Computer Associates 2006 Annual Report Download

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One vision.
One commitment.
One focus.
Corporate Overview 2006




Who We Are
CA is one of the world’s largest information technology
(IT) management software companies. Our software and
expertise unify and simplify complex IT environments
so our customers can use technology more effectively to
drive their strategies and achieve their business goals.
Today, everyone at CA shares this unified industry vision,
which we call Enterprise IT Management (EITM).
We’re a global business, serving customers in more than
45 countries. Thousands of companies in diverse industries
across the globe use our products and services, as do
governments and educational institutions.
Our growth plan includes a four-part strategy of product
innovation, partner channel development, global expansion
and strategic acquisitions — all aimed at helping our
customers around the world realize the full power of IT.

Table of contents

  • Page 1
    One vision. One commitment. One focus. Corporate Overview 2006

  • Page 2

  • Page 3
    ...IT management. CA helps companies manage the information technology (IT) they use to run their businesses. We're the largest independent software company focused on this challenge. Our customers tell us that's a smart thing-because IT management is one of the biggest and fastestgrowing problems they...

  • Page 4
    ... to secure. In fact, customers will spend billions of dollars this year alone just trying to get their arms around the problem. So we asked: What if customers could manage IT in the same integrated way they manage their enterprise resources or supply chains? That opened the door to a new, holistic...

  • Page 5

  • Page 6
    ... with a single "dashboard" view of technology across their enterprises. Customers can manage the complex collection of people, processes, computers, applications, networks and technologies that make up their IT infrastructures far more easily, efficiently and securely. And they can do it without...

  • Page 7

  • Page 8

  • Page 9
    ... how CA gives customers a distinctive edge. We aim to restore the power and promise of IT, helping customers to manage risk, control costs, improve service and align their IT investments with their business needs. Customers can increase their productivity and respond more quickly to dynamic business...

  • Page 10
    ... have the size, resources, experience or passion to do something about it. CA has all the steps in place to elevate IT management to a new level. Our 16,000 employees across the globe share the same sharp focus: unifying and simplifying IT management to improve business results for our customers.

  • Page 11

  • Page 12
    ...our business, MyFamily.com has structured its IT to reï¬,ect ITIL. CA has provided us with the solutions and support we need to automate these processes, enabling us to significantly improve the way we implement and manage our revenue-critical technology services." Daren Thayne, Chief Technology Of...

  • Page 13
    ... partner, because we know actions speak louder than words. "With EITM, CA has directly addressed our current, evolving and future needs. EITM is a vision of IT management that is exactly what we have been looking for from our software partners." Roni Marques Correa, Information Technology Director...

  • Page 14
    ... by working directly with partners and customers to assess, design, implement and optimize IT management in their organizations. We also continue to strengthen our organization, making sure CA has an expert leadership team, strong internal controls and unparalleled product depth and breadth - all...

  • Page 15
    2006 Annual Report and Form 10-K

  • Page 16

  • Page 17
    John A. Swainson, President & CEO Dear Fellow Investor When I first wrote to you last year, I said our goal was to rebuild CA, and get it growing again. I am pleased to report that in Fiscal 2006 we did just that, although not quite in the way we had envisioned when I wrote the letter. We look ...

  • Page 18
    ... software vendor to a business partner who is instrumental to helping them run or manage all of their IT operations. We've responded to these customer insights over the last year by increasing the number of Account Directors - strong, client-focused sales executives who play a strategic role for CA...

  • Page 19
    ... small channel for CA, is reselling through Original Equipment Manufacturers (OEMs). Although our sales through OEMs was up 8 percent, I think there is much more we can do to embed our security and management technology in the products of others. While our business with channels grew faster...

  • Page 20
    ... a modern ERP application environment based on SAP's software, the first phase of which went successfully live on April 24, 2006. This phase provides Human Resources worldwide; and Financial, Purchasing, and Sales support for our North American operations. We will bring the rest of the company on...

  • Page 21
    ...file number 1-9247 CA, Inc. (Exact name of registrant as specified in its charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 13-2857434 (I.R.S. Employer Identification Number) One CA Plaza, Islandia, New York (Address of Principal Executive Offices) 11749 (Zip Code...

  • Page 22
    ...Item 14. PART III Directors and Executive Officers of the Registrant ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions ...Principal Accounting Fees and Services ... 27 28 29 58...

  • Page 23
    ... Form 10-K. The Company also reported material weaknesses in its financial controls as they relate to the determination of a grant date for stock options prior to fiscal year 2002, revenue recognition for early renewal of certain license agreements, and the estimation, recording and monitoring of...

  • Page 24
    ... that employee stock options were approved by the committee of the Company's Board of Directors charged with such duties (the "Committee"), to the date such stock option grants were communicated to individual employees. Prior to fiscal year 2002, the Committee generally approved grants to executives...

  • Page 25
    ...our customers dynamically manage all of the people, processes, computers, networks and the range of technologies that make up their IT infrastructure. We have a broad portfolio of software products and services that span the areas of infrastructure management, security management, storage management...

  • Page 26
    ... in North America and Worldwide Human Resources. (b) Financial Information About Segments Our global business is principally in a single industry segment - the design, development, marketing, licensing, and support of software products that can operate on a wide range of hardware platforms and...

