UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Computer Associates International, 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 Computer Associates Plaza,		11749
Islandia, New York
(Address of principal executive offices)		(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

(Title of each class)		(Name of each exchange on which registered)
Common stock, par value $0.10 per share Series One Junior Participating Preferred Stock, Class A		New York Stock Exchange New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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 such filing requirements for the past 90 days: þ Yes ¨ No.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III to this Form 10-K/A or any amendment to this Form 10-K/A. ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act): þ Yes ¨ No.

The aggregate market value of the common stock held by non-affiliates of the Registrant as of September 30, 2004 was $12,116,303,868 based on the closing price of $26.30 on the New York Stock Exchange on that date.

The number of shares of common stock outstanding at June 24, 2005:
586,821,131 shares of common stock, par value $0.10 per share.

Documents Incorporated by Reference:

Part III — Portions of the Proxy Statement to be issued in conjunction with the Registrant’s Annual Stockholders’ Meeting.

 

 

This Annual Report on Form 10-K/A (Form 10-K/A) contains certain forward-looking information relating to Computer Associates International, 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-K/A, 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7, but also appears in other parts of this Form 10-K/A. 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 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors” and elsewhere in this Form 10-K/A. 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-K/A as anticipated, believed, estimated, or expected. We do not intend to update these forward-looking statements.

The products and services mentioned in this Form 10-K/A are used for identification purposes only and may be protected by trademarks, trade names, services marks and/or other intellectual property rights of the Company and/or other parties in the United States and/or other jurisdictions. The absence of a specific attribution in connection with any such mark does not constitute a waiver of any such right.

This Form 10-K/A also contains references to other company, brand, and product names. These company, brand, and product names are used herein for identification purposes only and may be the trademarks of their respective owners. We disclaim any responsibility for specifying which marks are owned by which companies or which organizations.

EXPLANATORY NOTE

In our previously filed Form 10-K for the fiscal year ended March 31, 2005 (Original 2005 Form 10-K), we restated the consolidated financial statements for the fiscal years ended March 31, 2004 and 2003 that were previously reported in our Annual Reports on Form 10-K for fiscal years 2004 and 2003, and we restated the consolidated condensed financial statements for the first three quarters of fiscal year 2005 and 2004 that were previously reported in our quarterly reports on Form 10-Q, and the consolidated financial statements for the fourth quarter of fiscal year 2004 that were reported in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC).

In this Form 10-K/A, we are further restating the financial statements for each of the periods presented to reflect the modified retrospective adoption of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)) and to incorporate adjustments to restate revenue associated with an accounting error determined as a result of the Company’s review of its revenue recognition policies. Refer to paragraph “b” of Note 12, “Restatements” to the Consolidated Financial Statements for additional information. We have also included under Item 6, “Selected Financial Data,” restated financial information for the fiscal years ended March 31, 2005 through 2001, and, under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Selected Quarterly Information,” restated quarterly financial information for the fiscal years ended March 31, 2005 and 2004. Overall, this Form 10-K/A has not modified or updated other disclosures presented in the Original 2005 Form 10-K, except as required to reflect the items amended in the Form 10-K/A as described above. This Form 10-K/A is not superseding or restating financial statements contained in the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2005 or any current report on Form 8-K filed subsequent to March 31, 2005. However, the financial statements for the first quarter of the 2005 fiscal year, which are also contained in the Form 10-Q for the quarter ended June 30, 2005 for comparison purposes, have been restated in the Amended Form 10-K/A (though not in the Form 10-Q for the quarter ended June 30, 2005). Accordingly, the information in the Form 10-Q for the quarter ended June 30, 2005 should be considered in light of the information in the Amended Form 10-K/A.

As previously announced in a Current Report on Form 8-K filed with the SEC on May 26, 2005, we identified certain transactions that we entered into in fiscal years 1998 through 2001 that were accounted for improperly. In a few instances, these transactions involved contemporaneous purchases and sales (or investments and licenses) of software products and services with the same or related third parties. These transactions appear not to have been negotiated on an arm’s-length basis and to have no valid commercial purpose. In several other cases, the terms of certain license agreements were altered by side agreements that would have prevented the full recognition of related revenue until some future period. While we entered into all of these transactions in fiscal years 1998 through 2001, the accounting treatment for these transactions required the initial deferral of revenue, and subsequent recognition of revenue in the period the contract became fixed and determinable, and therefore has also affected the financial statements for each of the subsequent fiscal years, including fiscal year 2005. These restatements are being made to eliminate the impact of these prior-period errors on subsequent periods. Additionally, as previously disclosed in our quarterly report on Form 10-Q for the quarter ended June 30, 2004, during the first quarter of fiscal year 2005, the Company recognized $13 million of revenue relating to certain prior business model contracts which had reduced revenue in prior fiscal periods. Since we are restating current and prior fiscal periods to correct prior period errors, we have determined that the $13 million of revenue recognized in the first quarter of fiscal 2005 should be reported in the applicable periods to which it related. Accordingly, an adjustment is also being made to reduce revenue in the first quarter of fiscal 2005 by $13 million and to increase revenue by $6 million in fiscal 2004, $4 million in fiscal 2003, and $3 million in fiscal 2002. The effects of these restatements are reflected in the financial statements and other financial data, including quarterly data, included in this Form 10-K/A. The restatements have no impact on cash flows provided by continuing operating activities. Refer to paragraph “a” of Note 12, “Restatements,” to the Consolidated Financial Statements for additional information.

