the comparable prior year quarter to $171 million. For the quarters ended December 31, 2005 and 2004, product development and enhancement expenditures represented approximately 18% and 19% of total revenue, respectively. Product development and enhancements for both the quarters ended December 31, 2005 and 2004 included approximately $8 million of share-based compensation expense, respectively. During the third quarter of fiscal year 2006, we continued to focus on and invest in product development and enhancements for emerging technologies such as wireless networks, smartphones, and radio frequency identification technologies, as well as a broadening of our enterprise product offerings.
Product development and enhancement expenditures for the nine-month period ended December 31, 2005, decreased $3 million, or 1%, from the comparable prior year period to $521 million. For the nine-month periods ended December 31, 2005 and 2004, product development and enhancement expenditures represented approximately 18% and 20% of total revenue, respectively. Product development and enhancements for the nine-month periods ended December 31, 2005 and 2004 included approximately $26 million and $22 million of share-based compensation expense, respectively.
Commissions and Royalties
Commissions and royalties for the third quarter of fiscal year 2006 decreased $4 million, or 4%, from the comparable prior year quarter to $87 million. Commissions and royalties for the nine months ended December 31, 2005 decreased $9 million, or 4%, from the comparable prior year period to $217 million. These decreases were primarily due to a new commission structure beginning April 1, 2005, which generally compensates sales employees for increases in sales of new products and billings to customers over the course of the fiscal year, as compared to the previous commission plan which primarily compensated for increases in new deferred subscription value. Sales commissions are expensed in the period in which they are earned by employees, which is typically upon the signing of a contract.
Depreciation and Amortization of Other Intangible Assets
Depreciation and amortization of other intangible assets expense for the quarter ended December 31, 2005 was equal to depreciation and amortization expense for the quarter ended December 31, 2004.
Depreciation and amortization of other intangible assets for the nine months ended December 31, 2005 decreased $2 million, or 2%, from the comparable prior year period to $95 million.
Other (gains) losses, net
Other (gains) losses, net for the quarter ended December 31, 2005 resulted in a $10 million gain, primarily due to an $8 million non-cash gain on the divestiture of assets relating to the formation of Ingres, and a $2 million positive impact from foreign currency exchange rate fluctuations.
Other (gains) losses, net for the nine months ended December 31, 2005 resulted in a $17 million gain, primarily due to the $8 million non-cash gain on the divesture of assets relating to the formation of Ingres and an approximately $10 million positive impact from foreign currency exchange rate fluctuations.
Restructuring and Other
We recorded restructuring charges of approximately $13 million and $50 million for the three and nine month periods ended December 31, 2005 for severance and other termination benefits and facility closures in connection with our restructuring plan. The restructuring plan is designed to more closely align our investments with strategic growth opportunities and includes a workforce reduction of approximately five percent or 800 positions worldwide. The plan is expected to yield about $75 million in savings on an annualized basis, once the reductions are fully implemented. We anticipate the total restructuring plan will cost up to $80 million. The liability balance is included in “Accrued expenses and other current liabilities” on the Consolidated Condensed Balance Sheets. We also recorded a loss of approximately $3 million related to the sale/leaseback of one of our facilities during the three months ended December 31, 2005.

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Other charges for the three and nine month periods ended December 31, 2005, included approximately $4 million and $7 million, respectively, in connection with certain DPA related costs. In addition, we also incurred charges for the nine month period ended December 31, 2005 of approximately $5 million associated with the termination of a non-core application development professional services project.
Interest Expense, net
Net interest expense for the third quarter of fiscal year 2006 decreased $17 million, or 59%, as compared to the prior fiscal year third quarter to $12 million. The decrease was primarily due to a decrease in average debt outstanding as a result of our $825 million debt repayment in the first quarter of fiscal year 2006.
Net interest expense for the first nine months of fiscal year 2006 decreased $48 million, or 61%, as compared to the prior fiscal year comparable period to $31 million. The change was due to a decrease in average debt outstanding which resulted in a $24 million decrease in interest expense, and a decrease in the average interest rate on our outstanding debt, which resulted in a $13 million decrease in interest expense. The decrease was also due to an increase in our average cash balance and an increase in interest rates on the cash balance during the first nine months of fiscal year 2006 as compared to the first nine months of fiscal year 2005, which resulted in an increase in interest income of approximately $10 million.
Income Taxes
Income tax expense for the three and nine month periods ended December 31, 2005 includes $25 million of tax benefits mostly arising from the recognition of certain foreign tax credits partially offset by an $18 million increase in taxes associated with a prior period tax audit. For the nine month period ended December 31, 2005, we also recorded a tax benefit of $36 million associated with the American Jobs Creation Act of 2004 (AJCA). The AJCA introduced a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided that certain criteria are met. In addition, on December 21, 2004, the FASB issued FASB Staff Position (FSP) No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within American Jobs Creation Act of 2004.” FSP FAS 109-2 provides accounting and disclosure guidance for the repatriation provision. During fiscal year 2005, we recorded an estimate of this tax charge of $55 million based on an estimated repatriation amount up to $500 million. The income tax benefit of $36 million for the nine month period ended December 31, 2005 reflects the Department of Treasury and Internal Revenue Service (IRS) Notice 2005-38 issued on May 10, 2005, which permitted the utilization of additional foreign tax credits to reduce the estimated taxes associated with repatriating the funds. The cash repatriation is expected to occur on or before March 31, 2006.
Additionally, we recognized a tax benefit of approximately $16 million in the nine months ended December 31, 2005 resulting primarily from the favorable conclusion of an international tax examination and the reduction of a valuation allowance related to a certain foreign jurisdiction’s net operating loss carry forwards.
We also incurred $4 million and $14 million of in-process research and development charges associated with the acquisition of Concord and Niku for the nine months ended December 31, 2005, respectively, which is non-deductible for income tax purposes.
We recognized a tax benefit of approximately $26 million in the quarter ended December 31, 2004 which was attributable to an IRS refund received for additional tax benefits arising from foreign export sales in prior fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities totaled $1.833 billion at December 31, 2005, a increase of $193 million from the September 30, 2005 balance of $1.640 billion. In the third quarter of fiscal year 2006, we paid approximately $54 million for acquisitions compared with $418 million for acquisitions in the third quarter of fiscal year 2005; in the third quarter of fiscal year 2006 we received proceeds from the sale of $39 million of marketable securities compared with disbursements of $133 million for marketable securities in the

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prior year third quarter; we paid a quarterly dividend of $23 million in the third quarter of fiscal year 2006 and no dividend was paid in the third quarter of fiscal year 2005; we repurchased approximately $107 million in Company stock in connection with our publicly announced corporate buyback program in the third quarter of fiscal year 2006 whereas in the prior fiscal year comparable quarter we did not repurchase any common stock; and we received approximately $26 million in proceeds resulting from the exercise of stock options and other in the third quarter of fiscal year 2006 compared with $32 million in the third quarter of fiscal year 2005.
Cash provided by continuing operating activities for the quarters ended December 31, 2005 and 2004 was $422 million and $365 million, respectively. In the third quarter of fiscal year 2006, cash provided by continuing operating activities was positively impacted by better working capital management, including a decrease of receivables cycles and an increase of payable cycles. During the quarter ended September 30, 2005, the Company undertook a review of its accounts receivable and accounts payable collection/payment cycles and determined that improvements in each could be made. The improvements associated with accounts receivable were related principally to improved collection procedures, including an increased emphasis on obtaining payment of initial customer invoices at the time of contract signing. The improvement (increase) in our days payable outstanding was related to a concerted effort to make payments to vendors on a more extended basis. Each of these efforts represented a focused effort by us to improve our payment and collection practices. Management does not believe these improvements represent a trend that will materially impact liquidity in future quarters.
Although the improvements in working capital management did not differ materially from the quarter ended September 30, 2005, they did have a positive impact when compared to the quarter ended December 31, 2004. Going forward, we do not expect that these improvements will have a material impact on our cash provided by continuing operating activities when viewed sequentially.
In addition, our cash provided by operating activities for the quarter was positively impacted by certain arrangements under which the entire contract value was received in one single installment at the outset, rather than being invoiced on an annual basis over the life of the contract. Two of such contracts, entered into with a strategic outsourcer which paid the entire contract value in a single installment, contributed approximately $59 million more in the period than if the contracts had been paid on an annual basis over the term of these contracts.
Our cash provided by investing activities was positively impacted by approximately $40 million of proceeds from the completion of two separate sale leaseback transactions in the third quarter of fiscal year 2006.
For the nine months ended December 31, 2005, cash, cash equivalents and marketable securities had a net decrease of approximately $1.292 billion from March 31, 2005. In the first nine months of fiscal year 2006, we paid approximately $680 million for acquisitions compared with $458 million for acquisitions in the first nine months of fiscal year 2005; in the first nine months of fiscal year 2006 we received proceeds of $301 million from the net sales of marketable securities compared with net purchases of $217 million for marketable securities in the comparable prior year period; we paid dividends totaling $70 million in the first nine months of fiscal year 2006 compared with dividends of $23 million in the first nine months of fiscal year 2005; we repurchased approximately $367 million in Company stock in connection with our publicly announced corporate buyback program in the first nine months of fiscal year 2006 whereas we purchased $11 million in Company stock in the prior fiscal year comparable period; and we received approximately $105 million in proceeds resulting from the exercise of stock options and other in the first nine months of fiscal year 2006 compared with $81 million in the first nine months of fiscal year 2005.
Cash provided by continuing operating activities for the nine month periods ended December 31, 2005 and 2004 was $814 million and $789 million, respectively. Cash generated from operating activities was positively impacted in the first nine months of the prior fiscal year by a one-time tax benefit related to an