  • Page 27
    ... marketing efforts. 3. International Expansion • We are enhancing our sales infrastructure in Asia Pacific and Latin America. In February 2006, we opened our new Asia Pacific & Japan headquarters in Hong Kong. • We are also growing our India Technology Center (in Hyderabad); tapping an important...

  • Page 28
    ... Our solutions for Security Management provide an innovative and comprehensive approach to IT security. Our products protect information assets and resources; provide appropriate system and information access to employees, customers and channel partners; and centrally manage security-related...

  • Page 29
    ... by providing backup/recovery, tape and media management, and high-availability solutions. • Resource Management - these solutions help customers achieve operational efficiency and gain business flexibility. They enable customers to identify information, data and storage resources; monitor the...

  • Page 30
    ... software products to deliver an IT environment that is simpler, more secure, less costly to maintain, and more agile. • Research - CA Labs drives research in advanced technologies related to management and security by performing research internally and working with major universities and standard...

  • Page 31
    ... first major software company to earn the International Organization for Standardization's (ISO) 9001:2000 Global Certification, the ultimate ISO certification. In addition, CA has built a strong global product development staff in Australia, China, the Czech Republic, France, Germany, India, Israel...

  • Page 32
    ... to review their account information, research technical information, open and maintain incident reports, order and download products, and much more. Automated self-service resources are convenient to our customers and are a means of controlling costs for CA. • Support Availability Management (SAM...

  • Page 33
    ... Location Employees as of March 31, 2006 Functional Area Employees as of March 31, 2006 Corporate headquarters ...Other U.S. offices ...International offices ...Total ... 2,200 6,200 7,600 16,000 Product development and support ...Sales and support...Professional services ...Information technology...

  • Page 34
    ...transactions in CA securities by directors and executive officers. These documents can also be obtained in print by writing to our Executive Vice President, General Counsel and Corporate Secretary, Kenneth V. Handal, at the Company's world headquarters in Islandia, New York, at the address listed on...

  • Page 35
    ... of our products; • Changes in foreign currency exchange rates; • Ability to control costs; • The number and terms and conditions of licensing transactions; • Reorganizations of the sales and technical services forces; • The results of litigation, including the government and internal...

  • Page 36
    ...new comprehensive records management policies; taking steps to implement best practices regarding recognition of software license revenue; establishing a comprehensive compliance and ethics program; reorganizing our Finance and Internal Audit Departments; establishing a plan to improve communication...

  • Page 37
    ... need to continue to improve existing and implement new operational and financial systems, procedures and controls to manage our business effectively in the future. As a result, we have licensed enterprise resource planning (ERP) software from SAP AG and have begun a process to expand and upgrade...

  • Page 38
    ...internal controls, could adversely affect our ability to accurately forecast sales demand, manage our supply chain, achieve accuracy in the conversion of electronic data and records, and report financial and management information, including the filing of our quarterly or annual reports with the SEC...

  • Page 39
    ... products bundled within computer hardware or other companies' software products could reduce the perceived need for our products and services, or render our products obsolete and unmarketable. Furthermore, even if these incorporated products are inferior or more limited than our products, customers...

  • Page 40
    ... errors or if we fail to meet our customers' expectations. Significant technical challenges also arise with our products because our customers purchase and deploy our products across a variety of computer platforms and integrate them with a number of third-party software applications and databases...

  • Page 41
    ... its extended due date of June 29, 2006 and our $2 billion stock buy back program, Moody's Investor Service (Moody's) placed the Ba1 ratings of our senior unsecured notes under review for possible downgrade, Standard and Poor's (S&P) lowered its ratings to BB and placed our senior unsecured notes...

  • Page 42
    ... processing resources. However, a general slowdown in the world economy or a particular region, particularly with respect to discretionary spending for software, could cause customers to delay or forgo decisions to license new products, to upgrade their existing environments or to acquire services...

  • Page 43
    ... may not grow. Our products are aligned by software business unit. Our business units consist of Enterprise Systems Management, Security Management, Storage Management, Business Service Optimization and the CA Products Group - which encompass solutions from a number of CA brands that fall outside of...

  • Page 44
    ... of our leases will be renewable at our option as they become due. In the United States, we own an approximately 850,000 square foot corporate headquarters in Islandia, New York, an approximately 100,000 square foot distribution center in Central Islip, New York, as well as an approximately 15,000...

  • Page 45
    ...Vice President, Worldwide Human Resources Executive Vice President, General Counsel and Corporate Secretary Executive Vice President, Indirect Sales/Channel Partners Senior Vice President, Business Practices, and Chief Compliance Officer Senior Vice President and Chief Technology Officer Senior Vice...

  • Page 46
    ...January 2005, he was Vice President, Business Practices and Chief Compliance Officer at United Technologies Corporation. Mr. Gnazzo joined the Company in January 2005. Mr. Nugent has been Chief Technology Officer since June 2006 and Senior Vice President and General Manager of our Enterprise Systems...

  • Page 47
    ... the Company in April 2005. Ms. O'Neill has been Senior Vice President and General Manager of CA Technology Services since April 2003. From April 2002 to April 2003, she served as Senior Vice President of Worldwide Pre-Sales and prior thereto served as a Vice President of Pre-Sales Consulting within...