Additionally, as more fully set forth under Item 6, “Selected Financial Data,” the Company previously restated financial information for the fiscal years ended March 31, 2001 and March 31, 2000 due to other accounting irregularities relating to revenue recognition. This prior restatement was set forth in a Current Report on Form 8-K filed with the SEC on April 26, 2004 and an amended current report on Form 8-K/A filed with the SEC on September 22, 2004. The effects of prior restatements are reflected in the selected financial data for the fiscal year ended March 31, 2001 set forth under Item 6, “Selected Financial Data.”

PART I

Item 1. Business.

(a) General Development of Business

Overview

Computer Associates is one of the world’s largest providers of management software. We design, market, and license computer software products that allow businesses to run, manage, and automate critical aspects of their information technology (IT) environments.

The Company was incorporated in Delaware in 1974, commenced operations in 1976, and completed an initial public offering of common stock in December 1981. Our common stock is traded on the New York Stock Exchange under the symbol “CA.”

We have a broad portfolio of software products that span the areas of infrastructure management, security management, storage management, application life cycle management, data management and application development, and portal and business intelligence. We are considered an Independent Software Vendor (ISV). ISVs develop and license software products that can increase the efficiency of computer hardware platforms or operating systems sold by other vendors. Our products are heterogeneous — they manage both the mainframe and distributed environments and are designed to operate with all major business computer hardware platforms, operating systems, and products marketed by other hardware and software companies.

Our software products include those that we have sold for many years and newer products designed to address our customers’ evolving business needs. Our products are specifically designed to work well with our other software products. Because the time, effort, and cost to make different software products work together is high, customers place greater value on software products that work well with one another.

We have a large and broad base of customers and estimate that 99% of the Fortune 500 companies currently use our products. When customers enter into a software license agreement with us, they often pay for the right to use our software for a specified period of time. Upon the expiration of the term of the agreement, the customer often must either renew the license agreement or pay usage and maintenance fees, if applicable, for the right to continue to use our software and receive support. We experienced contract renewal rates of approximately 90% in fiscal year 2005. We believe that the existing relationships with our customers provide us the opportunity to cross-sell new software products to them.

Business Developments

We occasionally acquire new software technology to complement our existing core software products. We also have, and intend to continue to, divest products that no longer fit with our core business strategy.

In August 2005, we acquired the common stock of Niku Corporation (Niku), a leading provider of information technology management and governance solutions, in an all cash transaction valued at approximately $350 million, or approximately $280 million net of cash acquired. Niku’s primary software product, Clarity IT-MG, is an integrated suite that spans the full IT life cycle, from investment selection, to execution and delivery of initiatives, to results assessment. In January 2005, we announced we had signed an arrangement to resell, service, and support Niku’s Clarity software. We anticipate integrating Clarity IT-MG with our Business Service Optimization (BSO) unit.

In June 2005, we acquired the common stock of Concord Communications, Inc. (Concord), a leading provider of network service management software solutions, in an all cash transaction valued at approximately $337 million. We also assumed approximately $20 million in net debt from Concord for a total purchase price of approximately $357 million, excluding acquisition costs. Concord was a provider of infrastructure software principally in the areas of network health, performance, and fault management. We plan to make Concord’s eHealth and Spectrum software available as independent products and as integrated components of our Unicenter product portfolio.

In November 2004, we acquired the common stock of Netegrity, Inc, (Netegrity) in a cash transaction of approximately $439 million, or approximately $340 million net of the cash and marketable securities on Netegrity’s balance sheet. In

addition, we converted employee stock options to acquire the common stock of Netegrity to employee stock options to acquire our shares at a cost of approximately $11 million and incurred acquisition costs of approximately $5 million, for an aggregate purchase price of approximately $455 million. Netegrity was a provider of business security software, principally in the areas of identity and access management, and we have made Netegrity’s identity and access management solutions available both as independent products and as integrated components of our eTrust Identity and Access Management Suite.

