UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2006
or
¨ Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from                      to                     

Commission File Number: 1-9247

CA, Inc.

(Exact name of registrant as specified in its charter)

Delaware		13-2857434
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

One CA Plaza
Islandia, New York		11749
(Address of principal executive offices)		(Zip Code)

(631) 342-6000
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days: Yes þ       No ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer þ       Accelerated filer ¨       Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨       No þ.

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Title of Class		Shares Outstanding
Common Stock par value $0.10 per share		as of October 31, 2006 526,535,801

 

 

CA, INC., AND SUBSIDIARIES

INDEX

						Page
PART I.				Financial Information
				Review Report of Independent Registered Public Accounting Firm			1
Item 1.				Consolidated Condensed Financial Statements
				Consolidated Condensed Balance Sheets — September 30, 2006 and March 31, 2006			2
				Consolidated Condensed Statements of Operations — Three and Six Months Ended September 30, 2006 and 2005 (restated)			3
				Consolidated Condensed Statements of Cash Flows — Six Months Ended September 30, 2006 and 2005 (restated)			4
				Notes to the Consolidated Condensed Financial Statements			5
Item 2.				Management’s Discussion and Analysis of Financial Condition and Results of Operations
				Quarterly Update			27
				Performance Indicators			28
				Results of Operations			30
				Liquidity and Capital Resources			38
				Outlook			45
				Critical Accounting Policies and Business Practices			46
Item 3.				Quantitative and Qualitative Disclosures About Market Risk			52
Item 4.				Controls and Procedures			53
PART II.				Other Information
Item 1.				Legal Proceedings			56
Item 1a.				Risk Factors			56
Item 2.				Unregistered Sales of Equity Securities and Use of Proceeds			57
Item 4.				Submission of Matters to a Vote of Security Holders			58
Item 6.				Exhibits			59
				Signatures			61
EX-10.3: AMENDED AND RESTATED EMPLOYMENT AGREEMENT
EX-10.5: SEPARATION AGREEMENT AND GENERAL CLAIMS RELEASE
EX-10.6: EMPLOYMENT AGREEMENT
EX-15: ACCOUNTANTS' ACKNOWLEDGEMENT LETTER
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATIONS

PART I. FINANCIAL INFORMATION

REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
CA, Inc.

We have reviewed the accompanying consolidated condensed balance sheet of CA, Inc. and subsidiaries as of September 30, 2006, the related consolidated condensed statements of operations for the three-month and six-month periods ended September 30, 2006 and 2005, and the consolidated condensed statements of cash flows for the six-month periods ended September 30, 2006 and 2005. These consolidated condensed financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated condensed financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards established by the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of CA, Inc. and subsidiaries as of March 31, 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated July 31, 2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of March 31, 2006, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

As discussed in Note A to the consolidated condensed financial statements, the Company has restated the consolidated condensed statements of operations for the three-month and six-month periods ended September 30, 2005 and the consolidated condensed statement of cash flows for the six-month period ended September 30, 2005 to reflect the effects of certain prior period restatements that were previously disclosed in Note 12 of the consolidated financial statements in the Company’s Form 10-K for the fiscal year ended March 31, 2006.

/s/ KPMG LLP
New York, New York
November 3, 2006

Item 1. Consolidated Condensed Financial Statements.

CA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
(in millions)

		September 30,				March 31,
		2006				2006
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	1,295			$	1,831
Marketable securities			—				34
Trade and installment accounts receivable, net			422				505
Deferred income taxes			430				260
Other current assets			75				50
TOTAL CURRENT ASSETS			2,222				2,680
Installment accounts receivable, due after one year, net			402				449
Property and equipment, net			463				634
Purchased software products, net			343				461
Goodwill, net			5,401				5,308
Deferred income taxes			162				158
Other noncurrent assets			827				788
TOTAL ASSETS		$	9,820			$	10,478
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of long-term debt and loans payable		$	11			$	3
Accounts payable			176				277
Salaries, wages, and commissions			268				292
Accrued expenses and other current liabilities			508				504
Deferred subscription revenue (collected) — current			1,347				1,517
Deferred maintenance revenue			227				250
Taxes payable, other than income taxes payable			48				129
Federal, state, and foreign income taxes payable			442				370
Deferred income taxes			33				32
TOTAL CURRENT LIABILITIES			3,060				3,374
Long-term debt, net of current portion			2,577				1,813
Deferred income taxes			49				39
Deferred subscription revenue (collected) — noncurrent			468				448
Other noncurrent liabilities			74				77
TOTAL LIABILITIES			6,228				5,751
STOCKHOLDERS’ EQUITY
Preferred stock, no par value, 10,000,000 shares authorized;
No shares issued and outstanding			—				—
Common stock, $0.10 par value, 1,100,000,000 shares authorized; 589,695,081 shares and 630,920,596 shares issued, respectively			59				63
Additional paid-in capital			3,528				4,542
Retained earnings			1,793				1,750
Accumulated other comprehensive loss			(136	)			(134	)
Unearned compensation			(4	)			(6	)
Treasury stock, at cost, 66,439,323 shares and 59,167,446 shares, respectively			(1,648	)			(1,488	)
TOTAL STOCKHOLDERS’ EQUITY			3,592				4,727
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	9,820			$	10,478

See Notes to the Consolidated Condensed Financial Statements.

CA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(in millions, except per share amounts)

		For the Three								For the Six
		Months Ended								Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
						(restated)								(restated)
REVENUE
Subscription revenue		$	762			$	704			$	1,501			$	1,406
Maintenance			112				113				215				220
Software fees and other			28				43				52				80
Financing fees			6				13				14				27
Professional services			88				77				170				144
TOTAL REVENUE			996				950				1,952				1,877
EXPENSES
Amortization of capitalized software costs			83				111				188				224
Cost of professional services			80				65				152				125
Selling, general, and administrative			425				383				859				772
Product development and enhancements			178				179				357				351
Commissions, royalties, and bonuses			73				68				144				130
Depreciation and amortization of other intangible assets			37				32				71				62
Other gains, net			(16	)			(4	)			(17	)			(7	)
Restructuring and other			48				45				59				45
Charge for in-process research and development costs			10				14				10				18
TOTAL EXPENSES BEFORE INTEREST AND TAXES			918				893				1,823				1,720
Income before interest and taxes			78				57				129				157
Interest expense, net			12				10				20				19
Income before income taxes			66				47				109				138
Income tax expense (benefit)			13				1				21				(5	)
NET INCOME		$	53			$	46			$	88			$	143
BASIC INCOME PER SHARE		$	0.09			$	0.08			$	0.16			$	0.24
Basic weighted average shares used in computation			560				584				564				585
DILUTED INCOME PER SHARE		$	0.09			$	0.08			$	0.15			$	0.24
Diluted weighted average shares used in computation			584				610				588				611

See Notes to the Consolidated Condensed Financial Statements.

