CA Technologies
CA, INC. (Form: 10-Q, Received: 02/06/2007 06:03:00)
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, 2006
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
incorporation or organization)
  (I.R.S. Employer Identification Number)
     
One CA Plaza
Islandia, New York
  11749
(Address of principal executive offices)   (Zip Code)
(631) 342-6000
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to 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
par value $0.10 per share
  as of January 26, 2007
527,359,252
 
 

 


 

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, 2006 and March 31, 2006   2
 
       
 
  Consolidated Condensed Statements of Operations – Three and Nine Months Ended December 31, 2006 and 2005 (restated)   3
 
       
 
  Consolidated Condensed Statements of Cash Flows – Nine Months Ended December 31, 2006 and 2005 (restated)   4
 
       
 
  Notes to the Consolidated Condensed Financial Statements   5
 
       
  Management’s Discussion and Analysis of Financial Condition and Results of Operations    
 
       
 
  Quarterly Update   29
 
       
 
  Performance Indicators   30
 
       
 
  Results of Operations   32
 
       
 
  Liquidity and Capital Resources   40
 
       
 
  Outlook   49
 
       
 
  Critical Accounting Policies and Business Practices   50
 
       
  Quantitative and Qualitative Disclosures About Market Risk   57
 
       
  Controls and Procedures   58
 
       
  Other Information    
 
       
  Legal Proceedings   61
 
       
  Risk Factors   61
 
       
  Unregistered Sales of Equity Securities and Use of Proceeds   62
 
       
  Defaults Upon Senior Securities   62
 
       
  Submission of Matters to Vote of Security Holders   62
 
       
  Other Information   62
 
       
  Exhibits   63
 
       
 
  Signatures   64
  EX-10.1: AMENDED AND RESTATED EXECUTIVE DEFERRED COMPENSATION PLAN
  EX-15.1: ACCOUNTANTS' ACKNOWLEDGEMENT LETTER
  EX-31.1: CERTIFICATION
  EX-31.2: CERTIFICATION
  EX-32: CERTIFICATION

 


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, 2006, the related consolidated condensed statements of operations for the three-month and nine-month periods ended December 31, 2006 and 2005, and the consolidated condensed statements of cash flows for the nine-month periods ended December 31, 2006 and 2005. 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, 2006, 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 July 31, 2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of March 31, 2006, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
As discussed in Note A to the consolidated condensed financial statements, the Company has restated the consolidated condensed statements of operations for the three-month and nine-month periods ended December 31, 2005 and the consolidated condensed statement of cash flows for the nine-month period ended December 31, 2005 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 for the fiscal year ended March 31, 2006.
New York, New York
February 5, 2007

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Item 1. Consolidated Condensed Financial Statements.
CA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
(in millions)
                 
    December 31,     March 31,  
    2006     2006  
ASSETS
               
CURRENT ASSETS
               
Cash and cash equivalents
  $ 1,833     $ 1,831  
Marketable securities
    9       34  
Trade and installment accounts receivable, net
    290       505  
Deferred income taxes
    477       260  
Other current assets
    66       50  
 
           
TOTAL CURRENT ASSETS
    2,675       2,680  
Installment accounts receivable, due after one year, net
    344       449  
Property and equipment, net
    469       634  
Purchased software products, net
    273       461  
Goodwill, net
    5,366       5,308  
Deferred income taxes
    160       158  
Other noncurrent assets
    822       788  
 
           
TOTAL ASSETS
  $ 10,109     $ 10,478  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES
               
Current portion of long-term debt and loans payable
  $ 10     $ 3  
Accounts payable
    187       277  
Salaries, wages, and commissions
    275       292  
Accrued expenses and other current liabilities
    492       504  
Deferred subscription revenue (collected) — current
    1,437       1,492  
Financing obligations (collected) — current
    71       25  
Deferred maintenance revenue
    198       250  
Taxes payable, other than income taxes payable
    85       129  
Federal, state, and foreign income taxes payable
    576       370  
Deferred income taxes
    33       32  
 
           
TOTAL CURRENT LIABILITIES
    3,364       3,374  
Long-term debt, net of current portion
    2,575       1,813  
Deferred income taxes
    15       39  
Deferred subscription revenue (collected) — noncurrent
    412       423  
Financing obligations (collected) — noncurrent
    49       25  
Other noncurrent liabilities
    70       77  
 
           
TOTAL LIABILITIES
    6,485       5,751  
 
           
STOCKHOLDERS’ EQUITY
               
Preferred stock, no par value, 10,000,000 shares authorized; No shares issued and outstanding
           
Common stock, $0.10 par value, 1,100,000,000 shares authorized; 589,695,081 shares and 630,920,596 shares issued, respectively
    59       63  
Additional paid-in capital
    3,489       4,542  
Retained earnings
    1,821       1,750  
Accumulated other comprehensive loss
    (120 )     (134 )
Unearned compensation
    (3 )     (6 )
Treasury stock, at cost, 65,419,458 shares and 59,167,446 shares, respectively
    (1,622 )     (1,488 )
 
           
TOTAL STOCKHOLDERS’ EQUITY
    3,624       4,727  
 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 10,109     $ 10,478  
 
           
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  
    2006     2005     2006     2005  
 
          (restated)           (restated)
REVENUE
                               
 
                               
Subscription revenue
  $ 773     $ 717     $ 2,274     $ 2,123  
Maintenance
    100       104       306       317  
Software fees and other
    30       49       80       127  
Financing fees
    6       11       20       38  
Professional services
    93       84       258       225  
 
                       
TOTAL REVENUE
    1,002       965       2,938       2,830  
 
                               
EXPENSES
                               
 
                               
Amortization of capitalized software costs
    83       111       271       335  
Cost of professional services
    81       66       228       187  
Selling, general, and administrative
    403       400       1,240       1,164  
Product development and enhancements
    176       171       533       522  
Commissions, royalties, and bonuses
    92       118       235       248  
Depreciation and amortization of other intangible assets
    36       33       107       95  
Other expenses/(gains), net
    4       (10 )     (13 )     (17 )
Restructuring and other
    32       21       101       66  
Charge for in-process research and development costs
                10       18  
 
                       
TOTAL EXPENSES BEFORE INTEREST AND TAXES
    907       910       2,712       2,618  
 
                               
Income before interest and taxes
    95       55       226       212  
Interest expense, net
    25       12       45       31  
 
                       
 
                               
Income before income taxes
    70       43       181       181  
Income tax expense (benefit)
    18       (13 )     40       (18 )
 
                       
 
                               
INCOME FROM CONTINUING OPERATIONS
    52       56       141       199  
 
                               
Income (loss) from discontinued operations, inclusive of realized gain (loss) on sale, net of income taxes
    (2 )     1       (3 )     1  
 
                       
 
                               
NET INCOME
  $ 50     $ 57     $ 138     $ 200  
 
                       
 
                               
BASIC INCOME PER SHARE
                               
 
                               
Income from continuing operations
  $ 0.10     $ 0.10     $ 0.26     $ 0.34  
Discontinued operations
                (0.01 )      
 
                       
Net income
  $ 0.10     $ 0.10     $ 0.25     $ 0.34  
 
                       
 
                               
Basic weighted average shares used in computation
    524       579       551       583  
 
                               
DILUTED INCOME PER SHARE
                               
 
                               
Income from continuing operations
  $ 0.10     $ 0.09     $ 0.25     $ 0.33  
Discontinued operations
    (0.01 )     0.01              
 
                       
Net income
  $ 0.09     $ 0.10     $ 0.25     $ 0.33  
 
                       
 
                               
Diluted weighted average shares used in computation
    549       606       575       610  
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,  
    2006     2005  
            (restated)  
OPERATING ACTIVITIES:
               
Net income
  $ 138     $ 200  
Discontinued operations, net of income taxes
    3       (1 )
 
           
Income from continuing operations
    141       199  
Adjustments to reconcile income from continuing operations to net cash provided by continuing operating activities:
               
Depreciation and amortization
    378       430  
Provision for deferred income taxes
    (335 )     (257 )
Non-cash compensation expense related to stock and defined contribution plans
    84       96  
Non-cash charge for purchased in-process research and development
    10       18  
Gain on sale of assets
    (14 )     (8 )
Foreign currency transaction loss (gain) – before taxes
    1       (10 )
Changes in other operating assets and liabilities, net of effect of acquisitions:
               
Decrease in trade and current installment accounts receivable, net
    283       232  
Decrease in noncurrent installment accounts receivable, net
    75       102  
Decrease in deferred subscription revenue (collected) – current
    (112 )     (129 )
Decrease in deferred subscription revenue (collected) – noncurrent
    (24 )     (11 )
Increase in financing obligations (collected) – current
    46       14  
Increase in financing obligations (collected) – noncurrent
    24       16  
Decrease in deferred maintenance revenue
    (63 )     (27 )
Increase in taxes payable, net
    165       56  
(Decrease) increase in accounts payable, accrued expenses and other
    (115 )     141  
Restitution fund payment
          (75 )
Restructuring and other, net
    67       41  
Changes in other operating assets and liabilities
    (64 )     (14 )
 
           
NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES
    547       814  
INVESTING ACTIVITIES:
               
Acquisitions, primarily goodwill, purchased software, and other intangible assets, net of cash acquired
    (173 )     (680 )
Settlements of purchase accounting liabilities
    (18 )     (30 )
Purchases of property and equipment
    (118 )     (111 )
Proceeds from sale of assets
    218       41  
Proceeds from sales of marketable securities
    44       301  
Increase in restricted cash
    (1 )     (3 )
Capitalized software development costs
    (58 )     (65 )
 
           
NET CASH USED IN INVESTING ACTIVITIES
    (106 )     (547 )
FINANCING ACTIVITIES:
               
Dividends paid
    (67 )     (70 )
Purchases of common stock
    (1,214 )     (367 )
Borrowings (repayments) of debt
    748       (911 )
Exercise of common stock options and other
    24       105  
 
           
NET CASH USED IN FINANCING ACTIVITIES
    (509 )     (1,243 )
DECREASE IN CASH AND CASH EQUIVALENTS BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH
    (68 )     (976 )
Effect of exchange rate changes on cash
    70       (91 )
 
           
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    2       (1,067 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    1,831       2,829  
 
           
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 1,833     $ 1,762  
 
           
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, 2006
NOTE A – BASIS OF PRESENTATION
The accompanying unaudited Consolidated Condensed Financial Statements of CA, Inc. and subsidiaries (the Company) 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 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, 2006 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2007. For further information, refer to the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006.
The Consolidated Condensed Statements of Operations for the three and nine-month periods ended December 31, 2005 and the Consolidated Condensed Statement of Cash Flows for the nine month period ended December 31, 2005, included in this Form 10-Q have been restated 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 Annual Report on Form 10-K for the fiscal year ended March 31, 2006.
The following tables summarize the Consolidated Statements of Operations and Cash Flows for the periods indicated, giving effect to the restatement adjustments described above. Quarterly information presented below is unaudited.
FISCAL YEAR 2006 UNAUDITED QUARTERLY STATEMENT OF OPERATIONS DATA
                                 
    For the Three Months     For the Nine Months  
    Ended December 31, 2005     Ended December 31, 2005  
    Previously             Previously        
    Reported (1)(2)     Restated (2)     Reported (1)(2)     Restated (2)  
            (unaudited)          
            (in millions, except per share data)          
Subscription revenue
  $ 713     $ 717     $ 2,104     $ 2,123  
Total revenue
    961       965       2,811       2,830  
Selling, general, and administrative
    400       400       1,162       1,164  
Product development and enhancements
    171       171       521       522  
Commissions, royalties, and bonuses
    87       118       217       248  
Total expenses before interest and taxes
    879       910       2,584       2,618  
Income from continuing operations before interest and taxes
    82       55       227       212  
Income from continuing operations before income taxes
    70       43       196       181  
Income tax (benefit) expense
    12       (13 )     3       (18 )
Income from continuing operations
    58       56       193       199  
Net income
    59       57       194       200  
Basic income per share from continuing operations
    0.10       0.10       0.33       0.34  
Diluted income per share from continuing operations
    0.10       0.09       0.32       0.33  
 
(1)   As reported in the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2005
 
(2)   Previously reported and restated information have also been adjusted for the effects of discontinued operations

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
FISCAL YEAR 2006 UNAUDITED QUARTERLY CASH FLOW STATEMENT DATA
                 
    For the Nine Months
Ended December 31, 2005
 
    Previously        
    Reported (1)(2)     Restated (2)  
    (unaudited)  
    (in millions)  
Net income
  $ 194     $ 200  
Provision for deferred income taxes
    (262 )     (257 )
Non-cash compensation expense related to stock and
               
defined contribution plans
    93       96  
Decrease in noncurrent installment accounts receivable, net
    121       102  
 
(1)   As reported in the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2005
     
(2)    Previously reported and restated information has also been adjusted for the effects of discontinued operations
Reclassifications and other adjustments: Certain prior year balances have been reclassified to conform with the current period’s presentation.
Approximately $134 million of current liabilities that were components of “Accounts payable” at March 31, 2006 have been reclassified to “Accrued expenses and other current liabilities” on the Consolidated Condensed Balance Sheet to conform to the December 31, 2006 presentation.
Approximately $5 million of capital lease obligations that were components of “Accrued expenses and other current liabilities” at March 31, 2006 have been reclassified accordingly between “Current portion of long-term debt and loans payable” and “Long-term debt, net of current portion” on the Consolidated Condensed Balance Sheet to conform to the December 31, 2006 presentation.
Approximately $32 million of deferred tax assets that were offset against “Deferred income taxes – long term liabilities” at March 31, 2006 have been reclassified to “Deferred income taxes – current assets” on the Consolidated Condensed Balance Sheet to conform to the December 31, 2006 presentation.
Subsequent to the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006, the Company determined in the second quarter of fiscal year 2007 that deferred tax assets associated with certain outstanding stock options were understated by approximately $47 million through an $8 million understatement in “Deferred income taxes – current assets” and a $39 million overstatement in “deferred income taxes – noncurrent liabilities” on the Consolidated Balance Sheet as of March 31, 2006. Correspondingly, “Additional paid in capital” was understated by $47 million on the Consolidated Balance Sheet and Statement of Stockholders’ Equity as of and for the year ended March 31, 2006. This error has been corrected on the Consolidated Condensed Balance Sheet as of March 31, 2006 in this Quarterly Report on Form 10-Q. The impact of this correction on the affected line items is not considered material to the March 31, 2006 financial statements and does not affect the previously reported Consolidated Statements of Operations or Cash Flows for any prior periods.
During the third quarter of fiscal year 2007, the Company transferred its right and interest in future committed installment payments of approximately $106 million due under certain software license agreements. In accordance with Emerging Issue Task Force 88-18 (EITF 88-18), “ Sales of Future Revenues” , the Company determined that these types of transactions should be reported as a financing obligation as opposed to deferred subscription revenue (collected). As of March 31, 2006, approximately $25 million of “Deferred subscription revenue (collected) – current” and $25 million of “Deferred subscription revenue (collected) – noncurrent”, was reclassified to “Financing obligations (collected) – current” and “Financing obligations (collected) – noncurrent”, respectively, on the Consolidated Condensed Balance Sheet to conform to the December 31, 2006 presentation.
Approximately $10 million of expenses relating to legal fees incurred by the Special Litigation Committee, comprised of independent members of the Company’s Board of Directors, in the second quarter of fiscal year 2007, were reclassified from “Selling, general, and administrative” to “Restructuring

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
and other” in the results for the nine month period ended December 31, 2006 on the Consolidated Condensed Statement of Operations. For information about the Special Litigation Committee, see Note J, “Commitments and Contingencies”.
Divestiture: In November 2006, the Company sold its 70% interest in the Benit Company (“Benit”), a joint venture investment, to the minority interest holder. As a result, Benit has been classified as a discontinued operation for all periods presented, and its results of operations and cash flows have been reclassified in the Consolidated Condensed Financial Statements. All related footnotes to the Consolidated Condensed Financial Statements have been adjusted to exclude the effect of the operating results of Benit. See Note K, “Divestitures,” for additional information.
Basis of Revenue Recognition: The Company generates revenue from the following primary sources: (1) licensing software products; (2) providing customer technical support (referred to as maintenance); and (3) providing professional services, such as consulting and education.
The Company recognizes revenue pursuant to the requirements of Statement of Position (SOP) 97-2, “ Software Revenue Recognition ,” (SOP 97-2) issued by the American Institute of Certified Public Accountants, as amended by SOP 98-9, “ Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions .” In accordance with SOP 97-2, the Company begins to recognize revenue from licensing and supporting its software products when all of the following criteria are met: (1) the Company has evidence of an arrangement with a customer; (2) the Company delivers the products; (3) license agreement terms are deemed fixed or determinable and free of contingencies or uncertainties that may alter the agreement such that it may not be complete and final; and (4) collection is probable.
Under the Company’s business model, software license agreements include flexible contractual provisions that, among other things, allow customers to receive unspecified future software products for no additional fee. These agreements combine the right to use the software products with maintenance for the term of the agreement. Under these agreements, once all four of the above noted revenue recognition criteria are met, the Company is required to recognize revenue ratably over the term of the license agreement. For license agreements signed prior to October 2000 (the prior business model), once all four of the above noted revenue recognition criteria were met, software license fees were recognized as revenue up-front (as the contracts did not include a right to unspecified software products) and the maintenance fees were deferred and subsequently recognized as revenue over the term of the license. Revenue from acquisitions is initially recorded on the acquired company’s systems, generally under a perpetual or up-front software license agreement model, and is typically converted to the Company’s ratable software license agreement model within the first fiscal year after the acquisition. As new contracts are entered into or renewed under the Company’s business model, revenue is recognized ratably as subscription revenue on a monthly basis over the term of the agreement.
Revenue from professional service arrangements is generally recognized as the services are performed. Revenue from committed professional services arrangements that are sold as part of a software transaction are deferred and recognized on a ratable basis over the life of the related software transaction. If it is not probable that a project will be completed or the payment will be received, revenue is deferred until the uncertainty is removed.
Revenue from sales to distributors, resellers, and value-added resellers (VARs) is recognized when all four of the SOP 97-2 revenue recognition criteria noted above are met and when these entities sell the software product to their customers. This is commonly referred to as the sell-through method. Beginning July 1, 2004, a majority of sales of products to distributors, resellers and VARs incorporate the right for the end-users to receive certain unspecified future software products and revenue from those contracts is therefore recognized on a ratable basis upon sell-through.
For further information, refer to the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006.

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
Cash Dividends: In November 2006, the Company’s Board of Directors declared a quarterly cash dividend of $0.04 per share. The dividend totaled approximately $21 million and was paid on December 29, 2006 to stockholders of record on December 15, 2006. In September 2006, 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 29, 2006 to stockholders of record on September 22, 2006. In June 2006, 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 June 30, 2006 to stockholders of record on June 19, 2006.
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.
Statements of Cash Flows: For the nine-month periods ended December 31, 2006 and 2005, interest payments were $102 million and $113 million, respectively, and income taxes paid were $173 million and $162 million, respectively.
On August 15, 2006, the Company entered into a purchase and sale agreement, pursuant to which the Company sold its corporate headquarters located in Islandia, New York with a net book value of $194 million for approximately $201 million in net cash proceeds. In connection with the sale of the building, the Company entered into a 15 year lease agreement for its corporate headquarters with renewal options for an additional twenty years. The Company is responsible for paying real estate taxes and operating expenses, as well as any capital expenditures required to maintain the premises in good condition and repair and in compliance with applicable laws. The Company concluded that the sale of its corporate headquarters qualifies for sale-leaseback and operating lease accounting treatment. Accordingly, the Company deferred and will amortize a gain of approximately $7 million as a reduction to rent expense on a straight-line basis over the initial lease term of fifteen years.
Future minimum lease payments to be made under this non-cancelable operating lease as of December 31, 2006 are as follows:
         
Fiscal Years   (in millions)  
Remainder of fiscal year 2007
  $ 4  
2008
    15  
2009
    15  
2010
    15  
2011
    16  
2012
    16  
And thereafter
    152  
 
     
Total minimum lease payments
  $ 233  
 
     
Total rent expense related to this lease arrangement during the three and nine-month periods ended December 31, 2006 was approximately $4 million and $6 million, respectively.
On August 15, 2006, the Company announced the commencement of a tender offer to purchase outstanding shares of CA common stock, at a price not less than $22.50 and not greater than $24.50 per share. This tender offer represented the initial phase of the $2 billion stock repurchase plan that the Company announced in June 2006, which replaced the prior $600 million common stock repurchase plan. In the tender offer, CA offered to purchase for cash up to 40,816,327 shares of its common stock, par value $0.10 per share, including the Associated Rights to Purchase Series One Junior Participating Preferred Stock, Class A at a per share purchase price of not less than $22.50 nor greater than $24.50, net to the seller in cash, without interest. The tender offer also allowed CA the right to purchase up to 11,345,647 additional shares without amending or extending the offer.

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
On September 14, 2006, the expiration date of the tender offer, CA purchased 41,225,515 shares at a purchase price of $24.00 per share, for a total price of approximately $989 million, which excludes bank, legal and other associated charges of approximately $2 million. Upon completion of the tender offer, the Company retired all the shares that were purchased, which resulted in a reduction of the common stock issued and outstanding as reflected in the Company’s stockholders’ equity on the Consolidated Condensed Balance Sheet at December 31, 2006. A total of $750 million was drawn down from the Company’s revolving credit facility (the 2004 Revolving Credit Facility) in September 2006 in order to finance a portion of the tender offer. The Company’s current borrowing rate is 6.50%. The maximum committed amount available under the 2004 Revolving Credit Facility is $1 billion, exclusive of incremental credit increases of up to an additional $250 million which are available subject to certain conditions and the agreement of the Company’s lenders. Total interest expense relating to the borrowing was $13 million through December 31, 2006.
In September 2006, the Company entered into a capital lease obligation of $21 million consisting of a sale-leaseback of previously owned assets for cash proceeds of $15 million and new assets with a value of $6 million.
In September 2006, the Company sold an investment in marketable securities and received net cash proceeds of approximately $32 million. The transaction resulted in a gain of approximately $14 million, which has been recorded in the “Other expenses/(gains), net” line item of the Consolidated Condensed Statement of Operations for the nine-month period ending December 31, 2006.
During the nine month period ended December 31, 2006, the Company transferred its rights and interest in future committed installment payments due under certain software license agreements for an aggregate amount of approximately $110 million, for which the Company received cash proceeds of approximately $104 million. During the comparable prior year period, the Company transferred its right and interest in future committed installments of approximately $36 million, for which the Company received cash proceeds of approximately $34 million. In accordance with Statement of Financial Accounting Standards (SFAS) No. 95, “Statement of Cash Flows” (SFAS 95), the proceeds are classified as cash provided by continuing operating activities in the Consolidated Condensed Statements of Cash Flows.
Derivatives : Derivatives are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 133, “ Accounting for Derivative Instruments and Hedging Activities ” (SFAS 133). During the quarter ended December 31, 2006, the Company entered into derivative contracts with a total notional value of approximately 42.5 million euros and 1.25 billion yen, none of which were outstanding as of December 31, 2006. The Company entered into these contracts with the intent of mitigating a certain portion of the Company’s euro and yen operating exposure as part of the Company’s on-going risk management program. These contracts did not qualify for hedge accounting treatment under SFAS 133. The contracts entered into resulted in an approximate $1.2 million loss in the “Other expenses/(gains), net” line item of the Consolidated Condensed Statement of Operations for the three- and nine-month periods ended December 31, 2006. There are no derivative contracts outstanding as of December 31, 2006.
NOTE B – COMPREHENSIVE INCOME
Comprehensive income 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 comprehensive income for the three and nine-month periods ended December 31, 2006 and 2005 are as follows:
                                 
    For the Three Months     For the Nine Months  
    Ended December 31,     Ended December 31,  
    2006     2005     2006     2005  
            (restated)             (restated)  
            (in millions)          
Net income
  $ 50     $ 57     $ 138     $ 200  
Unrealized gains on marketable securities, net of tax
    2                    
Foreign currency translation adjustments
    14       (18 )     14       (71 )
 
                       
Total comprehensive income
  $ 66     $ 39     $ 152     $ 129  
 
                       
 
    Note — previously reported information has been reclassified to reflect discontinued operations

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
NOTE C – EARNINGS PER SHARE
Basic earnings per share is 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 months ended December 31, 2006 and 2005, approximately 15.9 million and 16.0 million options to purchase common stock, respectively, were excluded from the calculation, as the exercise prices were greater than the average market price of the common stock during the respective periods. For the nine months ended December 31, 2006 and 2005, approximately 16.1 million and 11.3 million options to purchase common stock, respectively were excluded from the calculation, as the exercise prices were greater than the average market price of the common stock during the respective periods.
                                 