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Internal Revenue Service (IRS) Revenue Procedure. The Revenue Procedure reduced the amount paid for income taxes in fiscal year 2005 by approximately $109 million. In addition, cash generated from operating activities in the first nine months of fiscal year 2006 was positively impacted by the same factors described above for the third quarter and negatively impacted by our scheduled $75 million payment to the restitution fund noted above. Purchases of property and equipment for the nine month period ended December 31, 2005 included $57 million relating to the implementation of the SAP system.
For the remainder of fiscal year 2006, it is anticipated that the cash provided by operating activities will be used for both investing and financing activities in the short-term. We will use cash for investing activities to finance the Wily purchase which was valued at approximately $375 million. We will use cash for financing activities to repurchase additional treasury stock from the current year-to-date purchases of $367 million up to a possible $600 million and to pay any dividends as approved by our Board of Directors. Our operating cash flow will be positively impacted by an expected $36 million benefit realized from the utilization of tax credits (see note I, “Income Taxes”, in the Notes to the Consolidated Condensed Financial Statements for further information). Our operating cash flows will also be impacted by the amount of payments we receive from our customers in advance of revenue recognition.
Under our business model, amounts due from customers are offset by related deferred subscription value, which results in little or no carrying value on the balance sheet. In addition, under our business model, customer payments are often received in advance of revenue recognition, which minimizes net credit exposure and consequently reduces the need to provide for estimated bad debts. The number of contracts for which advance payments are received and the amount of those payments varies from quarter to quarter.
Cash and cash equivalents declined by approximately $23 million due to the negative effect that foreign currency exchange rates had on cash during the third quarter of fiscal year 2006. Compared to March 31, 2005, cash and cash equivalents declined by approximately $91 million due to the negative effect that foreign currency exchange rates had on cash during the first nine months of fiscal year 2006.
Under both the prior business model and current business model, customers often pay for the right to use our software products over the term of the associated software license agreement. We refer to these payments as installment payments. While the transition to the current business model has changed the timing of revenue recognition, in most cases it has not changed the timing of how we bill and collect cash from customers. As a result, our cash generated from operations has generally not been affected by the transition to the current business model over the past several years. We do not expect any significant changes in our cash generated from operations as a result of this transition.
The Company’s estimate of the fair value of net installment accounts receivable recorded under the prior business model approximates carrying value. The fair value of the unbilled amounts recorded under our business model (unbilled amounts due less deferred subscription value) may have a fair value greater than that reported on the balance sheet. Amounts due from customers under our business model are offset by deferred subscription value related to these license agreements, leaving no or minimal net carrying value on the balance sheet for such amounts. The fair value of such amounts may exceed this carrying value but cannot be practically assessed since there is no existing market for a pool of customer receivables with contractual commitments similar to those owned by us. The actual fair value may not be known until these amounts are sold, securitized, or collected. Although these customer license agreements commit the customer to payment under a fixed schedule, the agreements are considered executory in nature due to the ongoing commitment to provide “unspecified future deliverables” as part of the agreement terms. Under our business model, we can estimate an expectation of the total amounts to be collectible at the conclusion of a reporting period. The estimated amounts expected to be collected and a reconciliation of such amounts to the amounts we recorded as accounts receivable are as follows:

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
                         
    December 31,     March 31,     December 31,  
    2005     2005     2004  
            (restated)     (restated)  
    (in millions)  
Billed accounts receivable
  $ 703     $ 829     $ 739  
Amounts to be billed within the next 12 months — business model
    1,657       1,794       1,680  
Amounts to be billed within the next 12 months — prior business model
    329       389       510  
Less: allowance for doubtful accounts
    (15 )     (33 )     (53 )
 
                 
Net amounts expected to be collected — current
    2,674       2,979       2,876  
 
                 
Less:
                       
Unamortized discounts
    (42 )     (62 )     (68 )
Unearned maintenance
    (5 )     (23 )     (38 )
Deferred subscription revenue — current, billed
    (473 )     (369 )     (268 )
Deferred subscription value — current, uncollected
    (725 )     (661 )     (861 )
Deferred subscription value — noncurrent, uncollected, related to current accounts receivable
    (932 )     (1,133 )     (819 )
Unearned professional services
    (88 )     (57 )     (44 )
 
                 
Trade and installment accounts receivable — current, net
  $ 409     $ 674     $ 778  
 
                 
                         
    December 31,     March 31,     December 31,  
    2005     2005     2004  
            (restated)     (restated)  
    (in millions)  
Amounts to be billed beyond the next 12 months — business model
  $ 1,498     $ 1,698     $ 1,368  
Amounts to be billed beyond the next 12 months — prior business model
    564       741       876  
Less: allowance for doubtful accounts
    (15 )     (35 )     (41 )
 
                 
Net amounts expected to be collected — noncurrent
    2,047       2,404       2,203  
 
                 
Less:
                       
Unamortized discounts
    (44 )     (79 )     (92 )
Unearned maintenance
    (9 )     (32 )     (62 )
Deferred subscription value — uncollected
    (1,498 )     (1,698 )     (1,368 )
 
                 
Installment accounts receivable — noncurrent, net
    496       595       681  
 
                 
 
                       
Total accounts receivable, net
  $ 905     $ 1,269     $ 1,459  
 
                 
Approximately 10% of the total deferred subscription value balance of approximately $5.1 billion at December 31, 2005 is associated with multi-year contracts signed with the U.S. Federal Government and other U.S. state and local governmental agencies and are generally subject to annual fiscal funding approval and/or may be terminated at the convenience of the government. While funding under these contracts is not assured, we do not believe any circumstances exist which might indicate that such funding will not be approved and paid in accordance with the terms of our contracts. We also receive contracts from non-U.S. governmental agencies that contain similar provisions. The total balance of deferred subscription value related to non-US governmental agencies that may be terminated at the convenience of the government is not material to the overall deferred subscription value balance.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As of December 31, 2005 and March 31, 2005, our debt arrangements consisted of the following:
                                 
    December 31, 2005     March 31, 2005  
    Maximum     Outstanding     Maximum     Outstanding  
    Available     Balance     Available     Balance  
    (in millions)  
Debt Arrangements:      
2004 Revolving Credit Facility (expires December 2008)
  $ 1,000     $     $ 1,000     $  
Commercial Paper
    400             400        
6.375% Senior Notes due April 2005
                      825  
6.500% Senior Notes due April 2008
          350             350  
4.750% Senior Notes due December 2009
          500             500  
1.625% Convertible Senior Notes due December 2009
          460             460  
5.625% Senior Notes due December 2014
          500             500  
International line of credit
    5             5        
Other
          1             1  
 
                           
Total
          $ 1,811             $ 2,636  
 
                           
2004 Revolving Credit Facility
In December 2004, we entered into an unsecured, revolving credit facility (the 2004 Revolving Credit Facility). The maximum amount available at any time under the 2004 Revolving Credit Facility is $1 billion. The 2004 Revolving Credit Facility expires December 2008, and no amount was drawn as of December 31, 2005.
Borrowings under the 2004 Revolving Credit Facility will bear interest at a rate dependent on our credit ratings at the time of such borrowings and will be calculated according to a base rate or a Eurocurrency rate, as the case may be, plus an applicable margin and utilization fee. Depending on our credit rating at the time of borrowing, the applicable margin can range from 0% to 0.325% for a base rate borrowing and from 0.50% to 1.325% for a Eurocurrency borrowing, and the utilization fee can range from 0.125% to 0.250%. At our current credit ratings, the applicable margin would be 0% for a base rate borrowing and 0.70% for a Eurocurrency borrowing, and the utilization fee would be 0.125%. In addition, we must pay facility fees quarterly at rates dependent on our credit ratings. Depending on our credit rating, the facility fees can range from 0.125% to 0.30% of the aggregate amount of each lender’s full revolving credit commitment (without taking into account any outstanding borrowings under such commitments). At our current credit ratings, the facility fee is 0.175% of the aggregate amount of each lender’s revolving credit commitment.
The 2004 Revolving Credit Facility Agreement contains customary covenants for transactions of this type, including two financial covenants: (i) for the 12 months ending each quarter-end, the ratio of consolidated debt for borrowed money to consolidated cash flow, each as defined in the Credit Agreement, must not exceed 3.25 for the quarter ending December 31, 2004 and 2.75 for quarters ending March 31, 2005 and thereafter; and (ii) for the 12-months ending each quarter-end, the ratio of consolidated cash flow to the sum of interest payable on, and amortization of debt discount in respect of, all consolidated debt for borrowed money, as defined in the Credit Agreement, must not be less than 5.00. In addition, as a condition precedent to each borrowing made under the Credit Agreement, as of the date of such borrowing, (i) no event of default shall have occurred and be continuing and (ii) we are to reaffirm that the representations and warranties made in the Credit Agreement (other than the representation with respect to material adverse changes, but including the representation regarding the absence of certain material litigation) are correct. We are in compliance with these debt covenants as of December 31, 2005.
Commercial Paper
As of December 31, 2005, there were no borrowings outstanding under our $400 million commercial paper (CP) program. We expect any future outstanding borrowings under the CP program to be supported by cash and marketable securities on hand and undrawn amounts available under the 2004 Revolving Credit Facility.