CA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)

		For the Six Months
		Ended September 30,
		2006				2005
						(restated)
OPERATING ACTIVITIES:
Net income		$	88			$	143
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization			259				286
Provision for deferred income taxes			(203	)			(237	)
Non-cash compensation expense related to stock and defined contribution plans			52				67
Non-cash charge for purchased in-process research and development			10				18
Gain on sale of assets			(14	)			—
Foreign currency transaction gain — before taxes			(4	)			(7	)
Changes in other operating assets and liabilities, net of effect of acquisitions:
Decrease in trade and current installment accounts receivable, net			127				289
Decrease in noncurrent installment accounts receivable, net			29				47
Decrease in deferred subscription revenue (collected) — current			(199	)			(263	)
Increase in deferred subscription revenue (collected) — noncurrent			16				26
Decrease in deferred maintenance revenue			(31	)			(29	)
(Decrease) increase in taxes payable, net			(2	)			65
(Decrease) increase in accounts payable, accrued expenses and other			(112	)			62
Restitution fund payment			—				(75	)
Restructuring and other, net			40				41
Changes in other operating assets and liabilities			(96	)			(41	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES			(40	)			392
INVESTING ACTIVITIES:
Acquisitions, primarily goodwill, purchased software, and other intangible assets, net of cash acquired			(173	)			(626	)
Settlements of purchase accounting liabilities			(16	)			(20	)
Purchases of property and equipment, net			(81	)			(55	)
Proceeds from sale of assets			217				—
Proceeds from sales of marketable securities, net			44				262
Decrease (increase) in restricted cash			8				(4	)
Capitalized software development costs			(34	)			(42	)
NET CASH USED IN INVESTING ACTIVITIES			(35	)			(485	)
FINANCING ACTIVITIES:
Dividends paid			(46	)			(47	)
Purchases of common stock			(1,214	)			(260	)
Debt borrowings (repayments)			751				(911	)
Exercise of common stock options and other			20				79
NET CASH USED IN FINANCING ACTIVITIES			(489	)			(1,139	)
DECREASE IN CASH AND CASH EQUIVALENTS BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH			(564	)			(1,232	)
Effect of exchange rate changes on cash			28				(68	)
DECREASE IN CASH AND CASH EQUIVALENTS			(536	)			(1,300	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			1,831				2,829
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	1,295			$	1,529

See Notes to the Consolidated Condensed Financial Statements.

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited Consolidated Condensed Financial Statements of CA, Inc. and subsidiaries (the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, these estimates may ultimately differ from actual results.

Operating results for the three and six-month periods ended September 30, 2006 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2007. For further information, refer to the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006.

The Consolidated Condensed Statements of Operations for the three and six-month periods ended September 30, 2005 and the Consolidated Condensed Statement of Cash Flows for the six month period ended September 30, 2005, included in this Form 10-Q have been restated to reflect the effects of certain prior period restatements that were previously disclosed in Note 12 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006.

The following tables summarize the Consolidated Statements of Operations and Cash Flows for the periods indicated, giving effect to the restatement adjustments described above. Quarterly information presented below is unaudited.

FISCAL YEAR 2006 UNAUDITED QUARTERLY STATEMENT OF OPERATIONS DATA

		For the Three Months								For the Six Months
		Ended September 30, 2005								Ended September 30, 2005
		Previously								Previously
		Reported(1)				Restated				Reported(1)				Restated
		(unaudited)
		(in millions, except per share data)
Subscription revenue		$	696			$	704			$	1,391			$	1,406
Total revenue			942				950				1,862				1,877
Selling, general, and administrative			382				383				770				772
Product development and enhancements			179				179				350				351
Total expenses before interest and taxes			892				893				1,717				1,720
Income before interest and taxes			50				57				145				157
Income before income taxes			40				47				126				138
Income tax (benefit) expense			(1	)			1				(9	)			(5	)
Net income			41				46				135				143
Basic income per share			0.07				0.08				0.23				0.24
Diluted income per share			0.07				0.08				0.23				0.24

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

FISCAL YEAR 2006 UNAUDITED QUARTERLY CASH FLOW STATEMENT DATA

		For the Six Months Ended September 30, 2005
		Previously
		Reported(1)				Restated
		(unaudited)
		(in millions)
Net income		$	135			$	143
Provision for deferred income taxes			(241	)			(237	)
Non-cash compensation expense related to stock and pension plans			64				67
Decrease in noncurrent installment accounts receivable, net			62				47

Reclassifications and other adjustments: Certain prior year balances have been reclassified to conform with the current period’s presentation.

Approximately $134 million of current liabilities that were components of “Accounts payable” at March 31, 2006 have been reclassified to “Accrued expenses and other current liabilities” on the Consolidated Condensed Balance Sheet to conform to the September 30, 2006 presentation.

Approximately $5 million of capital lease obligations that were components of “Accrued expenses and other current liabilities” at March 31, 2006 have been reclassified accordingly between “Current portion of long-term debt and loans payable” and “Long-term debt, net of current portion” on the Consolidated Condensed Balance Sheet to conform to the September 30, 2006 presentation.

Approximately $32 million of deferred tax assets that were offset against “Deferred income taxes — long term liabilities” at March 31, 2006 have been reclassified to “Deferred income taxes — current assets” on the Consolidated Condensed Balance Sheet to conform to the September 30, 2006 presentation.

Subsequent to the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006, the Company determined that deferred tax assets associated with certain outstanding stock options were understated by approximately $47 million through an $8 million understatement in “Deferred income taxes — current assets” and a $39 million overstatement in “deferred income taxes — noncurrent liabilities” on the Consolidated Balance Sheet as of March 31, 2006. Correspondingly, “Additional paid in capital” was understated by $47 million on the Consolidated Balance Sheet and Statement of Stockholders’ Equity as of and for the year ended March 31, 2006. This error has been corrected on the Consolidated Condensed Balance Sheet as of March 31, 2006 in this Quarterly Report on Form 10-Q. The impact of this correction on the effected line items is not considered material to the March 31, 2006 financial statements and does not effect the previously reported Consolidated Statements of Operations or Cash Flows for any prior periods.

Basis of Revenue Recognition: The Company generates revenue from the following primary sources: (1) licensing software products; (2) providing customer technical support (referred to as maintenance); and (3) providing professional services, such as consulting and education.

The Company recognizes revenue pursuant to the requirements of Statement of Position (SOP) 97-2, “Software Revenue Recognition,” issued by the American Institute of Certified Public Accountants, as amended by SOP 98-9 “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” In accordance with SOP 97-2, the Company begins to recognize revenue from licensing and supporting its software products when all of the following criteria are met: (1) the Company has evidence of an arrangement with a customer; (2) the Company delivers the products; (3) license agreement terms are deemed fixed or determinable and free of contingencies or uncertainties that may alter the agreement such that it may not be complete and final; and (4) collection is probable.