    For the Three     For the Nine  
    Months Ended     Months Ended  
    December 31,     December 31,  
    2006     2005     2006     2005  
            (restated)             (restated)  
    (in millions, except per share amounts)  
Income from continuing operations, net of taxes
  $ 52     $ 56     $ 141     $ 199  
Interest expense associated with Convertible Senior Notes, net of tax
    1       1       3       4  
 
                       
Numerator in calculation of diluted income per share from continuing operations
  $ 53     $ 57     $ 144     $ 203  
 
                       
Weighted average shares outstanding and common share equivalents
                               
 
                               
Weighted average common shares outstanding
    524       579       551       583  
Weighted average Convertible Senior Note shares outstanding
    23       23       23       23  
Weighted average stock awards outstanding
    2       4       1       4  
 
                       
Denominator in calculation of diluted income per share from continuing operations
    549       606       575       610  
 
                       
Diluted earnings per share from continuing operations
  $ 0.10     $ 0.09     $ 0.25     $ 0.33  
 
                       
 
    Note — previously reported information has been reclassified to reflect discontinued operations
NOTE D – ACCOUNTING FOR SHARE-BASED COMPENSATION
Effective April 1, 2005, the Company adopted, under the modified retrospective basis, the provisions of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “ Share-Based Payment ”, (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’s requisite service period (generally the vesting period of the award).
The Company recognized share-based compensation in the following line items on the Consolidated Condensed Statements of Operations for the periods indicated:

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
                                 
    For the Three Months     For the Nine Months  
    Ended December 31,     Ended December 31,  
    2006     2005     2006     2005  
            (restated)             (restated)  
            (in millions)          
Cost of professional services
  $ 1     $ 1     $ 3     $ 3  
Selling, general, and administrative
    19       16       49       53  
Product development and enhancements
    8       8       20       27  
 
                       
Share-based compensation expense before tax
    28       25       72       83  
Income tax benefit
    9       6       21       21  
 
                       
Net compensation expense
  $ 19     $ 19     $ 51     $ 62  
 
                       
The decrease in share-based compensation expense for the nine-month period ended December 31, 2006, as compared with the corresponding prior year period was principally the result of (1) awards granted in prior periods becoming fully amortized in fiscal year 2006, (2) a decrease in expense for performance-based stock units resulting from a decrease in the Company’s anticipated payout percentages and (3) an increase in the Company’s estimated forfeiture rate of share-based awards based on historical experience. The decrease in share-based compensation expense was partially offset by the amortization of awards granted during the first quarter of fiscal year 2007.
Total unrecognized compensation costs related to non-vested awards, expected to be recognized over a weighted average period of 1.5 years, amounted to $123 million at December 31, 2006.
There are no capitalized share-based compensation costs at December 31, 2006 or 2005.
Share-based incentive awards are provided to employees under the terms of the Company’s equity compensation 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), or any combination thereof. The non-employee 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 fair value is reduced by the present value of the expected dividend stream during the vesting period, which is calculated using the risk-free interest rate.
PSUs are target awards issued under the long-term incentive plan for senior executives where the number of shares ultimately granted to the employee depends on Company performance measured against specified targets and is determined after a one-year or three-year period as applicable, the “1-year and 3-year PSUs”, respectively. 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, adjusted for dividends as described above for RSUs, and the Company’s estimate of the level of achievement of its performance targets as described below. The Company is required to recalculate the fair value of issued PSUs each reporting period until any shares are granted, as defined in SFAS No. 123(R). The adjustment is based on the fair value of the Company’s stock on the reporting period date, adjusted for dividends as described above for RSUs.
Stock options are awards which allow the employee to purchase shares of the Company’s stock at a fixed price. Beginning in fiscal year 2002, 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 2001 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.

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
Additional information relating to the Plans, all of which have been approved by stockholders, are discussed in more detail in Note 9 of the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006.
Under the Company’s long-term incentive program for fiscal year 2007, which is more fully described in a Current Report on Form 8-K dated June 26, 2006, senior executives were granted stock options and issued target PSUs, under which the senior executives are eligible to receive RSAs or RSUs and unrestricted shares in the future if certain performance targets are achieved. Each quarter, the Company compares the performance the Company expects to achieve with the performance targets. Upon completion of the requisite performance period, the actual number of shares granted is subject to the approval of the Committee. As of December 31, 2006, the Company has accrued compensation cost based on its current expectation of achievement of approximately 71% and 100% of the aggregate targets for the 1-year and 3-year PSU awards, respectively. Compensation cost will continue to be amortized over the requisite service period of the awards. At the conclusion of the performance periods for the fiscal year 2007 1-year and 3-year PSUs, the applicable number of shares of RSAs, RSUs or unrestricted stock granted may vary based upon the level of achievement of the performance targets and the approval of the Committee (which has discretion to reduce any award for any reason). The related compensation cost recognized will be based on the number of shares granted.
Under the Company’s long-term incentive plan for fiscal year 2006, senior executives were granted stock options and issued target PSUs, under which the senior executives are eligible to receive RSAs or RSUs and unrestricted shares in the future if certain performance targets are achieved. In the first quarter of fiscal year 2007, the Company granted 0.3 million RSAs under the 1-year PSU with a weighted average grant date fair value of $21.88. The 3-year PSUs have not yet been granted. Consequently, each quarter, the Company compares the performance the Company expects to achieve with the performance targets for the 3-year PSUs. Upon completion of the requisite performance period, the actual number of shares granted is subject to the approval of the Committee. As of December 31, 2006, the Company has accrued compensation cost based on its current expectation of achievement of approximately 66% of the aggregate 3-year target PSUs issued awards under the long-term incentive plan. Compensation cost for both the 1-year and 3-year awards will continue to be amortized over the requisite service period of the awards. At the conclusion of the performance period for the 3-year PSUs, the number of shares of unrestricted stock issued may vary based upon the level of achievement of the performance targets and the approval of the Committee (which has discretion to reduce any award for any reason). The related compensation cost recognized will be based on the number of shares granted.
The Company estimates the fair value of stock options using the Black-Scholes valuation model, consistent with the provisions of SFAS No. 123(R). 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 interest 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 nine-month periods ended December 31, 2006 and 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, 2006 and 2005, the Company issued options covering approximately 0.1 million shares of common stock for each of these periods, excluding options granted as part of the employee option exchange offer as described below. The weighted average grant date fair value of these grants was $8.63 and $15.39, respectively.
For the nine-month periods ended December 31, 2006 and 2005, the Company issued options covering approximately 2.5 million and 2.7 million shares of common stock, respectively, excluding options granted as part of the employee option exchange offer as described below. The weighted average fair value at the date of grant for options granted during the nine-month periods ended December 31, 2006 and 2005 was $8.40 and $15.06, respectively. The weighted average assumptions that were used for option grants in the respective periods are as follows:

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
                                 
    For the Three Months   For the Nine Months
    Ended December 31,   Ended December 31,
    2006   2005   2006   2005
Dividend yield
    0.67 %     0.57 %     0.73 %     0.57 %
Expected volatility factor (1)
    0.37       0.56       0.41       0.56  
Risk-free interest rate (2)
    4.8 %     4.4 %     4.9 %     4.1 %
Expected term (in years) (3)
    4.5       6.0       4.5       6.0  
 
(1)   Measured using historical daily price changes of the Company’s stock over the respective expected term of the options and the implied volatility derived from the market prices of the Company’s options traded by third parties.
 
(2)   The risk-free rate for periods within the contractual term of the share options 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 decrease in the expected term in fiscal year 2007 as compared with fiscal year 2006 was primarily due to the exclusion of employee exercise behavior related to grants authorized prior to fiscal year 1997, which expired prior to fiscal year 2007, in estimating the expected term in fiscal year 2007.
Under Section 409A of the U.S. Internal Revenue Code of 1986, as amended (Section 409A), as interpreted in proposed regulations issued by the U.S. Internal Revenue Service, options granted with a below market exercise price, to the extent they were not vested as of December 31, 2004, may be subject to regular income tax, a 20% additional tax and other penalties before (and regardless of whether) they were exercised. The Company determined that due to delays in communicating the July 20, 2000 option grant to employees after they were approved for grant, the fair market value on the Company’s common stock on the measurement date was higher than the exercise price. This grant may be considered to have been granted with an exercise price below the fair market value of CA common stock for the purposes of Section 409A. This grant vested in five installments, and only the last installment – covering 30% of the grant – vested after 2004 (on July 20, 2005) and may be subject to adverse tax consequences under Section 409A. On November 7, 2006, the Company extended an offer to holders of this grant who were U.S. taxpayers in 2005 to exchange the last vesting installment of each July 20, 2000 grant, to the extent not exercised and outstanding (the Eligible Option), for a new option (the New Option) with, among other things, an exercise price equal to the higher of $27 (the exercise price of the Eligible Option) or the closing price of the Company’s common stock on the date of grant of the New Option.
In connection with the exchange offer, the Company issued New Options covering approximately 0.9 million shares in exchange for Eligible Options. The number of shares underlying the New Options were the same as the number of shares underlying the Eligible Options cancelled in connection with the exchange offer. The New Options were granted on December 8, 2006 at an exercise price of $27 (the same exercise price as the Eligible Options). The New Options will vest on June 8, 2007 (six months from the grant date) and will expire on July 10, 2010 (the same expiration date as the Eligible Options).
In accordance with SFAS No. 123(R), the compensation cost associated with the New Options is calculated as the difference between the fair value of the New Option and the fair value of the Eligible Option measured immediately before its terms or conditions were considered modified. The Company will recognize $0.2 million of share-based compensation expense related to the exchange offer, which will be amortized over the requisite service period of the awards.
For the grants made during fiscal year 2007, the Company changed its compensation structure toward a greater use of RSAs and a lesser use of RSUs.
For the quarters ended December 31, 2006 and 2005, the Company did not issue any RSUs.
For the nine-month periods ended December 31, 2006 and 2005, the Company issued RSUs covering 0.3 million and 1.8 million shares of common stock, respectively. The weighted average grant date fair value of these grants was $21.97 and $27.00, respectively.
For the quarters ended December 31, 2006 and 2005, the Company issued RSAs covering less than 0.1 million of common stock for each of these periods. The weighted average grant date fair value of these grants was $23.30 and $28.55, respectively.

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
For the nine-month periods ended December 31, 2006 and 2005, the Company issued RSAs covering 2.9 million and 0.3 million shares of common stock, respectively. The weighted average grant date fair value of these grants was $21.98 and $27.41, respectively. The RSAs granted for the nine month period ended December 31, 2006 include the 0.3 million RSAs granted under the fiscal year 2006 1-year PSU in the first quarter of fiscal year 2007.
NOTE E – 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,  
    2006     2006  
    (in millions)  
Current:
               
Accounts receivable
  $ 721     $ 828  
Other receivables
    51       77  
Unbilled amounts due within the next 12 months — prior business model
    245       254  
Less: Allowance for doubtful accounts
    (30 )     (25 )
Less: Unearned revenue — current
    (697 )     (629 )
 
           
Net trade and installment accounts receivable — current
  $ 290     $ 505  
 
           
 
               
Noncurrent:
               
Unbilled amounts due beyond the next 12 months — prior business model
    381       511  
Less: Allowance for doubtful accounts
    (10 )     (20 )
Less: Unearned revenue — noncurrent
    (27 )     (42 )
 
           
Net installment accounts receivable — noncurrent
  $ 344     $ 449  
 
           
The components of unearned revenue consist of the following:
                 
    December 31,     March 31,  
    2006     2006  
    (in millions)  
Current:
               
Unamortized discounts
  $ 32     $ 44  
Unearned maintenance
    2       4  
Deferred subscription revenue (billed, uncollected)
    637       534  
Unearned professional services
    26       47  
 
           
Total unearned revenue — current
  $ 697     $ 629  
 
           
 
               
Noncurrent:
               
Unamortized discounts
  $ 24     $ 34  
Unearned maintenance
    3       8  
 
           
Total unearned revenue — noncurrent
  $ 27     $ 42  
 
           

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CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
NOTE F – IDENTIFIED INTANGIBLE ASSETS
In the tables below, capitalized software include both purchased and internally developed software costs; 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” on the Consolidated Condensed Balance Sheets.
The gross carrying amounts and accumulated amortization for identified intangible assets are as follows:
                         
    At December 31, 2006  
    Gross     Accumulated     Net  
    Assets     Amortization     Assets  
            (in millions)          
Capitalized software:
                       
Purchased
  $ 4,804     $ 4,531     $ 273  
Internally developed
    612       400       212  
Other identified intangible assets subject to amortization
    657       307       350  
Other identified intangible assets not subject to amortization
    26             26  
 
                 
Total
  $ 6,099     $ 5,238     $ 861  
 
                 
                         
    At March 31, 2006  
    Gross     Accumulated     Net  
    Assets     Amortization     Assets  
            (in millions)          
Capitalized software:
                       
Purchased
  $ 4,760     $ 4,299     $ 461  
Internally developed
    558       363       195  
Other identified intangible assets subject to amortization
    628       266       362  
Other identified intangible assets not subject to amortization
    26             26  
 
                 
Total
  $ 5,972     $ 4,928     $ 1,044  
 
                 
In connection with the Company’s fiscal year 2007 acquisitions, the Company recognized a total of approximately $44 million and $29 million of purchased software and other identified intangible assets subject to amortization, respectively. Refer to Note G, “Acquisitions,” for additional information relating to the Company’s fiscal year 2007 acquisitions.
In the third quarter of fiscal years 2007 and 2006, amortization of capitalized software costs was $83 million and $111 million, respectively, and amortization of other identified intangible assets was $14 million in each period.
For the first nine months of fiscal years 2007 and 2006, amortization of capitalized software costs was $271 million and $335 million, respectively, and amortization of other identified intangible assets was $41 million and $37 million, respectively.
Based on the identified intangible assets recorded through December 31, 2006, annual amortization expense is expected to be as follows:
                                                 
    Year Ended March 31,  
    2007     2008     2009     2010     2011     2012  
                    (in millions)                  
Capitalized software:
                                               
Purchased
  $ 301     $ 58     $ 48     $ 37     $ 25     $ 15  
Internally developed
    52       57       50       43       32       15  
Other identified intangible assets subject to amortization
    54       55       55       54       53       32  
 
                                   
Total
  $ 407     $ 170     $ 153     $ 134     $ 110     $ 62  
 
                                   

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
The carrying value of goodwill was $5.37 billion and $5.31 billion as of December 31, 2006 and March 31, 2006, respectively. During the nine-month period ended December 31, 2006, goodwill increased by approximately $131 million as a result of fiscal year 2007 acquisitions, which was partially offset by approximately $42 million of goodwill adjustments for prior year acquisitions. The goodwill adjustments for the nine month period of fiscal year 2007 primarily consisted of a $20 million favorable resolution to certain foreign tax credits that were acquired and fully reserved that resulted from the conclusion of an Internal Revenue Service audit and approximately $11 million related to other adjustments to deferred tax assets and liabilities associated with acquired businesses. Refer to Note G, “Acquisitions,” for additional information relating to the Company’s 2007 fiscal year acquisitions. During the three month period ended December 31, 2006, goodwill was also reduced by approximately $31 million due to the divesture of Benit. Refer to Note K, “Divestitures,” for additional information relating to the Company’s sale of Benit.
NOTE G – ACQUISITIONS
During the first nine months of fiscal year 2007, the Company acquired the following companies:
    Cybermation, Inc., a privately-held provider of enterprise workload automation solutions.
 
    MDY Group International, Inc., a privately-held provider of enterprise records management software and services.
 
    XOsoft, Inc., a privately held provider of complete recovery management solutions.
 
    Cendura, a privately held provider of IT service management service delivery solutions.
The total cost of these acquisitions was approximately $173 million, net of approximately $20 million of cash and cash equivalents acquired and excluding a holdback of approximately $9 million.
The acquisitions of Cybermation, MDY, XOsoft and Cendura were accounted for as purchases and accordingly, their results of operations have been included in the Consolidated Condensed Financial Statements since the dates of their acquisitions. The Company recorded a charge of approximately $10 million for in-process research and development costs associated with the acquisition of XOsoft during the second quarter of fiscal year 2007. Total goodwill recognized in these transactions amounted to approximately $131 million. The allocation of a significant portion of the 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 anticipated earnings beyond the estimated lives of the intangible assets. The 2007 fiscal year acquisitions included net deferred tax liabilities of approximately $26 million.
The purchase price allocations for Cybermation, MDY, XOsoft and Cendura are 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 for these acquisitions will not differ materially from their preliminary allocations.
At December 31, 2006, the Company had approximately $49 million in remaining holdback payments related to the acquisitions of Wily, XOsoft, and Cendura, which were included in the “Accrued expenses and other liabilities” line on the Consolidated Condensed Balance Sheet. During the nine months ended December 31, 2006, the Company made payments against these liabilities of approximately $4 million and the remaining balances are expected to be paid within the next twelve months.
Accrued acquisition-related costs and changes in these accruals, including additions related to the Company’s acquisitions of Cybermation, MDY, XOsoft, Cendura and prior year acquisitions were as follows:

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
                 
    Duplicate        
    Facilities &     Employee  
    Other Costs     Costs  
    (in millions)  
Balance at March 31, 2006
  $ 60     $ 7  
Additions
    1       2  
Settlements
    (10 )     (4 )
Adjustments
    (21 )      
 
           
Balance at December 31, 2006
  $ 30     $ 5  
 
           
The liabilities for duplicate facilities and other costs relate to operating leases, which are actively being renegotiated and expire at various times through 2010, negotiated buyouts of the operating lease commitments, and other contractual liabilities. The liabilities for employee costs primarily relate to involuntary termination benefits. Adjustments to the corresponding liability and related goodwill accounts are recorded when obligations are settled at amounts less than those originally estimated. Adjustments for the nine month period of fiscal year 2007 primarily consisted of a $20 million favorable resolution to certain foreign tax credits that were acquired and fully reserved that resulted from the conclusion of an Internal Revenue Service audit. The remaining liability balances are included in the “Accrued expenses and other current liabilities” line item on the Consolidated Condensed Balance Sheets.
NOTE H – RESTRUCTURING AND OTHER
Restructuring Plans
In August 2006, the Company announced a cost reduction and restructuring plan (the fiscal 2007 plan) to significantly improve the Company’s expense structure and increase its competitiveness. The total cost of the restructuring plan is currently expected to be approximately $150 million, most of which is expected be recognized in fiscal year 2007. The fiscal 2007 plan’s objectives include a workforce reduction, global facilities consolidations and other cost reduction initiatives.
Severance: The Company currently estimates a reduction in workforce of approximately 1,400 individuals under the fiscal 2007 plan, including approximately 300 positions associated with joint ventures. 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 prior experiences with the restructuring plan announced in July 2005 (the fiscal 2006 plan) as described below. These costs have been recognized in accordance with SFAS No. 112, “ Employers Accounting for Post Employment Benefits, an Amendment of FASB Statements No. 5 and 43 ” (SFAS No. 112). The Company incurred approximately $14 million and $53 million of severance costs for the three and nine months ended December 31, 2006, respectively, relating to a total of approximately 800 individuals. The Company anticipates the severance portion of the fiscal 2007 plan will cost approximately $110 million and anticipates that the remaining amount will be incurred by the end of fiscal year 2008. The specific plans associated with the balance of the planned reductions in workforce are still being finalized and the associated charges will be recorded once the actions are approved by management.
Facilities Abandonment : The Company recorded the costs associated with lease termination or abandonment when the Company ceased to utilize the leased property. Under SFAS No. 146, “Accounting for Costs Associated With Exit or Disposal Activities” (SFAS No. 146), the liability associated with lease termination or abandonment is measured as the present value of the total remaining lease costs and associated operating costs, less probable sublease income. The Company accretes its obligations related to the facilities abandonment to the then-present value and, accordingly, recognizes accretion expense as a restructuring expense in future periods. The Company incurred approximately $15 million of charges related to abandoned properties in the third quarter of fiscal year 2007 and anticipates that the remaining amounts will be incurred

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
by the end of fiscal year 2008. The Company anticipates the facility portion of the fiscal 2007 plan will cost approximately $40 million.
Accrued restructuring costs and payments during the fiscal year 2007 and the ending accrual balance at December 31, 2006 were as follows:
                 
            Facilities  
    Severance     Abandonment  
    (in millions)  
Additions
  $ 53     $ 15  
Payments
    (27 )     (1 )
 
           
 
               
Balance at December 31, 2006
  $ 26     $ 14  
 
           
The liability balance is included in the “Accrued expenses and other current liabilities” line item on the Consolidated Condensed Balance Sheet. The costs are included in the “Restructuring and other” line item on the Consolidated Condensed Statements of Operations.
In July 2005, the Company announced the fiscal 2006 plan to increase efficiency and productivity and to more closely align its investments with strategic growth opportunities. The total cost of the fiscal 2006 plan is expected to be approximately $100 million. The Company accounted for the individual components of the restructuring plan as follows:
Severance : The fiscal 2006 plan included a workforce reduction of approximately five percent, or 800 positions, worldwide. The termination benefits the Company offered in connection with this workforce reduction were 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. The employee termination obligations incurred in connection with the fiscal 2006 plan were accounted for in accordance with SFAS No. 112 . In certain countries, the Company elected to provide termination benefits in excess of legal requirements subsequent to the initial implementation of the plan. These additional costs have been recognized as incurred in accordance with SFAS No. 146. The Company incurred approximately $2 million and $20 million of severance costs for the three and nine month periods ended December 31, 2006, respectively, and approximately $56 million in severance costs since the fiscal 2006 plan’s inception. The Company anticipates the severance portion of the fiscal 2006 plan will cost approximately $60 million and anticipates that the remaining amount will be incurred by the end of fiscal year 2007. Final payment of these amounts is dependent upon settlement with the works councils in certain international locations.
Facilities Abandonment : The Company recorded the costs associated with lease termination 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 accretes its obligations related to the facilities abandonment to the then-present value and, accordingly, recognizes accretion expense as a restructuring expense in future periods. The Company reduced the accrual for facilities abandonment related costs by approximately $2 million and $3 million for the three and nine month periods ended December 31, 2006, respectively, due to revised estimates for sublease income on certain properties, and incurred approximately $27 million in net costs since the fiscal 2006 plan’s inception. 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 fiscal year 2007.
Accrued restructuring costs and changes in these accruals for the first nine months of fiscal year 2007 were as follows:

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
                 
            Facilities  
    Severance     Abandonment  
    (in millions)  
Balance at March 31, 2006
  $ 18     $ 27  
 
               
Additions (reductions)
    20       (3 )
Payments
    (28 )     (8 )
 
           
 
               
Balance at December 31, 2006
  $ 10     $ 16  
 
           
The liability balance is included in the “Accrued expenses and other current liabilities” line item on the Consolidated Condensed Balance Sheets.
Other:
During the first nine months of fiscal year 2007, the Company incurred approximately $3 million in connection with certain DPA related costs and approximately $13 million incurred by the Special Litigation Committee (see also Note J, “Commitments and Contingencies”). During the first nine months of fiscal year 2006, 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 DPA related costs.
NOTE I – INCOME TAXES
Income tax expense for the three and nine-month periods ended December 31, 2006 was $18 million and $40 million, respectively, compared to the income tax benefit for the three and nine-month periods ended December 31, 2005 of $13 million and $18 million, respectively. For the quarter ended December 31, 2006, the tax provision included a net benefit of approximately $5 million, primarily arising from a revision of the Company’s estimated Section 199 manufacturing deduction. Income tax expense for the nine-month period ending December 31, 2006 also includes a net benefit of approximately $18 million, primarily arising from the resolution of certain international and U.S. Federal tax contingencies.
For the quarter ended December 31, 2005, the tax provision included a net benefit of approximately $25 million primarily 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 approximately $36 million reflecting IRS Notice 2005-38. Notice 2005-38 permitted the utilization of foreign tax credits in calculating the special one-time dividends received deduction on repatriating funds as provided by the American Jobs Creation Act of 2004.
NOTE J – COMMITMENTS AND CONTINGENCIES
Certain legal proceedings in which we are involved are discussed in Note 7, “Commitments and Contingencies”, in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2006 (the 2006 Form 10-K). The following discussion should be read in conjunction with the 2006 Form 10-K.
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 in the United States District Court for the Eastern District of New York (the Federal Court), 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 Federal Court. The complaint in this matter, a purported class

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
action on behalf of the CA 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 by Charles Federman 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.
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 by Charles Federman that had been pending in the Federal Court. 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 suits, 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, the individual defendants and all other current and former officers and directors of the Company 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). The individual defendants were released from any potential claim by or on behalf of the Company 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. Such discovery is ongoing. No hearing date is currently set for the 60(b) Motions.