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Fiscal Year 1999 Senior Notes
In fiscal year 1999, the Company issued $1.750 billion of unsecured Senior Notes in a transaction pursuant to Rule 144A under the Securities Act of 1933 (Rule 144A). Amounts borrowed, rates, and maturities for each issue were $575 million at 6.25% due April 15, 2003, $825 million at 6.375% due April 15, 2005, and $350 million at 6.5% due April 15, 2008. As of March 31, 2005, $825 million and $350 million of the 6.375% and 6.5% Senior Notes, respectively, remained outstanding. In April 2005, the Company repaid the $825 million remaining balance of the 6.375% Senior Notes from available cash balances.
Fiscal Year 2005 Senior Notes
In November 2004, the Company issued an aggregate of $1 billion of unsecured Senior Notes (2005 Senior Notes) in a transaction pursuant to Rule 144A. The Company issued $500 million of 4.75%, 5-year notes due December 2009 and $500 million of 5.625%, 10-year notes due December 2014. The Company has the option to redeem the 2005 Senior Notes at any time, at redemption prices equal to the greater of (i) 100% of the aggregate principal amount of the notes of such series being redeemed and (ii) the present value of the principal and interest payable over the life of the 2005 Senior Notes, discounted at a rate equal to 15 basis points and 20 basis points for the 5-year notes and 10-year notes, respectively, over a comparable U.S. Treasury bond yield. The maturity of the 2005 Senior Notes may be accelerated by the holders upon certain events of default, including failure to make payments when due and failure to comply with covenants in the 2005 Senior Notes. The 5-year notes were issued at a price equal to 99.861% of the principal amount and the 10-year notes at a price equal to 99.505% of the principal amount for resale under Rule 144A and Regulation S. The Company also agreed for the benefit of the holders to register the 2005 Senior Notes under the Securities Act of 1933 pursuant to a registered exchange offer so that the 2005 Senior Notes may be sold in the public market. Because the Company did not meet certain deadlines for completion of the exchange offer, the interest rate on the 2005 Senior Notes increased by 25 basis points as of September 27, 2005 and increased by an additional 25 basis points as of December 26, 2005 because the delay was not cured prior to that date. After the delay is cured, such additional interest on the 2005 Senior Notes will no longer be payable. The Company used the net proceeds from this issuance to repay debt as described above.
1.625% Convertible Senior Notes
In fiscal year 2003, we issued $460 million of unsecured 1.625% Convertible Senior Notes (1.625% Notes), due December 15, 2009, in a transaction pursuant to Rule 144A. The 1.625% Notes are senior unsecured indebtedness and rank equally with all existing senior unsecured indebtedness. Concurrent with the issuance of the 1.625% Notes, we entered into call spread repurchase option transactions to partially mitigate potential dilution from conversion of the 1.625% Notes. For further information, refer to Note 6 of the Consolidated Financial Statements in our amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005.
3% Concord Convertible Notes
In connection with our acquisition of Concord in June 2005, we assumed $86 million in 3% convertible senior notes due 2023. In accordance with the notes’ terms, we redeemed (for cash) the notes in full in July 2005.
International Line of Credit
An unsecured and uncommitted multi-currency line of credit is available to meet short-term working capital needs for subsidiaries operating outside the United States. As of December 31, 2005, this line totaled $5 million, none of which was drawn, and approximately $3 million has been pledged in support of a bank guarantee.
Other Matters
At December 31, 2005, we had $1.811 billion in debt and $1.833 billion in cash and marketable securities. Our net cash position was, therefore, approximately $22 million.

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Our senior unsecured notes are rated Ba1, BBB-, and BBB- by Moody’s Investors Service, Fitch Ratings, and Standard and Poor’s, respectively. The outlook on these senior unsecured notes is considered to be positive, stable, and negative by Moody’s Investors Service, Fitch Ratings, and Standard and Poor’s, respectively. Our CP program is rated A-3, Not-Prime, and F-3 by Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings, respectively. Peak borrowings under all debt facilities during the third quarter of fiscal year 2006 totaled approximately $1.8 billion, with an annualized weighted average interest rate of 4.859%.
Capital resource requirements as of December 31, 2005 consisted of lease obligations for office space, equipment, mortgage or loan obligations, and amounts due as a result of product and company acquisitions. During the first nine months of fiscal year 2006 we entered into capital commitments for which payments totaling approximately $32 million will be made through June 2007. As of December 31, 2005, $3 million of these commitments have been paid.
It is expected that existing cash, cash equivalents, marketable securities, the availability of borrowings under existing and renewable credit lines, and cash expected to be provided from operations will be sufficient to meet ongoing cash requirements. We expect our long-standing history of providing extended payment terms to our customers to continue.
OUTLOOK
This outlook for the remainder of fiscal year 2006 contains certain forward looking statements and information relating to us that are based on the beliefs and assumptions made by management, as well as information currently available to management. Should business conditions change or should our assumptions prove incorrect, actual results may vary materially from those described below. We do not intend to update these forward looking statements.
This outlook is also premised on the assumption that there will be limited improvements in the current economic and IT environments. We also believe that customers will continue to be cautious with their technology purchases. `
Our outlook for the fourth quarter of fiscal year 2006 is to generate revenue in the range of $975 million to $1 billion and earnings per share from continuing operations of $0.09 to $0.10, after considering a one to two cent charge due to the acquisition of Wily Technologies, Inc. Our outlook for the full fiscal year 2006 is to generate revenue in the range of $3.805 billion to $3.830 billion and earnings per share from continuing operations in the range of $0.40 to $0.41. The above stated earnings per share amounts are based on generally accepted accounting principles and do not correspond to non-GAAP “operating” based earnings measures often used by securities analysts. We are projecting cash provided by continuing operations for the fiscal year 2006 in the range of $1.311 billion to $1.351 billion, which includes approximately $175 million in restructuring costs and restitution fund payments.
CRITICAL ACCOUNTING POLICIES AND BUSINESS PRACTICES
A detailed discussion of our critical accounting policies and the use of estimates in applying those policies is included in our amended Annual Report on Form 10-K/A for the year ended March 31, 2005. In many cases, a high degree of judgment is required, either in the application and interpretation of accounting literature or in the development of estimates that impact our financial statements. These estimates may change in the future if underlying assumptions or factors change. The following is a summary of the critical accounting policies for which estimates were updated as of December 31, 2005.
Accounts Receivable
The allowance for doubtful accounts is a valuation account used to reserve for the potential impairment of accounts receivable on the balance sheet. In developing the estimate for the allowance for doubtful accounts, we rely on several factors, including:

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    Historical information, such as general collection history of multiyear software agreements;
 
    Current customer information/events, such as extended delinquency, requests for restructuring, and filing for bankruptcy;
 