  • Page 48
    ... in the open market or in private transactions. On June 26, 2006, the Board of Directors authorized a new $2 billion common stock repurchase plan for fiscal year 2007 which will replace the prior $600 million common stock repurchase plan. Item 6. Selected Financial Data. The information set forth...

  • Page 49
    ..., consulting, and education services. The timing and amount of fees recognized as revenue during a reporting period are determined individually by license agreement, based on its duration and specific terms. Under our business model, we provide customers with the flexibility to license software...

  • Page 50
    ... the term of the associated software license agreement. We refer to these payments as installment payments. While the transition to the current business model has changed the timing of revenue recognition, in most cases it has not changed the timing of how we bill and collect cash from customers. As...

  • Page 51
    ... to review these matters to determine what further steps we should take to address the internal control issues referenced above. On July 28, 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...

  • Page 52
    ... Optimization business unit to the full IT life cycle, from investment selection, to execution and delivery of initiatives, to results assessment. In June 2005, we acquired Concord Communications, Inc. (Concord), a provider of network service management software solutions, for a total purchase price...

  • Page 53
    ...pays for software prior to the recognition of revenue, the amount is reported as a liability entitled "Deferred subscription revenue (collected)" on our Consolidated Balance Sheets. Customers do not always pay for software in equal annual installments over the life of a license agreement. The amount...

  • Page 54
    ... 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 sellthrough basis (when a distributor, reseller, or VAR sells the software product to its customers) and reported on the "Software fees...

  • Page 55
    ... that software fees and other revenue and maintenance revenue attributable to acquisitions will decline as these acquired products transition to our business model and revenue attributable to these acquired products is reported as subscription revenue. In addition, revenue for fiscal year 2006 was...

  • Page 56
    ... new software license agreements entered into during a period divided by the weighted average life of all such license agreements recorded during the same period. The annualized new deferred subscription value for the subscriptions booked in the direct business during the fiscal year 2006 decreased...

  • Page 57
    ... 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...

  • Page 58
    .... The increase in revenue from the United States was primarily attributable to sales of products related to companies acquired during the fiscal year 2006, an increase in new deferred subscription value in prior periods as well as an increase in professional services revenue, partially offset by...

  • Page 59
    ... 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 fiscal years 2006...

  • Page 60
    ... and $30 million, respectively, of legal expenses related to the government investigation and, for the fiscal year ended March 31, 2005, included $31 million for consulting and other fees associated with our Sarbanes-Oxley compliance program. Further, in the fourth quarter of fiscal year 2005, we...

  • Page 61
    ...to the fiscal year 2006 commissions plan. Refer to Part 1, Item 9A, "Controls and Procedures" for additional information concerning the evaluation of the Company's internal control processes over the recognition of commission expense. Royalties also increased over the prior year by approximately $25...

  • Page 62
    ... the plan. Shareholder Litigation and Government Investigation Settlement In prior fiscal years, a number of stockholder class action lawsuits were initiated that alleged, among other things, that the Company made misleading statements of material fact or omitted to state material facts necessary...

  • Page 63
    ... 2004, we reached agreements with the USAO and the SEC in connection with their investigations of improper recognition of revenue and related reporting practices during the period January 1, 1998 through September 30, 2000, and the actions of certain former employees to impede the investigations...

  • Page 64
    ... of fiscal year 2006, we recorded a benefit of approximately $36 million reflecting the Department of Treasury and Internal Revenue Service (IRS) Notice 2005-38 issued on May 10, 2005. In the fourth quarter of fiscal year 2006, the Company finalized its estimates of tax liabilities and determined...

  • Page 65
    ... cash and stock-based compensation expense associated with the appointment of our new President and CEO in November 2004 and an after-tax credit of approximately $4 million related to a reduction in the allowance for doubtful accounts (refer to Note 5, "Trade and Installment Accounts Receivable", in...

  • Page 66
    ... the term of the associated software license agreement. We refer to these payments as installment payments. While the transition to the current business model has changed the timing of revenue recognition, in most cases it has not changed the timing of how we bill and collect cash from customers. As...

  • Page 67
    ... license agreements commit the customer to payment under a fixed schedule, the agreements are considered executory in nature due to the ongoing commitment to provide unspecified future upgrades as part of the agreement terms. Under our business model, we can estimate the total amounts to be billed...

  • Page 68
    ...payments to vendors and employees of approximately $165 million. The level of payments to vendors in the current year was favorably impacted by the Company's concerted effort to extend payment terms. In fiscal year 2006, the Company experienced an increase in accounts payable and accrued expenses of...

  • Page 69
    ... 2004 Revolving Credit Facility (expires December 2008) . . $1,000 6.375% Senior Notes due April 2005 ...- 6.500% Senior Notes due April 2008 ...- 4.750% Senior Notes due December 2009...- 1.625% Convertible Senior Notes due December 2009 ...- 5.625% Senior Notes due December 2014...- Other...