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
The Government Investigation
In 2002, the United States Attorney’s Office for the Eastern District of New York (the USAO) and the staff of the Northeast Regional Office of the 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, David Kaplan, David Rivard, Lloyd Silverstein and Ira Zar, the executives who oversaw the relevant financial operations during the period in question, resigned at the Company’s request. On January 22, 2004, Mr. Silverstein pled guilty to federal criminal charges of conspiracy to obstruct justice in connection with the ongoing investigation. On April 8, 2004, Messrs. Kaplan, Rivard and Zar pled guilty to charges of conspiracy to obstruct justice and conspiracy to commit securities fraud in connection with the investigation. Mr. Zar also pled guilty to committing securities fraud. On January 26, 2007, Mr. Zar was sentenced to a term of imprisonment for seven months and home confinement for seven months. On January 29, 2007, Mr. Kaplan was sentenced home confinement for six months. On January 30, 2007, Mr. Rivard was sentenced to home confinement for four months. On January 31, 2007, Mr. Silverstein was sentenced to home confinement for six months. 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 Company. Without admitting or denying the allegations in the complaints filed by the SEC, Messrs. Kaplan, Rivard, Silverstein and Zar 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 current business model in October 2000 and that had resulted in the aforementioned restatements, 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.

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
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 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 on September 22, 2005. The Company made the third and final $75 million restitution payment into an interest-bearing account under terms approved by the USAO on March 22, 2006. The restitution fund money will be allocated to certain current and former stockholders of the Company in the near future. Pursuant to the DPA, 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 Restitution Fund Plan). The Restitution Fund Plan was approved by the Federal Court on August 18, 2005. The Company’s payments to the restitution fund, which will be allocated and distributed in the near future as determined by the Fund Administrator, are in addition to the amounts that the Company previously agreed to provide current and former stockholders in settlement of certain class action lawsuits in August 2003 (see “— Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004”). This latter amount was paid by the Company in December 2004 in shares at a then total value of approximately $174 million.
Under the Agreements, the Company also agreed, among other things, to take the following actions by December 31, 2005: (1) to add a minimum of two new independent directors to its Board of Directors; (2) to establish a Compliance Committee of the Board of Directors; (3) to implement an enhanced compliance and ethics program, including appointment of a Chief Compliance Officer; (4) to reorganize its Finance and Internal Audit Departments; and (5) to establish an executive disclosure committee. The reorganization of the Finance Department is in progress and the reorganization of the Internal Audit Department is substantially complete. 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 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 specified 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 (now, Richards Kibbe & Orbe LLP), to serve as Independent Examiner. On September 15, 2005, Mr. Richards issued his six-month report concerning his recommendations regarding best practices concerning certain areas specified in the Agreements. On December 15, 2005, March 15, 2006, June 15, 2006, September 15, 2006 and December

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
15, 2006, Mr. Richards issued quarterly reports concerning the Company’s compliance with the Agreements.
In his Fourth Report, dated June 15, 2006, the Independent Examiner described certain issues regarding the Company’s internal accounting controls and reorganization of the Finance Department. Accordingly, by letter dated September 14, 2006, the USAO informed the Federal Court that the USAO had determined to extend the term of the Independent Examiner to May 1, 2007 (or such earlier date as the USAO, in its discretion, determines in the future). The extension was made pursuant to paragraph 22 of the DPA and with the consent of the Company. The Independent Examiner’s term was otherwise set to expire on September 16, 2006. The USAO, the SEC, the Independent Examiner and the Company agreed that the extension to May 1, 2007 was appropriate in light of the control-environment and commission-related material weaknesses announced in the 2006 Form 10-K, and issues concerning the reorganization of the Finance Department to be addressed by the Company’s new Chief Financial Officer. Beyond the control issues identified in the Independent Examiner’s June 15, 2006 report, the USAO advised the Federal Court that the Company has, to date, substantially complied with the terms of the DPA. The USAO also informed the Federal Court that if the control issues described above are resolved by May 1, 2007 (or such earlier date as the USAO, in its discretion, determines), and the Company is otherwise in compliance with the DPA, the USAO will seek the Federal Court’s dismissal with prejudice of the Information filed against the Company shortly after the Independent Examiner issues his final report, and the SEC also will evaluate the Company’s compliance with the Consent Judgment.
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 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.
As set forth above, 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).
On September 22, 2004, Mr. Woghin, the Company’s former General Counsel, pled guilty to a two-count information charging him with conspiracy to commit securities fraud and obstruction of justice. 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 enjoining him from committing violations in the future and permanently baring him from serving as an officer or director of a public company. The SEC’s claims for disgorgement and civil penalties against Mr. Woghin are pending. On January 16, 2007, Mr. Woghin was sentenced to a term of imprisonment for two years and three years of supervised release.

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
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 complaints sought 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 June 14, 2006, Messrs. Kumar and Richards consented to partial judgments imposing permanent injunctions enjoining them from committing such violations of the federal securities laws in the future and permanently barring them from serving as officers or directors of public companies. The SEC’s claims against Messrs. Kumar and Richards for disgorgement and civil penalties are pending.
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. On April 24, 2006, Messrs. Kumar and Richards pled guilty to all counts in the superseding indictment filed by the USAO. On November 2, 2006, Mr. Kumar was sentenced to a term of imprisonment for twelve years and a fine of $8 million. On November 14, 2006, Mr. Richards was sentenced to a term of imprisonment for seven years and three years of supervised release. The Federal Court has deferred any decisions on restitution until a hearing currently scheduled for February 2007.
On April 21, 2006, Thomas M. Bennett, the Company’s former Senior Vice President, Business Development, was arrested pursuant to an arrest warrant issued by the Federal Court. The arrest warrant charged Mr. Bennett with three counts of conspiracy to commit obstruction of justice in violation of Title 18, United States Code, Sections 1510(a) and 1505, and Title 18, United States Code, Section 371. On June 21, 2006, Mr. Bennett pled guilty to one count of conspiracy to obstruct justice. On December 6, 2006, Mr. Bennett was sentenced to a term of home confinement for ten months, three years of supervised release, 100 hours of community service, and a fine of $15,000.
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, 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; Messrs. Kaplan, Rivard and 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,

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
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 not 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 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 (Messrs. Schwartz and 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, among other things, control and determine the Company’s response to the Consolidated Complaint and the 60(b) Motions. The Special Litigation Committee is continuing to review these matters. The Company is obligated to indemnify its officers and directors under certain circumstances to the fullest extent permitted by Delaware law. As a part of that obligation, the Company has advanced and will continue to advance certain attorneys’ fees and expenses incurred by current and former officers and directors in various litigations and investigations arising out of similar allegations, including the litigation described above.
Derivative Actions Filed in 2006
On August 10, 2006, a purported derivative action was filed in the Federal Court by Charles Federman against certain current or former directors of the Company (the 2006 Federman Action). On September 15, 2006, a purported derivative action was filed in the Federal Court by Bert Vladimir and Irving Rosenzweig against certain current or former directors of the Company (the 2006 Vladimir Action). By order dated October 26, 2006, the Federal Court ordered the 2006 Federman Action and the 2006 Vladimir Action consolidated. Under the order, the actions are now captioned “CA, Inc. Shareholders’ Derivative Litigation Employee Option Action”. On January 31, 2007, plaintiffs filed a consolidated amended complaint naming as defendants the following current or former directors of the Company: Messrs. Artzt, Cron, D’Amato, de Vogel, Fernandes, Goldstein, Grasso, Kumar, La Blanc, Lofgren, Lorsch, McCracken, Pieper, Ranieri, Schuetze, Swainson, Wang, and Zambonini and Ms. Unger. The

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
Company is named as a nominal defendant. The complaint alleges purported claims against the individual defendants for breach of fiduciary duty and for violations of Section 14(a) of the Exchange Act for alleged false and material misstatements made in the Company’s proxy statements issued from 1998 through 2005. The premises for these purported claims concern the disclosures made by the Company in its Annual Report on Form 10-K for the fiscal year ended March 31, 2006 concerning the Company’s restatement of prior fiscal periods to reflect additional (a) non-cash, stock-based compensation expense relating to employee stock option grants prior to the Company’s fiscal year 2002, (b) subscription revenue relating to the early renewal of certain license agreements, and (c) sales commission expense that should have been recorded in the third quarter of the Company’s fiscal year 2006. According to the complaint, certain of the individual defendants’ actions allegedly were “in violation of the spirit, if not the letter of the DPA.” The complaint seeks an unspecified amount of compensatory and punitive damages, equitable relief including an order rescinding certain stock option awards, an award of plaintiffs’ costs and expenses, including reasonable attorneys’ fees, and other unspecified damages allegedly sustained by the Company. Defendants are required to respond to the complaint by March 16, 2007. In the opinion of management, the resolution of this lawsuit is not expected to have a material adverse effect on the financial position of the Company.
On September 13, 2006, a purported derivative action was filed in the Delaware Chancery Court by Muriel Kaufman asserting purported derivative claims against Messrs. Kumar, Wang, Zar, Silverstein, Woghin, Richards, Artzt, Cron, D'Amato, La Blanc, Ranieri, Lorsch, Schuetze, Vieux, De Vogel and Grasso, and Ms. Strum Kenny. The Company is named as a nominal defendant. The complaint alleges purported claims against the individual defendants for breach of fiduciary duty, corporate waste and contribution and indemnification, in connection with the accounting fraud and obstruction of justice that led to the criminal prosecution of certain former officials of the Company and to the DPA (see “—The Government Investigation”) and in connection with the settlement of certain class action and derivative lawsuits (see “—Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004”). The complaint seeks an unspecified amount of compensatory damages, an accounting from each individual defendant, an award of plaintiff's costs and expenses, including reasonable attorneys' fees, and other unspecified damages allegedly sustained by the Company. The Special Litigation Committee is determining the Company's response to this litigation. In the opinion of management, the resolution of this lawsuit is not expected to have a material adverse effect on the financial position of the Company.
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 (the Ranger Governance Litigation), 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 the United States District Court for the Northern District of Texas (the 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, the 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. Since the transfer, there have been no significant activities or developments.
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 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.
On September 21, 2004, a complaint 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”), was filed by a purported stockholder of the Company in Delaware Chancery Court pursuant to Section 220 of the

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DECEMBER 31, 2006
Delaware General Corporation Law. The complaint 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 and there have been no developments since that time.
In October 2005, an arbitration was initiated against the Company. The arbitration demand seeks monetary damages of an unspecified amount and injunctive relief based upon claims for, among other things, alleged breaches of contract, copyright infringement, misappropriation of trade secrets, unfair competition, and racketeering. This matter is in discovery, and a hearing before the American Arbitration Association has been set for April 2007. Although the ultimate outcome cannot be determined, the Company believes the claims are unfounded and that the Company has meritorious defenses. In the opinion of management, the resolution of this matter is not expected to have a material adverse effect on the financial position of the Company.
In December 2006, a lawsuit captioned Diagnostic Systems Corp. v. CA, Inc. et al. , Case No. SACV06-1211 CJC(ANx), was filed in the United States District Court for the Central District of California, Southern Division. The complaint seeks a preliminary and permanent injunction, as well as monetary damages in various amounts, all of which are unspecified, based upon claims for patent infringement. The Company has not yet responded to the complaint. 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 resolution of this lawsuit is not expected to have a material adverse effect on the financial position of the Company.
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 November 2006, the Company sold its 70% interest in Benit Company, formerly known as Liger Systems Co. Ltd. (“Benit”), for approximately $3.3 million. The 70% interest sold represented all of the Company’s outstanding equity interest in Benit. As a result of the sale, the Company realized a loss of approximately $2 million, net of taxes, for the quarter ended December 31, 2006. Included in the loss is the recognition of the cumulative foreign currency translation amount related to Benit of approximately $10 million which was previously included in “Accumulated other comprehensive income”. The book value of the net assets disposed of was approximately $16 million, which included goodwill of approximately $31 million, and was not considered material to the March 31, 2006 Consolidated Condensed Balance Sheet. Benit offered a wide range of corporate solution services, such as IT outsourcing, business integration services, enterprise solutions and IT service management in Korea. The sale was part of the Company’s fiscal 2007 plan, which included an estimated headcount reduction of 300 positions associated with consolidated joint ventures. The sale of Benit resulted in a headcount reduction of 250 positions. Pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company has separately presented the results of Benit as a discontinued operation, including the loss on the sale on the Consolidated Condensed Statement of Operations.

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2006
The operating results of Benit are summarized as follows:
                                 
    For the Three Months     For the Nine Months  
    Ended December 31,     Ended December 31,  
    2006     2005     2006     2005  
Maintenance
  $ 2     $ 4     $ 11       11  
Software fees and other
    1             3       2  
Professional services
    2       2       7       5  
 
                       
Total revenue
  $ 5     $ 6     $ 21       18  
 
                       
 
                               
Loss from sale of discontinued operation, net of taxes
  $ (2 )   $     $ (2 )   $  
Loss from discontinued operation, net of taxes
  $     $ (1 )   $ (1 )   $ (2 )
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 sale price was approximately $6 million, which includes reimbursement for certain employee-related costs. The purchase price was received in the form of an interest bearing note that is scheduled to be paid by June 2007. MultiGen had revenues of $9 million for the nine month period ending December 31, 2005. As a result of the sale in the third quarter of fiscal year 2006, 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 period ending December 31, 2005. The impact of MultiGen’s results on prior periods was not considered material.
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 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 expenses/(gains), net in the Consolidated Condensed Statements of Operations.

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Item 2:
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”) 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 below in the section “Risk Factors”, and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2006 and our Quarterly Report Form 10-Q for the fiscal quarter ended September 30, 2006 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 Form 10-Q as anticipated, believed, estimated, or expected. We do not intend to update these forward-looking statements.
QUARTERLY UPDATE
  In October 2006, we announced that our Board of Directors adopted a new Stockholder Protection Rights Plan (the Rights Plan) which replaced our existing rights plan when it expired on November 30, 2006. The adoption of the Rights Plan was to address the corporate governance concerns associated with the existing rights plan. In connection with the adoption of the Rights Plan, we declared a dividend of one right on each outstanding share of our common stock. The dividend was paid on November 30, 2006 upon expiration of our existing rights plan to stockholders of record on October 26, 2006. We will ask our stockholders to vote on the Rights Plan at our annual meeting of stockholders in August 2007.
 
  In October 2006, we introduced CA Clarity 8, a major new version of our industry-leading Project & Portfolio Management system. Clarity 8 delivers the foundation for comprehensive IT governance by providing a single system for the strategic planning and financial control of IT services.
 
  In October 2006, we announced the availability of Wily Introscope for Microsoft .NET, which provides customers with a single solution for comprehensive J2EE and .NET application performance management.
 
  In November 2006, we announced that Bill Lipsin was named Senior Vice President of Worldwide Channels.
 
  In November 2006, we announced Unicenter Advanced Systems Management (Unicenter ASM) r11.1, a platform-agnostic solution that provides centralized management for virtualized and clustered server environments—enabling customers to continuously assess, manage and optimize system resources to ensure service availability and reliability.
 
  In November 2006, we sold our 70% interest in Benit Company, a joint venture investment, for approximately $3.3 million. The sale was part of the Company’s fiscal year 2007 cost reduction and restructuring plan, which included an estimated headcount reduction of 300 positions associated with consolidated joint ventures. The sale of Benit resulted in a headcount reduction of 250 positions.
 
  In December 2006, we announced the latest release of our Identity and Access Management (IAM) solution that helps organizations minimize risk while reducing the cost of IT operations. CA’s IAM solution unifies and simplifies the management of enterprise-wide security through automated and centralized policy management.

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Item 2:
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 our 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 performance:
                                 
    For the Three Months      
    Ended December 31,           Percent
    2006   2005   Change   Change
    (restated)
    (dollars in millions)
Subscription revenue
  $ 773     $ 717     $ 56       8 %
Total revenue
  $ 1,002     $ 965     $ 37       4 %
Subscription revenue as a percent of total revenue
    77 %     74 %     3 %     4 %
New deferred subscription value (direct)
  $ 1,329     $ 730     $ 599       82 %
New deferred subscription value (indirect)
  $ 53     $ 53          
Weighted average license agreement duration in years (direct)
    3.74       3.46       0.28       8 %
Cash provided by continuing operations
  $ 587     $ 422     $ 165       39 %
Income from continuing operations, net of taxes
  $ 52     $ 56     $ (4 )     (7 %)
Note —   previously reported information has been reclassified to reflect discontinued operations
                                 
    For the Nine Months      
    Ended December 31,           Percent
    2006   2005   Change   Change
    (restated)
    (dollars in millions)
Subscription revenue
  $ 2,274     $ 2,123     $ 151       7 %
Total revenue
  $ 2,938     $ 2,830     $ 108       4 %
Subscription revenue as a percent of total revenue
    77 %     75 %     2 %     3 %
New deferred subscription value (direct)
  $ 2,215     $ 1,641     $ 574       35 %
New deferred subscription value (indirect)
  $ 140     $ 143     $ (3 )     (2 %)
Weighted average license agreement duration in years (direct)
    3.36       3.12       0.24       8 %
Cash provided by continuing operations
  $ 547     $ 814     $ (267 )     (33 %)
Income from continuing operations, net of taxes
  $ 141     $ 199     $ (58 )     (29 %)
Note —   previously reported information has been reclassified to reflect discontinued operations
                                 
    Dec 31,   March 31,           Percent
    2006   2006   Change   Change
    (dollars in millions)
Total cash, cash equivalents, and marketable securities
  $ 1,842     $ 1,865     $ (23 )     (1 %)
Total debt
  $ 2,585     $ 1,816     $ 769       42 %
Note —   previously reported information has been reclassified to reflect discontinued operations
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 unique due to our subscription-based business model.
Subscription Revenue — Subscription revenue is the ratable revenue recognized in a period from amounts previously recorded as deferred subscription value. If the weighted average life of our license agreements

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CONDITION AND RESULTS OF OPERATIONS
remains constant, an increase in deferred subscription value will ultimately result in an increase in subscription revenue.
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. As revenue is ratably recognized (evenly on a monthly basis), it is reported as “Subscription Revenue” on our Consolidated Condensed Statements of Operations, and the deferred subscription value attributable to that contract is correspondingly reduced. When recognized as revenue, the amount is reported on the “Subscription revenue” line item in our Consolidated Condensed Statements of Operations.
Committed installment payments due under software license agreements are not always paid in equal annual installments over the life of a license agreement. 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. The amount collected from a customer 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 collected 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 payments by customers attributable to subsequent fiscal periods is reported as an operating activity entitled “Deferred subscription revenue (collected) — current” and “Deferred subscription revenue (collected) — noncurrent” in our Consolidated Condensed Statements of Cash Flows.
If we transfer our financial interest in future committed installments under a license agreement to a third party financing institution, for which revenue has not yet been recognized, we record the liability associated with the receipt of the cash as “Financing obligations (collected)” on our Consolidated Condensed Balance Sheets. The amounts received from third party financing institutions are classified as either current or non-current, depending upon when amounts are expected to be payable under the license agreement with the customer. When the payment is due from the customer to the third party, we relieve our liability to the financing institution and recognize the previously financed amount as “Deferred subscription revenue (collected)” on our Consolidated Condensed Balance Sheets. The increase or decrease in financing obligations is reported as an operating activity entitled “Financing obligations (collected) — current” and “Financing obligations (collected) — noncurrent” in our Consolidated Condensed Statements of Cash Flows.
Amounts received in the current period that are attributable to later years of a license agreement from either a customer or third party financing institution have a positive impact in the current period on billings and cash provided by continuing operating activities. Accordingly, to the extent such collections are attributable to the later years of a license agreement, the license will 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, which will be accounted for under our subscription model of revenue recognition. 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 up-front on a sell-through basis (when a distributor, reseller, or value added reseller (VAR) sold the software product to its 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 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 entered into during a reporting period. This amount is recognized as

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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. Our new deferred subscription value typically increases in each consecutive fiscal quarter, with the fourth quarter being the strongest. However, since new deferred subscription value is impacted by the volume and dollar amount of contracts coming up for renewal and the amount of early contract renewals, the change in new deferred subscription value, 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 all software licenses executed during a period, weighted to reflect the contract value of each individual software license. The weighted average duration is impacted by the volume and dollar amount of contracts coming up for renewal, and therefore may change from period to period and will not necessarily correlate to the prior year periods.
RESULTS OF OPERATIONS
Revenue:
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, 2006 and 2005. These comparisons of past 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
                    2006/                   2006/
    2006   2005   2005   2006   2005   2005
            (restated)                   (restated)        
Revenue
                                               
Subscription revenue
    77 %     74 %     8 %     77 %     75 %     7 %
Maintenance
    10 %     11 %     (4 %)     10 %     11 %     (3 %)
Software fees and other
    3 %     5 %     (39 %)     3 %     5 %     (37 %)
Financing fees
    1 %     1 %     (45 %)     1 %     1 %     (47 %)
Professional services
    9 %     9 %     11 %     9 %     8 %     15 %
Total revenue
    100 %     100 %     4 %     100 %     100 %     4 %
Note —   previously reported information has been reclassified to reflect discontinued operations
Total Revenue
Total revenue for the three months ended December 31, 2006 increased $37 million, or 4%, from the prior year comparable period to $1 billion. Total revenue for the nine months ended December 31, 2006 increased $108 million, or 4%, from the prior year comparable period to $2.94 billion. As more fully described below, the increase was primarily due to growth in subscription revenue and professional services revenue. These increases were partly offset by declines in software fees and other revenue, maintenance, and financing fees. Total revenue was favorably impacted by foreign exchange of $27 million and $48 million for the three and nine-month periods ended December 31, 2006, respectively.