    Results of analyzing historical and current data; and
 
    The overall economic environment.
The allowance has two components: (a) specifically identified receivables that are reviewed for impairment when, based on current information, we do not expect to collect the full amount due from the customer; and (b) an allowance for losses inherent in the remaining receivable portfolio based on the analysis of the specifically reviewed receivables.
We expect the allowance for doubtful accounts to continue to decline as net installment accounts receivable under the prior business model are billed and collected. Under our Business model, amounts due from customers are offset by deferred subscription value related to these amounts, resulting in little or no carrying value on the balance sheet. Therefore, a smaller allowance for doubtful accounts is required.
Sales Commissions
Each quarter, we accrue sales commissions based on, among other things, estimates of how our sales personnel will perform against specified annual sales quotas. These estimates involve assumptions regarding the Company’s projected new product sales and billings. All of these assumptions reflect our best estimates, but these items involve uncertainties, and as a result, if other assumptions had been used in the current period, sales commission compensation expense could have been impacted. Under our current sales compensation model, during periods of high billings growth relative to revenue in that period, the amount of sales commission expense attributable to the license agreement would be recognized fully in the quarter and could negatively impact income and earnings per share in the quarter.
Deferred Tax Assets
As of December 31, 2005, our deferred tax assets, net of a valuation allowance, totaled $553 million. The value of these deferred tax assets is predicated on the assumption that we will be able to generate sufficient future taxable income so that these assets will be realized. The factors that we consider in assessing the likelihood of realization include the forecast of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets. Future results may vary from these estimates. Due to the uncertainties related to these matters, the valuation allowance is based on information available at the time we make the estimate of the allowance. As additional information becomes available, we reassess the potential realization of these deferred tax assets and may revise our estimates of the valuation allowance.
Goodwill, Capitalized Software Products, and Other Intangible Assets
SFAS No. 142 requires an impairment-only approach to accounting for goodwill. Absent any prior indicators of impairment, we perform an annual impairment analysis during the fourth quarter of our fiscal year. No indicators of impairment were identified during the first nine months of fiscal year 2006.
The carrying value of capitalized software products, both purchased software and internally developed software, and other intangible assets, is reviewed on a regular basis for the existence of internal and external facts or circumstances that may suggest impairment. Such facts and circumstances considered include an assessment of the net realizable value for capitalized software products and the future recoverability of cost for other intangible assets as of the balance sheet date. No indicators of impairment were identified during the first nine months of fiscal year 2006.
Product Development and Enhancements
We account for product development and enhancements in accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.” SFAS No. 86 specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is

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CONDITION AND RESULTS OF OPERATIONS
established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established and assumptions are used that reflect our best estimates. If other assumptions had been used in the current period to estimate technological feasibility, the reported product development and enhancement expense could have been impacted.
Accounting for Share-Based Compensation
As described in Note D, “Accounting for Share-Based Compensation,” of the Notes to the Consolidated Condensed Financial Statements, we have used the Black-Scholes option-pricing model to determine the estimated fair value of each share-based award. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility, expected terms, and risk-free interest rates. These assumptions reflect our best estimates, but these items involve uncertainties based on market conditions generally outside of our control. As a result, if other assumptions had been used in the current period to estimate fair value, share-based compensation expense could have been materially impacted.
As described in Note D, “Accounting for Share-Based Compensation,” of the Notes to the Consolidated Condensed Financial Statements, Performance Share Units (PSUs) are awards granted under the long-term incentive plan for senior executives where the number of shares or restricted shares (or RSUs), as applicable, ultimately received by the employee depends on Company performance measured against specified targets and will be determined after a three-year or one-year period as applicable. The fair value of each award is estimated on the date that the performance targets are established based on the fair value of the Company’s stock and the Company’s estimate of the level of achievement of its performance targets. Each quarter, the Company compares the actual performance the Company expects to achieve with the performance targets.
Legal Contingencies
We are currently involved in various legal proceedings and claims. Periodically, we review the status of each significant matter and assess our potential financial exposure. If the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether the amount of loss is reasonably estimable. Due to the uncertainties related to these matters, accruals are based on information available at the time. As additional information becomes available, we reassess the potential liability related to our pending litigation and claims and may revise our estimates. Such revisions could have a material impact on our results of operations and financial condition. Refer to Note J, “Commitments and Contingencies,” of the Notes to the Consolidated Condensed Financial Statements for a description of our material legal proceedings.

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Item 3:
  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Interest Rate Risk
Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio, debt, and installment accounts receivable. We have a prescribed methodology whereby we invest our excess cash in liquid investments that are comprised of money market funds and debt instruments of government agencies and high-quality corporate issuers (Standard & Poor’s single “A” rating and higher). To mitigate risk, many of the securities have a maturity date within one year, and holdings of any one issuer, excluding the U.S. government, do not exceed 10% of the portfolio. Periodically, the portfolio is reviewed and adjusted if the credit rating of a security held has deteriorated.
As of December 31, 2005, our outstanding debt approximated $1.811 billion, most of which was in fixed rate obligations. If market rates were to decline, we could be required to make payments on the fixed rate debt that would exceed those based on current market rates. Each 25 basis point decrease in interest rates would have an associated annual opportunity cost of approximately $5 million. Each 25 basis point increase or decrease in interest rates would have no material annual effect on variable rate debt interest based on the balances of such debt as of December 31, 2005.
We do not utilize derivative financial instruments to mitigate the above interest rate risks.
We offer financing arrangements with installment payment terms in connection with our software license agreements. The aggregate amounts due from customers include an imputed interest element, which can vary with the interest rate environment. Each 25 basis point increase in interest rates would have an associated annual opportunity cost of approximately $10 million.
Foreign Currency Exchange Risk
We conduct business on a worldwide basis through subsidiaries in 45 countries and, as such, a portion of our revenues, earnings, and net investments in foreign affiliates are exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk in part through operational means, including managing expected local currency revenues in relation to local currency costs and local currency assets in relation to local currency liabilities. In October 2005, the Board of Directors adopted the Risk Management Policy and Procedures (referred to herein as the Policy), which among other things, authorizes us to manage, based on management’s assessment, our risks/exposures to foreign currency exchange rate through the use of derivative financial instruments (e.g., forward contracts, options, swaps) or other means. Derivatives are accounted for in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and the Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”). We do not and will not use derivative financial instruments for speculative purposes. For the quarter ended December 31, 2005, we entered into derivative contracts with a total notional value of 40 million euros, with the intent of mitigating a certain portion of our euro operating exposure. As these contracts did not qualify for hedging treatment under FAS 133, these contracts resulted in a gain of approximately $0.2 million, which is included in other (gains)losses, net in the Consolidated Condensed Statement of Operations. As of December 31, 2005, we had no derivative contracts outstanding. In January 2006, the Company entered into similar derivative contracts as those entered during the quarter ended December 31, 2005.
Equity Price Risk
As of December 31, 2005, we had $28 million in investments in marketable equity securities of publicly traded companies. These securities were considered available-for-sale with any unrealized gains or temporary losses deferred as a component of stockholders’ equity.

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Item 4.
  CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, and the Company’s Audit and Compliance Committee and Board of Directors, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with participation of the Company’s Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q.
As previously disclosed in the Company’s amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005, the Company determined that, as of the end of the 2005 fiscal year, there were material weaknesses affecting its internal control over financial reporting and, as a result of those material weaknesses, the Company’s disclosure controls and procedures were not effective. As described below, the Company is in the process of remediating those material weaknesses. Consequently, based on the evaluation described above, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, have concluded that, as of the end of the third quarter of fiscal year 2006, the Company’s disclosure controls and procedures were not effective.
Changes in internal control over financial reporting
During the first quarter of fiscal year 2006, the Company was engaged in the assessment of its internal control over financial reporting for fiscal year 2005 as described below. The Company has made changes to its internal control over financial reporting, during the first three quarters of fiscal 2006 that address the material weakness as described below.
Changes under the DPA . As previously reported, and as described more fully in Note 7, “Commitments and Contingencies,” of the Notes to the Consolidated Financial Statements included in the Company’s amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005, in September 2004 the Company reached agreements with the USAO and SEC by entering into the DPA with the USAO and by consenting to the SEC’s filing of a Final Consent Judgment (Consent Judgment) in the United States District Court for the Eastern District of New York. The DPA requires the Company to, among other things, undertake certain reforms that will affect its internal control over financial reporting. These include implementing a worldwide financial and enterprise resource planning (ERP) information technology system to improve internal controls, reorganizing and enhancing the Company’s Finance and Internal Audit Departments, and establishing new records management policies and procedures.
The Company believes that these and other reforms, such as procedures to assure proper recognition of revenue, should enhance its internal control over financial reporting. For more information regarding the DPA, refer to the Company’s Current Report on Form 8-K filed with the SEC on September 22, 2004 and the exhibits thereto, including the DPA. For more information regarding the Company’s compliance with the DPA and the Consent Judgment, refer to the information under the heading “Status of the Company’s Compliance with the Deferred Prosecution Agreement and Final Consent Judgment” in the Company’s definitive proxy materials filed on July 26, 2005 and “Note J – Commitments and Contingencies – The Government Investigation” in the Notes to the Consolidated Condensed Financial Statements in this Quarterly Report on Form 10-Q.
Changes to remediate material weaknesses . As previously reported in its amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005, the Company determined that, as of the end of fiscal 2005, there were material weaknesses in its internal control over financial reporting relating to (1) improper accounting of credits attributable to software contracts executed under the Company’s prior business model, which resulted in financial statement restatements of prior years, (2) an ineffective control environment associated with its Europe, Middle East and Africa (EMEA) region businesses and (3) improper accounting

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for recording revenue from renewals of certain prior business model license agreements, which resulted in financial statement restatements of prior years.
As reported in the amended Annual Report for fiscal 2005, the Company began to make a number of changes in its internal control over financial reporting to remediate these material weaknesses. Many of these changes were made during the first quarter of fiscal year 2006 and continued through the third quarter of fiscal year 2006. The remediation effort is not yet completed, and it is the Company’s intention that the material weaknesses be fully remediated by the end of fiscal year 2006.
Management is committed to the rigorous enforcement of an effective control environment.
Specific remediation actions taken by management regarding the material weakness in internal control over financial reporting related to improper accounting of credits attributable to software contracts executed under the Company’s prior business model include the following:
    During the quarter ended June 30, 2005, the Company began maintaining a separate schedule of credits granted under software contracts executed under the Company’s prior business model;
 