  • Page 70
    ... a transaction pursuant to Rule 144A. The Company issued $500 million of 4.75%, 5-year notes due December 2009 and $500 million of 5.625%, 10-year notes due December 2014. The Company has the option to redeem the 2005 Senior Notes at any time, at redemption prices equal to the greater of (i) 100% of...

  • Page 71
    ... a weighted average interest rate of 4.9%. In March 2005, we pre-funded contributions to the CA Savings Harvest Plan, a 401(k) plan. The Company elected not to pre-fund its contribution in March 2006 as a result of IRS Treasury Regulations eliminating the tax benefit associated with the pre-funding...

  • Page 72
    ...resource requirements as of March 31, 2006 consisted of lease obligations for office space, equipment, mortgage and loan obligations, our ERP implementation, and amounts due as a result of product and company acquisitions. Refer to "Contractual Obligations and Commitments" for additional information...

  • Page 73
    ... them. Revenue Recognition We generate revenue from the following primary sources: (1) licensing software products; (2) providing customer technical support (referred to as maintenance); and (3) providing professional services, such as consulting and education. We recognize revenue pursuant to...

  • Page 74
    ...we begin to recognize revenue from licensing and supporting our software products when all of the following criteria are met: (1) we have evidence of an arrangement with a customer; (2) we deliver the products; (3) license agreement terms are deemed fixed or determinable and free of contingencies or...

  • Page 75
    ... as net installment accounts receivable under the prior business model are billed and collected. Under our business model, amounts due from customers are offset by deferred subscription value (unearned revenue) related to these amounts, resulting in little or no carrying value on the balance sheet...

  • Page 76
    ...-only approach to accounting for goodwill. Absent any prior indicators of impairment, we perform an annual impairment analysis during the fourth quarter of our fiscal year. We performed our annual assessment for fiscal year 2006 and concluded that there were no impairments to record. The SFAS No...

  • Page 77
    ... period to estimate technological feasibility, the reported product development and enhancement expense could have been impacted. Accounting for Stock-Based Compensation We currently maintain stock-based compensation plans. We use the Black-Scholes option-pricing model to compute the estimated fair...

  • Page 78
    ..., debt, and installment accounts receivable. We have a prescribed methodology whereby we invest our excess cash in liquid investments that are comprised of money market funds and debt instruments of government agencies and highquality corporate issuers (Standard & Poor's single "A" rating and higher...

  • Page 79
    ... in the Company's reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Company's Chief Executive Officer and acting...

  • Page 80
    ... Annual Report on Form 10-K. During this evaluation, management identified material weaknesses in the Company's internal control over financial reporting (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)), which are discussed in (b) below. The Company's Chief Executive...

  • Page 81
    ... a material error in the recognition of taxes associated with the Company's cash repatriation, which occurred in the fourth quarter of fiscal year 2006. (iv) The Company's policies and procedures relating to the accounting for and disclosure of stock-based compensation relating to stock options were...

  • Page 82
    ... financial reporting. These include implementing a worldwide financial and enterprise resource planning (ERP) information technology system to improve internal controls, reorganizing and enhancing the Company's Finance and Internal Audit Departments, and establishing new records management policies...

  • Page 83
    ... to ethics, the Company's Code of Conduct and its core values. Planned remediation efforts regarding the material weakness in internal control over financial reporting related to sales commissions include the following: • Review of commissions accounting procedures by the Internal Audit Department...

  • Page 84
    ... review of non-routine tax matters between the tax function and senior finance management. Remediation efforts regarding the material weakness in internal control over financial reporting related to the accounting for and disclosure of stock-based compensation relating to stock options issued prior...

  • Page 85
    ...Executive Officer of the Flipside Network, which later became a part of Vivendi Universal Net USA, from March 2001 to June 2001. He was Chairman and Chief Executive Officer of Uproar Inc. from September 1999 to March 2001, when Uproar was acquired by Flipside. Alfonse M. D'Amato ...Managing Director...

  • Page 86
    ... several major administrative positions at the school, including Senior Associate Dean from 1986 to 1995. William E. McCracken ...President of Executive Consulting Group, LLC. During a 36-year tenure at IBM, Mr. McCracken held several different executive offices, including serving as general manager...

  • Page 87
    ...John A. Swainson ...Chief Executive Officer of the Company since February 2005 and President and Director since November 2004. From November 2004 to February 2005, he served as the Company's Chief Executive Officer-elect. From July to November 2004, Mr. Swainson was Vice President of Worldwide Sales...

  • Page 88
    ... of William McCracken and Ron Zambonini. The Special Litigation Committee has been delegated the authority to control and determine the Company's response to a stockholder derivative action pending in the United States District Court for the Eastern District of New York entitled Computer Associates...

  • Page 89
    ...the SEC on Form 8-K. The Code of Conduct is available free of charge in print to any stockholder who requests one by writing to Kenneth V. Handal, our Executive Vice President, General Counsel and Corporate Secretary, at the Company's world headquarters in Islandia, New York at the address listed on...

  • Page 90
    ... number of deferred stock units in his/her deferred compensation account. The current annual fee to be paid to each non-employee director of the Company under the 2003 Plan is $175,000 which was increased from $150,000 in August 2005. In addition, starting in August 2005, the Chairman of the Audit...