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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 second quarter of fiscal year 2007 continued to contribute to subscription revenue on a monthly, ratable basis. As a result, subscription revenue for the quarter ended December 31, 2006 includes the ratable recognition of contracts recorded in the third quarter of fiscal year 2007, as well as contracts and related renewals recorded between October 2000 and the second quarter of fiscal year 2007, depending on the contract length. As we reach maturity of our model and based upon the timing of remaining old business model contract renewals, the impact of the transition to our new business model on revenues will decline.
Under the prior business model, maintenance revenue was separately identified and was reported on the “Maintenance” line item in 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 in the Consolidated Condensed Statements of Operations. Under the prior business model, financing revenue was also separately identified in 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. We are not able to quantify the impact that each of these factors had on subscription revenue.
Subscription revenue for the quarter ended December 31, 2006 increased $56 million, or 8%, from the comparable prior year quarter to $773 million. Sales made directly to our end-user customers, which we define as our direct business, contributed approximately $711 million to subscription revenue compared to $676 million in the comparable prior year quarter. The increase was primarily due to growth in new deferred subscription value from the sale of solutions in our Enterprise Systems Management, Business Service Optimization and Security Management business units, led by the sale of acquired products. In addition, subscription revenue was favorably impacted by the manner in which we record maintenance revenue under our business model, as described above, as well as favorable impacts from foreign exchange. Sales made through our channel partners, which we define as our indirect business, contributed approximately $62 million to subscription revenue compared to $41 million in the comparable prior year period. The increase was principally due to the inclusion of $16 million of subscription revenue related to value-added resellers that were previously classified as part of our direct business in the prior fiscal year, as well as favorable impacts from foreign exchange and the continued transition of indirect revenue to the ratable model, which began in the second quarter of fiscal year 2005.
Subscription revenue for the nine months ended December 31, 2006 increased $151 million, or 7%, from the comparable prior year period to $2.27 billion. The direct and indirect businesses contributed approximately $2.11 billion and $162 million, respectively, as compared to $2.01 billion and $110 million, respectively for the comparable prior year period. The increase for the direct business was attributable to the same factors as those described above for the third quarter. The increase in the indirect business was principally due to the inclusion of approximately $25 million of subscription revenue related to value-added resellers that were previously classified as part of our direct business in the prior comparable fiscal period. The balance of the increase in the indirect business was attributable to the same factors identified above.
During the three and nine-month periods ended December 31, 2006, we added new deferred subscription value related to our direct business of $1.33 billion and $2.21 billion, respectively, as compared with $730 million and $1.64 billion, respectively for the comparable prior year periods. The increase in new deferred subscription value in our direct business was primarily attributable to the growth in sales of new products and services, improved management of contract renewals, the benefits achieved from the realignment of our sales force earlier in the year, and an increase in the volume, length and dollar amounts of large contracts during the quarter and an increase in the weighted average contract length. During the third quarter of fiscal year 2007, we renewed six license agreements with contract values in excess of $40 million each, for an aggregate contract value of approximately $472 million. This is compared to the prior fiscal year comparable quarter

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when two license agreements were executed with contract values in excess of $40 million each, for an aggregate contract value of approximately $108 million. With respect to our indirect business, for the three and nine-month periods ended December 31, 2006, we added new deferred subscription value of $53 million and $140 million, respectively, as compared with $53 million and $143 million, respectively for the comparable prior year periods.
The weighted average duration of license agreements executed in the quarters ended December 31, 2006 and 2005 was 3.74 and 3.46 years, respectively, which was higher than our weighted average durations of approximately 3 years in previous quarters for both fiscal years. These increases were attributable to several large contracts executed in the third quarter of both fiscal years 2007 and 2006 with contract terms longer than the historical averages. One contract executed in the third quarter of fiscal year 2007 had a contract term of approximately seven years and a contract value in excess of $100 million.
Maintenance
Maintenance revenue for the quarter ended December 31, 2006 decreased $4 million, or 4%, from the comparable prior fiscal year quarter to $100 million. The decline in maintenance revenue was primarily attributable to our transition to, and the 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 term of the agreement. We are unable to quantify the impact that our transition to our business model had on maintenance revenue since maintenance bundled with software licenses is not separately identified. The decline in maintenance revenue was partly offset by separately identifiable maintenance revenue recorded from acquisitions completed subsequent to the third quarter of fiscal year 2006 of $10 million. Additionally, maintenance revenue attributable to the indirect business for the three month period ended December 31, 2006 increased $4 million compared to comparable prior fiscal year quarter to $18 million.
The amount of maintenance revenue for the nine months ended December 31, 2006 decreased approximately $11 million over the comparable prior fiscal year period to $306 million. The decline was primarily attributable to the manner in which we record maintenance revenue under our business model as described above. We recorded approximately $28 million of incremental separately identifiable maintenance in the first nine months of fiscal year 2007 from acquisitions. Maintenance revenue from our indirect business for the nine months ended December 31, 2006 increased $9 million from the comparable prior year period to $49 million.
Software Fees and Other
Software fees and other revenue consists of revenue related to distribution and original equipment manufactures (OEM) channel partners (sometimes referred to as our “indirect” or “channel” revenue) that has been recorded on an up-front sell-through basis, certain revenue associated with acquisitions prior to the transition to our business model, revenue from joint ventures, royalty revenue and other revenue. Our historical practice has been that revenue from acquisitions is initially recorded on the acquired company’s systems, generally under a perpetual or up-front model, and is typically converted to our ratable model within the first fiscal year after the acquisition. As new contracts are entered into or renewed under our business model, revenue is recognized ratably as subscription revenue on a monthly basis over the term of the agreement. For the three and nine-month periods ended December 31, 2006, the Company recorded approximately $14 million and $32 million, respectively, of revenue on an up-front basis relating to acquisitions that occurred subsequent to the third quarter of fiscal year 2006. We expect that a portion of this revenue will continue to be recorded on an up-front basis as “Software fees and other” and may result in higher total revenue for the period than if this revenue had been transitioned to our ratable subscription model in accordance with our historical practice.
Software fees and other revenue for the third quarter of fiscal year 2007 decreased $19 million, or 39%, from the comparable prior year quarter to $30 million. The decline is principally due to lower revenue from

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acquisitions which had transitioned to our business model, as well as the divestiture of certain business units and joint ventures such as Ingres Corporation and Multigen-Paradigm, Inc.
Software fees and other for the nine months ended December 31, 2006 decreased $47 million, or 37%, from the comparable prior year period to $80 million. The decrease is attributable to the same factors as those described above for the third quarter decrease.
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 revenue recognition. This discount initially reduced the related installment accounts receivable and is 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, 2006, financing fees decreased $5 million, or 45%, from the comparable prior year quarter to $6 million. Financing fees for the nine months ended December 31, 2006 decreased $18 million, or 47%, from the comparable prior year period to $20 million.
Professional Services
Professional services revenue for the quarter ended December 31, 2006 increased $9 million, or 11%, from the comparable prior year quarter to $93 million. The increase was attributable to professional services engagements relating to companies acquired subsequent to the second quarter of fiscal year 2006 of approximately $2 million, growth in security software engagements which utilize Access Control and Identity Management solutions and project and portfolio management services tied to Clarity solutions.
Professional services revenue for the nine months ended December 31, 2006 increased $33 million, or 15%, from the comparable prior year period to $258 million. The increase for the nine month period was attributable to the same factors as described above for the third quarter increase, including approximately $11 million from engagements relating to acquired companies.
Total Revenue by Geography
The following table presents the amount of revenue earned from the United States and international geographic regions and corresponding percentage changes for the three and nine-month periods ended December 31, 2006 and 2005. 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)  
    2006     2005     Change     2006     2005     Change  
         (restated)          (restated)  
United States
  $ 536     $ 518       3 %   $ 1,581     $ 1,496       6 %
International
    466       447       4 %     1,357       1,334       2 %
 
                                       
 
  $ 1,002     $ 965       4 %   $ 2,938     $ 2,830       4 %
Note — previously reported information has been reclassified to reflect discontinued operations
Revenue in the United States increased by approximately $18 million, or 3%, and $85 million, or 6%, respectively, for the three and nine-month periods ended December 31, 2006, as compared with the prior year comparable periods. The increase was primarily attributable to growth from acquisitions. International revenue increased by approximately $19 million, or 4%, and $23 million, or 2%, respectively, for the three and nine-month periods ended December 31, 2006, primarily due to the favorable impact from foreign exchange of $27 million and $48 million, respectively.
Price changes did not have a material impact on revenue in the third quarter of fiscal year 2007 or on the comparable prior fiscal year period.

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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, 2006. 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
                    2006/                   2006/
    2006   2005   2005   2006   2005   2005
            (restated)                   (restated)        
Operating expenses
                                               
Amortization of capitalized software costs
    8 %     12 %     (25 %)     9 %     12 %     (19 %)
Cost of professional services
    8 %     7 %     23 %     8 %     7 %     22 %
Selling, general, and administrative
    40 %     41 %     1 %     42 %     41 %     7 %
Product development and enhancements
    18 %     18 %     3 %     18 %     18 %     2 %
Commission, royalties, and bonuses
    9 %     12 %     (22 %)     8 %     9 %     (5 %)
Depreciation and amortization of other intangible assets
    4 %     3 %     9 %     4 %     3 %     13 %
Other expenses/(gains), net
          (1 %)     N/A             (1 %)     (24 %)
Restructuring and other
    3 %     2 %     52 %     3 %     2 %     53 %
Charge for in-process research and development costs
                            1 %     (44 %)
Total expenses before interest and taxes
    91 %     94 %           92 %     93 %     4 %
Interest expense, net
    2 %     1 %     108 %     2 %     1 %     45 %
 
Note — Amounts may not add to their respective totals due to rounding.
Note — previously reported information has been reclassified to reflect discontinued operations
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 three and nine-month periods ended December 31, 2006 declined by $28 million and $64 million, respectively, from the comparable prior year periods to $83 million and $271 million, respectively. The decline was primarily attributable to certain software costs being fully amortized.
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 three and nine-month periods ended December 31, 2006 increased $15 million, or 23%, and $41 million, or 22%, respectively, from the comparable prior fiscal year periods to $81 million and $228 million, respectively. The increase is primarily attributable to an increase in professional services revenue as noted above, as well as a higher utilization of external consultants.

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Selling, General and Administrative (SG&A)
SG&A expenses for the quarter ended December 31, 2006 increased $3 million, or less than 1%, from the comparable prior year period to $403 million. The increase was primarily attributable to higher personnel related expenses of approximately $16 million due to recent acquisitions and foreign exchange impacts, and higher office related expenses of approximately $11 million due to an increase in rent expense associated with our recent sale-leaseback transactions on certain facilities, including the Islandia headquarters. Despite being higher, personnel related costs were favorably impacted by the savings related to the recent restructuring actions from the fiscal year 2007 cost reduction and restructuring plan (FY07 Plan) as described below. These increases were partially offset by lower costs for external consultants of $13 million and lower selling and marketing related costs of approximately $20 million.
SG&A expenses for the nine-month period ended December 31, 2006 increased $76 million, or 7%, compared to the prior fiscal year period to $1.24 billion. The increase was primarily attributable to higher personnel related costs of approximately $77 million principally related to recent acquisitions and foreign exchange impacts, as well as a net credit recorded to the provision for doubtful accounts in the prior year period of approximately $17 million which did not recur in the current fiscal period and higher office related expenses of $15 million due to the recent sale-leaseback transactions. Partly offsetting the increases were lower external consultant costs of approximately $31 million and lower selling and marketing related expenses of $10 million.
Product Development and Enhancements
For the quarter ended December 31, 2006, product development and enhancement expenditures, which include product support, increased $5 million, or 3%, from the comparable prior year quarter to $176 million. For the quarters ended December 31, 2006 and 2005, product development and enhancement expenditures represented approximately 18% and 18% of total revenue, respectively. During the third quarter of fiscal year 2006, we continued to focus on and invest in product development and enhancements for emerging technologies, as well as a broadening of our enterprise product offerings.
Product development and enhancement expenditures for the nine-month period ended December 31, 2006, increased $11 million, or 2%, from the comparable prior year period to $533 million. For the nine-month periods ended December 31, 2006 and 2005, product development and enhancement expenditures represented approximately 18% and 18% of total revenue, respectively.
Commissions, Royalties, and Bonuses
Commissions, royalties and bonuses for the third quarter of fiscal year 2007 decreased $26 million, or 22%, from the comparable prior year quarter to $92 million. The decline was primarily due to lower commission expense resulting from changes in CA’s Incentive Compensation Plan (the “Incentive Compensation Plan”) as well as changes in our sales organization and sales coverage model. The lower commission expense was partially offset by higher bonus expenses resulting from acquisition related retention payments and an increase in the number of non-direct sales individuals compensated through annual incentive compensation (bonus) plans.
Commissions, royalties and bonuses for the nine months ended December 31, 2006 decreased $13 million, or 5%, from the comparable prior year period to $235 million. The decline is primarily attributable to the factors discussed above. Additionally, external royalties were approximately $5 million higher as the sales of royalty-bearing products continue to grow.
We believe that the changes made to the Incentive Compensation Plan for fiscal year 2007, as well as certain commission-related process improvements, will enhance our ability to control overall commissions expense and avoid unexpected increases in commissions expense as occurred in the second half of fiscal year 2006, as well as improve our ability to effectively estimate, calculate, monitor, and timely pay sales commissions. For further description of the changes to the Incentive Compensation Plan and related processes, refer to “—Critical Accounting Policies and Business Practices—Sales

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Commissions”. Refer also to Item 4, “Controls and Procedures” and Part II, Item 1a, “Risk Factors”, in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.
As noted above we made substantial changes to our sales organization and sales coverage model. In the second quarter of fiscal year 2006, we expanded our “enterprise account” direct sales model in which Account Directors and Account Managers are dedicated to managing the Company’s relationships with specific new and existing enterprise accounts. Their focus is on selling new solutions to enterprise customers. While reducing the overall size of our force through a reorganization of the sales force in the second quarter of fiscal year 2007, we more than doubled the number of Account Directors and Account Managers who are to perform this function. Also, in October 2006, the members of our technical sales organization, consisting of more than 1,500 employees, were assigned revised roles as solution strategists, technology specialists, and consultants, aligned around our product solutions and business units, to be deployed as needed by our Account Directors and Account Managers in connection with the sale of new products and solutions. We also have a core group of sales people who are dedicated to managing, maintaining and renewing our installed customer base. The balance of our market will be covered substantially through our resellers and partners. We are engaged in an extensive training program to enable our sales force to perform their new roles effectively. The purpose of these changes, together with changes to the Incentive Compensation Plan and related process changes is threefold: (i) to enable the Company to increase its sales of new products and solutions to new and existing customers while protecting the Company’s installed base; (ii) to reduce costs and increase productivity; and (iii) to address the commissions issues that arose in connection with the fiscal 2006 Incentive Compensation Plan. We believe the uncertainty associated with these matters adversely affected the Company’s overall performance in the first half of fiscal year 2007. Refer also to Part II, Item 1a, “Risk Factors”, in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.
Depreciation and Amortization of Other Intangible Assets
Depreciation and amortization of other intangible assets for the quarter ended December 31, 2006 increased $3 million, or 9%, from the comparable prior year quarter to $36 million. The increase in depreciation and amortization of other intangible assets was primarily due to the amortization of intangibles recognized in conjunction with recent acquisitions and our ERP system that went live in April 2006.
Depreciation and amortization of other intangible assets for the nine months ended December 31, 2006 increased $12 million, or 13%, from the comparable prior year period to $107 million. The increase was attributable to the same factors discussed above.
Other Expenses/(Gains), Net
Other expenses/(gains), net includes gains and losses attributable to divested assets, certain foreign currency exchange rate fluctuations, and certain other infrequent events. For the quarter ended December 31, 2006 other expenses/(gains), net resulted in a loss of $4 million primarily as a result of foreign exchange losses. The comparable prior year quarter resulted in a gain of $10 million primarily due to an $8 million non-cash gain on the divestiture of assets relating to the formation of Ingres.
Other expenses/(gains), net for the nine months ended December 31, 2006 resulted in a gain of approximately $13 million primarily due to the sale of shares of an investment in marketable securities for a gain of approximately $14 million. For the comparable prior year period, other expenses/(gains), net resulted in a gain of approximately $17 million. As noted above, the gain was largely attributable to gain on the divestiture of assets relating to the formation of Ingres, as well as favorable impacts from exchange gains.
Restructuring and Other
During the third quarter of fiscal year 2007, we recorded restructuring and other charges of approximately $32 million as compared to $21 million in the prior year comparable quarter. The primary driver for the charge in fiscal year 2007 was approximately $29 million of costs relating to the FY07 Plan, including approximately $14 million in severance and other termination benefits and approximately $15 million for exited facilities. The specific plans associated with the balance of the planned reductions in workforce are

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still being finalized and the associated charges will be recorded once the actions are approved by management. We currently estimate a reduction in workforce of approximately 1,400 individuals under the FY07 Plan, including approximately 300 positions associated with joint ventures. We reduced our workforce by approximately 250 individuals due to the divestiture of Benit (refer to Note K, “Divestitures”, in the Notes to the Consolidated Condensed Financial Statements for further details) and by an additional 60 individuals due to the divestiture of another, smaller, joint venture also in the third quarter of fiscal year 2007. We expect to incur approximately $150 million in pre-tax charges under the FY07 Plan, associated with workforce reductions and facility closures. In addition, we recorded a net recovery from the restructuring charges associated with the fiscal 2006 restructuring plan (FY06 Plan) announced in July 2005 of approximately $1 million as compared to an expense of approximately $13 million in the prior year comparable quarter. During the third quarter of fiscal year 2007, we incurred approximately $3 million in legal fees in connection with matters under review by the Special Litigation Committee, comprised of independent members of our Board of Directors (refer to Note J, “Commitments and Contingencies”, in the Notes to the Consolidated Condensed Financial Statements for further details). We recorded charges in the third quarter of fiscal year 2006 in connection with the Company’s Deferred Prosecution Agreement entered into with the United States Attorney’s Office for the Eastern District of New York and for a loss on the sale/leaseback of one of our facilities for approximately $4 million, and $3 million, respectively.
The total projected cost for the FY06 Plan is approximately $100 million, of which approximately $83 million has been recognized to date. The associated restructuring liability balances are included in “Accrued expenses and other current liabilities” on the Consolidated Condensed Balance Sheets.
For the nine months ended December 31, 2006, we recorded restructuring and other charges of $101 million as compared to $66 million in the comparable prior year period. The primary driver for the charge in the first nine months of fiscal year 2007 was approximately $68 million of costs relating to the FY07 Plan, including approximately $53 million in severance and other termination benefits, relating to a total of approximately 800 individuals, and approximately $15 million for exited facilities. Charges related to the FY06 Plan recorded in the current fiscal year were approximately $17 million, which comprised of $20 million for severance and approximately $3 million relating to recovery of facility abandonment costs, compared to approximately $50 million recorded in the comparable prior year period, approximately $29 million of which related to severance and other termination benefits and approximately $21 million relating to abandoned facilities. Additionally, the Company incurred costs in connection with the Company’s Deferred Prosecution Agreement entered into with the United States Attorney’s Office for the Eastern District of New York of approximately $3 million and $7 million for the nine month periods ended December 31, 2006 and 2005, respectively. During the first nine months of fiscal year 2007, we incurred approximately $13 million in legal fees in connection with matters under review by the Special Litigation Committee, comprised of independent members of our Board of Directors (refer to Note J, “Commitments and Contingencies”, in the Notes to the Consolidated Condensed Financial Statements for further details). We also recorded charges in the first nine months of fiscal year 2006 associated with termination of a non-core application development professional services project and for a loss on the sale/leaseback of one of our facilities for approximately $5 million and $3 million, respectively.
Charge for In-Process Research and Development Costs
Charge for in-process research and development costs for the nine months ended December 31, 2006 decreased $8 million, or 44%, from the comparable prior year period to $10 million. The $10 million charge for in-process research and development costs was associated with acquisition of XOsoft, Inc. during the second quarter of fiscal year 2007. In the first nine months of fiscal year 2006, we incurred in-process research and development costs of $18 million associated with the acquisitions of Concord Communications, Inc. and Niku Corporation.
Interest Expense, net
Net interest expense for the third quarter of fiscal year 2007 increased $13 million, or 108%, compared to the prior fiscal year third quarter to $25 million. The increase was primarily due to a decrease in our average cash balance as well as higher borrowings under the credit facility associated with our $1.0 billion tender offer.

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Net interest expense for the first nine months of fiscal year 2007 increased $14 million, or 45%, compared to the prior fiscal year comparable period to $45 million. The increase was due to the same factors as those discussed above and was partly offset by lower interest expense on the 6.375% Senior Notes which were repaid in April 2005.
Income Taxes
Income tax expense for the three and nine-month periods ended December 31, 2006 was $18 million and $40 million, respectively, compared to the income tax benefit for the three and nine-month periods ended December 31, 2005 of $13 million and $18 million, respectively. For the quarter ended December 31, 2006, the tax provision included a net benefit of approximately $5 million, arising from a revision of its estimated Section 199 manufacturing deduction. Income tax expense for the nine-month period ending December 31, 2006 also includes a net benefit of approximately $18 million, primarily arising from the resolution of certain international and U.S. Federal tax contingencies
For the quarter ended December 31, 2005, the tax provision included a net benefit of approximately $25 million primarily 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 approximately $36 million reflecting IRS Notice 2005-38. Notice 2005-38 permitted the utilization of foreign tax credits in calculating the special one-time dividends received deduction on repatriating funds as provided by the American Jobs Creation Act of 2004.
We are subject to tax in many jurisdictions and a certain degree of estimation is required in recording assets and liabilities related to income taxes. We believe that adequate provision has been made for any adjustments that may result from tax examinations. The outcome of tax examinations, however, cannot be predicted with certainty as tax matters could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. Should any issues addressed in our tax audits be resolved in a manner not consistent with management’s expectations, we could be required to adjust the provision for income tax in the period such resolution occurs.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities totaled $1.84 billion at December 31, 2006, a decrease of $23 million from the March 31, 2006 balance of $1.87 billion. Compared to rates at March 31, 2006, cash and cash equivalents increased by approximately $70 million due to the positive effect that foreign currency exchange rates had on cash during the first nine months of fiscal year 2007.
Sources and Uses of Cash
Cash generated by continuing operating activities for the nine months ended December 31, 2006 and 2005 was $547 million and $814 million, respectively. For the nine months ended December 31, 2006, accounts receivable, net of deferred revenue, maintenance and financing obligations, decreased approximately $229 million, compared to a decline in the comparable prior year period of $197 million. Accounts payable, accrued expenses and other liabilities declined approximately $115 million compared to an increase in the comparable prior year period of $141 million. The decline in accounts payable was related to management’s determination that its payable cycle had exceeded an optimal level and that it should be reduced. We do not expect a significant impact on future cash flows from further changes in the payable cycle. Other factors contributing to the decline in cash from operations included higher expenses and the timing of fiscal 2007 contributions to the CA Savings Harvest Plan, a 401(k) plan, which were not pre-funded in fiscal year 2006.
The timing and actual amounts of cash received from committed customer installment payments under any specific license agreement can be impacted by several factors. Often, it is the result of direct negotiations with the customer when establishing pricing and payment terms. In certain instances the customer negotiates a price for a single up-front installment payment and seeks its own internal or external financing sources. In other instances, we may assist the customer by arranging financing on their behalf through a third party.