    During the quarter ended June 30, 2005, the financial reporting department began quarterly reviews of utilized credits to determine the proper accounting for utilized credits that were originally granted under software contracts executed under the Company’s prior business model; and
 
    Beginning with the quarter ended June 30, 2005, management and internal audit began periodic testing of the completeness and accuracy of the credit schedule prepared by the sales accounting department and of all accounting entries related to the utilization of any such credits by the Company’s customers.
Specific remediation actions taken by management regarding the material weakness relating to the control environment associated with the EMEA region include the following:
    Disciplinary proceedings against members of management and other employees in the EMEA region, leading to their resignation or termination subsequent to March 31, 2005;
 
    The appointment of a new Head of Global Procurement in April 2005;
 
    The appointment of a new Head of Procurement for the EMEA region in June 2005;
 
    The appointment of a new General Manager for the EMEA region in June 2005;
 
    The appointment of a new Head of Facilities for the EMEA region in July 2005;
 
    The hiring of additional finance personnel, including a new controller for the UK in August 2005;
 
    The appointment of a new Chief Financial Officer for the EMEA region in January 2006.
 
    The initiation of changes to the roles and responsibilities, as well as reporting lines, of executives in charge of the EMEA region for more effective segregation of duties during the first nine months of fiscal year 2006; and
 
    Ongoing communications from senior management and provision of training to employees regarding the importance of the control environment, financial integrity, and the Company’s code of ethics.
Specific remediation actions taken by management during the third quarter of fiscal year 2006 regarding the material weakness relating to the accounting error in recording revenue from renewals of certain prior business model license agreements include the following:
    The Company completed an inventory of active prior business model contracts on a worldwide basis and established a central database to track such contracts;
 
    The Company revised its revenue recognition checklists to identify the renewal of any prior business model contracts for proper disposition; and

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    The Company began monitoring the renewal of prior business model license agreements to ensure that any remaining deferred maintenance and unamortized discounts are recognized ratably over the life of the new subscription based license agreement.
The remediation of the material weaknesses described above is ongoing. Management believes that its efforts, when fully implemented, will be effective in remediating such material weaknesses. In addition, management will continue to monitor the results of the remediation activities and test the new controls as part of its review of its internal control over financial reporting for fiscal 2006.
Other changes in internal controls over financial reporting. During the nine month period ended December 31, 2005, the Company has made improvements to its internal controls over financial reporting in light of findings made as a part of the annual assessment of such internal controls for fiscal year 2005 and the Company’s continued assessment activity for fiscal year 2006. These improvements include more comprehensive documentation of key control activities in the areas of income tax, financial reporting, software development, direct sales, indirect sales, accounts payable and professional services. The process is ongoing and the Company will continue to address items that require remediation, work to improve internal controls, and educate and train employees on controls and procedures in order to establish and maintain effective internal control over financial reporting.
As reported in “Note G — Acquisitions” in the Notes to the Consolidated Condensed Financial Statements in this Quarterly Report on Form 10-Q, the Company completed several acquisitions during the nine month period ended December 31, 2005. Upon completion of an acquisition, the Company begins the process of integrating the acquired entity into the Company’s accounting systems and processes. Thus, during the period prior to full integration, some transactions will continue to be processed pursuant to the acquired entity’s accounting systems and processes. As of December 31, 2005, the integration of iLumin, Niku and Concord had been substantially completed, with finalization expected to occur during the fourth quarter of fiscal year 2006. The Company does not believe the integration of these entities will have a material effect on its internal control over financial reporting.

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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Refer to Note J, “Commitments and Contingencies,” of the Consolidated Condensed Financial Statements for information regarding legal proceedings.
Item 1A. RISK FACTORS
Current and potential stockholders should consider carefully the risk factors described in more detail in our amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005, our Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and as set forth below. Any of these factors, or others, many of which are beyond our control, could negatively affect our revenue, profitability and cash flow.
We have entered into a Deferred Prosecution Agreement (DPA) with the U.S. Attorney’s Office for the Eastern District of New York (USAO) and a Final Consent Judgment with the SEC and if we violate either agreement we may be subject to, among other things, criminal prosecution or civil penalties which could adversely affect our credit ratings, stock price, ability to attract or retain employees and, therefore, our sales, revenue and client base.
Our agreements with the USAO and the SEC resolve their investigations into certain of our past accounting practices, including our revenue recognition policies and procedures, and obstruction of their investigations provided we comply with certain continuing requirements under these agreements. We describe some of these requirements below. (For more information about our agreements with the USAO and the SEC, see “Note 7 - Commitments and Contingencies” in the Notes to the Consolidated Condensed Financial Statements in our Annual Report on Form 10-K/A for the year ended March 31, 2005 as well as our Current Report on Form 8-K filed September 22, 2004.)
The DPA
If it is determined that we: deliberately gave false, incomplete or misleading information pursuant to the DPA; have committed any federal crimes subsequent to the DPA; or otherwise knowingly, intentionally, and materially violated any provision of the DPA, we shall be subject to prosecution for any federal criminal violation of which the USAO has knowledge. Any such prosecution may be based on information we have provided to the USAO, the SEC and other governmental agencies in connection with our cooperation under the DPA. This would include information provided because of our entry into the DPA that otherwise may not have been available to the USAO or may otherwise have been subject to privilege. Our continued cooperation with the USAO, the SEC, and the Independent Examiner (see below) pursuant to the DPA and Consent Judgment may lead to the discovery of additional information regarding the conduct of the Company, including members of former management in prior periods. We cannot predict the impact, if any, of any such information on our business, financial condition, results of operations, and cash flow.
The Final Consent Judgment with the SEC (the Consent Judgment)
Pursuant to the Consent Judgment, we are enjoined from violating a number of provisions of the federal securities laws. Any further violation of these laws could result in civil remedies, including sanctions, fines and penalties, which may be far more severe than if the violation had occurred without the Consent Judgment being in place. Additionally, if we breach the terms of the Consent Judgment, the SEC may petition the Court to vacate the Consent Judgment and restore the SEC’s original action to the active docket for all purposes. If the action were restored, the SEC could use information in the action that we have provided to the USAO, the SEC, and other governmental agencies in connection with our cooperation under the Consent Judgment. This would include information provided because of our entry into the Consent Judgment that otherwise may not have been available to the SEC or may otherwise have been subject to privilege.
General

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Under both the DPA and the Consent Judgment, we are obligated to undertake a number of internal reforms including but not limited to: adding new management and independent directors; establishing a Compliance Committee of the Board of Directors and an executive disclosure committee; establishing new comprehensive records management policies; taking steps to implement best practices regarding recognition of software license revenue; establishing a comprehensive compliance and ethics program; reorganizing our Finance and Internal Audit Departments; establishing a plan to improve communication with government agencies engaged in inquiries or investigations relating to the Company; enhancing our hotline for employees to report potential violations of the law or other misconduct; and agreeing to the appointment of an Independent Examiner, who is serving a term of 18 months (subject to extension by the USAO and the SEC), and is examining and issuing reports on our practices to the USAO, the SEC, and our Board of Directors beginning in September 2005 and quarterly thereafter. We have taken many steps to carry out these internal reforms (for more information about our reforms, see “Note J - Commitments and Contingencies” in the Notes to the Consolidated Condensed Financial Statements in this Quarterly Report on Form 10-Q). In the short-term, we cannot gauge what impact, if any, the adoption of these reforms (including the reports of the Independent Examiner) may have on our business, financial condition, results of operations, and cash flow and they may result in the diversion of management attention and employee resources from core business functions or opportunities.
If it were determined that we breached the terms of the DPA or Consent Judgment, we cannot predict the scope, timing, or outcome of the actions that would be taken by the USAO or the SEC. These actions could include the institution of administrative, civil injunctive, or criminal proceedings, the imposition of fines and penalties, which may be significant, suspensions or debarments from government product and/or services contracts, and other remedies and sanctions, any of which could lead to an adverse impact on our credit ratings and ability to obtain financing, an adverse impact on our stock price, loss of additional senior management, the inability to attract or retain key employees, and the loss of customers. In addition, our employees potentially could commit illegal acts which, under the law, may be ascribed to us under certain circumstances. We cannot predict what impact, if any, these matters may have on our business, financial condition, results of operations, and cash flow.
Moreover, under both the DPA and Consent Judgment, we are obligated to cooperate with the government in its ongoing investigations of past conduct. While we do not anticipate any further material adjustments to our financial statements for completed periods, the processes described above have not been fully completed, and we may be required to take additional remedial measures.
Any failure by us to execute our restructuring plan successfully could result in total costs and expenses that are greater than expected.
In July 2005, we announced a restructuring plan to increase efficiency and productivity and to more closely align our investments with strategic growth opportunities. The plan includes a workforce reduction of approximately five percent or 800 positions worldwide as well as facility and procurement rationalization. We may have further workforce reductions or restructuring actions in the future. Risks associated with these actions and other workforce management issues include delays in implementation of anticipated workforce reductions, changes in restructuring plans that increase or decrease the number of employees affected, decreases in employee morale and the failure to meet operational targets due to the loss of employees, any of which may impair our ability to achieve anticipated cost reductions or may otherwise harm our business.
If we do not successfully implement our enterprise resource planning software from SAP AG, our ability to manage and grow our business may be harmed.
It is anticipated that we will begin implementing in North America our recently licensed enterprise resource planning software from SAP AG in the first quarter of fiscal year 2007. Any delay in the implementation of, or disruption in the transition to this new system, procedures or controls, could potentially harm our ability to accurately forecast sales demand, manage our supply chain, achieve

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accuracy in the conversion of electronic data and records, report financial and management information on a timely and accurate basis, and could potentially constitute a breach of the terms of the DPA.