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

Under the Company’s business model, software license agreements include flexible contractual provisions that, among other things, allow customers to receive unspecified future software products for no additional fee. These agreements combine the right to use the software products with maintenance for the term of the agreement. Under these agreements, once all four of the above noted revenue recognition criteria are met, the Company is required to recognize revenue ratably over the term of the license agreement. For license agreements signed prior to October 2000 (the prior business model), once all four of the above noted revenue recognition criteria were met, software license fees were recognized as revenue up-front, and the maintenance fees were deferred and subsequently recognized as revenue over the term of the license. New deferred subscription value related to acquisitions is initially recorded on the acquired company’s systems generally under a perpetual or up-front software license agreement model, and is typically converted to our ratable software license agreement model within the first fiscal year after the acquisition. As these contracts are renewed under our business model, revenue is recognized ratably as subscription revenue on a monthly basis over the term of the agreement.

Revenue from professional service arrangements is generally recognized as the services are performed. Revenues from committed professional services arrangements that are sold as part of a software transaction are deferred and recognized on a ratable basis over the life of the related software transaction. If it is not probable that a project will be completed or the payment will be received, revenue is deferred until the uncertainty is removed.

Revenue from sales to distributors, resellers, and value-added resellers (VARs) is recognized when all four of the SOP 97-2 revenue recognition criteria noted above are met and when these entities sell the software product to their customers. This is commonly referred to as the sell-through method. Beginning July 1, 2004, a majority of sales of products to distributors, resellers and VARs incorporate the right for the end-users to receive certain unspecified future software products and revenue from those contracts is therefore recognized on a ratable basis.

For further information, refer to the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006.

Cash Dividends: 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 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 six-month periods ended September 30, 2006 and 2005, interest payments were $44 million and $71 million, respectively, and income taxes paid were $158 million and $127 million, respectively. The decrease in interest paid is a result of the timing of payments on the Company’s outstanding debt.

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.

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

Future minimum lease payments to be made under this non-cancelable operating lease as of September 30, 2006 are as follows:

Fiscal Years		(in millions)
Remainder of fiscal year 2007		$	8
2008			15
2009			15
2010			15
2011			16
2012			16
And thereafter			152
Total minimum lease payments		$	237

Total rent expense related to this lease arrangement during the three-months ended September 30, 2006 was approximately $2 million.

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.

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 September 30, 2006. A total of $750 million was drawn down from 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 6.54%. The maximum committed amount available under the revolving credit facility (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 less than $1 million through September 30, 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 its 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 gains, net” line item of the Consolidated Condensed Statement of Operations for the three and six-month periods ending September 30, 2006.

Derivatives: Derivatives are accounted for in accordance with GAAP and Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities” (FAS 133). During the quarter ended September 30, 2006, the Company entered into derivative contracts with a total notional value of approximately 23 million euros, none of which were outstanding as of September 30, 2006. The Company entered into these contracts with the intent of mitigating a certain portion of the Company’s euro operating exposure as part of the Company’s on-going

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

risk management program. These contracts did not qualify for hedge accounting treatment under FAS 133 and did not result in any significant gains or losses for the quarter.

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 six-month periods ended September 30, 2006 and 2005 are as follows:

		For the Three Months								For the Six Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
						(restated)								(restated)
		(in millions)
Net income		$	53			$	46			$	88			$	143
Reversal of prior period unrealized gains on marketable securities, net of tax			(2	)			—				(2	)			—
Foreign currency translation adjustments			(9	)			(10	)			—				(53	)
Total comprehensive income		$	42			$	36			$	86			$	90

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 September 30, 2006 and 2005, approximately 19.7 million and 12.0 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 six months ended September 30, 2006 and 2005, approximately 19.6 million and 12.0 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 Three								For the Six
		Months Ended								Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
						(restated)								(restated)
		(in millions, except per share amounts)
Net income		$	53			$	46			$	88			$	143
Interest expense associated with Convertible Senior Notes, net of tax			1				1				2				3
Numerator in calculation of diluted earnings per share		$	54			$	47			$	90			$	146
Weighted average shares outstanding and common share equivalents
Weighted average common shares outstanding			560				584				564				585
Weighted average Convertible Senior Note shares outstanding			23				23				23				23
Weighted average stock awards outstanding			1				3				1				3
Denominator in calculation of diluted earnings per share			584				610				588				611
Diluted earnings per share		$	0.09			$	0.08			$	0.15			$	0.24

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

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:

		For the Three Months								For the Six Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
						(restated)								(restated)
		(in millions)
Cost of professional services		$	1			$	1			$	2			$	2
Selling, general, and administrative			17				17				30				37
Product development and enhancements			7				9				12				19
Share-based compensation expense before tax			25				27				44				58
Income tax benefit			7				7				12				15
Net compensation expense		$	18			$	20			$	32			$	43

The decrease in share-based compensation expense for the six-month period ended September 30, 2006, as compared with the corresponding prior year period was principally the result of (1) awards granted in July 2000 becoming fully amortized in the first half of 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.

Total unrecognized compensation costs related to non-vested awards, expected to be recognized over a weighted average period of 1.6 years, amounted to $141 million at September 30, 2006.

There were no capitalized share-based compensation costs at September 30, 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 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

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

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 they 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.

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 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 September 30, 2006, the Company has accrued compensation cost based on its current expectation of achievement of approximately 35% and 100% 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. 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 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 September 30, 2006, the Company has accrued compensation cost based on its current expectation of achievement of approximately 40% of the 3-year PSU 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. 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 six month periods ended September 30, 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 quarter ended September 30, 2006 and 2005, the Company issued options covering approximately 2.0 million and 0.1 million shares of common stock, respectively. The weighted average grant date fair value of these grants was $8.34 and $14.91, respectively.

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

For the six-month periods ended September 30, 2006 and 2005, the Company issued options covering 2.4 million and 2.6 million shares of common stock, respectively. The weighted average fair value at the date of grant for options granted during the six-month periods ended September 30, 2006 and 2005 was $8.39 and $15.05, respectively. The weighted average assumptions that were used for option grants in the respective periods are as follows:

		For the Three Months								For the Six Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
Dividend yield			0.73	%			0.58	%			0.73	%			0.57	%
Expected volatility factor(1)			0.41				0.56				0.41				0.56
Risk-free interest rate(2)			4.9	%			4.1	%			4.9	%			4.1	%
Expected term (in years)(3)			4.5				6.0				4.5				6.0

For the fiscal year 2007 grants, the Company changed its compensation structure toward a greater use of RSAs and a lesser use of RSUs.

For the quarter ended September 30, 2006, the Company issued RSUs covering less than 0.1 million shares of common stock with a weighted average grant date fair value of $23.28. For the quarter ended September 30, 2005, the Company did not issue RSUs.

For the six-month periods ended September 30, 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 September 30, 2006 and 2005, the Company issued RSAs covering 0.2 million and less than 0.1 million shares of common stock, respectively. The weighted average grant date fair value of these grants was $22.74 and $27.69, respectively.