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Although the terms and conditions of the financing arrangement have been negotiated by us with the financial institution, the decision of whether to enter into these types of financing arrangements remains at the customer’s discretion. Alternatively, we may decide to transfer our rights and title to the future committed installment payments, due under the license agreement, to a third party financial institution in exchange for a cash payment. In these instances, the license agreements signed by the customer contain provisions that allow for the assignment of our financial interest without further customer involvement. Once transferred, the future committed installments are payable by the customer to the third party financial institution. Whether the future committed installments have been financed directly by the customer with our assistance or by the transfer of our rights and title to future committed installments to a third party, the financing agreements may contain limited recourse provisions with respect to our continued performance under the license agreements. Based on our historical experience, we believe that any liability which may be incurred as a result of these limited recourse provisions is remote.
Amounts received as a result of a single installment for the entire contract value, or a substantial portion of the contract value, rather than being invoiced and collected over the life of the license agreement are reflected in the liability section of the Condensed Consolidated Balance Sheet as either Deferred subscription revenue (collected) or Financing obligations (collected), depending upon whether the cash is received directly from the customer or from a third party financial institution. The aggregate balance of Deferred subscription revenue (collected), current and non-current, decreased approximately $66 million to $1.85 billion at December 31, 2006, while Financing Obligations (collected), both current and non-current, increased approximately $70 million to approximately $120 million as of December 31, 2006. As previously noted, collections of these amounts positively impact current year cash flows provided from operating activities and collections that would have been attributable to later years (i.e. the non-current portion) will not be available as a source of cash in such later years as the revenue is recognized. Although we cannot predict with certainty the amount of cash to be collected on future committed installments due under new or renewed license agreements, we expect that the aggregate dollar value of the arrangements described above will be consistent with our historical experiences.
In any quarter, we may receive payments in advance of the contractually committed date on which the payments were otherwise due. In certain instances, the customer may elect to make such payments without any discounts offered by us. In the third quarter of fiscal year 2007, such receipts included a payment of approximately $46 million that was not contractually due until our fourth quarter. In addition, in limited circumstances, we have offered discounts to ensure the receipt of cash by the end of the fiscal period. In the third quarter of fiscal year 2007, we received contractual payments for which we granted discounts, including payments of approximately $19 million that were due at the end of the third or in the fourth quarter that might not otherwise have been received in the third quarter, for which we granted approximately $0.2 million in discounts.
Cash generated by continuing operating activities was favorably impacted as a result of receiving the entire contract value, or a substantial portion of the contract value, in a single installment. For the nine months ended December 31, 2006 gross receipts related to such single installments were approximately $496 million, as compared to approximately $360 million in the comparable prior fiscal year period. Approximately $81 million of the increase was due to an increase from the prior period in the number of contracts which were paid in a single installment by the customer. For the nine month periods ended December 31, 2006 and 2005, one customer in each period accounted for approximately 20% of the gross receipts from single installment payments in each period. Additionally, cash receipts from the transfer of our financial interest in committed payments to a third party financial institution increased approximately $55 million from the prior comparable period to $89 million. This increase was primarily related to transactions completed in the third quarter of fiscal year 2007.
The Company’s estimate of the fair value of net installment accounts receivable recorded under the prior business model approximates carrying value. 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

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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 products as part of the agreement terms.
Under our business model, we can estimate the total amounts to be billed and/or collected at the conclusion of a reporting period. For current business model contracts, amounts we expect to bill within the next twelve months at December 31, 2006 decreased by approximately $22 million to approximately $1.66 billion from the end of the prior fiscal year. Amounts we expect to bill beyond the next 12 months increased by $142 million to $1.38 billion. 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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Reconciliation of Amounts to be Collected to Accounts Receivable
                 
    December 31,     March 31,  
    2006     2006  
    (in millions)  
Current:
               
Accounts receivable
  $ 721     $ 828  
Other receivables
    51       77  
Amounts to be billed within the next 12 months – business model
    1,657       1,680  
Amounts to be billed within the next 12 months — prior business model
    245       254  
Less: allowance for doubtful accounts
    (30 )     (25 )
 
           
Net amounts expected to be collected — current
    2,644       2,814  
 
           
Less:
               
Unamortized discounts
    (32 )     (44 )
Unearned maintenance
    (2 )     (4 )
Deferred subscription revenue – current, billed
    (637 )     (534 )
Deferred subscription value – current, uncollected
    (633 )     (476 )
Deferred subscription value – noncurrent, uncollected, Related to current accounts receivable
    (1,024 )     (1,204 )
Unearned professional services
    (26 )     (47 )
 
           
Trade and installment accounts receivable — current, net
    290       505  
 
           
 
               
Non-Current:
               
 
               
Amounts to be billed beyond the next 12 months – business model
    1,372       1,236  
Amounts to be billed beyond the next 12 months — prior business model
    381       511  
Less: allowance for doubtful accounts
    (10 )     (20 )
 
           
Net amounts expected to be collected — noncurrent
    1,743       1,727  
 
           
Less:
               
Unamortized discounts
    (24 )     (34 )
Unearned maintenance
    (3 )     (8 )
Deferred subscription value – noncurrent, uncollected
    (1,372 )     (1,236 )
 
           
Installment accounts receivable – noncurrent, net
    344       449  
 
           
 
               
Total accounts receivable, net
  $ 634     $ 954  
 
           

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    December 31,     March 31,  
    2006     2006  
    (in millions)  
Deferred Subscription Value:
               
Deferred subscription revenue (collected) — current
  $ 1,437     $ 1,492  
Deferred subscription revenue (collected) — noncurrent
    412       423  
Deferred subscription revenue current, billed
    637       534  
Deferred subscription value — current, uncollected
    633       476  
Deferred subscription value — noncurrent, uncollected, related to current accounts receivable
    1,024       1,204  
Deferred subscription value — noncurrent, uncollected
    1,372       1,236  
Financing obligations (collected) — current
    71       25  
Financing obligations (collected) — noncurrent
    49       25  
 
           
 
               
Aggregate deferred subscription value balance
  $ 5,635     $ 5,415  
 
           
Approximately 11% of the total deferred subscription value balance of approximately $5.64 billion at December 31, 2006 is associated with multi-year contracts signed with the U.S. Federal Government and other U.S. state and local governmental agencies that 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. For any contracts with governmental agencies who are first-time customers that are subject to annual fiscal funding approval, we generally do not record the deferred subscription value for the unbilled portion of the contract until the funding is approved. We also receive contracts from non-U.S. governmental agencies that contain similar provisions. The total balance of deferred subscription value related to non-U.S. governmental agencies that may be terminated at the convenience of the agencies is not material to the overall deferred subscription value balance.
Other sources and uses of cash for the first nine months of fiscal year 2007 included net proceeds from the sale-leaseback of the Company’s headquarters in Islandia, New York for $201 million, sales of marketable securities for $44 million, and the sale-leaseback of certain IT equipment for $15 million. In addition, the Company repurchased approximately 41 million shares of its common stock under a tender offer in September 2006 which was funded with approximately $240 million of existing cash and $750 million in new borrowings under the revolving credit facility. The Company paid $173 million, net of cash acquired, for the acquisition of four companies in fiscal year 2007.
First Nine Months of Fiscal Year 2007 versus Fiscal Year 2006 Comparison
Operating Activities:
Cash generated by continuing operating activities for the first nine months of fiscal year 2007 was $547 million, representing a decline of approximately $267 million compared to the prior year period. The decline was driven primarily by higher disbursements to vendors and higher payroll related disbursements of approximately $365 million in the aggregate. The higher disbursements were partially offset by higher collections of approximately $71 million and by a $75 million restitution fund payment in the second quarter of fiscal year 2006 that did not recur in fiscal year 2007. The higher payroll related disbursements were primarily the result of increased personnel costs from acquisitions, pre-funding our 2007 contributions to the CA Savings Harvest Plan, a 401(k) plan, which were not pre-funded in fiscal year 2006, as well as higher payments for commissions due to increased commission costs in the fourth quarter of fiscal year 2006 as compared to the prior year period.

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Investing Activities:
Cash used in investing activities for the first nine months of fiscal year 2007 was $106 million compared to $547 million for the prior year period. The reduction in cash used in investing activities was primarily related to a reduction of $507 million in amounts paid for acquisitions, net of cash acquired, and the net proceeds from the sale-leaseback of the Company’s corporate headquarters in Islandia, New York of $201 million. Partially offsetting this was a reduction in proceeds received from the sale of marketable securities of $257 million.
Financing Activities:
Cash used in financing activities for the first nine months of fiscal year 2007 was $509 million compared to $1.24 billion in the comparable prior year period. The cash used in fiscal year 2006 was primarily the result of the $825 million repayment of the Company’s 6.375% Senior Notes as well as share repurchases of $367 million. The cash used in 2007 was primarily the result of the repurchase of approximately 51 million shares for $1.21 billion, partly offset by new borrowings of $750 million under the Company’s $1 billion revolving credit facility.
Third quarter Fiscal Year 2007 versus Fiscal Year 2006 Comparison
Operating Activities:
Cash generated by continuing operating activities for the third quarter of fiscal year 2007 was $587 million, representing an increase of approximately $165 million compared to the prior year period. The increase for the quarter was primarily driven by higher collections of approximately $167 million. The improved collections were primarily due to a higher volume of bookings and associated billings in the quarter, an increase in the amount and number of contracts where the entire contract value or a substantial portion of the contract value was received in a single installment of approximately $120 million, principally due to the transfer of our interest in future committed installments to third party financing institutions, as well as a return of the receivables cycle to its previous levels.
Investing Activities:
Cash used in investing activities for the third quarter of fiscal year 2007 was $71 million compared to cash used in investing activities of $62 million for the prior year period. The primary drivers for the increase were activities that occurred in the third quarter of 2006 but did not recur in the third quarter of fiscal year 2007, including proceeds from the sales of marketable securities for $39 million and sales of assets of $41 million partially offset by $54 million in acquisition costs. Also partially offsetting the unfavorable variance was a lower level of spending for purchases of fixed assets in the third quarter of fiscal year 2007 when compared to the third quarter of fiscal year 2006.
Financing Activities:
Cash used in financing activities for the third quarter of fiscal year 2007 was $20 million compared to $104 million in the comparable prior year period. The primary driver for the improvement was lower repurchases of our common stock; we are continuing to evaluate the second phase of the $2 billion tender offer.

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Liquidity
As of December 31, 2006 and March 31, 2006, our debt arrangements consisted of the following:
                                 
    December 31, 2006     March 31, 2006  
    Maximum     Outstanding     Maximum     Outstanding  
    Available     Balance     Available     Balance  
    (in millions)  
Debt Arrangements:
                               
2004 Revolving Credit Facility (expires December 2008)
  $ 1,000     $ 750     $ 1,000     $  
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
    20             5        
Capital lease obligations and other
          25             6  
 
                           
Total
          $ 2,585             $ 1,816  
 
                           
2004 Revolving Credit Facility
In December 2004, we entered into an unsecured revolving credit facility (the 2004 Revolving Credit Facility). The maximum committed amount available under the 2004 Revolving Credit Facility is $1 billion, exclusive of incremental credit increases of up to an additional $250 million which are available subject to certain conditions and the agreement of our lenders. The 2004 Revolving Credit Facility expires December 2008 and $750 million was drawn as of December 31, 2006. No amounts were drawn as of March 31, 2006.
We drew down $750 million in September 2006 in order to finance the $1 billion tender offer, which is further described in the “Statements of Cash Flows” section of Note A, “Basis of Presentation” in this Quarterly Report on Form 10-Q. Borrowings under the 2004 Revolving Credit Facility bear interest at a rate dependent on our credit ratings at the time of such borrowings and are calculated according to a base rate or a Eurocurrency rate, as the case may be, plus an applicable margin and utilization fee. The Company’s current borrowing rate is 6.50%. 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%. Based on our credit ratings as of January 2007, the applicable margin is 0.025% for a base rate borrowing and 1.025% for a Eurocurrency borrowing, and the utilization fee is 0.125%. In addition, we must pay facility fees quarterly at rates dependent on our credit ratings. The facility fees can range from 0.125% to 0.30% of the amount of the committed amount under the facility (without taking into account any outstanding borrowings under such commitments). Based on our credit ratings as of January 2007, the facility fee is 0.225% of the $1 billion committed amount.
The 2004 Revolving Credit Facility 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 2004 Revolving Credit Facility, must not exceed 4.00 for the quarters ending December 31, 2006 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 2004 Revolving Credit Facility, must not be less than 5.00. In addition, as a condition precedent to each borrowing made under the 2004 Revolving Credit Facility, 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 2004 Revolving Credit Facility (other than the representation with respect to material adverse changes, but including the representation regarding the absence of certain material litigation) are correct. As of February 5, 2007, we are in compliance with these debt covenants.

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Fiscal Year 1999 Senior Notes
In fiscal year 1999, the Company issued $1.75 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. In April 2005, the Company repaid the $825 million remaining balance of the 6.375% Senior Notes from available cash balances. As of December 31, 2006, $350 million of the 6.5% Senior Notes remained outstanding.
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 used the net proceeds from this issuance to repay debt. 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 could 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 since the delay was not cured prior to that date. The additional 50 basis points ceased to accrue as of November 18, 2006, when the 2005 Senior Notes could be sold under Rule 144, without registration, to the public by holders who are not affiliated with the Company.
1.625% Convertible Senior Notes
In fiscal year 2003, the Company 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, “Debt”, in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2006.
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 our subsidiaries operating outside the United States. The line of credit is available on an offering basis, meaning that transactions under the line of credit will be on such terms and conditions, including interest rate, maturity, representations, covenants and events of default, as mutually agreed between our subsidiaries and the local bank at the time of each specific transaction. As of December 31, 2006, the amount available under this line totaled approximately $20 million and approximately $3

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million was pledged in support of bank guarantees. Amounts drawn under these facilities as of December 31, 2006 were minimal.
In addition to the above facility, our foreign subsidiaries use guarantees issued by commercial banks to guarantee performance on certain contracts. At December 31, 2006, the aggregate amount of significant guarantees outstanding was approximately $2 million, none of which had been drawn down by third parties.
Effect of Exchange Rate Changes
There was a $42 million and $70 million favorable impact to our cash balance in the first three and nine months of fiscal year 2007, respectively , predominantly due to the strengthening of the British pound and the euro against the U.S. dollar. This is compared to a negative impact of $23 million and $91 million in the comparable prior year periods, which was predominantly due to the weakening of the British pound and the euro against the U.S. dollar.
Other Matters
As of January 2007, our senior unsecured notes are rated Ba1, BB+ and BB by Moody’s Investors Service, Fitch Rating, and Standard and Poor’s, respectively. The outlook on these unsecured notes is negative by all three rating agencies. Peak borrowings under all debt facilities during the third quarter of fiscal year 2007 totaled approximately $2.59 billion, with a weighted average interest rate of 5.9%.
Our capital resource requirements as of December 31, 2006 consisted of lease obligations for office space, equipment, mortgage and loan obligations, our ERP implementation, and amounts due as a result of product and company acquisitions.
It is expected that existing cash, cash equivalents, the availability of borrowings under existing and renewable credit lines and in the capital markets, and cash expected to be provided from operations will be sufficient to meet ongoing cash requirements.
We expect to use existing cash balances and future cash generated from operations to fund financing activities such as the repayment of our debt balances as they mature as well as the repurchase of shares of common stock and the payment of dividends as may be approved by our Board of Directors. Cash generated will also be used for investing activities such as future acquisitions as well as additional capital spending, including our continued investment in our ERP implementation.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OUTLOOK
This outlook for fiscal year 2007 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-to-modest improvements in the current economic and IT environments. We also believe that customers will continue to be cautious with their technology purchases.
We expect to exceed our revenue guidance of $3.9 billion and to report earnings per share from continuing operations of $0.26 to $0.29, which includes estimated restructuring and other charges of approximately $130 million. We expect to generate cash from continuing operations of between $900 million and $1 billion.
This outlook assumes:
    We will not experience an increase in new deferred subscription value in the fourth quarter of fiscal year 2007 compared to the third quarter due to the particularly strong performance in the third quarter;
 
    The substantial changes in the structure of our sales force and our fiscal year 2007 sales commission plan will drive growth in new deferred subscription value for fiscal year 2007 compared to the prior year’s amount;
 
    Actions that management has undertaken will reduce commission costs for fiscal year 2007 as compared to fiscal year 2006;
 
    Cash generated from continuing operations for the fourth quarter will be impacted by additional income tax payments of approximately $170 million compared to income tax payments of approximately $15 million in the third quarter and approximately $175 million for the nine months ended December 31, 2006;
 
    Cash generated from continuing operations for the fourth quarter will not experience an incremental benefit from the improvement in the receivables cycles which was achieved principally in the third quarter; and
 
    Our effective tax rate for fiscal year 2007 will be approximately 26%.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 Annual Report on Form 10-K for the year ended March 31, 2006. 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, 2006.
Revenue Recognition
We generate revenue from the following primary sources: (1) licensing software products; (2) providing customer technical support (referred to as maintenance); and (3) providing professional services, such as consulting and education.
We recognize revenue pursuant to the requirements of Statement of Position 97-2 “ Software Revenue Recognition ” (SOP 97-2), issued by the American Institute of Certified Public Accountants, as amended by SOP 98-9 “ Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions. ” In accordance with SOP 97-2, we begin to recognize revenue from licensing and supporting our software products when all of the following criteria are met: (1) we have evidence of an arrangement with a customer; (2) we deliver the products; (3) license agreement terms are deemed fixed or determinable and free of contingencies or uncertainties that may alter the agreement such that it may not be complete and final; and (4) collection is probable.
Our software licenses generally do not include acceptance provisions. An acceptance provision allows a customer to test the software for a defined period of time before committing to license the software. If a license agreement includes an acceptance provision, we do not record deferred subscription value or recognize revenue until the earlier of the receipt of a written customer acceptance or, if not notified by the customer to cancel the license agreement, the expiration of the acceptance period.
Under our business model, software license agreements include flexible contractual provisions that, among other things, allow customers to receive unspecified future software products for no additional fee. These agreements combine the right to use the software products with maintenance for the term of the agreement. Under these agreements, once all four of the above noted revenue recognition criteria are met, we are required to recognize revenue ratably over the term of the license agreement. For license agreements signed prior to October 2000 (the prior business model), once all four of the above noted revenue recognition criteria were met, software license fees were recognized as revenue up-front (as the contracts did not include a right to unspecified software products) and the maintenance fees were deferred and subsequently recognized as revenue over the term of the license. Our historical practice has been that revenue from acquisitions is initially recorded on the acquired company’s systems, generally under a perpetual or up-front model, and is then converted to our ratable model within the first fiscal year after the acquisition. As new contracts are entered into or renewed under our business model, revenue is recognized ratably as subscription revenue on a monthly basis over the term of the agreement. For the three and nine-month periods ended December 31, 2006, the Company recorded approximately $14 million and $32 million, respectively, of revenue on an up-front basis relating to acquisitions that occurred subsequent to the third quarter of fiscal year 2006. We expect that beginning in fiscal year 2008, a portion of this revenue will continue to be recorded on an up-front basis as “Software fees and other” and may result in higher total revenue for the period than if this revenue had been transitioned to our ratable subscription model in accordance with our historical practice.
Maintenance revenue is derived from two primary sources: (1) combined license and maintenance agreements recorded under the prior business model; and (2) certain stand-alone maintenance agreements.
Under the prior business model, maintenance and license fees were generally combined into a single license agreement. The maintenance portion was deferred and amortized into revenue over the initial license agreement term. Some of these license agreements have not reached the end of their initial terms and, therefore, continue to amortize. This amortization is recorded on the “Maintenance” line item on the

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CONDITION AND RESULTS OF OPERATIONS
Consolidated Condensed Statements of Operations. The deferred maintenance portion, which was optional to the customer, was determined using its fair value based on annual, fixed maintenance renewal rates stated in the agreement. For license agreements entered into under our current business model, maintenance and license fees continue to be combined; however, the maintenance is inclusive for the entire term. We report such combined fees on the “Subscription revenue” line item on the Consolidated Condensed Statements of Operations.
We also record certain stand-alone maintenance revenue earned from customers who elect optional maintenance. Revenue from such renewals is recognized as maintenance revenue over the term of the renewal agreement.
The “Deferred maintenance revenue” line item on our Consolidated Condensed Balance Sheets principally represents payments received in advance of maintenance services rendered.
Revenue from professional service arrangements is recognized pursuant to the provisions of SOP 97-2, which in most cases is as the services are performed. Revenues from professional services that are sold as part of a software transaction are deferred and recognized on a ratable basis over the life of the related software transaction. If it is not probable that a project will be completed or the payment will be received, revenue is deferred until the uncertainty is removed.
Revenue from sales to distributors, resellers, and VARs is recognized when all four of the SOP 97-2 revenue recognition criteria noted above are met and when these entities sell the software product to their customers. This is commonly referred to as the sell-through method. Beginning July 1, 2004, sales of our products made by distributors, resellers and VARs to their customers incorporate the right for the end-users to receive certain upgraded software products at no additional fee. Accordingly, revenue from those contracts is recognized on a ratable basis.
We have an established business practice of offering installment payment options to customers and have a history of successfully collecting substantially all amounts due under such agreements. We assess collectibility based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. If, in our judgment, collection of a fee is not probable, we will not recognize revenue until the uncertainty is removed through the receipt of cash payment.
Our standard licensing agreements include a product warranty provision for all products. Such warranties are accounted for in accordance with SFAS No. 5, “ Accounting for Contingencies .” The likelihood that we would be required to make refunds to customers under such provisions is considered remote.
Under the terms of substantially all of our license agreements, we have agreed to indemnify customers for costs and damages arising from claims against such customers based on, among other things, allegations that our software products infringe the intellectual property rights of a third party. In most cases, in the event of an infringement claim, we retain the right to (i) procure for the customer the right to continue using the software product; (ii) replace or modify the software product to eliminate the infringement while providing substantially equivalent functionality; or (iii) if neither (i) nor (ii) can be reasonably achieved, we may terminate the license agreement and refund to the customer a pro-rata portion of the fees paid. Such indemnification provisions are accounted for in accordance with SFAS No. 5. The likelihood that we would be required to make refunds to customers under such provisions is considered remote. In most cases and where legally enforceable, the indemnification is limited to the amount paid by the customer.
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:
    Historical information, such as general collection history of multi-year software agreements;
 
    Current customer information/events, such as extended delinquency, requests for restructuring, and filing for bankruptcy;

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CONDITION AND RESULTS OF OPERATIONS
    Results of analyzing historical and current data; and
 
    The overall macroeconomic environment.
The allowance is comprised of 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 (unearned revenue) 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
We accrue sales commissions based on, among other things, estimates of how our sales personnel have performed 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 period, sales commission expense could have been impacted for that period. Under our current sales compensation model, during periods of high growth and sales of new products relative to revenue in that period, the amount of sales commission expense attributable to the license agreement would be recognized fully in the period and could negatively impact income and earnings per share in that period, particularly in the second half of the fiscal year when new contract values are traditionally higher than in the first half.
In our Annual Report on Form 10-K for fiscal year 2006, we reported that commissions for 2006 were higher than anticipated, primarily due to a new sales commission plan for fiscal year 2006 that did not appropriately align commission payments with our overall performance. Also, as set forth below in Item 4, at the end of fiscal year 2006, we had a material weakness in our internal control over financial reporting due to ineffective policies and procedures relating to controls over the accounting for sales commissions. Specifically, we did not effectively estimate, record and monitor our sales commissions and related accruals. Since the close of fiscal year 2006, we have made changes to the Incentive Compensation Plan for fiscal year 2007 and related processes for the purpose of improving our ability to effectively estimate, accrue for, calculate, monitor, and timely pay sales commissions, and to control overall commission expense as part of our remediation of the 2006 material weakness in the Company’s internal control over financial reporting related to accounting for commissions. We have simplified the Incentive Compensation Plan by, among other things, in April 2006, on a worldwide basis, reducing accelerators in the plan (under which sales employees are paid commissions at higher rates when they reach certain levels of quota achievement) and simplifying some of the metrics on which quotas are based. Effective in October 2006, in North America and Latin America we reduced the number of people and functions being paid on commissions, eliminated certain multipliers in the plan (under which cash bonuses were awarded to encourage certain types of sales activity), and adopted further changes in the metrics on which commissions are based in part to drive the sale of new products and solutions to new and existing customers. The Incentive Compensation Plan remains subject to evaluation and modification. We have also made process improvements in regard to calculating, recording, accruing for, and effecting payment of and reconciling commissions related accounting transactions. Our efforts to improve our commissions-related processes are ongoing. Refer to Item 4, “Controls and Procedures”, for additional information on our remediation plans. Refer also to Part II, Item 1a, “Risk Factors”, in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 for additional information on risks associated with changes in the Incentive Compensation Plan and other changes affecting our sales force.
The 2007 sales commissions plan has been modified and will continue to be evaluated during the current fiscal year. While revised, the plan is still subject to risks similar to those identified in our Annual Report on Form 10-K for fiscal year 2006, including the risk that, as in fiscal year 2006, commissions expense