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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth, for the months indicated, our purchases of common stock in the third quarter of fiscal year 2006:
                                 
                            Approximate  
                    Total Number     Dollar Value  
                    of Shares     of Shares that  
                    Purchased as     May Yet Be  
    Total Number     Average     Part of Publicly     Purchased Under  
    of Shares     Price Paid     Announced Plans     the Plans  
Period   Purchased     per Share     or Programs     or Programs  
    (in thousands, except average price paid per share)  
October 1, 2005 — October 31, 2005
    1,725     $ 27.15       1,725     $ 294,799  
November 1, 2005 — November 30, 2005
    1,075       28.47       1,075     $ 264,176  
December 1, 2005 — December 31, 2005
    1,041       28.77       1,041     $ 234,210  
 
                           
Total
    3,841               3,841          
 
                           
Our corporate buyback program was originally announced in August 1990 and was subsequently amended by the Board of Directors from time to time to increase the number of shares of our common stock we have been authorized to purchase (the 1990 Program). In April 2005, the Board of Directors authorized the repurchase of up to $400 million in shares of Company stock during fiscal year 2006 (the Fiscal 2006 Program), subject to the share limits imposed under the 1990 Program. Repurchases during the fiscal 2006 period ended October 24, 2005 were made under the Fiscal 2006 Program. Effective October 25, 2005, the Board of Directors amended the Fiscal 2006 Program to authorize us to expend up to $600 million to repurchase shares of Company stock during fiscal year 2006, representing a $200 million increase in the amount previously authorized for expenditure in fiscal year 2006 for stock repurchases (the amended Fiscal 2006 Program). As part of the approval of the amended Fiscal 2006 Program, the Board of Directors terminated the 1990 Program and resolved that the Board of Directors would henceforth express its authorization to management to repurchase shares of Company stock only in dollars, and not in shares, as had been the case under the 1990 Program.

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Item 6.
  EXHIBITS
         
Regulation S-K        
Exhibit Number        
2
  Agreement and Plan of Merger, dated as of September 30, 2005, by and among iLumin Software Services, Inc., the Stockholders listed therein, Jonathan Perl as the Stockholders’ Representative, Computer Associates International, Inc. and Lost Ark Acquisition, Inc.   Previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated October 20, 2005 and incorporated herein by reference.
 
       
3.1
  Restated Certificate of Incorporation.   Filed herewith.
 
       
15.1
  Accountants’ acknowledgement letter.   Filed herewith.
 
       
31.1
  Certification of the CEO pursuant to §302 of the Sarbanes-Oxley Act of 2002.   Filed herewith.
 
       
31.2
  Certification of the CFO pursuant to §302 of the Sarbanes-Oxley Act of 2002.   Filed herewith.
 
       
32
  Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002.   Filed herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
             
    CA, INC.    
 
           
Dated: February 8, 2006
  By:   /s/ ROBERT W. DAVIS    
 
           
 
      Robert W. Davis    
 
      Executive Vice President and    
 
      Chief Financial Officer    
 
      (as Principal Financial and Accounting Officer)    

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EXHIBIT INDEX
         
Regulation S-K        
Exhibit Number        
2
  Agreement and Plan of Merger, dated as of September 30, 2005, by and among iLumin Software Services, Inc., the Stockholders listed therein, Jonathan Perl as the Stockholders’ Representative, Computer Associates International, Inc. and Lost Ark Acquisition, Inc.   Previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated October 20, 2005 and incorporated herein by reference.
 
       
3.1
  Restated Certificate of Incorporation.   Filed herewith.
 
       
15.1
  Accountants’ acknowledgement letter.   Filed herewith.
 
       
31.1
  Certification of the CEO pursuant to §302 of the Sarbanes-Oxley Act of 2002.   Filed herewith.
 
       
31.2
  Certification of the CFO pursuant to §302 of the Sarbanes-Oxley Act of 2002.   Filed herewith.
 
       
32
  Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002.   Filed herewith.

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Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
CA, INC.
(amended as of February 1, 2006)
      FIRST : The name of the corporation (hereinafter called the “corporation”) is CA, INC.
      SECOND : The address, including street, number, city, and county, of the registered office of the corporation in the State of Delaware is 1013 Centre Road, New Castle County, Wilmington, Delaware 19805, and the name of the registered agent of the corporation in the State of Delaware at such address is United States Corporation Company.
      THIRD : The nature of the business and of the purposes to be conducted and promoted by the corporation, which shall be in addition to the authority of the corporation to conduct any lawful business, to promote any lawful purpose, and to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, is as follows:
     To provide services, facilities, concepts, programs, manuals and equipment of any and all kinds in the fields of electronic data processing and the sales, licensing, franchising and any other disposition of computer hardware, software, peripherals and related supplies, equipment and facilities. To purchase, receive, take by grant, gift, devise, bequest or otherwise, lease, or otherwise acquire, own, hold, improve, employ, use and otherwise deal in and with real or personal property, or any interest therein, wherever situated, and to sell, convey, lease, exchange, transfer or otherwise dispose of, or mortgage or pledge, all or any of its property and assets, or any interest therein, wherever situated.
     To take, lease, purchase or otherwise acquire, and to own, use, hold, sell, convey, exchange, lease, mortgage, work, clear, improve, develop, divide, and otherwise handle, manage, operate, deal in and dispose of real estate, real property, lands, multiple-dwelling structures, houses, buildings and other works and any interest or right therein; to take, lease, purchase or otherwise acquire, and to own, use, hold, sell, convey, exchange, hire, lease, pledge, mortgage, and otherwise handle, and deal in and dispose of, as principal, agent, broker, and in any lawful capacity, such personal property, chattels, chattels real, rights, easements, privileges, choses in action, notes, bonds, mortgages, and securities as may lawfully be acquired, held, or disposed of; and to acquire, purchase, sell, assign, transfer, dispose of, and generally deal in and with, as principal, agent, broker, and in any lawful capacity, mortgages and other interests in real, personal, and mixed properties.

 


 

     To carry on a general mercantile, industrial, investing, and trading business in all its branches; to devise, invent, manufacture, fabricate, assemble, install, service, maintain, alter, buy, sell, import, export, license as licensor or licensee, lease as lessor or lessee, distribute, job, enter into, negotiate, execute, acquire, and assign contracts in respect of, acquire, receive, grant, and assign licensing arrangements, options, franchises, and other rights in respect of, and generally deal in and with, at wholesale and retail, as principal, and as sales, business, special, or general agent, representative, broker, factor, merchant, distributor, jobber, advisor, and in any other lawful capacity, goods, wares, merchandise, commodities, and unimproved, improved, finished, processed, and other real, personal, and mixed property of any and all kinds, together with the components, resultants, and by-products thereof.
     To apply for, register, obtain, purchase, lease, take licenses in respect of or otherwise acquire, and to hold, own, use, operate, develop, enjoy, turn to account, grant licenses and immunities in respect of, manufacture under and to introduce, sell, assign, mortgage, pledge or otherwise dispose of, and, in any manner deal with and contract with reference to:
     (a) inventions, devices, formulas, processes and improvements and modifications thereof;
     (b) letters patent, patent rights, patented processes, copyrights, designs, and similar rights, trade-marks, trade names, trade symbols and other indications of origin and ownership granted by or recognized under the laws of the United States of America, the District of Columbia, any state or subdivision thereof, and any commonwealth, territory, possession, dependency, colony, possession, agency or instrumentality of the United States of America and of any foreign country, and all rights connected therewith or appertaining thereunto;
     (c) franchises, licenses, grants, and concessions.
     To guarantee, purchase, take, receive, subscribe for, and otherwise acquire, own, hold, use, and otherwise employ, sell, lease, exchange, transfer, and otherwise dispose of, mortgage, lend, pledge, and otherwise deal in and with securities (which term, for the purpose of this Article THIRD, includes, without limitation of the generality thereof, any shares of stock, bonds, debentures, notes, mortgages, other obligations, and any certificates, receipts or other instruments representing rights to receive, purchase or subscribe for the same, or representing any other rights or interests therein or in any property or assets) of any persons, domestic and foreign firms, associations, and corporations, and by any government or agency or instrumentality thereof; to make payment therefor in any lawful manner; and, while owner of any such securities, to exercise any and all rights, powers and privileges in respect thereof, including the right to vote.