For the six-month periods ended September 30, 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 $27.29, respectively. The RSAs granted for the six month period ended September 30, 2006 include the 0.3 million RSAs granted under the fiscal year 2006 1-year PSU in the first quarter of fiscal year 2007.

The Company maintains a Year 2000 Employee Stock Purchase Plan (the Purchase Plan) for all eligible employees. Consistent with the provisions of SFAS No. 123, the Purchase Plan under SFAS No. 123(R) is considered compensatory. The estimated fair value of the stock purchase rights under the Purchase Plan for the six-month offer periods commencing July 1, 2006 and July 1, 2005 was $4.38 and $5.76, respectively. The fair value is estimated on the first date of the offering period using the Black-Scholes option pricing model. The weighted average assumptions that were used in determining the estimated fair value of stock purchase rights under the Purchase Plan are as follows:

		For the Six Month Offer				For the Six Month Offer
		Period Commencing				Period Commencing
		July 1, 2006				July 1, 2005
Dividend yield			0.78	%			0.59	%
Expected volatility factor			0.20				0.20
Risk-free interest rate			5.2	%			3.4	%
Expected term			0.5				0.5

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

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:

		September 30,				March 31,
		2006				2006
		(in millions)
Current:
Accounts receivable		$	580			$	828
Other receivables			45				77
Unbilled amounts due within the next 12 months — prior business model			234				254
Less: Allowance for doubtful accounts			(26	)			(25	)
Less: Unearned revenue — current			(411	)			(629	)
Net trade and installment accounts receivable — current		$	422			$	505
Noncurrent:
Unbilled amounts due beyond the next 12 months — prior business model			445				511
Less: Allowance for doubtful accounts			(13	)			(20	)
Less: Unearned revenue — noncurrent			(30	)			(42	)
Net installment accounts receivable — noncurrent		$	402			$	449

The components of unearned revenue consist of the following:

		September 30,				March 31,
		2006				2006
		(in millions)
Current:
Unamortized discounts		$	35			$	44
Unearned maintenance			1				4
Deferred subscription revenue (billed, uncollected)			348				534
Unearned professional services			27				47
Total unearned revenue — current		$	411			$	629
Noncurrent:
Unamortized discounts		$	28			$	34
Unearned maintenance			2				8
Total unearned revenue — noncurrent		$	30			$	42

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

NOTE F — IDENTIFIED INTANGIBLE ASSETS

In the tables below, capitalized software includes both purchased and internally developed software costs; other identified intangible assets includes 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 September 30, 2006
		Gross				Accumulated				Net
		Assets				Amortization				Assets
		(in millions)
Capitalized software:
Purchased		$	4,805			$	4,462			$	343
Internally developed			589				388				201
Other identified intangible assets subject to amortization			657				293				364
Other identified intangible assets not subject to amortization			26				—				26
Total		$	6,077			$	5,143			$	934

		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 $45 million and $29 million of purchased software and other identified intangible assets subject to amortization, respectively for the first half of fiscal year 2007. Refer to Note G, “Acquisitions,” for additional information relating to the Company’s fiscal year 2007 acquisitions.

In the second 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 and $12 million, respectively.

For the first six months of fiscal years 2007 and 2006, amortization of capitalized software costs was $188 million and $224 million, respectively, and amortization of other identified intangible assets was $27 million and $23 million, respectively.

Based on the identified intangible assets recorded through September 30, 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			54				53				46				38				27				10
Other identified intangible assets subject to amortization			54				55				55				54				53				32
Total		$	409			$	166			$	149			$	129			$	105			$	57

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

The carrying value of goodwill was $5.40 billion and $5.31 billion as of September 30, 2006 and March 31, 2006, respectively. During the six-month period ended September 30, 2006, goodwill increased by approximately $131 million as a result of fiscal year 2007 acquisitions, which was partially offset by approximately $38 million of goodwill adjustments for prior year acquisitions. The goodwill adjustment for the first six months 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.

NOTE G — ACQUISITIONS

During the first half 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 approximately a $10 million charge 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 September 30, 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 Consolidatd Condensed Balance Sheet. During the six months ended September 30, 2006, the Company made payments against these liabilities of approximately $5 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:

		Duplicate
		Facilities &				Employee
		Other Costs				Costs
		(in millions)
Balance at March 31, 2006		$	60			$	7
Additions			1				2
Settlements			(7	)			(4	)
Adjustments			(21	)			(1	)
Balance at September 30, 2006		$	33			$	4

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

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

commitments, and other contractual liabilities. The liabilities for employee costs relate to involuntary termination benefits. Adjustments to the corresponding liability and related goodwill accounts are recorded when obligations are settled at amounts more or less than those originally estimated. 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 to be recognized in fiscal year 2007. The majority of the actions are expected to be completed by late fiscal year 2008. The fiscal 2007 plan’s objectives include a workforce reduction, global facilities consolidations and other cost reduction initiatives. 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 $39 million of severance costs in the second quarter of fiscal year 2007 relating to approximately 750 individuals. 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 costs are expected to be incurred beginning in the third quarter of fiscal year 2007; as such, no costs were recognized in the second quarter of fiscal year 2007.

Accrued restructuring costs and changes in these accruals during the second quarter of fiscal year 2007 were as follows:

		Severance
		(in millions)
Additions		$	39
Payments			(11	)
Balance at September 30, 2006		$	28

The liability balance is included in the “Accrued expenses and other current liabilities” line item on the Consolidated Condensed Balance Sheet at September 30, 2006.

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

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

Company incurred approximately $18 million of severance costs during the first half of fiscal year 2007 and approximately $54 million 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 and/or abandonment when the Company ceased to utilize the leased property. Under SFAS No. 146, the liability associated with lease termination and/or abandonment is measured as the present value of the total remaining lease costs and associated operating costs, less probable sublease income. The Company recovered approximately $1 million of facilities abandonment related costs during the first half of fiscal year 2007, due to its ability to sublease certain properties, and incurred approximately $29 million in net costs since the fiscal 2006 plan’s inception. 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 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 half of fiscal year 2007 were as follows:

						Facilities
		Severance				Abandonment
		(in millions)
Balance at March 31, 2006		$	18			$	27
Additions (reductions)			18				(1	)
Payments			(20	)			(6	)
Balance at September 30, 2006		$	16			$	20

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 half of fiscal year 2007, the Company incurred approximately $3 million in connection with certain DPA related costs (see also Note J, “Commitments and Contingencies”). During the first half of fiscal year 2006, the Company incurred approximately $5 million associated with the termination of a non-core application development professional services project and $3 million in connection with certain DPA related costs.