In August 2004, we acquired Pest Patrol, Inc. (Pest Patrol), a privately held provider of anti-spyware and security solutions for approximately $40 million. The products acquired in this transaction were integrated into our eTrust Threat Management software product portfolio. This portfolio protects organizations from diverse Internet dangers such as viruses, spam, and inappropriate use of the Web by employees.

In March 2004, we sold our approximate 90% interest in ACCPAC International, Inc. (ACCPAC) to The Sage Group, plc. (Sage). Our net proceeds totaled $104 million for all of our outstanding equity interests of ACCPAC, including options and change of control payments for certain ACCPAC officers and managers. We received approximately $90 million of the net proceeds in fiscal year 2004 and the remainder in fiscal year 2005. ACCPAC specializes in 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, we realized a gain, net of taxes, of approximately $60 million in fiscal year 2004. In the second quarter of fiscal year 2005, we recorded an adjustment to the gain of $2 million, net of tax, that reduced the net gain to $58 million. Approximately 600 of our employees were transferred to Sage. The sale completed our multi-year effort to exit the business applications market. Pursuant to Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the assets, liabilities, results of operations, and cash flow of ACCPAC have been classified as a discontinued operation for all periods presented prior to the sale of ACCPAC in March 2004.

(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 operating systems.

Refer to Note 4, “Segment and Geographic Information” of the Consolidated Financial Statements for financial data pertaining to our segment and geographic operations.

(c) Narrative Description of Business

Products

In many cases, customers work with several vendors that provide different hardware platforms and operating systems. Our software products are designed to work with almost every commercially available computer hardware platform and with almost every common software operating system. Our software products address our customers’ IT requirements in the following areas: infrastructure management, security management, storage management, application life cycle management, data management and application development, and portal and business intelligence. Our products are supported by a software layer we call CA Common Services so that they can work alone or together with other vendors’ software products.

CA Common Services is the common infrastructure that allows many of our software products to work together with those from other companies. CA Common Services also help enable integration of user interface, processes, and management information across our product lines, which we believe improves efficiency.

Our Product Areas:

Unicenter for Infrastructure Management — Our Unicenter products are designed to improve the efficiency and responsiveness of our customers’ computing operations. These products identify and help resolve problems within a customer’s IT infrastructure. These products also automate time-consuming tasks such as software installation, tracking computing assets, and managing customers’ databases. We offer Unicenter products across the following three major solution areas:

	•		Operations Management — These products focus on the availability, health, and performance of the entire computing system, from mainframe computers to handheld devices. Products include Unicenter Network and Systems Management, Unicenter NetMaster, Unicenter AutoSys Job Management, Unicenter CA-7 Job Management, and Unicenter Database Management.
	•		Service Management — These products manage and measure service levels to help ensure that the IT infrastructure continuously meets business demands. Products include Unicenter ServicePlus Service Desk, and Unicenter Service Level Management.

•

Resource Management — These products are designed to enable organizations to discover, track, collect, maintain, and manage their IT resources. Products include Unicenter Argis Portfolio Asset Management, Unicenter Asset Management, and Unicenter Software Delivery.

eTrust for Security Management — Our eTrust solutions simplify security management by providing an innovative, comprehensive approach to security. The products protect information assets and resources; provide appropriate system and information access to employees, customers, and partners; and centrally manage security-related administration. We offer eTrust products in the following three categories:

	•		Identity and Access Management — eTrust Identity and Access Management Suite empowers IT organizations to manage growing internal and external user populations; secure an increasingly complex array of resources and services; and comply with critical regulatory mandates. Solutions include eTrust Access Control, eTrust Admin, eTrust CA-ACF2 Security, eTrust CA-Top Secret Security, eTrust Directory, eTrust Identity Minder, eTrust Single Sign-On, and eTrust Site Minder.
	•		Threat Management — These products are designed to help customers identify and eliminate internal and external threats such as harmful computer viruses; unauthorized access into computing systems; and security weaknesses associated with operating systems, databases, networks, and passwords. Solutions include eTrust Antivirus, eTrust EZ Armor, eTrust Intrusion Detection, eTrust PestPatrol Anti-Spyware, and eTrust Secure Content Manager.
	•		Security Information Management — These solutions help to integrate and prioritize security event information created by CA and third-party security products and enable customers to increase operational efficiencies, help ensure business continuity, adhere to regulatory compliance, and mitigate risks. Solutions include eTrust Network Forensics, eTrust 20/20, eTrust Security Command Center, and eTrust Vulnerability Manager.

BrightStor for Storage Management — These products are designed to enable companies to centrally manage enterprise storage, while helping to ensure continuous availability and integrity of data. This increases storage efficiency and mitigates risk of data loss.