 


 

     To make, enter into, perform and carry out contracts of every kind and description with any person, firm, association, corporation or government or agency or instrumentality thereof.
     To acquire by purchase, exchange or otherwise, all, or any part of, or any interest in, the properties, assets, business and good will of any one or more persons, firms, associations or corporations heretofore or hereafter engaged in any business for which a corporation may now or hereafter be organized under the laws of the State of Delaware; to pay for the same in cash, property or its own or other securities; to hold, operate, reorganize, liquidate, sell or in any manner dispose of the whole or any part thereof; and in connection therewith, to assume or guarantee performance of any liabilities, obligations or contracts of such persons, firms, associations or corporations, and to conduct the whole or any part of any business thus acquired.
     To lend money in furtherance of its corporate purposes and to invest and reinvest its funds from time to time to such extent, to such persons, firms, associations, corporations, governments or agencies or instrumentalities thereof, and on such terms and on such security, if any, as the Board of Directors of the corporation may determine.
     To make contracts of guaranty and suretyship of all kinds and endorse or guarantee the payment of principal, interest or dividends upon, and to guarantee the performance of sinking fund or other obligations of, any securities, and to guarantee in any way permitted by law the performance of any of the contracts or other undertakings in which the corporation may otherwise be or become interested, of any persons, firm, association, corporation, government or agency or instrumentality thereof, or of any other combination, organization or entity whatsoever.
     To borrow money without limit as to amount and at such rates of interest as it may determine; from time to time to issue and sell its own securities, including its shares of stock, notes, bonds, debentures, and other obligations, for such purposes and for such prices, now or hereafter permitted by the laws of the State of Delaware and by this certificate of incorporation, as the Board of Directors of the corporation may determine; and to secure any of its obligations by mortgage, pledge, or other encumbrance of all or any of its property, franchises and income.
     To be a promoter or manager of other corporations of any type or kind; and to participate with others in any corporation, partnership, limited partnership, joint venture, or other association of any kind, or in any transaction, undertaking or arrangement which the corporation would have power to conduct by itself, whether or not such participation involves sharing or delegation of control with or to others.

 


 

     To draw, make, accept, endorse, discount, execute, and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments and evidences of indebtedness whether secured by mortgage or otherwise, as well as to secure the same by mortgage or otherwise, so far as may be permitted by the laws of the State of Delaware.
     To purchase, receive, take, reacquire or otherwise acquire, own and hold, sell, lend, exchange, reissue, transfer or otherwise dispose of, pledge, use, cancel, and otherwise deal in and with its own shares and its other securities from time to time to such an extent and in such manner and upon such terms as the Board of Directors of the corporation shall determine; provided that the corporation shall not use its funds or property for the purchase of its own shares of capital stock when its capital is impaired or when such use would cause any impairment of its capital, except to the extent permitted by law.
     To organize, as an incorporator, or cause to be organized under the laws of the State of Delaware, or of any other State of the United States of America, or of the District of Columbia, or of any commonwealth, territory, dependency, colony, possession, agency, or instrumentality of the United States of America, or of any foreign country, a corporation or corporations for the purpose of conducting and promoting any business or purpose for which corporations may be organized, and to dissolve, wind up, liquidate, merge or consolidate any such corporation or corporations or to cause the same to be dissolved, wound up, liquidated, merged or consolidated.
     To conduct its business, promote its purposes, and carry on its operations in any and all of its branches and maintain offices both within and without the State of Delaware, in any and all States of the United States of America, in the District of Columbia, and in any or all commonwealths, territories, dependencies, colonies, possessions, agencies, or instrumentalities of the United States of America and of foreign governments.
     To promote and exercise all or any part of the foregoing purposes and powers in any and all parts of the world, and to conduct its business in all or any of its branches as principal, agent, broker, factor, contractor, and in any other lawful capacity, either alone or through or in conjunction with any corporations, associations, partnerships, firms, trustees, syndicates, individuals, organizations, and other entities in any part of the world, and, in conducting its business and promoting any of its purposes, to maintain offices, branches and agencies in any part of the world, to make and perform any contracts and to do any acts and things, and to carry on any business, and to exercise any powers and privileges suitable, convenient, or proper for the conduct, promotion, and attainment of any of the business and purposes herein specified or which at any time may be incidental thereto or may appear conducive to or expedient for the accomplishment of any of such business and purposes and which might be engaged in or carried on by a corporation incorporated or organized under the General Corporation Law of the

 


 

State of Delaware, and to have and exercise all of the powers conferred by the laws of the State of Delaware upon corporations incorporated or organized under the General Corporation Law of the State of Delaware.
     The foregoing provisions of this Article THIRD shall be construed both as purposes and powers and each as an independent purpose and power. The foregoing enumeration of specific purposes and powers shall not be held to limit or restrict in any manner the purposes and powers of the corporation, and the purposes and powers herein specified shall, except when otherwise provided in this Article THIRD, be in no wise limited or restricted by reference to, or inference from, the terms of any provision of this or any other Article of this certificate of incorporation; provided, that the corporation shall not conduct any business, promote any purpose, or exercise any power or privilege within or without the State of Delaware which, under the laws thereof, the corporation may not lawfully conduct, promote, or exercise.
      FOURTH : 4.1 The total number of shares of all classes of capital stock which the corporation shall have authority to issue is one billion one hundred ten million (1,110,000,000 shares) of which ten million (10,000,000) shares shall be Preferred Stock, Class A without par value, issuable in one or more series, and one billion one hundred million (1,100,000,000) shares will be Common Stock, par value $.10 per share.
     4.2 The Board of Directors is hereby expressly authorized, at any time or from time to time, to divide any or all of the shares of Preferred Stock, Class A, into one or more series, and in the resolution or resolutions establishing a particular series, before issuance of any of the shares thereof, to fix and determine the number of shares and the designation of such series so as to distinguish it from the shares of all other series and classes, and to fix and determine the preferences, voting rights, qualifications, privileges, limitations, options, conversion rights, restrictions and other special or relative rights of the Preferred Stock, Class A, or of such series to the fullest extent now or hereafter permitted by the laws of the State of Delaware, including, but not limited to, the variations between different series in the following respects:
     (a) The distinctive designation of such series and the number of shares which shall constitute such series, which number may be increased or reduced (but not below the number of shares thereof then outstanding) from time to time by the Board of Directors;
     (b) The annual dividend rate for such series, and the date or dates from which dividends shall commence to accrue;
     (c) The price or prices at which, and the terms and conditions on which the shares of such series may be made redeemable;
     (d) The purchase or sinking fund provision, if any, for the purchase or redemption of shares of such series;

 


 

     (e) The preferential amount or amounts payable upon shares of such series in the event of the liquidation, dissolution or winding up of the corporation;
     (f) The voting rights, if any, of shares of such series;
     (g) The terms and conditions, if any, upon which shares of such series may be converted and the class or classes or series of shares of the corporation, or other securities, into which such shares may be converted; or
     (h) The relative terms, qualifications, privileges, limitations, options, restrictions, and special or relative rights and preferences, if any, of shares of such series as the Board of Directors may, at the time of such resolution or resolutions, lawfully fix and determine under the laws of the State of Delaware.
     Unless otherwise provided in a resolution or resolutions establishing any particular series, the aggregate number of authorized shares of Preferred Stock, Class A, may be increased by an amendment of the Certificate of Incorporation approved solely by a majority vote of the outstanding shares of Common Stock (or solely with a lesser vote of the Common Stock, or solely by action of the Board of Directors, if permitted by law at the time).
     All shares of any one series shall be alike in every particular, except with respect to the accrual of dividends prior to the date of issuance.
     Series One Junior Participating Preferred Stock, Class A, shall have the voting powers, preferences and relative, participating, optional or other rights, if any, or the qualifications, limitations or restrictions as set forth on Exhibit A hereto.
     4.3 Except for and subject to those rights expressly granted to the holders of Preferred Stock or any series thereof by resolution or resolutions adopted by the Board of Directors pursuant to Section 4.2 of this Article Fourth and except as may be provided by the laws of the State of Delaware, the holders of Common Stock shall have exclusively all other rights of shareholders.
     4.4 Shares of Common Stock of the corporation may be issued from time to time for such consideration as may be fixed from time to time by the Board of Directors, but not less than the par value thereof; and any and all shares so issued, the full consideration for which shall have been paid and delivered, shall be deemed fully paid and non-assessable stock and not liable to any further call or assessment thereon.
      FIFTH: The corporation is to have perpetual existence.
      SIXTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor

 


 

or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.
      SEVENTH : For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided:
     1. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by, or in the manner provided in, the By Laws. The phrase Whole Board and the phrase total number of directors shall be deemed to have the same meaning, to wit, the total number of directors which the corporation would have if there were no vacancies. No election of directors need be by written ballot.
     2. The original By Laws of the corporation shall be adopted by the incorporator. Thereafter, the power to make, alter, or repeal, the By Laws, and to adopt any new By Law, except a By Law classifying directors for election for staggered terms, shall be vested in the Board of Directors.
     3. Whenever the corporation shall be authorized to issue only one class of stock, each outstanding share shall entitle the holder thereof to notice of, and the right to vote at, any meeting of stockholders. Whenever the corporation shall be authorized to issue more than one class of stock, no outstanding share of any class of stock which is denied voting power under the provisions of the certificate of incorporation shall entitle the holder thereof to the right to vote at any meeting of stockholders except as the provisions of Paragraph (c)(2) of Section 242 of the General Corporation Law shall otherwise require; provided, that no share of any such class which is otherwise denied voting power shall entitle the holder thereof to vote upon the increase or decrease in the number of authorized shares of said class.