  • Page 91
    ...of Executive Vice President, Worldwide Sales was eliminated, there was no successor appointed to this position. (2) As discussed in the Compensation and Human Resource Committee Report on Executive Compensation below, no annual cash bonuses were paid to any Named Executive Officers under the Company...

  • Page 92
    ... had he remained employed with IBM, the Company credited to a deferred compensation account and deposited $2,835,000 into a "rabbi trust" (as described below in the "Chief Executive Officer Compensation" section of the Compensation and Human Resource Committee Report on Executive Compensation). 72

  • Page 93
    ... Named Executive Officers relating to the fiscal year ended March 31, 2006. Number of Securities Underlying Options Granted(1) Percent of Total Options Granted to Employees in Fiscal Year(2) Grant Date Present Value ($)(3) Name Exercise Price ($/share) Expiration Date John A. Swainson ...Russell...

  • Page 94
    ...Company credited to a deferred compensation account and deposited $2,835,000 into a "rabbi trust" (as described below in the "Chief Executive Officer Compensation" section of the Compensation and Human Resource Committee Report on Executive Compensation). Under his employment agreement, Mr. Swainson...

  • Page 95
    ... law. Jeff Clarke (Former Executive Vice President and Chief Operating Officer) Jeff Clarke was named Chief Operating Officer of the Company on April 23, 2004. Mr. Clarke's original agreement was effective from April 23, 2004 until March 31, 2006. A new agreement was executed and became effective as...

  • Page 96
    ... of the performance period relating to the bonus that is being deferred). As explained in the Compensation and Human Resource Committee Report on Executive Compensation, executives did not receive any payments under the Company's Annual Bonus program for fiscal year 2006 and, therefore, no amounts...

  • Page 97
    ... with the Company's internal human resource, financial and legal personnel, we have retained the services of an outside consultant to assist in our review of management compensation levels and programs. Philosophy/Objectives Our objective is to attract, retain and motivate executives to enhance...

  • Page 98
    ...the Company, and the performance of the executive officer. Base salary adjustments were determined with the assistance of our outside consultant after input from our CEO and our decisions are reflected in the Summary Compensation Table. Annual Incentives. We developed, with input from management and...

  • Page 99
    ...the Committee also received a report of a designated management committee, chaired by the Company's Chief Compliance Officer. Long-Term Incentives. As discussed above, under the new LTIP program implemented in fiscal year 2006, each executive's LTIP award is comprised: (i) 33% of stock options; (ii...

  • Page 100
    .... Other Compensation: Pursuant to his employment agreement, as amended, Mr. Swainson is entitled to reimbursement for any expenses incurred with his relocation and the Company agreed to provide him with temporary corporate housing until no later than November 22, 2006. Deferred Compensation Plan: As...

  • Page 101
    ... the cumulative total return of the common stock (using the closing price on the NYSE at March 31, 2006, the last trading day of the Company's 2006 fiscal year, of $27.21) with the Standard & Poor's Systems Software Index* and the Standard & Poor's 500 Index during the fiscal years 2002 through...

  • Page 102
    .... Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Equity Compensation Plan Information The following table summarizes share and exercise price information about the Company's equity compensation plans as of March 31, 2006. All of the Company's equity...

  • Page 103
    ..., and (4) all directors and executive officers of the Company as a group. Number of Shares Beneficially Owned(1) Percent of Class Name and Address of Beneficial Owner Holders of More Than 5%: Walter H. Haefner(2) ...Careal Holding AG Utoquai 49 8022 Zurich, Switzerland Private Capital Management...

  • Page 104
    ... table also include shares held in the CA Savings Harvest Plan, our 401(k) plan, and acquired through the Employee Stock Purchase Plan. (2) According to a Schedule 13D/A filed on October 30, 2003, Walter H. Haefner, through Careal Holding AG, a company wholly owned by Mr. Haefner, exercises sole...

  • Page 105
    ... of financial accounting and/or reporting standards, services related to the ongoing investigation by the United States Attorney's Office for the Eastern District of New York and the staff of the Northeast Regional Office of the SEC concerning the Company's accounting practices and the audit of the...

  • Page 106
    ... Schedules are listed in the separate table of contents annexed hereto. (3) Exhibits. Regulation S-K Exhibit Number 2.1 2.2 2.3 2.4 Agreement and Plan of Merger, dated as of January 5, 2006, by and among Computer Associates International, Inc., Wily Technology, Inc., Watermelon Merger Company...

  • Page 107
    ... Senior Notes due 2014. Purchase Agreement dated November 15, 2004, among the Initial Purchasers of the 4.75% Senior Notes due 2009 and 5.625% Senior Notes due 2014, and the Company. CA, Inc. 1991 Stock Incentive Plan, as amended. Previously filed as Exhibit C to the Company's Annual Report on Form...

  • Page 108
    ... and Relocation Expense Agreement. 10.18* Employment agreement, dated November 22, 2004, between the Company and John A. Swainson. Employment agreement, dated November 22, 2004, between the Company and Jeff Clarke. 10.19* Previously filed as Exhibit 10.1 to the Company's Current Report on Form...