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
could be higher than anticipated. As set forth below in Item 4, at the end of fiscal year 2006, we had a material weakness in our internal control over financial reporting due to ineffective policies and procedures relating to controls over the accounting for sales commissions. Specifically, we did not effectively estimate, record and monitor our sales commissions and related accruals. While we have started the process of remediating this material weakness, the material weakness in the Company’s internal control over financial reporting related to accounting for commissions persists and has not been fully remediated. Refer to Item 4, “Controls and Procedures”, for additional information on our remediation plans.
Income Taxes
When we prepare our consolidated condensed financial statements, we estimate our income taxes in each jurisdiction in which we operate. We record this amount as a provision for taxes in accordance with SFAS No. 109, “ Accounting for Income Taxes .” This process requires us to estimate our actual current tax liability in each jurisdiction; estimate differences resulting from differing treatment of items for financial statement purposes versus tax return purposes (known as “temporary differences”), which result in deferred tax assets and liabilities; and assess the likelihood that our deferred tax assets and net operating losses will be recovered from future taxable income. If we believe that recovery is not likely, we establish a valuation allowance. We have recognized as a deferred tax asset a portion of the tax benefits connected with losses related to operations. As of December 31, 2006, our gross deferred tax assets, net of a valuation allowance, totaled $839 million. Realization of these deferred tax assets assumes 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.
Deferred tax assets result from acquisition expenses, such as duplicate facility costs, employee severance and other costs that are not deductible until paid, net operating losses (NOLs) and temporary differences between the taxable cash payments received from customers and the ratable recognition of revenue in accordance with GAAP. The NOLs expire between fiscal years 2007 and 2027. Additionally, approximately $57 million of the valuation allowance at both December 31, 2006 and March 31, 2006, is attributable to acquired NOLs which are subject to annual limitations under IRS Code Section 382. Future results may vary from these estimates.
We believe that adequate accruals have been made for contingencies related to income taxes, and have classified these in current and long-term liabilities based upon our estimate of when the ultimate resolution of the contingent liability will occur. The ultimate resolution of the contingent liabilities will take place upon the earlier of (i) receipt of a final determination from the applicable taxing authorities or (ii) the date when the tax authorities are statutorily prohibited from adjusting the Company’s tax computations. Any difference between the amount accrued and the ultimate settlement amount if any, will be released to income or recorded as a reduction of goodwill depending upon whether the liability was initially recorded in purchase accounting.
Goodwill, Capitalized Software Products, and Other Intangible Assets
SFAS No. 142, “ Goodwill and Other Intangible Assets ,” 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. We performed our annual assessment for fiscal year 2006 and concluded that there were no impairments to record.
The SFAS No. 142 goodwill impairment model is a two-step process. The first step is used to identify potential impairment by comparing the fair value of a reporting unit with its net book value (or carrying amount), including goodwill. If the fair value exceeds the carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
Determining the fair value of a reporting unit under the first step of the goodwill impairment test, and determining the fair value of individual assets and liabilities of a reporting unit (including unrecognized intangible assets) under the second step of the goodwill impairment test, is judgmental in nature and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and the magnitude of any such charge. Estimates of fair value are primarily determined using discounted cash flow and are based on our best estimate of future revenue and operating costs and general market conditions. These estimates are subject to review and approval by senior management. This approach uses significant assumptions, including projected future cash flow, the discount rate reflecting the risk inherent in future cash flow, and a terminal growth rate.
The carrying value of capitalized software products, both purchased software and internally developed software, and other intangible assets, are reviewed on a regular basis for the existence of internal and external facts or circumstances that may suggest impairment. The 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. It is not possible for us to predict the likelihood of any possible future impairments or, if such an impairment were to occur, the magnitude thereof.
Accounting for Business Combinations
The allocation of purchase price for acquisitions requires extensive use of accounting estimates and judgements to allocate the purchase price to the identifiable tangible and intangible assets acquired, including in-process research and development, and liabilities assumed based on their respective fair values.
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 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. Annual amortization of capitalized software costs is the greater of the amount computed using the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or the straight-line method over the remaining estimated economic life of the software product, generally estimated to be five years from the date the product reached technological feasibility. The Company amortized capitalized software costs using the straight-line method in fiscal year 2006 and through the third quarter of fiscal year 2007, as anticipated future revenue is projected to increase for several years considering the Company is continuously integrating current software technology into new software products.
Accounting for Share-Based Compensation
We currently maintain share-based compensation plans. We use the Black-Scholes option-pricing model to compute the estimated fair value of certain stock-based awards. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility, expected lives, and risk-free interest rates. These assumptions reflect our best estimates, but these items involve uncertainties based on market and other

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
conditions outside of our control. As a result, if other assumptions had been used, stock-based compensation expense could have been materially impacted. Furthermore, if different assumptions are used in future periods, stock-based compensation expense could be materially impacted in future years.
As described in Note D, “Accounting for Share-based Compensation,” in the Notes to the Consolidated Condensed Financial Statements, performance share units (PSUs) are awards under the long-term incentive plan for senior executives where the number of shares or restricted shares 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. The Company is required to recalculate the fair value of issued PSUs each reporting period until they are granted. The adjustment is based on the fair value of the Company’s stock on the reporting period date. 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 of a loss and the determination as to whether an exposure is reasonably estimable. Due to the uncertainties related to these matters, accruals are based only on the best 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”, in the Notes to the Consolidated Condensed Financial Statements for a description of our material legal proceedings.
New Accounting Standards
In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), “ Accounting for Uncertainty in Income Taxes ,” which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, " Accounting for Income Taxes ”. FIN 48 provides guidance relative to the recognition, derecognition and measurement of tax positions for financial statement purposes. The standard also required expanded disclosures. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of this standard on our Consolidated Condensed Financial Statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) 157, " Fair Value Measurements ”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles (GAAP) and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We are currently evaluating the impact of this standard on our Consolidated Condensed Financial Statements.
In September 2006, the SEC issued Staff Accounting Bulletin (SAB) 108, “ Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”. SAB 108 provides interpretive guidance on how registrants should quantify financial statement misstatements. There is currently diversity in practice, with the two commonly used methods to quantify misstatements being the “rollover” method (which primarily focuses on the income statement impact of misstatements) and the “iron curtain” method (which focuses on the balance sheet impact). SAB 108 requires registrants to use a dual approach whereby both of these methods are considered in evaluating the materiality of financial statement errors. Prior materiality assessments will need to be considered using both the rollover and iron curtain methods. SAB 108 is effective for fiscal years ending on or after November 15, 2006.

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We do not expect this Statement to have a material impact on our Consolidated Condensed Financial Statements.
Other Matters
Our Annual Report on Form 10-K for the fiscal year ended March 31, 2006 included restated financial statements related to the financial impact of past option grant measurement date errors for certain options granted prior to fiscal year 2002. We have received and responded to comments from the staff of the SEC related to the restated financial statements and the related disclosures and the SEC has indicated that it will have further comments. In January 2007, the Division of Corporation Finance of the SEC issued guidance to public companies preparing to restate previously issued financial statements for errors in accounting for stock option grants. Although we have already provided restated financial statements to account for errors in accounting for stock option grants, the staff of the SEC may have further comments requiring us to supplement or modify the disclosures we provided in our fiscal year 2006 Form 10-K, principally related to fiscal periods prior to fiscal year 2004.

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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, 2006, our outstanding debt approximated $2.59 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 a corresponding effect on our variable rate debt of approximately $2 million as of December 31, 2006.
As of December 31, 2006, we did not utilize derivative financial instruments to mitigate the above mentioned 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 $9 million.
Foreign Currency Exchange Risk
We conduct business on a worldwide basis through subsidiaries in 46 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 our Risk Management Policy and Procedures, which authorizes us to manage, based on management’s assessment, our risks/exposures to foreign currency exchange rates through the use of derivative financial instruments (e.g., forward contracts, options, swaps) or other means. We have not historically used, and do not anticipate using, derivative financial instruments for speculative purposes.
Derivatives are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 133, “ Accounting for Derivative Instruments and Hedging Activities ” (FAS 133). During the quarter ended December 31, 2006, the Company entered into derivative contracts with a total notional value of approximately 42.5 million euros and 1.25 billion yen, none of which were outstanding as of December 31, 2006. The Company entered into these contracts with the intent of mitigating a certain portion of the Company’s euro and yen operating exposure as part of the Company’s on-going risk management program. These contracts did not qualify for hedge accounting treatment under FAS 133. The contracts entered into resulted in approximately $1.2 million loss for the quarter ended December 31, 2006. In January 2007, we entered into similar derivative contracts as those entered during the quarter ended December 31, 2006 relating to the Company’s operating exposures.
Equity Price Risk
As of December 31, 2006, we do not hold significant investments in marketable equity securities of publicly traded companies. Our investments in marketable securities were considered trading or available for sale. Unrealized gains or losses on trading securities are reflected as “Other expenses/(gains), net” on the Consolidated Condensed Statement Operations and unrealized gains or temporary losses on available for sale securities are 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, 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 the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q.
As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006, the Company determined that, as of the end of the fiscal year 2006, 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 2007, the Company’s disclosure controls and procedures were not effective.
Changes in internal control over financial reporting
During the first quarter of fiscal year 2007, the Company was engaged in the assessment and evaluation of its internal control over financial reporting for fiscal year 2006 as described below.
Changes under the DPA
As previously reported, and as described more fully in Note J, “Commitments and Contingencies”, in the Notes to the Consolidated Condensed Financial Statements, 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.
Changes to remediate material weaknesses
As previously reported in its Annual Report on Form 10-K for fiscal year 2006, the Company determined that, as of the end of fiscal year 2006, there were material weaknesses in its internal control over financial reporting relating to (1) an ineffective control environment due to a lack of effective communication policies and procedures, (2) ineffective policies and procedures relating to controls over the accounting for sales commissions, (3) ineffective policies and procedures relating to the identification, analysis and documentation of non-routine tax matters, (4) ineffective policies and procedures relating to the accounting for and disclosure of stock-based compensation relating to stock options, and (5) ineffective policies and procedures designated to identify, quantify and record the impact on subscription revenue when license

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agreements have been cancelled and renewed more than once prior to the expiration date of each successive license agreement. These material weaknesses in our internal control over financial reporting continue to persist through the current fiscal quarter with the exception of item (4) above which was remediated during the Company’s first quarter of fiscal year 2007. Accordingly, we plan to implement the procedures and steps noted below to enhance our internal control over financial reporting and our disclosure controls and procedures so as to remediate these weaknesses:
(i) During fiscal year 2007, the Company has made the following progress with respect to the remediation of our material weakness in internal control over financial reporting related to an ineffective control environment due to a lack of effective communication policies and procedures:
    Personnel and organizational changes:
    Appointments of a new Chief Operating Officer in April 2006, a new Chief Administrative Officer in June 2006 and a new Chief Financial Officer in August 2006;
 
    Realignment of reporting of the Chief Financial Officer from Chief Operating Officer to the Chief Executive Officer in April 2006;
 
    Reorganization of the Sales Function including:
    Elimination of the position Executive Vice President Worldwide Sales, and establishment of direct reporting of the field sales organization to the Chief Operating Officer in June 2006;
 
    Appointment of a Senior Vice President Sales Operations with direct reporting to the Chief Operating Officer in June 2006;
 
    Implementation of recurring meetings with representation from key departments including legal, finance, operations and human resources to address operating and financial performance, as well as the identification, tracking and communication of information of potential significance to financial reporting and disclosure issues began during the quarter ended September 30, 2006; and
 
    Ongoing communications by management and the provision of focused training relating to ethics, the Company’s Code of Conduct and its core values; expansion of the Company’s Business Practice Officers program during the quarter ended September 30, 2006; and launch of new training programs on the Company’s Code of Conduct and conflicts of interest during the quarter ended December 31, 2006.
(ii) During fiscal year 2007, the Company has made the following progress with respect to the remediation of our material weakness in internal control over financial reporting related to accounting for sales commissions:
    Reviews of commissions accounting procedures by the Internal Audit Department. The first review was completed during the quarter ended September 30, 2006;
 
    Appointment of a quality review team to assess the adequacy and efficacy of the business processes, IT Systems and financial oversight for the administration of sales commissions during the quarter ended June 30, 2006;
 
    Formalization of policies and procedures including communication and reporting responsibilities among the Company’s sales, human resources and finance functions to ensure that the administration, payments of and accounting for commissions expense are coordinated during the quarter ended December 31, 2006;
 
    Reconciliation of commission expense accruals to actual commission payments on a quarterly basis began during the quarter ended September 30, 2006; and
 
    Creation of a Commission Plan Committee (the “Committee”) that oversees changes to the Company’s Incentive Compensation Plan and related processes in order to enhance the Company’s ability to monitor, timely pay, estimate, and accrue for sales commissions began during the quarter ended September 30, 2006. The Committee provided oversight of changes to simplify the CA Incentive Compensation Plan that took effect October 1, 2006.

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(iii) During fiscal year 2007, the Company has made the following progress with respect to the remediation of our material weakness in internal control over financial reporting related to the identification, analysis and documentation of non-routine tax matters include the following:
    Review of the tax department’s policies and procedures including its use of external advisors during the quarter ended December 31, 2006;
 
    Establishment of new documentation and analysis requirements for non-routine tax matters to ensure among other things, that accounting conclusions involving such matters are thoroughly documented and identify the critical factors that support the basis for such conclusions during the quarter ended December 31, 2006; and
 
    Formalization of policies and procedures including the communication and review of non-routine tax matters between the tax function and senior finance management during the quarter ended December 31, 2006.
(iv) With respect to our material weakness in internal control over financial reporting related to the accounting for and disclosure of stock-based compensation relating to stock options issued prior to fiscal year 2002, the development and implementation of policies and procedures beginning in fiscal year 2002 have resulted in the timely communication of stock option grants to employees. During the first quarter of fiscal year 2007, the Company implemented procedures that resulted in the proper recognition and disclosure of stock-based compensation expense for stock options issued prior to fiscal year 2002. Accordingly, no further remediation is deemed necessary with respect to this material weakness.
(v) During fiscal year 2007, the Company has made the following progress with respect to the remediation of our material weakness in internal control over financial reporting related to accounting for subscription revenue when license agreements have been cancelled and renewed more than once prior to the expiration date of each successive license agreement:
    Formalization of policies and procedures, as well as provision of training, on the identification, quantification and recording of the impact on subscription revenue of such license agreements began during the quarter ended September 30, 2006.
With the exception of item (iv) above, the remediation of the material weaknesses described above is on-going and the Company intends to continue implementing the steps listed above under the belief that our efforts, when fully implemented, will be effective in remediating such material weaknesses. Moreover, management will continue to monitor the results of the remediation activities and test the new controls as part of our evaluation of our internal control over financial reporting for fiscal year 2007. We expect that the material weaknesses referenced above will be fully remediated by the end of fiscal year 2007.
Other changes in internal controls over financial reporting
In the first and third quarters of fiscal year 2007, the Company migrated certain financial and sales processing systems to SAP, an enterprise resource planning (“ERP”) system, at its North American operations. This change in information system platform for the Company’s financial and operational systems is part of its on-going project to implement SAP at all of the Company’s facilities worldwide, which is expected to be completed over the next few years. In connection with the Company’s implementation of its ERP system for its professional services organization in November 2006, the Company experienced various control and implementation issues impacting the Company’s financial reporting for professional services. Therefore, during the quarter, the Company implemented additional manual procedures to address these financial reporting issues and will continue to monitor and test the new system as part of our evaluation of our internal control over financial reporting for fiscal year 2007.

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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Refer to Note J, “Commitments and Contingencies”, in the Notes to the Consolidated Condensed Financial Statements for information regarding legal proceedings.
Item 1a. RISK FACTORS
Current and potential stockholders should consider carefully the risks factors described in more detail in our Annual Report on Form 10-K for the fiscal year ended March 31, 2006, our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2006 and as set forth below. We believe that as of December 31, 2006, there has been no material change to this information other than as described below. Any of these factors, or others, many of which are beyond our control, could negatively affect our revenue, profitability and cash flow.
If we do not adequately manage and evolve our financial reporting and managerial systems and processes, including the successful implementation of our enterprise resource planning software from SAP AG, our ability to manage and grow our business may be harmed.
Our ability to successfully implement our business plan and comply with regulations requires effective planning and management systems and processes. We will need to continue to improve existing and implement new operational and financial systems, procedures and controls to manage our business effectively in the future. As a result, we have licensed enterprise resource planning (ERP) software from SAP AG and have begun a process to expand and upgrade our operational and financial systems. Phase one of the implementation was completed in April 2006 and included operating activities in North America and worldwide human resources. A second major phase of SAP was implemented in November 2006, which included operating activities in our Professional Services business. Any delay in the implementation of, or disruption in the transition to, our new or enhanced systems, procedures or internal controls, could adversely affect our ability to accurately forecast sales demand, manage our supply chain, achieve accuracy in the conversion of electronic data and records, and report financial and management information, including the filing of our quarterly or annual reports with the SEC, on a timely and accurate basis. As a result of the conversion from prior systems and processes, data integrity problems may be discovered that if not corrected could impact our business or financial results. In addition, as we add functionality to the ERP software and complete implementations in other geographic regions, new issues could arise that we have not foreseen. Such issues could adversely affect our ability to do, among other things, the following in a timely manner: provide quotes; take customer orders; ship products; provide services and support to our customers; bill and track our customers; fulfill contractual obligations; and otherwise run our business. Failure to properly or adequately address these issues could result in the diversion of management’s attention and resources, impact our ability to manage our business and negatively impact our results of operations, cash flows and stock price. See Item 4: Controls and Procedures for further information.

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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 2007:
                                 
                            Approximate
                    Total Number   Dollar Value of
                    of Shares   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, 2006 — October 31, 2006
        $       —           $ 1,000,000  
November 1, 2006 — November 30, 2006
                      1,000,000  
December 1, 2006 — December 31, 2006
                      1,000,000  
 
                         
Total
                           
 
                       
On June 29, 2006, our Board of Directors authorized a $2 billion common stock repurchase plan for fiscal year 2007. This authorized stock repurchase plan replaced the prior $600 million common stock repurchase plan. The Company expected to finance the $2 billion common stock repurchase plan through a combination of cash on hand and bank financing. The second phase of the stock repurchase plan is currently being evaluated.
On August 15, 2006, the Company announced the commencement of a $1 billion tender offer to repurchase outstanding common stock, at a price not less than $22.50 and not greater than $24.50 per share.
On September 14, 2006, the expiration date of the tender offer, CA accepted for purchase 41,225,515 shares at a purchase price of $24.00 per share, for a total price of approximately $989 million, which excludes bank, legal and other associated charges. Upon completion of the tender offer, the Company retired all of the shares that were repurchased. There were no share repurchases during the three month period ended December 31, 2006.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None

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Item 6. EXHIBITS
         
Regulation S-K        
Exhibit Number        
4.1
  Stockholder Protection Rights Agreement, dated as of October 16, 2006, between CA, Inc. and Mellon Investor Services LLC, as Rights Agent, including as Exhibit A the forms of Rights Certificate and of Election to Exercise and as Exhibit B the form of Certificate of Designation and Terms of the Participating Preferred Stock of the Company.   Previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated October 16, 2006, and incorporated herein by reference.
 
       
10.1
  Amended and Restated CA, Inc. Executive Deferred Compensation Plan, effective November 20, 2006.   Filed herewith.
 
       
15
  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.
 
 
  By:   /s/ John A. Swainson    
    John A. Swainson   
    President and Chief Executive Officer   
 
         
     
  By:   /s/ Nancy E. Cooper    
    Nancy E. Cooper   
    Executive Vice President and Chief Financial Officer   
 
Dated: February 5, 2007

64

 

Exhibit 10.1
Amended and Restated ADOPTION AGREEMENT -11/20/06
1.01   PREAMBLE
 
    By the execution of this Adoption Agreement the Plan Sponsor hereby (complete a. or b.)
  a.   r adopts a new plan as of ___                      [month, day, year]
 
  b.   þ amends and restates its existing plan as of November 20, 2006 [month, day, year] which is the Amendment Restatement Date.
 
      Original Effective Date: September 1, 2005 [month, day, year]
 
      Pre-409A Grandfathering: r Yes r No (If yes, complete Appendix B, “Summary of Grandfathered Provisions”)
1.02   PLAN
 
    Plan Name: CA, Inc. Executive Deferred Compensation Plan
 
    Plan Year: April 1 – March 31
 
1.03   PLAN SPONSOR
         
 
  Name:   CA, Inc.
 
  Address:   One CA Plaza, Islandia, NY 11749
 
  Phone # :   631-342-6000
 
  EIN:   13 2847434
 
  Fiscal Yr:   March 31 – April 1
 
  Form of Entity:   Corporation
    If Plan Sponsor is a Corporation is stock publicly traded?
 
    þ Yes           r No
 
1.04   EMPLOYER
 
    The following entities have been authorized by the Plan Sponsor to participate in and have adopted the Plan:
         
Entity   Publicly Traded Corporation
 
  Yes   No
CA Think
  r   þ
CA, Inc.
  r   þ
 
  r   r
         
 
  r   r
         
 
  r   r
         
 
  r   r
         

- 1 -


 

1.05   ADMINISTRATOR
 
    The Employer has designated the following to be responsible for the Administration of the Plan:
 
    VP, Compensation, Benefits & HRIS (Lisa Chekimoglou)
 
   
 
         
 
  Note :   The Administrator is the person or persons designated by the Employer to be responsible for the administration of the Plan. This is not Fidelity Investments Institutional Operations Company, Inc. nor any other Fidelity affiliate.

- 2 -


 

2.01   PARTICIPATION
                 
    a.   x   Employees
 
               
 
      i.   þ   Eligible Employees are selected by the Employer as identified in Appendix C which may be periodically updated by the Employer.
 
               
 
      ii.   r   Eligible Employees are those employees of the Employer who satisfy the following criteria:
 
               
                 
 
               
                 
 
               
                 
 
               
                 
 
               
                 
 
               
    b.   r   Directors
 
               
 
      i.   r   All Directors are eligible to participate.
 
               
 
      ii.   r   Only Directors selected by the Employer and identified in Appendix C are eligible to participate.

- 3 -


 

3.01   COMPENSATION
 
    For purposes of determining Participant contributions under Article 4 and Employer contributions under Article 5, Compensation shall be defined in the following manner [complete a. or b. and c., if applicable]:
             
 
  a.   þ    
 
           
 
          Compensation, for purposes of the April 1, 2006-March 31, 2007 deferral period, shall mean only an employee’s Annual Performance Bonus (paid in cash) for fiscal 2007, under the Plan Sponsor’s 2002 Incentive Plan, as amended.
 
           
             
 
           
             
 
           
             
 
           
             
 
           
             
 
           
 
  b.   r   Compensation as defined in ___ ___[insert name of qualified plan] without regard to the limitation captured in Section 401(a)(17) of the Code for such Plan Year:
 
           
 
  c.   r   Director Compensation shall have the meaning specified in Section 2.9 except that:
 
           
             
 
           
             
 
           
             
 
           
 
  d.   r   Compensation shall, for all Plan purposes, be limited to $___.
3.02   BONUSES
 
    Compensation, as defined in Section 3.01 of the Adoption Agreement, includes the following type of bonuses:
         
    Will be treated as Performance
Type   Based Compensation
 
  Yes   No
Annual Performance Bonus for
fiscal 2007 under the Plan
Sponsor’s 2002 Incentive Plan,
as amended
  þ   r
 
  r   r
         

- 4 -


 

         
 
  r   r
         
 
  r   r
         
 
  r   r
         

- 5 -


 

4.01   PARTICIPANT CONTRIBUTIONS
  a.   Amount of Deferrals
 
      A Participant may elect within the period specified in Section 4.01b of the Adoption Agreement to defer the following amounts of Compensation (select i. and ii. or iii.):
  i.   Compensation Other than Bonuses (for each type of remuneration listed, complete “dollar amount” or “percentage amount,” but not both))
                                         
    Dollar Amount     % Amount        
Type of Remuneration   Min     Max     Min     Max     Increment  
a.
                                       
b.
                                       
c.
                                       
      Note: The increment is required to determine the permissible deferral amounts. For example, a minimum of 0% and maximum of 20% with a 5% increment would allow an individual to defer 0%, 5%, 10%, 15% or 20%.
 
  ii.   Bonuses (choose one)
                                         
    Dollar Amount     % Amount        
Type of Bonus   Min     Min     Min     Max     Increment  
a. Annual Performance Bonus
                    1 %     90 %        
b.
                                       
c.
                                       
  iii.   Compensation (do not complete if you completed i. and ii.)
                     
Dollar Amount     % Amount      
Min   Max     Min     Max     Increment
  iv.   Director Compensation
                                         
    Dollar Amount     % Amount      
Type of Compensation   Min     Min     Min     Max         Increment
Annual Retainer
                                       
Meeting Fees
                                       
Other:
                                       
Other:
                                       

- 6 -


 

b.   Election Period
         
 
  i.   Performance Based Compensation
 
       
 
      A special election period
 
       
 
      a.   þ   Does                      b.    r    Does Not
 
       
 
      apply to each eligible type of performance based compensation referenced in Section 3.02 of the Adoption Agreement.
 
