1

2

3

4

(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

5

(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

6

7

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.

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

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 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:

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.

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:

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

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.

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

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

CA, INC. AND SUBSIDIARIES
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:

CA, INC. AND SUBSIDIARIES
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

CA, INC. AND SUBSIDIARIES
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:

CA, INC. AND SUBSIDIARIES
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

CA, INC. AND SUBSIDIARIES
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.

CA, INC. AND SUBSIDIARIES
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.

CA, INC. AND SUBSIDIARIES
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

CA, INC. AND SUBSIDIARIES
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.

CA, INC. AND SUBSIDIARIES
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,

CA, INC. AND SUBSIDIARIES
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

A, INC. AND SUBSIDIARIES
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

A, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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.

A, INC. AND SUBSIDIARIES
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.

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.

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

Item 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
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

Item 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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.

Item 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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.

Item 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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	%