  • Page 109
    ...Unit Agreement for John A. Swainson. 10.21* Form of Moving and Relocation Expense Agreement. 10.22* 10.23* CA, Inc. Change in Control Severance Policy. Letter Agreement, dated August 26, 2004, between the Company and Sanjay Kumar. Previously filed as Exhibit 10.5 to the Company's Current Report...

  • Page 110
    ... of Incentive Stock Option Award Certificate. 10.44* Form of Incentive Stock Option Award Certificate (Employment Agreement). 10.45* CA, Inc. Deferred Compensation Plan for John A. Swainson, dated April 29, 2005. Previously filed as Exhibit 10.3 to the Company's Current Report on Form 8-K dated...

  • Page 111
    ...medical services, effective August 1, 2005. Amended and Restated CA, Inc. Executive Deferred Compensation Plan, effective April 1, 2006. Form of Deferral Election. Amendment, dated August 24, 2005, to Employment Agreement between Computer Associates International, Inc. and John A. Swainson. Modified...

  • Page 112
    ... the Sarbanes-Oxley Act of 2002. Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002. Filed herewith. Filed herewith. Filed herewith. Filed herewith. * Management contract or compensatory plan or arrangement. (b) Exhibits: Refer to Index to Exhibits. (c) Financial Statement Schedules...

  • Page 113
    ... duly authorized. CA, Inc. By: /s/ JOHN A. SWAINSON John A. Swainson President and Chief Executive Officer By: /s/ ROBERT G. CIRABISI Robert G. Cirabisi Acting Chief Financial Officer, Senior Vice President, Corporate Controller, and Principal Accounting Officer Dated: July 31, 2006 93

  • Page 114
    ... Director Director Non-Executive Chairman /s/ WALTER P. SCHUETZE Walter P. Schuetze /s/ JOHN A. SWAINSON John A. Swainson LAURA S. UNGER Laura S. Unger RENATO ZAMBONINI Renato Zambonini Director President, Chief Executive Officer and Director /s/ Director /s/ Director Dated: July 31, 2006...

  • Page 115
    CA, INC. AND SUBSIDIARIES ISLANDIA, NEW YORK ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 9A, ITEM 15(a)(1) AND (2), AND ITEM 15(c) LIST OF CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES YEAR ENDED MARCH 31, 2006 ...

  • Page 116
    ...audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of CA, Inc.'s internal control over financial reporting as of March 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee...

  • Page 117
    ...on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan...

  • Page 118
    ... of the internal control over financial reporting of Wily Technology, Inc. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CA, Inc. and subsidiaries as of March 31, 2006 and 2005, and...

  • Page 119
    CA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended March 31, 2006 2005 2004 (restated) (restated) (in millions, except per share amounts) Revenue: Subscription revenue ...$2,838 Maintenance ...430 Software fees and other ...162 Financing fees ...45 Professional services ......

  • Page 120
    ...Government investigation settlement ...Accounts payable ...Salaries, wages, and commissions...Accrued expenses and other current liabilities ...Deferred subscription revenue (collected) - current ...Deferred maintenance revenue ...Taxes payable, other than income taxes payable ...Federal, state, and...

  • Page 121
    ... ($0.08 per share)...Shareholder litigation settlement ...Exercise of common stock options, ESPP, and other items, net of taxes of $6 ...401(k) discretionary contribution ...Purchases of treasury stock ...Reclassification of tax benefit associated with prior period stock options ... $63 63 $3,896...

  • Page 122
    ...(gain) loss - before taxes ...Shareholder litigation settlement ...Impairment charges for capitalized software ...Changes in other operating assets and liabilities: Decrease in trade and installment receivables, net - current ...Decrease in noncurrent installment accounts receivable, net ...Increase...

  • Page 123
    ... 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...

  • Page 124
    ...future software upgrades and revenue from those contracts is therefore recognized on a ratable basis. The Company has an established business practice of offering installment payment options to customers and has a history of successfully collecting substantially all amounts due under such agreements...

  • Page 125
    ... over the license agreement duration. Software Fees and Other: Software fees and other revenue consist of revenue related to distribution and original equipment manufacturer (OEM) channel partners that has been recorded on an up-front sell-through basis, revenue associated with acquisitions prior to...

  • Page 126
    ... of purchase software costs related to smaller acquisitions during fiscal year 2006. In accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," internally generated software development costs associated with new products and significant...

  • Page 127
    ...years 2006, 2005, and 2004, as anticipated future revenue is projected to increase for several years considering the Company is continuously integrating current software technology into new software products. Other identified intangible assets include both customer relationships and trademarks/trade...

  • Page 128
    ... on the identified intangible assets recorded through March 31, 2006, the annual amortization expense over the next five fiscal years is expected to be as follows: 2007 Year Ended March 31, 2008 2009 2010 (in millions) 2011 Capitalized software: Purchased ...$296 Internally developed ...53 Other...

  • Page 129
    ... Balance Sheet. Approximately $10 million of professional services related receivables were reclassified for the period ended March 31, 2005 from "Billed accounts receivable," to "Other Receivables" to conform to the March 31, 2006 presentation. Both are components of "Trade and installment accounts...