       
 
      The special election period, if applicable, will be determined by the Employer.
 
       
 
  ii.   Newly Eligible Participants
 
       
 
      An employee who is classified or designated as an Eligible Employee during a Plan Year
 
       
 
      a.    þ   May                      b.    r    May Not
 
       
 
      elect to defer Compensation otherwise payable during the remainder of the Plan Year by completing a deferral agreement within the 30 day period beginning on the date he is eligible to participate in the Plan.

- 7 -


 

5.01   EMPLOYER CONTRIBUTIONS
                             
    a.   Matching Contributions
 
                           
        i.   Amount
 
                           
            For each Plan Year, the Employer shall make a Matching Contribution on behalf of each Participant who defers Compensation for the Plan Year and satisfies the requirements of Section 5.01(a)(ii) of the Adoption Agreement equal to (Complete one):
 
                           
            (A)   r   _____________ [insert percentage] of the Compensation the Participant has elected to defer for the Plan Year
 
                           
            (B)   r   An amount determined by the Employer in its sole discretion
 
                           
            (C)   r   Matching Contributions for each Participant shall be limited to $__________ and/or __________% of Compensation.
 
                           
 
          (D)   r   Other:        
                             
 
                           
                             
 
                           
                             
 
                           
        ii.   Eligibility for Matching Contribution
 
                           
            A Participant who defers Compensation for the Plan Year shall receive an allocation of Matching Contributions determined in accordance with Section 5.01(a)(i) provided he satisfies the following requirements (complete the ones that are applicable):
 
                           
            (A)   r   Is employed on the last day of the Plan Year
 
                           
            (B)   r   Completes ________ [insert number] of hours of service during the Plan Year
 
                           
            (C)   r   Is selected by the Employer in its sole discretion to receive an allocation of Matching Contributions
 
                           
            (D)   r   No requirements
 
                           
            (E)   r   Other
 
                           
                         
 
                           
                         

- 8 -


 

                 
    iii.   Time of Allocation
 
               
        Matching Contributions, if made, shall be treated as allocated [select one]:
 
               
        (A) o   As of the last day of the Plan Year
 
               
        (B) o   At such times as the Employer shall determine in it sole discretion
 
               
        (C) o   At the time the Compensation on account of which the Matching Contribution is being made would otherwise have been paid to the Participant
 
               
        (D) o   Other:
 
               
 
               
 
               
 
               
 
               
 
               
 
               
b.   Other Contributions    
 
               
    i.   Amount
 
               
        The Employer shall make a contribution on behalf of each Participant who satisfies the requirements of Section 5.01(b)(ii) equal to [check one]:
 
               
        (A) o   An amount equal to                      [insert number] % of the Participant’s Compensation
 
               
        (B) þ   An amount determined by the Employer in its sole discretion
 
               
        (C) o   Contributions for each Participant shall be limited to $                     
 
               
        (D) o   Other:
 
               
 
               
 
               
 
               
 
               
 
               

- 9 -


 

                 
    ii.   Eligibility for Other Contributions
 
               
        A Participant shall receive an allocation of other Employer contributions for the Plan Year if he satisfies the following requirements:
 
               
        (A) o   Describe requirements:                                          
 
               
 
               
 
               
 
               
 
               
 
               
 
               
        (B) þ   Is selected by the Employer in its sole discretion to receive an allocation of other Employer contributions
 
               
        (C) o   No requirements
 
               
    iii.   Time of Allocation
 
               
        Employer contributions, if made, will be allocated:
 
               
        (A) o   As of the last day of the Plan Year
 
               
        (B) þ   At such time or times as the Employer shall determine in its sole discretion
 
               
        (C) o   Other:
 
               
 
               
 
               
 
               
 
               
 
               

- 10 -


 

                     
6.01   DISTRIBUTIONS
 
                   
    The timing and form of payment of distributions made from the Participant’s vested Account shall be made in accordance with the elections made in this Section 6.01 of the Adoption Agreement.
 
                   
    a.   Timing of Distributions
 
                   
        All distributions shall commence in accordance with the following (choose one):
 
                   
        (i)   þ   As soon as administratively practicable
        (ii)   o   Monthly on specified day                      (insert day)
        (iii)   o   Annually on specified month and day                      (insert month and day)
        (iv)   o   Calendar quarter on specified day                      (insert day)
 
                   
        Note :       A six month delay for certain distributions to Key Employees of publicly traded companies will apply.
 
                   
    b.   In addition to the distributions that will occur under the terms of the Plan (e.g., upon death or disability or six months from a separation from service), distributions can occur upon the following Distribution Events (If multiple events are chosen, the earliest to occur will trigger payment.)
                         
                    Lump Sum   Installments
 
      (i)   þ   Specified Date [5 years, 10 years or 15 years from end of deferral period]   X   ___ years to ___ years
 
                       
 
      (ii)   o   Specified Age                          ___ years to ___ years
 
                       
 
      (iii)   o   Separation from Service                          ___ years to ___ years
 
                       
 
      (iv)   o   Separation from Service plus 6 months                          ___ years to ___ years
 
                       
 
      (v)   o   Separation from Service plus ___months (not to exceed ___months)                          ___ years to ___ years
 
                       
 
      (vi)   o   Retirement                          ___ years to ___ years
 
                       
 
      (vii)   o   Retirement plus 6 months                          ___ years to ___ years
 
                       
 
      (viii)   o   Retirement plus ___months (not to exceed ___months)                          ___ years to ___ years
 
                       
 
      (ix)   o   Later of Separation from Service or Specified Age                          ___ years to ___ years
 
                       
 
      (x)   o   Later of Separation from Service or Specified Date                          ___ years to ___ years
 
                       
 
      (xi)   o   Later of Retirement or Specified Age                          ___ years to ___ years
 
                       
 
      (xii)   o   Later of Retirement or Specified Date                          ___ years to ___ years
 
                       
 
      (xiii)   o   Disability                          ___ years to ___ years
 
                       
 

- 11 -


 

                 
 
      (xiv)   o     Death                            ___ years to ___ years
 
                       
 
      (xv)   o     Change in Control                            ___ years to ___ years
                 
    c.   Specified Date and Specified Age elections may not commence beyond age                      .
 
               
    d.   Separation from Service (if this is elected, do not select “Separation from Service” under b. above)
 
               
        A Separation from Service override
 
               
        þ Shall apply.
 
               
        A Separation from Service override provides that a Participant, whose Separation from Service occurs before or after Retirement, shall receive the vested amount credited to his Account as a lump sum payment.
 
               
    e.   Involuntary Cashouts (Leave blank if not applicable)
 
               
        (i) o   If the Participant’s vested Account at the time of his Separation from Service does not exceed $                      (insert dollar amount) distribution of the vested Account shall automatically be made in the form of a single lump sum as soon as administratively practicable but in no event later than 60 days after the Separation of Service.
 
               
    f.   Retirement
 
               
        Retirement shall be defined as a Separation from Service that occurs on or after the Participant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    (insert description of requirements)
 
               
    g.   Redeferrals
 
               
        A Participant
 
               
 
      (i)  þ   Shall    
 
      (ii) o   Shall Not    
 
               
        be permitted to modify a scheduled distribution date in accordance with Section 9.2 of the Plan.
 
               
        A Participant shall generally be permitted to elect such modification one(1) number of times.
 
               
        Administratively, allowable distribution events will be modified to reflect all options necessary to fulfill the redeferrals provision.

- 12 -


 

                 
7.01   VESTING    
 
               
    a.   Matching Contributions
 
               
        The Participant’s vested interest in the amount credited to his Account attributable to Matching Contributions shall be based on the following schedule:
         
Years of Service       Vesting %
0
                          
1
                          
2
                          
3
                          
4
                          
5
                          
6
                          
7
                          
8
                          
9
                          
                 
    b.   Other Employer Contributions
 
               
        The Participant’s vested interest in the amount credited to his Account attributable to Employer contributions other than Matching Contributions shall be based on the following schedule, unless otherwise determined by the Employer:
             
Years of Service       Vesting %
0
                          
1
        100 %
2
                          
3
                          
4
                          
5
                          
6
                          
7
                          
8
                          
9
                          
                 
    c.   Acceleration of Vesting
 
               
        A Participant’s vested interest in his Account will automatically be 100% upon the occurrence of the following events: (select the ones that are applicable)
 
               
 
      (i)  þ   Death    
 
      (ii)  þ   Disability    
 
      (iii) þ   Change in Control    
 
      (iv) o   Eligibility for Retirement    
 
      (v)  o   Other:                                                                   
 
                                                                                        

- 13 -


 

                 
    d.   Years of Service
 
               
        i.   A Participant’s Years of Service shall include all service performed for the Employer and
 
               
 
          (A) þ   Shall
 
          (B) o   Shall Not
 
               
            include service performed for the Related Employer.
 
               
        ii.   Years of Service shall also include service performed for the following entities:
 
               
             
 
               
             
 
               
             
 
               
             
 
               
             
 
               
             
 
               
        iii.   Years of Service shall be determined in accordance with: (select one)
 
               
 
          (A) o   The elapsed time method in Treas. Reg. Sec. 1.410(a)(7)
 
               
 
          (B) o   The general method in DOL Reg. Sec. 2530.200b-1 through b-4
 
               
 
          (C) o   The Participant’s Years of Service credited under
 
                                                                                                                       
 
              (insert name of plan)
 
               
 
          (D) o   Other:
 
                                                                                                              
 
                                                                                                              
 
                                                                                                              

- 14 -


 

                 
8.01   UNFORESEEABLE EMERGENCY
 
               
    A withdrawal due to an Unforeseeable Emergency as defined in Section 2.2:
 
               
 
  a. þ   Will        
 
  b. o   Will Not        
 
               
    be allowed.

- 15 -


 

                 
9.01   INVESTMENT DECISIONS
 
               
    Investment decisions regarding the hypothetical amounts credited to a Participant’s Account shall be made by: (select one)
 
               
    a. þ   The Participant (or his Beneficiary)    
 
               
    b. o   The Employer    
 
               
    Investment options are set forth in Appendix A.

- 16 -


 

                 
10.01   GRANTOR TRUST
 
               
    The Employer: (select one)
 
               
 
  a. o   Does        
 
  b. þ   Does Not        
 
               
    intend to establish a grantor trust in connection with the Plan, however it reserves the right to do so in its discretion.

- 17 -


 

                 
 
               
11.01   TERMINATION UPON CHANGE IN CONTROL
 
               
    The Plan Sponsor
 
               
    a. þ   Reserves    
    b. o   Does Not Reserve    
 
               
    the right to terminate the Plan and distribute all vested amounts credited to Participant Accounts upon a Change in Control as described in Section 9.7.
 
               
11.02   CHANGE IN CONTROL
 
               
    A Change in Control for Plan purposes includes the following:
 
               
    þ   A change in the ownership of the Employer    
    þ   A change in the effective control of the Employer    
    þ   A change in the ownership of a substantial portion of the assets of the Employer    

- 18 -


 

                 
12.01   GOVERNING STATE LAW
 
               
    The laws of New York (insert name of state) shall apply in the administration of the Plan to the extent not preempted by ERISA.

- 19 -


 

APPENDIX A
INVESTMENT OPTIONS
Investment options are those that are available under Company’s 401(k) plan (the CA Savings Harvest Plan, as amended from time to time (the “401(k) Plan”)), except for CA stock fund. As of the date hereof, the investment options are listed below but will be updated from time to time as and when updated for the 401(k) Plan.
         
Fund Name       Fund Name
Ø Fidelity Puritan
      Ø Dodge & Cox Stock Fund
 
       
Ø Fidelity Magellan Fund
      Ø American Funds Growth Fund of America
 
       
Ø Fidelity Growth and Income Fund
      Ø Hotchkis & Wiley Mid Cap Value-Class I
 
       
Ø Fidelity Intermediate Bond Fund
      Ø Artisan Mid Cap Fund
 
       
Ø Fidelity Diversified International Fund
      Ø American Beacon Small Cap Value- PA
 
       
Ø Fidelity Retirement Money Market Portfolio
      Ø Fidelity Small Cap Stock
 
       
Ø Spartan US Equity Index Portfolio
     
 
       
 
     
 
       
     
     
Note:
  The Plan may not select a common/collective trust fund or a self-directed brokerage option as an investment option.

- 20 -


 

CA, INC. EXECUTIVE DEFERRED COMPENSATION
PLAN
June 2005

 


 

TABLE OF CONTENTS
     
PREAMBLE
 
   
ARTICLE 1 – GENERAL
1.1
  Plan
1.2
  Effective Dates
1.3
  Grandfathering of Amounts Not Subject to Code Section 409A
ARTICLE 2 – DEFINITIONS
2.1
  Account
2.2
  Administrator
2.3
  Adoption Agreement
2.4
  Beneficiary
2.5
  Board or Board of Directors
2.6
  Bonus
2.7
  Change in Control
2.8
  Code
2.9
  Compensation
2.10
  Disabled
2.11
  Eligible Employee
2.12
  Employer
2.13
  ERISA
2.14
  Key Employee
2.15
  Participant
2.16
  Plan
2.17
  Plan Sponsor
2.18
  Plan Year
2.19
  Related Employer
2.20
  Retirement
2.21
  Separation from Service
2.22
  Unforeseeable Emergency
2.23
  Valuation Date
2.24
  Years of Service
 
   
ARTICLE 3 – PARTICIPATION
3.1
  Participation
3.2
  Termination of Participation

i


 

     
ARTICLE 4 – PARTICIPANT CONTRIBUTIONS
4.1
  Deferral Agreement
4.2
  Amount of Deferral
4.3
  Timing of Election to Defer
4.4
  Election of Payment Schedule and Form of Payment
 
   
ARTICLE 5 – EMPLOYER CONTRIBUTIONS
5.1
  Matching Contributions
5.2
  Other Contributions
 
   
ARTICLE 6 – ACCOUNTS AND CREDITS
6.1
  Establishment of Account
6.2
  Credits to Account
 
   
ARTICLE 7 – INVESTMENT OF CONTRIBUTIONS
7.1
  Investment Options
7.2
  Adjustment of Accounts
 
   
ARTICLE 8 – RIGHT TO BENEFITS
8.1
  Vesting
8.2
  Death
8.3
  Disability
 
   
ARTICLE 9 – DISTRIBUTION OF BENEFITS
9.1
  Amount of Benefits
9.2
  Method and Timing of Distributions
9.3
  Unforeseeable Emergency
9.4
  Termination Before Retirement
9.5
  Cashouts of Amounts Not Exceeding Stated Limit
9.6
  Key Employees
9.7
  Change in Control

ii


 

     
ARTICLE 10 – AMENDMENT AND TERMINATION
10.1
  Amendment by Employer
10.2
  Retroactive Amendments
10.3
  Plan Termination
10.4
  Distribution Upon Termination of the Plan
 
   
ARTICLE 11 – THE TRUST
11.1
  Establishment of Trust
11.2
  Grantor Trust
11.3
  Investment of Trust Funds
 
   
ARTICLE 12 – PLAN ADMINISTRATION
12.1
  Powers and Responsibilities of the Administrator
12.2
  Claims and Review Procedures
12.3
  Plan Administrative Costs
 
   
ARTICLE 13 – MISCELLANEOUS
13.1
  Unsecured General Creditor of the Employer
13.2
  Employer’s Liability
13.3
  Limitation of Rights
13.4
  Acceleration of Benefits
13.5
  Facility of Payment
13.6
  Notices
13.7
  Tax Withholding
13.8
  Indemnification
13.9
  Governing Law

iii


 

PREAMBLE
The CA, Inc. Executive Deferred Compensation Plan is intended to promote the interests of the Plan Sponsor and its shareholders by encouraging certain Eligible Employees to remain in the employ of the Plan Sponsor and its subsidiaries by providing them with a means by which they may request to defer receipt of a portion of their compensation.

 


 

ARTICLE 1 – GENERAL
1.1   Plan. The Plan will be referred to by the name specified in the Adoption Agreement.
 
1.2   Effective Dates.
  (a)   Original Effective Date. The Original Effective Date is the date as of which the Plan was initially adopted.
 
  (b)   Amendment Effective Date. The Amendment Effective Date is the date specified in the Adoption Agreement as of which the Plan is amended and restated.
 
  (c)   Special Effective Date. A Special Effective Date may apply to any given provision if so specified in Appendix D. A Special Effective Date will control over the Original Effective Date or Amendment Effective Date, whichever is applicable, with respect to such provision of the Plan.
1.3   Grandfathering of Amounts Not Subject to Code Section 409A
 
    If the Plan Sponsor has elected to treat amounts deferred before January 1, 2005 that are earned and vested on December 31, 2004 as subject to the provisions of the Plan as in effect on December 31, 2004, such grandfathered amounts will be separately accounted for and administered in accordance with the terms of the Plan as in effect on such date, except as otherwise provided in this Plan document. A summary of the grandfathered provisions is set forth in Appendix B.

Article 1-1


 

ARTICLE 2 – DEFINITIONS
Pronouns used in the Plan are in the masculine gender but include the feminine gender unless the context clearly indicates otherwise. Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context:
2.1   “Account” means an account established for the purpose of recording amounts credited on behalf of a Participant and any income, expenses, gains, losses or distributions included thereon. The Account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant pursuant to the Plan.
 
2.2   “Administrator” means the person or persons designated by the Employer in Section 1.05 of the Adoption Agreement to be responsible for the administration of the Plan. If no Administrator is designated in the Adoption Agreement, the Administrator is the Employer.
 
2.3   “Adoption Agreement” means the agreement adopted by the Plan Sponsor that establishes the Plan.
 
2.4   “Beneficiary” means the persons, trusts, estates or other entities entitled under Section 8.2 to receive benefits under the Plan upon the death of a Participant.
 
2.5   “Board” or “Board of Directors” means the Board of Directors of the Plan Sponsor.
 
2.6   “Bonus” means an amount of incentive remuneration payable by the Employer to a Participant.
 
2.7   “Change in Control” means the occurrence of an event involving the Employer that is described in Section 9.7.
 
2.8   “Code” means the Internal Revenue Code of 1986, as amended.
 
2.9   “Compensation” means the total cash and non-cash remuneration provided to a Participant by the Employer for services rendered in respect of a Plan Year, whether or not includible in the gross income of the Participant for Federal income tax purposes, including bonuses but excluding reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, deferred compensation and welfare benefits.

Article 2-1


 

2.10   “Disabled” means a determination by the Administrator that the Participant is either (1) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (2) is, by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than twelve months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Employer.
 
2.11   “Eligible Employee” means an employee of the Employer who is determined by the Administrator to be a member of a select group of management or highly compensated employees within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and who satisfies the requirements in Section 2.01 of the Adoption Agreement.
 
2.12   “Employer” means the Plan Sponsor and any other entity which is authorized by the Plan Sponsor to participate in and, in fact, does adopt the Plan.
 
2.13   “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
 
2.14   “Key Employee” means a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code.
 
2.15   “Participant” means an Eligible Employee who commences participation in the Plan in accordance with Article 3.
 
2.16   “Plan” means the unfunded plan of deferred compensation set forth herein, including the Adoption Agreement and any trust agreement, as adopted by the Employer and as amended from time to time.
 
2.17   “Plan Sponsor” means the entity specified in the Adoption Agreement.
 
2.18   “Plan Year” means the period specified in the Adoption Agreement.
 
2.19   “Related Employer” means the Employer and (a) any corporation that is a member of a controlled group of corporations as defined in Section 414(b) of the Code that includes the Employer, (b) any trade or business that is under common control as defined in Section 414(c) of the Code that includes the Employer, (c) any member of an affiliated service group as defined in Section 414(m) of the Code that includes the Employer, and (d) any entity required to be aggregated with the Employer by Section 414(o) of the Code.

Article 2-2


 

2.20   “Retirement” has the meaning specified in 6.01f of the Adoption Agreement.
 
2.21   “Separation from Service” is a “separation of service” within the meaning of Section 409A of the Code.
 
2.22   “Unforeseeable Emergency” means a severe financial hardship of the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or the Participant’s dependent (as defined in Code Section 152(a)); loss of the Participant’s property due to casualty; or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.
 
2.23   “Valuation Date” means each business day of the Plan Year and such other date(s) as designated by the Plan Sponsor.
 
2.24   “Years of Service” means a one year period for which the Participant receives service credit in accordance with the provisions of Section 7.01d of the Adoption Agreement.

Article 2-3


 

ARTICLE 3 – PARTICIPATION
3.1   Participation. The Participants in the Plan shall be those “management” or “highly compensated” employees of the Employer within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA who satisfy the requirements of Section 2.01 of the Adoption Agreement.
 
3.2   Termination of Participation. A Participant’s participation in the Plan shall cease upon the distribution to him of his vested Account or upon his death prior to such distribution. In addition, the Administrator may terminate a Participant’s eligibility to participate in the Plan but any such termination at the direction of the Administrator shall not take effect until the first day of the next Plan Year.

Article 3-1


 

ARTICLE 4 – PARTICIPANT CONTRIBUTIONS
4.1   Deferral Agreement. Each Eligible Employee may elect to defer his Compensation within the meaning of Section 3.01 of the Adoption Agreement by executing in writing or electronically, a deferral agreement in accordance with rules and procedures established by the Administrator and the provisions of this Article 4.
 
    A new deferral agreement must be timely executed for each Plan Year for which the Eligible Employee desires to defer Compensation. An Eligible Employee who does not timely execute a deferral agreement shall be deemed to have elected zero deferrals of Compensation for such Plan Year.
 
    A deferral agreement may be changed or revoked during the period specified by the Administrator. A deferral agreement becomes irrevocable at the close of the specified period.
 
    An Eligible Employee must have an executed deferral agreement in effect for each year during which an Employer contribution pursuant to Article 5, if any, may be made on his behalf.
 
4.2   Amount of Deferral. An Eligible Employee may elect to defer Compensation in any amount permitted by Section 4.01a of the Adoption Agreement.
 
4.3   Timing of Election to Defer. Each Eligible Employee who desires to defer Compensation otherwise payable in respect of a Plan Year must execute a deferral agreement within the period preceding the Plan Year specified by the Administrator. Each Eligible Employee who desires to defer Compensation that is a Bonus must execute a deferral agreement within the period preceding the Plan Year during which the Bonus is earned that is specified by the Administrator, except that if the Bonus can be treated as performance based compensation as described in Code Section 409A(a)(4)(B)(iii), the deferral agreement may be executed within the period specified by the Administrator, which period, in no event, shall end after the date which is six months prior to the end of the period during which the Bonus is earned.
 
    An employee who is classified or designated as an Eligible Employee during a Plan Year who is designated as eligible to participate during a Plan Year may elect to defer Compensation (as specified in Section 3.01 of the Adoption Agreement) otherwise earned in respect of the remainder of such Plan Year in accordance with the rules of this Section 4.3 by

Article 4-1


 

    executing a deferral agreement within the thirty (30) day period beginning on the date the employee is classified or designated as an Eligible Employee, if permitted by Section 2.01 of the Adoption Agreement.
 
4.4   Election of Payment Schedule and Form of Payment.
 
    At the time an Eligible Employee completes a deferral agreement, the Eligible Employee must elect a time and a form of payment for the Compensation subject to the deferral agreement from among the options the Administrator has made available for this purpose and which are specified in 6.01b of the Adoption Agreement.

Article 4-2


 

ARTICLE 5 – EMPLOYER CONTRIBUTIONS
5.1   Matching Contributions. If specified in Section 5.01a of the Adoption Agreement, the Employer will credit the Participant’s Account with a matching contribution determined in accordance with the formula specified therein. The matching contribution will be credited to the Participant’s Account at the time specified therein.
 
5.2   Other Contributions. If specified in Section 5.01b of the Adoption Agreement, the Employer will credit the Participant’s Account with a contribution determined in accordance with the formula or method specified in Section 5.01b of the Adoption Agreement. The contribution will be credited to the Participant’s Account at the time specified in Section 5.01b(iii) of the Adoption Agreement.