NOTE I — INCOME TAXES

Income tax expense (benefit) for the three and six-month periods ended September 30, 2006 was $13 million and $21 million, respectively, compared to the three and six-month periods ended September 30, 2005 of $1 million and $(5) million, respectively. For the quarter ended September 30, 2006, the tax provision included a net benefit of approximately $10 million, primarily arising from the resolution of certain state and international tax contingencies. For the six-month period ending September 30, 2006, the tax provision included a net benefit of approximately $17 million, primarily arising from the resolution of certain international and U.S. tax contingencies.

For the quarter ended September 30, 2005, the tax provision included a net benefit of approximately $14 million, primarily arising from the conclusion of an international tax examination and the reduction of a valuation allowance related to foreign net operating loss carry forwards. In addition to the aforementioned $14 million benefit, the six-month period ended September 30, 2005 included a net benefit of approximately $36 million reflecting IRS Notice 2005-38. Notice 2005-38 permitted the utilization of foreign tax credits in

CA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

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 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 Delaware. 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,

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SEPTEMBER 30, 2006

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.

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, four executives who oversaw the relevant financial operations during the period in question, including Ira Zar, resigned at the Company’s request. On January 22, 2004, one of these individuals pled guilty to federal criminal charges of conspiracy to obstruct justice in connection with the ongoing investigation. On April 8, 2004, Mr. Zar and two other former executives pled guilty to charges of conspiracy to obstruct justice and conspiracy to commit securities fraud in connection with the investigation. Mr. Zar also pled guilty to committing securities fraud. The four former executives are awaiting sentencing. 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, Mr. Zar and the three other executives each consented to a permanent injunction against violating, or aiding and abetting violations of, the securities laws, and also to a permanent bar from serving as an officer or director of a publicly held company. Litigation with respect to the SEC’s claims for disgorgement and penalties is continuing.

A number of other employees, primarily in the Company’s legal and finance departments were terminated or resigned as a result of matters under investigation by the Audit and Compliance Committee, including Steven Woghin, the Company’s former General Counsel. Stephen Richards, the Company’s former Executive Vice President of Sales, resigned from his position and was relieved of all duties in April 2004,

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SEPTEMBER 30, 2006

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.

On September 22, 2004, the Company reached agreements with the USAO and the SEC by entering into a Deferred Prosecution Agreement (the DPA) with the USAO and consenting to the entry of a Final Consent Judgment in a parallel proceeding brought by the SEC (the Consent Judgment, and together with the DPA, the Agreements). The Federal Court approved the DPA on September 22, 2004 and entered the Consent Judgment on September 28, 2004. The Agreements resolve the USAO and SEC investigations into certain of the Company’s past accounting practices, including its revenue recognition policies and procedures, and obstruction of their investigations.

Under the DPA, the Company has agreed to establish a $225 million fund for purposes of restitution to current and former stockholders of the Company, with $75 million to be paid within 30 days of the date of approval of the DPA by the Federal Court, $75 million to be paid within one year after the approval date and $75 million to be paid within 18 months after the approval date. The Company made the first $75 million restitution payment into an interest-bearing account under terms approved by the USAO on October 22, 2004. The Company made the second $75 million restitution payment into an interest-bearing account under terms approved by the USAO 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 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 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

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SEPTEMBER 30, 2006

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, and September 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.

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).

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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. Mr. Woghin’s sentencing is currently scheduled for early November 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. The Federal Court deferred any decisions on restitution until early 2007. Sentencing of Mr. Richards is currently scheduled for mid-November 2006.

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. Sentencing of Mr. Bennett is currently scheduled to take place in late November 2006.

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.

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SEPTEMBER 30, 2006

Derivative Actions Filed in 2004

In June 2004, a purported derivative action was filed in the Federal Court by Ranger Governance Ltd. against certain current or former employees and/or directors of the Company. In July 2004, two additional purported derivative actions were filed in the Federal Court by purported Company stockholders against certain current or former employees and/or directors of the Company. In November 2004, the Federal Court issued an order consolidating these three derivative actions. The plaintiffs filed a consolidated amended complaint (the Consolidated Complaint) on January 7, 2005. The Consolidated Complaint names as defendants Messrs. Wang, Kumar, Zar, Artzt, D’Amato, Richards, Ranieri and Woghin; David Kaplan; David Rivard; Lloyd Silverstein; Michael A. McElroy; Messrs McWade and Schwartz; Gary Fernandes; Robert E. La Blanc; Jay W. Lorsch; Kenneth Cron; Walter P. Schuetze; Messrs. de Vogel and Grasso; Roel Pieper; KPMG LLP; and Ernst & Young LLP. The Company is named as a nominal defendant. The Consolidated Complaint alleges a claim against Messrs. Wang, Kumar, Zar, Kaplan, Rivard, Silverstein, Artzt, D’Amato, Richards, McElroy, McWade, Schwartz, Fernandes, La Blanc, Ranieri, Lorsch, Cron, Schuetze, de Vogel, Grasso, Pieper and Woghin for contribution towards the consideration the Company had previously agreed to provide current and former stockholders in settlement of certain class action litigation commenced against the Company and certain officers and directors in 1998 and 2002 (see “— Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004”) and seeks on behalf of the Company compensatory and consequential damages in an amount 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 derivative action 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

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SEPTEMBER 30, 2006

will continue to advance certain attorneys’ fees and expenses incurred by current and former officers and directors in various litigations and investigations arising out of similar allegations, including the litigation described above.

Texas Litigation

On August 9, 2004, a petition was filed by Sam Wyly and Ranger Governance, Ltd. against the Company in the District Court of Dallas County, Texas, seeking to obtain a declaratory judgment that plaintiffs did not breach two separation agreements they entered into with the Company in 2002 (the 2002 Agreements). Plaintiffs seek to obtain this declaratory judgment in order to file a derivative suit on behalf of the Company (see “—Derivative Actions Filed in 2004” above). On September 3, 2004, the Company filed an answer to the petition and on September 10, 2004, the Company filed a notice of removal seeking to remove the action to federal court. On February 18, 2005, Mr. Wyly filed a separate lawsuit in 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.

In September 2004, two complaints to compel production of the Company’s books and records, including files that have been produced by the Company to the USAO and SEC in the course of their joint investigation of the Company’s accounting practices (see “—The Government Investigation”) were filed by two purported stockholders of the Company in Delaware Chancery Court pursuant to Section 220 of the Delaware General Corporation Law. The first complaint was filed on September 15, 2004, after the Company denied the purported stockholder access to some of the files requested in her initial demand, in particular files that had been produced by the Company to the USAO and SEC during the course of their joint investigation. The Company filed its answer to this complaint on October 15, 2004. On October 11, 2005, the Special Litigation Committee (see “—Derivative Actions Filed in 2004”) moved to stay this action. On December 13, 2005, the Delaware Chancery Court denied the Company’s motion to stay the action. The Company subsequently agreed to produce the requested documents, subject to any applicable privileges. On July 25, 2006, the purported stockholder filed a motion to compel production of the withheld files and un-redacted copies of certain documents previously produced. On August 23, 2006, the Delaware Chancery Court denied the motion to compel. The second complaint, filed on September 21, 2004, concerns the inspection of documents related to Mr. Kumar’s compensation, the independence of the Board of Directors and ability of the Board of Directors to sue for return of that compensation. The

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SEPTEMBER 30, 2006

Company filed its answer to this complaint on October 15, 2004 and there have been no developments since that time.