  • Page 130
    ... year 2006, the Company completed its acquisition of iLumin. The total purchase price of the acquisition was approximately $48 million. iLumin was a privately held provider of enterprise message management and archiving software. iLumin's Assentor product line has been added to the Company's storage...

  • Page 131
    ...aggregate purchase price of $345 million. Niku was a provider of information technology management and governance (IT-MG) solutions, and the Company is in the process of integrating Niku's ITG solutions with the Business Service Optimization (BSO) unit. The acquisition of Niku has been accounted for...

  • Page 132
    ...'s future consolidated results of operations or financial condition. Pro-forma adjustments are tax-effected at the Company's statutory tax rate. For the Year Ended March 31, 2006 2005 (restated) unaudited (in millions) Revenue ...$3,880 Income (loss) from continuing operations ...109 Net income...

  • Page 133
    ... tax assets ...Other assets acquired ...Purchased software products ...In-process research and development ...Customer relationships ...Trademarks/tradenames ...Goodwill...Deferred revenue ...Deferred tax liabilities ...3% convertible notes payable ...Other liabilities assumed ...Purchase price...

  • Page 134
    ... of anti-spyware and security solutions for approximately $40 million. The products acquired in this transaction were integrated into the Company's eTrust Threat Management software product portfolio. This portfolio protects organizations from diverse Internet dangers such as viruses, spam, and...

  • Page 135
    .... ACCPAC provided accounting, customer relationship management, human resources, warehouse management, manufacturing, electronic data interchange, and point-of-sale software for small and medium-sized businesses. As a result of the sale in the fourth quarter of fiscal year 2004, the Company realized...

  • Page 136
    ... and productivity and to more closely align its investments with strategic growth opportunities. The Company accounted for the individual components of the restructuring plan as follows: Severance: The plan includes a workforce reduction of approximately five percent or 800 positions worldwide. The...

  • Page 137
    .... At the time of the sale, the Company controlled more than 5% of Viewpoint's outstanding common stock. The estimated fair value of debt and equity securities is based upon published closing prices of those securities as of March 31, 2006. For debt securities, amortized cost is classified by...

  • Page 138
    ... (1), South America (6), Asia/Pacific (16), and Europe (20). Revenue is allocated to a geographic area based on the location of the sale. The following table presents information about the Company by geographic area for the fiscal years ended March 31, 2006, 2005 and 2004: United States Europe Other...

  • Page 139
    ... invoiced to customers. No single customer accounted for 10% or more of total revenue for the fiscal years ended March 31, 2006, 2005, or 2004. Note 5 - Trade and Installment Accounts Receivable The Company uses installment license agreements as a standard business practice and has a history of...

  • Page 140
    ... and the agreement of the Company's lenders. The 2004 Revolving Credit Facility expires December 2008 and no amount was drawn as of March 31, 2006 or March 31, 2005. Borrowings under the 2004 Revolving Credit Facility will bear interest at a rate dependent on the Company's credit ratings at the...

  • Page 141
    ...28, 2006. Upon the filing of this Form 10-K the Company believes it is in compliance with its debt covenants. The Company capitalized the transaction fees associated with the 2004 Revolving Credit Facility, which totaled approximately $6 million. The Company is amortizing these fees over the term of...

  • Page 142
    ... accordance with the notes' terms, the Company redeemed (for cash) the notes in full in July 2005. Other Indebtedness March 31, 2006 2005 Maximum Outstanding Maximum Outstanding Available Balance Available Balance (in millions) International line of credit ...Other ...122 $ 5 - $- 1 $ 5 - $- 1

  • Page 143
    ... outlook. Subsequent to the announcement of the Company's delayed filing of the Form 10-K beyond its extended due date of June 29, 2006 and its $2 billion stock buy back program, the agencies changed their ratings on our notes as follows: On June 30, 2006, Moody's placed the Ba1 ratings of CA...

  • Page 144
    ...31, 2006 and 2005, respectively. 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...

  • Page 145
    ... 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...

  • Page 146
    .... Stephen Richards, the Company's former Executive Vice President of Sales, resigned from his position and was relieved of all duties in April 2004, and left the Company at the end of June 2004. Additionally, on April 21, 2004, Sanjay Kumar resigned as Chairman, director and Chief Executive Officer...

  • Page 147
    ... the recognition of software license revenue, its ethics and compliance policies and other matters. Under the Agreements, the Independent Examiner also reviews the Company's compliance with the Agreements and periodically reports findings and recommendations to the USAO, SEC and Board of Directors...

  • Page 148
    ... bar from being an officer or director of a public company. The SEC's claims for disgorgement and civil penalties against Mr. Woghin are pending. Additionally, on September 22, 2004, the SEC filed complaints in the Federal Court against Sanjay Kumar and Stephen Richards alleging that they violated...

  • Page 149
    ... 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 this litigation. The Special Litigation Committee is continuing to review...

  • Page 150
    ...1, 2005, the Texas Federal Court granted the Company's motion to transfer the action to the Federal Court. Other Civil Actions In June 2004, a lawsuit captioned Scienton Technologies, Inc. et al. v. Computer Associates International, Inc., was filed in the Federal Court. The complaint seeks monetary...