Article 5-1


 

ARTICLE 6 – ACCOUNTS AND CREDITS
6.1   Establishment of Account. For accounting and computational purposes only, the Administrator will establish and maintain an Account for each Participant which will reflect the credits made pursuant to Section 6.2 along with the earnings, expenses, gains and losses allocated thereto, attributable to the hypothetical investments made with the amounts in the Participant’s Account as provided in Article 7. The Administrator will establish and maintain such other records and accounts, as it decides in its discretion to be reasonably required or appropriate to discharge its duties under the Plan.
 
6.2   Credits to Account. A Participant’s Account will be credited for each Plan Year with the amount of his elective deferrals under Section 4.1 at the time the amount subject to the deferral election would otherwise have been payable to the Participant and the amount of Employer contributions made on his behalf under Article 5. Such amounts will be credited to the Participant’s Account at the times specified, respectively, in Sections 5.01a(iii) and 5.01b(iii) of the Adoption Agreement.

Article 6-1


 

ARTICLE 7 – INVESTMENT OF CONTRIBUTIONS
7.1   Investment Options. The amount in a Participant’s Account shall be treated as invested in the investment options designated for this purpose by the Administrator and set forth in Appendix A to the Adoption Agreement.
 
7.2   Adjustment of Accounts. The amount in a Participant’s Account shall be adjusted for hypothetical investment earnings, expenses, gains or losses in an amount equal to the earnings, expenses, gains or losses attributable to the investment options selected by the party designated in Section 9.01 of the Adoption Agreement from among the investment options provided in Section 7.1. If permitted by Section 9.01 of the Adoption Agreement, a Participant may, in accordance with rules and procedures established by the Administrator, select the investments from among the options provided in Section 7.1 to be used for the purpose of calculating future hypothetical investment adjustments to the Participant’s Account or to future credits to the Account under Section 6.2 effective as the Valuation Date coincident with or next following notice to the Administrator. The Account of each Participant shall be adjusted as of each Valuation Date to reflect: (a) the hypothetical earnings, expenses, gains and losses described above; (b) amounts credited pursuant to Section 6.2; and (c) payments. In addition, the Account of each Participant may be adjusted for its allocable share of the hypothetical costs and expenses associated with the maintenance of the hypothetical investments provided in Section 7.1.

Article 7-1


 

ARTICLE 8 – RIGHT TO BENEFITS
8.1   Vesting. A Participant, at all times, has a 100% nonforfeitable interest in the amounts credited to his Account attributable to his elective deferrals made in accordance with Section 4.1.
 
    A Participant’s right to the amounts credited to his Account attributable to Employer contributions made in accordance with Article 5 shall be determined in accordance with the relevant schedule specified in Section 7.01 of the Adoption Agreement.
 
8.2   Death. The balance or remaining balance credited to a Participant’s vested Account shall be paid to his estate in a single lump sum payment as soon as practicable following the Participant’s date of death.
 
8.3   Disability. The balance or remaining balance credited to a Participant’s vested Account shall be paid to the Participant in a single lump sum cash payment as soon as practicable following the date a Participant incurs a Disability as defined in Section 2.11, unless additional forms of payment have been made available for this purpose in Section 6.01b of the Adoption Agreement. If additional forms have been made available, payment shall be made at the time and in the form elected by the Participant in accordance with the provisions of articles 4 and 6. The Administrator, in its sole discretion, shall determine whether a Participant has experienced a disability for purposes of this Section 8.3.

Article 8-1


 

ARTICLE 9 – DISTRIBUTION OF BENEFITS
9.1   Amount of Benefits. The vested amount credited to a Participant’s Account as determined under Articles 6, 7 and 8 shall determine and constitute the basis for the value of benefits payable to the Participant under the Plan.
 
9.2   Method and Timing of Distributions. Except as otherwise provided in this Article 9, distributions under the Plan shall be made at the time and in the manner specified by the Participant in accordance with the provisions of Article 4. If permitted by Section 6.01g of the Adoption Agreement, a Participant may elect, at least twelve months before a scheduled date of distribution, to delay the payment date for a minimum period of sixty months from the originally scheduled date of payment and such election may not take effect until at least 12 months after the date on which the election is made. The re-deferral election must be made in accordance with procedures and rules established by the Administrator. The Participant may, at the same time the date of payment is deferred, change the form of payment but such change in the form of payment may not affect an acceleration of payment.
 
9.3   Unforeseeable Emergency. If permitted by Section 8.01 of the Adoption Agreement, a Participant may request a distribution due to an Unforeseeable Emergency. The request must be in writing and must be submitted to the Administrator along with evidence that the circumstances constitute an Unforeseeable Emergency. The Administrator has the discretion to require whatever evidence it deems necessary to determine whether a distribution is warranted. Whether a Participant has incurred an Unforeseeable Emergency will be determined by the Administrator on the basis of the relevant facts and circumstances in its sole discretion, but, in no event, will an Unforeseeable Emergency be deemed to exist if the hardship can be relieved: (a) through reimbursement or compensation by insurance or otherwise, (b) by liquidation of the Participant’s assets to the extent such liquidation would not itself cause severe financial hardship, or (c) by cessation of deferrals under the Plan. A distribution due to an Unforeseeable Emergency must be limited to the amount reasonably necessary to satisfy the emergency need and may include any amounts necessary to pay any federal, state or local income taxes reasonably anticipated to result from the distribution. The distribution will be made in the form of a single lump sum cash payment.

Article 9-1


 

9.4   Termination Before Retirement. If the Employer has elected a Separation from Service override in accordance with Section 6.01d of the Adoption Agreement, the following provisions apply. Subject to the provisions in Section 9.6, a Participant who experiences a Separation from Service before Retirement for any reason other than death shall receive the vested amount credited to his Account in a single lump sum payment as soon as practicable following such termination or cessation of service regardless of whether the Participant had made different elections of time or form of payment as to the vested amounts credited to his Account or whether the Participant was receiving installment payouts at the time of such termination.
 
9.5   Cashouts Of Amounts Not Exceeding Stated Limit. If the vested amount credited to the Participant’s Account does not exceed the limit established for this purpose by the Employer in Section 6.01e of the Adoption Agreement at the time he separates from service with the Employer for any reason, the Employer shall distribute such amount to the Participant in a single lump sum cash payment as soon as practicable following such termination regardless of whether the Participant had made different elections of time or form of payment as to the vested amount credited to his Account or whether the Participant was receiving installments at the time of such termination.
 
9.6   Key Employees. In no event shall a distribution made to a Key Employee from his Account by reason of his Separation from Service (other than as a result of such Key Employee’s death or Disability) occur before the date which is six months after the date of such Separation from Service with the Employer except in the case of (i) any distribution that occurs in connection with a Change in Control pursuant to Section 10.3 of this Plan or (ii) a distribution on a “specified date”, as elected by a Key Employee in accordance with Section 409A of the Code if specified in Section 6.01b of the Adoption Agreement.
 
9.7   Change in Control. If the Employer has elected to permit distributions upon a Change in Control, the following provisions shall apply. A distribution made upon a Change in Control will be made in the form elected by the Participant in accordance with the procedures described in Article 4. A Change in Control will occur upon a change in the ownership of the Employer, a change in the effective control of the Employer or a change in the ownership of a substantial portion of the assets of the Employer. The Employer, for this purpose, includes any corporation identified in this Section 9.7.
 
    If a Participant continues to make deferrals in accordance with Article 4 after he has received a distribution due to a Change in Control, the residual amount payable to the Participant shall be paid at the time and in

Article 9-2


 

    the form specified in the elections he makes in accordance with Article 4 or upon his Death or Disability as provided in Article 8.
 
    Whether a Change in Control has occurred will be determined by the Administrator in accordance with the rules and definitions set forth in this Section 9.7. A distribution to the Participant will be treated as occurring upon a Change in Control if the Plan Sponsor terminates the Plan and distributes the Participant’s benefits within twelve months of a Change in Control as provided in Section 10.3.
  a)   Relevant Corporations. To constitute a Change in Control for purposes of the Plan, the event must relate to (i) the corporation for whom the Participant is performing services at the time of the Change in Control, (ii) the corporation that is liable for the payment of the Participant’s benefits under the Plan (or all corporations liable if more than one corporation is liable), or (iii) a corporation that is a majority shareholder of a corporation identified in (i) or (ii), or any corporation in a chain of corporations in which each corporation is a majority corporation of another corporation in the chain, ending in a corporation identified in (i) or (ii). A majority shareholder is defined as a shareholder owning more than fifty percent (50%) of the total fair market value and voting power of such corporation.
 
  b)   Stock Ownership. Code Section 318(a) applies for purposes of determining stock ownership. Stock underlying a vested option is considered owned by the individual who owns the vested option (and the stock underlying an unvested option is not considered owned by the individual who holds the unvested option). If, however, a vested option is exercisable for stock that is not substantially vested (as defined by Treasury Regulation Section 1.83-3(b) and (j)) the stock underlying the option is not treated as owned by the individual who holds the option. Mutual and cooperative corporations are treated as having stock for purposes of this Section 9.7.
 
  c)   Change in the Ownership of a Corporation. A change in the ownership of a corporation occurs on the date that any one person or more than one person acting as a group, acquires ownership of stock of the corporation that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of such corporation. If any one person or more than one person acting as a proxy is considered to own more than fifty percent (50%) of the total fair market value or total voting power of the stock of a corporation, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the corporation (or to cause a change in the effective control of the corporation as

Article 9-3


 

      discussed below in Section 9.7(d)). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the corporation acquires its stock in exchange for property will be treated as an acquisition of stock. Section 9.7(c) applies only when there is a transfer of stock of a corporation (or issuance of stock of a corporation) and stock in such corporation remains outstanding after the transaction. For purposes of this Section 9.7(c), persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time or as a result of a public offering. Persons will, however, be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the corporation. If a person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation prior to the transaction giving rise to the change and not with respect to the ownership interest in the other corporation.
 
  d)   Change in the effective control of a corporation. A change in the effective control of a corporation occurs on the date that either (i) any one person, or more than one person acting as a group, acquires (or has acquired during the twelve month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the corporation possessing thirty-five (35%) or more of the total voting power of the stock of such corporation, or (ii) a majority of members of the corporation’s board of directors is replaced during any twelve month period by directors whose appointment or election is not endorsed by a majority of the members of the corporation’s board of directors prior to the date of the appointment or election, provided that for purposes of this paragraph (ii), the term corporation refers solely to the relevant corporation identified in Section 9.7(a) for which no other corporation is a majority shareholder for purposes of Section 9.7(a). In the absence of an event described in Section 9.7(d)(i) or (ii), a change in the effective control of a corporation will not have occurred. A change in effective control may also occur in any transaction in which either of the two corporations involved in the transaction has a change in the ownership of such corporation as described in Section 9.7(c) or a change in the ownership of a substantial portion of the assets of such corporation as described in Section 9.7(e). If any one person, or more than one person acting as a group, is considered to effectively control a corporation within the meaning of this Section 9.7(d), the acquisition of additional control of the corporation by the same person or persons is not considered to cause a change in the effective control of the corporation or to cause

Article 9-4


 

      a change in the ownership of the corporation within the meaning of Section 9.7(c). For purposes of this Section 9.7(d), persons will or will not be considered to be acting as a group in accordance with rules similar to those set forth in Section 9.7(c) with the following exception. If a person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation only with respect to the ownership in that corporation prior to the transaction giving rise to the change and not with respect to the ownership interest in the other corporation.
 
  e)   Change in the ownership of a substantial portion of a corporation’s assets. A change in the ownership of a substantial portion of a corporation’s assets occurs on the date that any one person, or more than one person acting as a group (as determined in accordance with rules similar to those set forth in Section 9.7(d)), acquires (or has acquired during the twelve month period ending on the date of the most recent acquisition by such person or persons) assets from the corporation that have a total gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all of the assets of the corporation immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the corporation of the value of the assets being disposed of determined without regard to any liabilities associated with such assets. There is no Change in Control event under this Section 9.7(e) when there is a transfer to an entity that is controlled by the shareholders of the transferring corporation immediately after the transfer. A transfer of assets by a corporation is not treated as a change in ownership of such assets if the assets are transferred to (i) a shareholder of the corporation (immediately before the asset transfer) in exchange for or with respect to its stock, (ii) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the corporation, (iii) a person, or more than one person acting as a group, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the corporation, or (iv) an entity, at least fifty (50%) of the total value or voting power of which is owned, directly or indirectly, by a person described in Section 9.7(e)(iii). For purposes of the foregoing, and except as otherwise provided, a person’s status is determined immediately after the transfer of assets.

Article 9-5


 

ARTICLE 10 – AMENDMENT AND TERMINATION
10.1   Amendment by Employer. The Plan Sponsor reserves the right to amend the Plan (for itself and each Employer) through action of the Compensation and Human Resource Committee of the Board of Directors (the “Compensation Committee”). Each amendment shall be effective as determined by the Compensation Committee in its resolution. No amendment can directly or indirectly deprive any current or former Participant or Beneficiary of all or any portion of his Account which had accrued prior to the amendment.
 
10.2   Retroactive Amendments. An amendment made by the Plan Sponsor in accordance with Section 10.1 may be made effective on a date prior to the first day of the Plan Year in which it is adopted if such amendment is necessary or appropriate to enable the Plan to satisfy the applicable requirements of the Code or ERISA or to conform the Plan to any change in federal law or to any regulations or ruling thereunder. Any retroactive amendment by the Plan Sponsor shall be subject to the provisions of Section 10.1.
 
10.3   Plan Termination. If specified in 11.01 of the Adoption Agreement, the Plan Sponsor reserves the right to terminate the Plan and distribute all amounts credited to all Participant Accounts as soon as administratively feasible, but in no event later than twelve months, following a Change in Control as determined in accordance with the rules set forth in Section 9.7. In addition, the Plan Sponsor reserves the right to terminate the Plan to the extent permitted by Code Section 409A, including a termination at any time with respect to any deferrals made after the effective date of such termination.
 
10.4   Distribution Upon Termination of the Plan. Except as provided in Section 10.3, the Plan may not be terminated before the date on which all amounts credited to all Participant Accounts have been distributed in accordance with Articles 8 and 9.

Article 10-1


 

ARTICLE 11 – THE TRUST
11.1   Establishment of Trust. The Plan Sponsor may but is not required to establish a trust to hold amounts to which the Employers may contribute from time to time to correspond to some or all amounts credited to Participants under Section 6.2. If the Plan Sponsor elects to establish a trust in accordance with Section 10.01 of the Adoption Agreement, the provisions of Sections 11.2 and 11.3 shall become operative.
 
11.2   Grantor Trust. Any trust established by the Plan Sponsor shall be between the Plan Sponsor and a trustee pursuant to a separate written agreement under which assets are held, administered and managed, subject to the claims of the Employer’s creditors in the event of the Employer’s insolvency, until paid to the Participant and/or his Beneficiaries specified in the Plan. The trust is intended to be treated as a grantor trust under the Code, and the establishment of the trust shall not cause the Participant to realize current income on amounts contributed thereto. The Plan Sponsor must notify the trustee in the event of a lawsuit, bankruptcy or insolvency.
 
11.3   Investment of Trust Funds. Any amounts contributed to the trust shall be invested by the trustee in accordance with the provisions of the trust and the instructions of the Administrator. Trust investments need not reflect the hypothetical investments selected by Participants under Section 7.1 for the purpose of adjusting Accounts and the earnings or investment results of the trust shall not affect the hypothetical investment adjustments to Participant Accounts under the Plan.

Article 11-1


 

ARTICLE 12 – PLAN ADMINISTRATION
12.1   Powers and Responsibilities of the Administrator. The Administrator has the full power and the full responsibility to administer the Plan in all of its details, subject, however, to the applicable requirements of ERISA. The Administrator’s powers and responsibilities include, but are not limited to, the following:
  (a)   To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan;
 
  (b)   To interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits under the Plan;
 
  (c)   To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan;
 
  (d)   To administer the claims and review procedures specified in Section 12.2;
 
  (e)   To compute the amount of benefits which will be payable to any Participant, former Participant or Beneficiary in accordance with the provisions of the Plan;
 
  (f)   To determine the person or persons to whom such benefits will be paid;
 
  (g)   To authorize the payment of benefits;
 
  (h)   To comply with the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA;
 
  (i)   To appoint such agents, counsel, accountants, and consultants as may be required to assist in administering the Plan;
 
  (j)   By written instrument, to allocate and delegate its responsibilities, including the formation of an Administrative Committee to administer the Plan.

Article 12-1


 

12.2   Claims and Review Procedures.
  (a)   Claims Procedure . If any person believes he is being denied any rights or benefits under the Plan, such person may file a claim in writing with the Administrator. If any such claim is wholly or partially denied, the Administrator will notify such person of its decision in writing. Such notification will contain (i) specific reasons for the denial, (ii) specific reference to pertinent Plan provisions, (iii) a description of any additional material or information necessary for such person to perfect such claim and an explanation of why such material or information is necessary, and (iv) information as to the steps to be taken if the person wishes to submit a request for review. Such notification will be given within 90 days after the claim is received by the Administrator (or within 180 days, if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to such person within the initial 90-day period). If such notification is not given within such period, the claim will be considered denied as of the last day of such period and such person may request a review of his claim.
 
  (b)   Review Procedure . Within 60 days after the date on which a person receives a written notification of denial of claim (or, if written notification is not provided, within 60 days of the date denial is considered to have occurred), such person (or his duly authorized representative) may (i) file a written request with the Administrator for a review of his denied claim and of pertinent documents and (ii) submit written issues and comments to the Administrator. The Administrator will notify such person of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain specific reasons for the decision as well as specific references to pertinent Plan provisions. The decision on review will be made within 60 days after the request for review is received by the Administrator (or within 120 days, if special circumstances require an extension of time for processing the request, such as an election by the Administrator to hold a hearing, and if written notice of such extension and circumstances is given to such person within the initial 60-day period). If the decision on review is not made within such period, the claim will be considered denied.

Article 12-2


 

12.3   Plan Administrative Costs. All reasonable costs and expenses (including legal, accounting, and employee communication fees) incurred by the Administrator in administering the Plan shall be paid by the Employer.

Article 12-3


 

ARTICLE 13 – MISCELLANEOUS
13.1   Unsecured General Creditor of the Employer. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of any Employer. For purposes of the payment of benefits under the Plan, any and all of the Employer’s assets shall be, and shall remain, the general, unpledged, unrestricted assets of the Employer. Each Employer’s obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.
 
13.2   Employer’s Liability. Each Employer’s liability for the payment of benefits under the Plan shall be defined only by the Plan and by the deferral agreements entered into between a Participant and the Employer. An Employer shall have no obligation or liability to a Participant under the Plan except as provided by the Plan and a deferral agreement or agreements. An Employer shall have no liability to Participants employed by other Employers.
 
13.3   Limitation of Rights. Neither the establishment of the Plan, nor any amendment thereof, nor the creation of any fund or account, nor the payment of any benefits, will be construed as giving to the Participant or any other person any legal or equitable right against the Employer or Administrator, except as provided herein; and in no event will the terms of employment or service of the Participant be modified or in any way affected hereby.
 
13.4   Acceleration of Benefits. None of the benefits or rights of a Participant or any Beneficiary of a Participant shall be subject to the claim of any creditor. In particular, to the fullest extent permitted by law, all such benefits and rights shall be free from attachment, garnishment, or any other legal or equitable process available to any creditor of the Participant and his or her Beneficiary. Neither the Participant nor his or her Beneficiary shall have the right to alienate, anticipate, commute, pledge, encumber, or assign any of the payments which he or she may expect to receive, contingently or otherwise, under this Plan, except the right to designate a Beneficiary to receive death benefits provided hereunder. A distribution made to comply with Federal conflict of interest requirements shall be permitted, notwithstanding any elections made by the Participant to the contrary.
 
13.5   Facility of Payment. If the Administrator determines, on the basis of medical reports or other evidence satisfactory to the Administrator, that the recipient of any benefit payments under the Plan is incapable of handling his affairs by reason of minority, illness, infirmity or other incapacity, the Administrator may direct the Employer to disburse such payments to a person or institution designated by a court which has jurisdiction over such recipient or a person or institution otherwise having the legal authority under State law for the care and control of such recipient. The receipt by such person or institution of any such payments therefore, and any such payment to the extent thereof, shall discharge

- 4 -


 

    the liability of the Employer for the payment of benefits hereunder to such recipient.
 
13.6   Notices. Any notice or other communication in connection with the Plan shall be deemed delivered in writing if addressed as provided below and if either actually delivered at said address or, in the case or a letter, 5 business days shall have elapsed after the same shall have been deposited in the United States mails, first-class postage prepaid and registered or certified:
  (a)   If it is sent to the Employer or Administrator, it will be at the address specified by the Employer; or
 
  (b)   In each case at such address as the addressee shall have specified by written notice delivered in accordance with the foregoing to the addressor’s then effective notice address.
13.7   Tax Withholding. The Employer shall have the right to deduct from all payments or deferrals made under the Plan any tax required by law to be withheld. If the Employer concludes that tax is owing with respect to any deferral or payment hereunder, the Employer shall withhold such amounts from any payments due the Participant, as permitted by law, or otherwise make appropriate arrangements with the Participant or his Beneficiary for satisfaction of such obligation. Tax, for purposes of this Section 13.7 means any federal, state, local or any other governmental income tax, employment or payroll tax, excise tax, or any other tax or assessment owing with respect to amounts deferred, any earnings thereon, and any payments made to Participants under the Plan.
 
13.8   Indemnification. Each Employer shall indemnify, to the full extent permitted by law, each employee, officer or director made or threatened to be made a party to any civil or criminal action or proceeding by reason of the fact that he, or his testator or intestate, is or was delegated duties, responsibilities, and authority with respect to the Plan.
 
13.9   Governing Law. The Plan shall be construed, administered and governed in all respects under and by the laws of the State of New York, without reference to the principles of conflicts of law (except if and to the extent preempted by applicable Federal law). It is the intent of the Plan Sponsor that this Plan be considered and interpreted in all respects as part of a bonus plan within the meaning of U. S. Department of Labor Regulation Section 2510.3-2(c) and not in any respect as an employee pension plan for purposes of ERISA. If and to the extent that any portion of this Plan shall be determined to be an employee pension benefit plan subject to ERISA, then such portion shall be considered a separate plan covering only those Participants as to whom this Plan is determined to be a pension plan. Such pension plan shall in all respects be considered and interpreted as a plan which is unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and exempt from coverage of Parts 1, 2, 3 and 4 of Subtitle B of Title I of ERISA to the maximum extent permissible under the provisions thereof. Further, it is the intent of the Plan Sponsor that this Plan be considered and interpreted in all respects as a nonqualified deferred compensation plan

Article 12-5


 

    satisfying the requirements of Section 409A of the Code and deferring the recognition of income by Participants in respect of amounts credited to Participant Accounts until amounts are actually paid to them pursuant to the Plan.

Article 12-6

 

Exhibit 15.1
February 5, 2007
CA, Inc.
One CA Plaza
Islandia, New York 11749
Re: Registration Statement Nos. 333-120849, 333-108665, 333-100896, 333-88916, 333-32942, 333-31284, 333-83147, 333-80883, 333-79727, 333-62055, 333-19071, 333-04801, 333-127602, 333-127601, 333-126273, 33-64377, 33-53915, 33-53572, 33-34607, 33-18322, 33-20797, 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 5, 2007 related to our review of interim financial information. As discussed in Note A to the consolidated condensed financial statements, the Company has restated the consolidated condensed statements of operations for the three-month and nine-month periods ended December 31, 2005 and the consolidated condensed statement of cash flows for the nine-month period ended December 31, 2005 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 for the fiscal year ended March 31, 2006.
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 independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm 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 5, 2007
  /s/ John A. Swanson
 
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, Nancy E. Cooper, 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 5, 2007
  /s/ Nancy E. Cooper    
 
 
 
Nancy E. Cooper
   
 
  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 fiscal quarter ended December 31, 2006 as filed with the Securities and Exchange Commission (the “Report”), each of John A. Swainson, President and Chief Executive Officer of the Company, and Nancy E. Cooper, 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 or her 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 5, 2007
   
 
   
/s/ Nancy E. Cooper
 
Nancy E. Cooper
   
Executive Vice President and Chief Financial Officer
   
February 5, 2007
   
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.