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 Federman Action). The complaint names as individual defendants Messrs. Cron, D’Amato, Fernandes, La Blanc, Lorsch, McCracken, Ranieri, Schuetze, Swainson, Zambonini, Artzt, DeVogel, Grasso and Pieper, and Mss. Unger and Strum Kenny. The Company is named as a nominal defendant. The complaint alleges purported claims against the individual defendants for breach of fiduciary duty, abuse of control, gross mismanagement, corporate waste, and violations of Section 14(a) of the Exchange Act for alleged false and material misstatements made in the Company’s proxy statements issued in 2003, 2004 and 2005. These purported claims appear to be premised upon certain disclosures made by the Company in the 2006 Form 10-K 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. The complaint seeks relief against the individual defendants of an unspecified amount of compensatory damages, equitable relief including an order setting aside the election of defendants D’Amato, Fernandes, La Blanc, Lorsch, McCracken, Ranieri, Schuetze, Swainson, Unger, and Zambonini to the Company’s Board of Directors, an award of plaintiff’s costs and expenses, including reasonable attorneys’ fees, as well as other unspecified damages allegedly sustained by the Company. 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. 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 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 Vladimir Action). The complaint names as individual defendants Messrs. Kumar, Artzt, Wang, D’Amato, Fernandes, La Blanc, Ranieri, Lorsch, Schuetze, DeVogel, Cron, McCracken, Swainson, Zambonini, Pieper, Grasso, Goldstein and Lofgren, and Ms. Unger. The Company is named as a nominal defendant. The complaint alleges purported claims against the individual defendants for breach of fiduciary duty and violations of Section 14(a) of the Exchange Act. These purported claims appear to be premised upon certain disclosures made by the Company in the 2006 Form 10-K, 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. The complaint further alleges that certain of these allegations may have constituted “violation of the spirit, if not the letter of the DPA”. The complaint seeks relief against the individual defendants of an unspecified amount of compensatory and

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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006

punitive damages, equitable relief including an order rescinding certain stock option grants, and an award of plaintiffs’ costs and expenses, including reasonable attorneys’ fees. 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.

By order dated October 26, 2006, the Federal Court ordered the Federman Action and the Vladimir Action consolidated. Under the order, the actions are now captioned “CA, Inc. Shareholders’ Derivative Litigation Employee Option Action,” and the plaintiffs were given 45 days to file a consolidated complaint.

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 — SUBSEQUENT EVENTS

In October 2006, the Company announced that its Board of Directors adopted a new Stockholder Protection Rights Plan (the Rights Plan) which will replace the Company’s existing rights plan when it expires on November 30, 2006. The adoption of the Rights Plan was to address the corporate governance concerns associated with the existing rights plans. The Company will ask its stockholders to vote on the Rights Plan at the Company’s 2007 annual meeting. In connection with the adoption of the Rights Plan, the Company declared a dividend of one right on each outstanding share of the Company’s common stock. The dividend will be paid on November 30, 2006 upon expiration of CA’s existing rights plan to stockholders of record on October 26, 2006.

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 in the section “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 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 July 2006, we acquired XOsoft, Inc., a privately held company that provided continuous application availability solutions that minimize application downtime and accelerate time to recovery. The acquisition enables us to offer a complete recovery management solution that allows customers to minimize the risk of data loss, reduce the time spent on backups and expedite recovery of critical business services.
	•		In July 2006, we announced that Nancy E. Cooper was named Executive Vice President and Chief Financial Officer of the Company, reporting to our Chief Executive Officer. Her appointment was effective on August 15, 2006.
	•		In August 2006, we announced that Dr. Ajei S. Gopal joined CA as Senior Vice President and General Manager of the Enterprise Systems Management (ESM) business unit. Mr. Gopal succeeds Al Nugent who was recently appointed our Chief Technology Officer.
	•		In August 2006, we announced a fiscal year 2007 cost reduction and restructuring plan (FY07 Plan) that is expected to yield approximately $200 million in annualized savings when completed. We currently expect a workforce reduction of approximately 1,400 positions, including 300 positions associated with joint ventures, facilities consolidations and other cost reduction initiatives. We expect to incur total pre-tax restructuring charges of approximately $150 million over the 2007 and 2008 fiscal years in connection with the restructuring plan.
	•		In August 2006, we completed a sale and lease-back of our corporate headquarters located in Islandia, New York. The transaction resulted in net proceeds to the Company of approximately $201 million and a gain of approximately $7 million, which we will defer and amortize as a reduction to rent expense on a straight-line basis over the lease term.
	•		In August 2006, we announced the commencement of a tender offer to purchase outstanding CA common stock. This tender offer represented the initial phase of a $2 billion stock repurchase plan that we announced in June 2006. On September 14, 2006, the tender offered expired and we purchased 41,225,515 shares at a purchase price of $24.00 per share, for a total price of approximately $989 million.
	•		In September 2006, we announced that Amy Fliegelman Olli was named Executive Vice President and Co-General Counsel.
	•		In September 2006, we acquired Cendura, a privately held provider of IT service management and application service delivery solutions. The acquisition of Cendura strengthens the competitive position of our Configuration Management Database (CMDB) product, a key component of our Business Services Optimization (BSO) solutions.
	•		In September 2006, we announced a new release of Unicenter Network and Systems Management (Unicenter NSM) that offers a management database (MDB) built on Microsoft SQL Server and eases integration of CA and third-party management solutions—enabling customers to optimize service availability while protecting their existing IT investments.

•

In September 2006, we announced Day One support for IBM’s z/OS and z/OS.e version 1.8 across its mainframe software product line, continuing our unbroken record of support for new releases of the z/OS operating system on the very same day that the operating system becomes generally available.