  • Page 151
    ... benefit consists of the following: Year Ended March 31, 2006 2005 2004 (restated) (restated) (in millions) Current: Federal ...Federal tax cost of repatriation under the American Jobs Creation Act ...State...Foreign ... $ 108 55 5 137 $ 305 $ 50 - 20 129 $ 199 $(138) 55 (27) (82) $(192) $ (88) 55...

  • Page 152
    ... of class action settlement and litigation charge ...- Federal tax cost of repatriation under the American Jobs Creation Act ...- U.S. share-based compensation ...6 Effect of international operations, including foreign export benefit and nondeductible share-based compensation ...(84) Tax credits...

  • Page 153
    ... such resolution occurs. The income tax benefit recorded for the fiscal year ended March 31, 2006 includes benefits of approximately $51 million arising from the recognition of certain foreign tax credits, $18 million arising from international stock based compensation deductions and $66 million...

  • Page 154
    ... was materially consistent with the pro-forma disclosures required for those periods by SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). The Company previously applied the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees...

  • Page 155
    ... at March 31, 2006, 2005 or 2004. 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...

  • Page 156
    ... Directors (the 1993 Plan) provided for nonstatutory options to purchase up to a total of 337,500 shares of common stock of the Company to be available for grant to each member of the Board of Directors who is not otherwise an employee of the Company. Pursuant to the 1993 Plan, the exercise price...

  • Page 157
    ... year 2006, whereas awards associated with the fiscal year 2004 performance cycle were granted in the fourth quarter of fiscal year 2004. Equity based compensation granted to senior management employees is apportioned between RSAs, RSUs and stock options. Additionally, under the Company's long-term...

  • Page 158
    ... Accounting Bulletin No. 107, and the Company's prior period pro forma disclosures of net earnings, including stock-based compensation (determined under a fair value method as prescribed by SFAS No. 123). Key input assumptions used to estimate the fair value of stock options include the grant price...

  • Page 159
    ... 2006 2005 2004 Dividend Expected Risk-free Expected yield ...volatility factor(1) ...interest rate(2) ...life (in years)(3) ... .57% .56 4.1% 6.0 .28% .65 3.6% 4.5 .30% .67 3.0% 4.5 (1) Measured using historical daily price changes of the Company's stock over the respective term of the options...

  • Page 160
    ...The Company settles employee stock option exercises with stock held in treasury. The total intrinsic value of options exercised during the fiscal years 2006, 2005 and 2004 was $41 million, $36 million and $45 million, respectively. The tax benefits realized by the Company for stock options exercised...

  • Page 161
    ..., subject to Internal Revenue Code limitations. Shares of the Company's common stock may be purchased at six-month intervals at 85% of the lower of the FMVon the first or last day of each six-month period. During fiscal years 2006, 2005, and 2004, employees purchased approximately 1 million...

  • Page 162
    ...fiscal year 1996 to the present under its stock option plans in effect during this period. Based upon the results of its review, the Company determined that in years prior to fiscal year 2002, it did not communicate stock option grants to individual employees in a timely manner. In fiscal years 1996...

  • Page 163
    ... action by the Committee as the accounting measurement date for determining stock-based compensation expense. However, the Company has determined that the proper accounting measurement date for stock option awards that were not communicated timely to an employee, should have been the date the grant...

  • Page 164
    ...15) $ (0.05) $ (0.05) BALANCE SHEET DATA Trade and installment accounts receivable, net ...Deferred income taxes current ...Total current assets ...Deferred income taxes non-current ...Total assets ...Federal, state and foreign income taxes payable ...Total current liabilities ...Total liabilities...

  • Page 165
    ...: FISCAL YEAR 2006 UNAUDITED QUARTERLY STATEMENT OF OPERATIONS DATA June 30 Previously Reported(1) Restated September 30 Previously Reported(1) Restated December 31 Previously Reported(1) Restated (unaudited) (in millions, except per share data) Subscription revenue ...Total revenue ...Selling...

  • Page 166
    ... software and services. MDY's solutions help organizations to centrally manage physical and electronic records distributed across the enterprise, regardless of location or origin. The acquisition will help CA customers more easily fulfill their company-wide compliance, corporate governance and legal...

  • Page 167
    ... installment accounts receivable under the prior business model are billed and collected over the remaining life. Under the Company's Business Model, cash is often received prior to revenue recognition, thus reducing the need to provide for estimated bad debt associated with recorded revenue. 147

  • Page 168
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  • Page 169
    ... Professor of Human Relations Harvard Business School William E. McCracken President Executive Consulting Group, LLC Lewis S. Ranieri Chairman CA, Inc. Walter P. Schuetze Former Chief Accountant Securities and Exchange Commission John A. Swainson President and Chief Executive Officer CA, Inc. Laura...

  • Page 170
    ... more information, contact CA's transfer agent at the address or telephone number below. Transfer Agent On March 31, 2006, the closing price for the Company's Common Stock on the New York Stock Exchange was $27.21 and the Company had approximately 12,037 stockholders of record. On June 8, 2006, the...

  • Page 171
    ... global business, serving customers in more than 45 countries. Thousands of companies in diverse industries across the globe use our products and services, as do governments and educational institutions. Our growth plan includes a four-part strategy of product innovation, partner channel development...

  • Page 172
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