 


 

      EIGHTH : The corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein, shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
      NINTH : From time to time any of the provisions of this certificate of incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this certificate of incorporation are granted subject to the provisions of this Article NINTH.
      TENTH : No director shall be personally liable to the corporation or its shareholders for monetary damages for any breach of fiduciary duty by such director as a director, except (i) for breach of the director’s duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of Delaware is amended after approval by the shareholders of this article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the full extent permitted by the General Corporation Law of Delaware, as so amended.
     Any repeal or modification of the foregoing paragraph by the shareholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification.

 


 

EXHIBIT A
CERTIFICATE OF DESIGNATION
OF
SERIES ONE JUNIOR PARTICIPATING PREFERRED STOCK, CLASS A
OF
COMPUTER ASSOCIATES INTERNATIONAL, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
     Computer Associates International, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the “Corporation”), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on June 18, 1991:
     RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the Board of Directors or the Board) in accordance with the provisions of the Restated Certificate of Incorporation, as amended, of the Corporation, the Board of Directors hereby creates a series of Preferred Stock, Class A, without par value (the Preferred Stock) of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences, and imitations thereof as follows:
     Series One Junior Participating Preferred Stock, Class A
     Section 1. Designation and Amount . The shares of such series shall be designated as Series One Junior Participating Preferred Stock, Class A (the Series One Preferred Stock) and the number of shares constituting the Series One Preferred Stock shall be Five Hundred Thousand (500,000). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series One Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series One Preferred Stock.
     Section 2. Dividends and Distributions .
     (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any other stock) ranking prior and superior to the Series One Preferred Stock with respect to dividends, the holders of shares of Series One Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, dividends in an amount per share (rounded to the nearest cent), equal to 1,000 times the aggregate per share amount of all cash dividends declared on the Common Stock, par value $.10 per share (the Common Stock), and 1,000 times the

 


 

aggregate per share amount (payable in kind) of all non-cash dividends or other distributions declared on the Common Stock, other than a dividend payable in shares of Common Stock, or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise). Any such dividend on the Preferred Stock shall be payable on the same date as any dividend payable with respect to the Common Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series One Preferred Stock were entitled immediately prior to such event under the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
     (B) The Corporation shall declare a dividend or distribution on the Series One Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock).
     (C) The Board of Directors may fix a record date for the determination of holders of shares of Series One Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be the same date as the record date for the determination of shares of Common Stock entitled to receive payment of a dividend or distribution thereon and shall be not more than 60 days prior to the date fixed for the payment thereof.
     Section 3. Voting Rights . The holders of shares of Series One Preferred Stock shall have the following voting rights:
     (A) Subject to the provision for adjustment hereinafter set forth, each share of Series One Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series One Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

 


 

     (B) Except as otherwise provided herein, in any other Certificate of Designation creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series One Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.
     (C) Except as set forth herein, or as otherwise provided by law, holders of Series One Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.
     Section 4. Certain Restrictions . (A) Whenever semi-annual or quarterly dividends or other dividends or distributions payable on the Series One Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series One Preferred Stock outstanding shall have been paid in full, the Corporation shall not:
     (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series One Preferred Stock;
     (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series One Preferred Stock, except dividends paid ratably on the Series One Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or
     (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series One Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series One Preferred Stock.
     (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under Paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.
     Section 5. Reacquired Shares . Any shares of Series One Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be

 


 

reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Restated Certificate of Incorporation, or in any other Certificate of Designation creating a series of Preferred Stock or any similar stock or as otherwise required by law.
     Section 6. Liquidation, Dissolution or Winding Up .
     (A) Upon any liquidation, dissolution or winding up of the Corporation, the holders of shares of Series One Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any assets of the Corporation to the holders of Common Stock, the amount of $1,000.00 per share for each share of Series One Preferred Stock then held by them. Thereafter, the holders of shares of Series One Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock plus an amount equal to any accrued and unpaid dividends. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series One Preferred Stock were entitled immediately prior to such event under the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
     (B) If the assets of the Corporation legally available for distribution to the holders of shares of Series One Preferred Stock upon liquidation, dissolution or winding up of the Corporation are insufficient to pay the full preferential amount set forth in the first sentence of paragraph (A) above, then the entire assets of the Corporation legally available for distribution to the holders of Series One Preferred Stock shall be distributed among such holders in proportion to the shares of Series One Preferred Stock then held by them.
     (C) The foregoing rights upon liquidation, dissolution or winding up provided to the holders of Series One Preferred Stock shall be subject to the rights of the holders of any other series of Preferred Stock (or any other stock) ranking prior and superior to the Series One Preferred Stock upon liquidation, dissolution or winding up.
     Section 7. Consolidation, Merger, etc . In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or other property, then in any such case each share of Series One Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount

 


 

of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchange. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series One Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
     Section 8. No Redemption . The shares of Series One Preferred Stock shall not be redeemable.
     IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation by its President and attested by its Secretary this 18th Day of June, 1991.
         
  Company:

COMPUTER ASSOCIATES INTERNATIONAL, INC.
 
 
  By:   /s/Anthony W. Wang    
    Anthony W. Wang, President  
         
ATTEST:    
 
       
BY:
  /s/ Belden A. Frease    
         
 
  Belden A. Frease, Secretary    

 

 

Exhibit 15.1
February 8, 2006
CA, Inc.
One CA Plaza
Islandia, New York 11749
Re: Registration Statement Nos. 333-127602, 333-127601, 333-120849, 333-126273, 333-108665, 333-100896, 333-88916, 333-32942, 333-31284, 333-83147, 333-80883, 333-79727, 333-62055, 333-19071, 333-04801, 33-64377, 33-53915, 33-53572, 33-34607, 33-18322, 33-20797, 33-30347, 33-35515, 2-92355, 2-87495 and 2-79751 on Form S-8
With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated February 8, 2006 related to our review of interim financial information. As discussed in Note D to the consolidated condensed financial statements, the Company has restated the consolidated condensed balance sheet at March 31, 2005, the consolidated condensed statements of operations for the three-month and nine-month periods ended December 31, 2004 and the consolidated condensed statement of cash flows for the nine-month period ended December 31, 2004 to reflect the Company’s adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” on April 1, 2005 under the modified retrospective application method and to reflect the effects of certain prior period restatements that were previously disclosed in Note 12 of the consolidated financial statements in the Company’s Form 10-K/A for the fiscal year ended March 31, 2005.
Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an accountant, or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act.
/s/ KPMG LLP
New York, New York

 

 

Exhibit 31.1
CEO CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John A. Swainson, certify that:
1.   I have reviewed this Quarterly Report on Form 10-Q of CA, Inc.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
Date: February 8, 2006
  By:   /s/ John A. Swainson
 
       
 
      John A. Swainson
 
      President and Chief Executive Officer

 

 

Exhibit 31.2
CFO CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert W. Davis, certify that:
1.   I have reviewed this Quarterly Report on Form 10-Q of CA, Inc.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
Date: February 8, 2006
  By:   /s/ Robert W. Davis
 
       
 
      Robert W. Davis
Executive Vice President and Chief Financial Officer

 

 

Exhibit 32
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report on Form 10-Q of CA, Inc., a Delaware corporation (the “Company”), for the quarterly period ended December 31, 2005 as filed with the Securities and Exchange Commission (the “Report”), each of John A. Swainson, President and Chief Executive Officer of the Company, and Robert W. Davis, Executive Vice President and Chief Financial Officer of the Company, hereby certifies, pursuant to §906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350), that to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
   
/s/ John A. Swainson
   
     
John A. Swainson
President and Chief Executive Officer
February 8, 2006
   
 
   
/s/ Robert W. Davis
   
     
Robert W. Davis
Executive Vice President and Chief Financial Officer
February 8, 2006
   
The foregoing certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that Section. The foregoing certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.