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 September 30,												Percent
		2006				2005				Change				Change
						(restated)
		(dollars in millions)
Subscription revenue		$	762			$	704			$	58				8	%
Total revenue		$	996			$	950			$	46				5	%
Subscription revenue as a percent of total revenue			77	%			74	%			3	%			4	%
New deferred subscription value (direct)		$	498			$	575			$	(77	)			(13	%)
New deferred subscription value (indirect)		$	51			$	47			$	4				9	%
Weighted average license agreement duration in years (direct)			2.98				2.92				0.06				2	%
Cash provided by operations		$	6			$	299			$	(293	)			(98	%)
Net income		$	53			$	46			$	7				15	%

		For the Six Months
		Ended September 30,												Percent
		2006				2005				Change				Change
						(restated)
		(dollars in millions)
Subscription revenue		$	1,501			$	1,406			$	95				7	%
Total revenue		$	1,952			$	1,877			$	75				4	%
Subscription revenue as a percent of total revenue			77	%			75	%			2	%			3	%
New deferred subscription value (direct)		$	886			$	911			$	(25	)			(3	%)
New deferred subscription value (indirect)		$	92			$	90			$	2				2	%
Weighted average license agreement duration in years (direct)			2.75				2.84				(0.09	)			(3	%)
Cash (used in) provided by operations		$	(40	)		$	392			$	(432	)			N/A
Net income		$	88			$	143			$	(55	)			(38	%)

		Sept. 30,				March 31,								Percent
		2006				2006				Change				Change
		(dollars in millions)
Total cash, cash equivalents, and marketable securities		$	1,295			$	1,865			$	(570	)			(31	%)
Total debt		$	2,588			$	1,816			$	772				43	%

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 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. If a customer pays for software prior to the recognition of revenue, the amount is reported as a liability entitled “Deferred subscription revenue (collected)” on our Consolidated Condensed Balance Sheets. Customers do not always pay for software in equal annual installments over the life of a license agreement. The amount collected under a license agreement for the next twelve months but not yet recognized as revenue is reported as a liability entitled “Deferred subscription revenue (collected) — current” on our Consolidated Condensed Balance Sheets. The amount paid under a license agreement for periods subsequent to the next twelve months, which will be recognized as revenue on a monthly basis only in those future years, is reported as a liability entitled “Deferred subscription revenue (collected) — noncurrent” on our Consolidated Condensed Balance Sheets. The increase or decrease in current payments attributable to periods subsequent to the next twelve months is reported as an operating activity entitled “Deferred subscription revenue (collected) — noncurrent” in our Consolidated Condensed Statements of Cash Flows.

Payments received in the current period that are attributable to later years of a license agreement have a positive impact in the current period on billings and cash provided by continuing operating activities. Accordingly, to the extent such payments 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) sells 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 single-year maintenance-only license agreements, license-only indirect sales, and professional services arrangements and does not include that portion of bundled maintenance or unamortized discounts that are converted into subscription revenue upon renewal of prior business model contracts.

New deferred subscription value is what we expect to collect over time from our customers based upon contractual license agreements entered into during a reporting period. This amount is recognized as

subscription revenue ratably over the applicable software license term. The license agreements that contribute to new deferred subscription value represent binding payment commitments by customers over periods generally up to three years. 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 six-month periods ended September 30, 2006 and 2005. These comparisons of past financial results are not necessarily indicative of future results.

		For the Three Months												For the Six Months
		Ended September 30,												Ended September 30,
		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			11	%			12	%			(1	%)			11	%			12	%			(2	%)
Software fees and other			3	%			5	%			(35	%)			3	%			4	%			(35	%)
Financing fees			1	%			1	%			(54	%)			1	%			1	%			(48	%)
Professional services			8	%			8	%			14	%			8	%			8	%			18	%
Total revenue			100	%			100	%			5	%			100	%			100	%			4	%

Total Revenue

Total revenue for the three months ended September 30, 2006 increased $46 million, or 5%, from the prior year comparable period to $996 million. Total revenue for the six months ended September 30, 2006 increased $75 million, or 4%, from the prior year comparable period to $1.95 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 maintenance, software fees and other revenue, and financing fees. Total revenue was favorably impacted by foreign exchange of $18 million and $20 million for the three and six-month periods ended September 30, 2006, respectively.

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 September 30, 2006 includes the ratable recognition of contracts recorded in the second quarter of fiscal year 2007, as well as contracts and related renewals recorded between October 2000 and the first quarter of fiscal year 2007, depending on the contract length. As we begin to 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 September 30, 2006 increased $58 million, or 8%, from the comparable prior year quarter to $762 million. Sales made directly to our end-user customers, which we define as our direct business, contributed approximately $708 million to subscription revenue compared to $666 million in the comparable prior year quarter. The increase was primarily due to increases in new deferred subscription value from acquired products as well as the manner in which we record maintenance revenue under our business model, as described above. Sales made through our channel partners, which we define as our indirect business, contributed approximately $54 million to subscription revenue compared to $38 million in the comparable prior year period primarily due to the continued transition of indirect revenue to the ratable model, which began in the second quarter of fiscal year 2005.

Subscription revenue for the six months ended September 30, 2006 increased $95 million, or 7%, from the comparable prior year period to $1.50 billion. The direct and indirect businesses contributed approximately $1.40 billion and $100 million, respectively, as compared to $1.34 billion and $69 million, respectively for the comparable prior year period. The increases for the six month period are attributable to the same factors as those described above for the second quarter.

For the quarter ended September 30, 2006, we added new deferred subscription value related to our direct business of $498 million, as compared to $575 million for the comparable prior year period. The lower level of new deferred subscription value was primarily attributable to our decision to realign and restructure the sales force to achieve lower cost of sales and higher productivity and more discipline on contract renewals. We recorded $51 million of new deferred subscription value for the quarter ended September 30, 2006 related to our indirect business, compared to $47 million in the prior year. The weighted average duration of license agreements executed in the quarters ended September 30, 2006 and 2005 was 2.98 and 2.92 years, respectively.

Maintenance

Maintenance revenue for the quarter ended September 30, 2006 decreased $1 million, or 1%, from the comparable prior fiscal year quarter to $112 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 second quarter of fiscal year 2006 of $8 million. Additionally, maintenance revenue attributable to the indirect business for the three month period ended September 30, 2006 increased $5 million compared to comparable prior fiscal year quarter to $17 million.

The amount of maintenance revenue for the six months ended September 30, 2006 decreased approximately $5 million over the comparable prior fiscal year period to $215 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 $19 million of incremental separately identifiable maintenance in the first six months of fiscal year 2007 from acquisitions. Maintenance revenue from our indirect business for the six months ended September 30, 2006 increased $6 million from the comparable prior year period to $32 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. New deferred subscription value related to 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 these contracts are renewed under our business model, revenue is recognized ratably as subscription revenue on a monthly basis over the term of the agreement.

Software fees and other revenue for the second quarter of fiscal year 2007 decreased $15 million, or 35%, from the comparable prior year quarter to $28 million. This reduction is principally due to a $2 million decline in prior business model revenue, as ratable revenue from new business model contracts was recognized as subscription revenue in the Consolidated Condensed Statements of Operations. Additionally, we experienced declines in indirect revenue associated with the transition to our subscription model, as well as declines in revenue from acquisitions, as compared with the comparable prior year period.

Software fees and other for the six months ended September 30, 2006 decreased $28 million, or 35%, from the comparable prior year period to $52 million. The decrease is attributable to the same factors as those described above for the second 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 September 30, 2006, financing fees decreased $7 million, or 54%, from the comparable prior year quarter to $6 million. The decrease is attributable to the discontinuance of offering license agreements under the prior business model and is expected to decline to zero over the next several years.

Financing fees for the six months ended September 30, 2006 decreased $13 million, or 48%, from the comparable prior year period to $14 million. The decrease for the six month period is attributable to the same factors as described above for the second quarter decrease.

Professional Services

Professional services revenue for the quarter ended September 30, 2006 increased $11 million, or 14%, from the comparable prior year quarter to $88 million. The increase was attributable to professional services engagements relating to companies acquired subsequent to the first quarter of fiscal year 2006 of

approximately $3 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 six months ended September 30, 2006 increased $26 million, or 18%, from the comparable prior year period to $170 million. The increase for the six month period was attributable to the same factors as described above for the second quarter increase, including approximately $8 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 six-month periods ended September 30, 2006 and 2005. These comparisons of financial results are not necessarily indicative of future results.

		Three Months Ended												Six Months Ended
		September 30,												September 30,
		(dollars in millions)
		2006				2005				Change				2006				2005				Change
						(restated)												(restated)
United States		$	527			$	494				7%			$	1,045			$	978				7%
International			469				456				3%				907				899				1%
		$	996			$	950				5%			$	1,952			$	1,877				4%

Revenue in the United States increased by approximately $33 million, or 7%, and $67 million, or 7%, respectively for the three and six-month periods ended September 30, 2006, as compared with the prior year comparable periods. The increase was primarily attributable to growth from acquisitions. International revenue increased by approximately $13 million, or 3%, and $8 million, or 1%, respectively, for the three and six-month periods ended September 30, 2006, primarily due to the favorable impact from foreign exchange of $18 million and $20 million, respectively.

Price changes did not have a material impact on revenue in the second quarter of fiscal year 2007 or on the comparable prior fiscal year period.

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 six-month periods ended September 30, 2006. These comparisons of financial results are not necessarily indicative of future results.

		For the Three Months												For the Six Months
		Ended September 30,												Ended September 30,
		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	%)			10	%			12	%			(16	%)
Cost of professional services			8	%			7	%			23	%			8	%			7	%			22	%
Selling, general, and administrative			43	%			40	%			11	%			44	%			41	%			11	%
Product development and enhancements			18	%			19	%			(1	%)			18	%			19	%			2	%
Commission, royalties and bonuses			7	%			7	%			7	%			7	%			7	%			11	%
Depreciation and amortization of other intangible assets			4	%			3	%			16	%			4	%			3	%			15	%
Other gains, net			(2	%)			—				N/A				(1	%)			—				N/A
Restructuring and other			5	%			5	%			7	%			3	%			2	%			31	%
Charge for in-process research and development costs			1	%			1	%			(29	%)			1	%			1	%			(44	%)
Total expenses before interest and taxes			92	%			94	%			3	%			93	%			92	%			6	%
Interest expense, net			1	%			1	%			20	%			1	%			1	%			5	%

Note — Amounts may not add to their respective totals due to rounding.

Amortization of capitalized software costs consists of the amortization of both purchased software and internally generated capitalized software development costs. Internally generated capitalized software development costs are related to new products and significant enhancements to existing software products that have reached the technological feasibility stage.

Amortization of capitalized software costs for the three and six-month periods ended September 30, 2006 declined by $28 million and $36 million, respectively, from the comparable prior year periods to $83 million and $188 million, respectively. The decline was primarily attributable to certain software costs being fully amortized.

Cost of Professional Services

Cost of professional services consists primarily of the personnel-related costs associated with providing professional services and training to customers. Cost of professional services for the three and six-month periods ended September 30, 2006 increased $15 million, or 23%, and $27 million, or 22%, respectively, from the comparable prior fiscal year periods to $80 million and $152 million, respectively. The increases were primarily attributable to the increase in professional services revenue noted above.

Selling, General and Administrative (SG&A)

SG&A expenses for the quarter ended September 30, 2006 increased $42 million, or 11%, from the comparable prior year quarter to $425 million. The increase was primarily attributable to higher personnel costs of approximately $30 million principally related to recent acquisitions, as well as a credit recorded to the provision for doubtful accounts in the prior year quarter of approximately $10 million which did not recur in the current quarter. There were no significant savings realized within the current quarter associated with the fiscal year 2007 cost reduction and restructuring plan (FY07 Plan) announced in August 2006 as most of the headcount reductions did not take place until the end of the quarter.

SG&A expenses for the six-month period ended September 30, 2006 increased $87 million, or 11%, compared to the prior fiscal year period to $859 million. The increase was primarily attributable to higher personnel costs of approximately $60 million principally related to recent acquisitions, as well as a credit recorded to the provision for doubtful accounts in the prior year period of approximately $14 million which did not recur in the current fiscal period and higher selling and marketing related costs of approximately $10 million.

Product Development and Enhancements

For the quarter ended September 30, 2006, product development and enhancement expenditures, which include product support, decreased $1 million, or 1%, from the comparable prior year quarter to $178 million. For the quarters ended September 30, 2006 and 2005, product development and enhancement expenditures represented approximately 18% and 19% of total revenue, respectively. During the second quarter of fiscal year 2006, we continued to focus on and invest in product development and enhancements for emerging technologies, as well as a broadening of our enterprise product offerings.

Product development and enhancement expenditures for the six-month period ended September 30, 2006, increased $6 million, or 2%, from the comparable prior year period to $357 million. For the six-month periods ended September 30, 2006 and 2005, product development and enhancement expenditures represented approximately 18% and 19% of total revenue, respectively.

Commissions, Royalties and Bonuses

Commissions, royalties and bonuses for the second quarter of fiscal year 2007 increased $5 million, or 7%, from the comparable prior year quarter to $73 million. The increase was primarily due to higher external royalties over the prior year by approximately $5 million due to an increased level of royalties associated with recent acquisitions, royalties associated with the newly formed Ingres Corporation, and higher sales of certain royalty bearing channel products. Sales commissions are expensed in the period in which customers sales contracts are signed, while bonuses are typically estimated and accrued based on projections of full year performance.

Commissions, royalties and bonuses for the six-months ended September 30, 2006 increased $14 million, or 11%, from the comparable prior year period to $144 million. The increase for the six months was primarily due to higher bonuses resulting from acquisition-related retention payments and an increase in the number of non-sales individuals compensated through annual incentive compensation (bonus) plans, as well as higher external royalties as explained above.

While commissions expense for the first half of fiscal year 2007 is consistent with our commissions expense for the first half of fiscal year 2006, we have made changes to CA’s Incentive Compensation Plan (the “Incentive Compensation Plan”) for fiscal year 2007, as well as certain commission-related processes, which we believe will enhance our ability to control overall commissions expense and avoid unexpected increases in commissions expense as occurred in the second half of fiscal year 2006, as well as improve our ability to effectively estimate, calculate, monitor, and timely pay sales commissions. For further description of the changes to the Incentive Compensation Plan and related processes, refer to “—Critical Accounting Policies and Business Practices—Sales Commissions”. Refer also to Item 4, “Controls and Procedures” and Part II, Item 1a, “Risk Factors”.