BrightStor solutions help control escalating costs, increase the effectiveness of storage resources, and support business continuity and regulatory compliance. Solutions include BrightStor ARCserve Backup, BrightStor Enterprise Backup, BrightStor ARCserve Backup for Laptops & Desktops, BrightStor SAN Designer, BrightStor SAN Manager, BrightStor Storage Resource Manager, BrightStor CA-Vantage Storage Resource Manager, and BrightStor CA-1 Tape Management.

AllFusion for Application Life Cycle Management — These products are designed to automate the life cycles of systems and applications, from design and development to deployment and maintenance. These products integrate with existing environments and infrastructures, and provide management of the software development process for any platform, from the mainframe to the Web. Products include AllFusion ERwin Data Modeler for application and data design, AllFusion Harvest Change Manager for distributed platforms, AllFusion Endevor Change Manager for mainframe platforms, and AllFusion Gen for application generation.

Advantage for Data Management and Application Development — These products are designed to help customers store and manage large amounts of data; and automate, standardize, and improve the processes they use to build and maintain vital company information. Products include Advantage EDBC, Advantage CA-Datacom, Advantage Ingres, and Advantage CA-IDMS Database.

CleverPath for Portal and Business Intelligence — These solutions enable businesses to centralize information access; refine, analyze, and sort data; create and distribute informative reports; and develop executive dashboards that mirror their business processes. Products include CleverPath Portal, CleverPath Aion Business Rules Expert, and CleverPath Dashboard Option.

Fiscal Year 2006 Business Unit Alignment

As announced in April 2005, our product development will be aligned by software business unit. The business unit structure is designed to increase our accountability to business and customer needs and to be more responsive to the changing dynamics of the management software marketplace. Our business units will consist of Enterprise Systems Management, Security Management, Storage Management, Business Service Optimization (BSO), and the CA Products Group — which will encompass solutions from a number of CA brands that fall outside of our core areas of systems and security management.

Business Model

Customers face challenges when trying to achieve their desired returns on software investments. These challenges are compounded by traditional software pricing models that often force companies to make long-term commitments for projected capacities. When these projections are inaccurate, the desired returns on investment may not be achieved. Many companies are also concerned that, due to short product life cycles for some software products, new products may become available before the end of their current software license agreement periods. In addition, some companies, particularly those in new or evolving industries, want pricing structures that are linked to the growth of their businesses to minimize the risks of overestimating capacity projections.

We believe we can service our customers better by offering more flexible licensing terms to help our customers realize maximum value from their software investments. In October 2000, we formalized this philosophy and refer to it as our Business Model.

Our Business Model offers customers a wide range of purchasing and payment options. Our flexible licensing terms allow customers to license our software products for relatively short periods of time, including on a monthly basis. Through these flexible licensing agreements, customers can evaluate whether our software meets their needs before making larger commitments. As customers become more comfortable with their software investments, they typically license our software for longer terms, generally up to three years.

Some customers prefer to choose cost certainty and sign longer-term agreements. Under our flexible licensing terms, customers can license our software products under multi-year licenses, and most customers choose terms of one to three years, although longer terms are sometimes selected. We provide our customers with the option to change their product mix after an initial period of time to mitigate their risks. We also help customers reduce uncertainty by providing a standard pricing schedule based on simple usage tiers.

We also offer software licenses to customers based on the value created from our customers’ business processes by linking our pricing structure to the growth of our customers’ businesses. For example, an airline company may choose to license our software based on the number of passenger miles flown during a defined period. Although this practice is not widely utilized by our customers, we believe this metric-based approach is unique in the software industry and can provide us with a competitive advantage.

As a result of the flexible licensing terms we offer our customers, specifically the right to receive software in the future within defined product lines for no additional fee, we are required under accounting principles generally accepted in the United States of America to recognize revenue from our license agreements ratably over the license term. For a description of how ratable revenue recognition has impacted our financial results, refer to “Results of Operations” within Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Sales and Marketing

We distribute, market, and support our software products through our own sales force and through a network of independent, value-added resellers (VARs), original equipment manufacturers (OEMs), distributors, and dealers. Facilities managers, including CSC, EDS, and IBM, often deliver IT services using our software products to companies that prefer to outsource their IT operations.

In addition, our professional services organization offers our customers a single point of contact for all of their installation, integration, and ongoing maintenance needs. Our Customer Advocates maintain customer relationships, identify possible areas for additional education or services, and help ensure that our customers maximize the benefits of their licensed software. We have Sales Specialists (sales persons who focus on a single product area, such as storage management or security management) and Account Directors (individuals responsible for overall account management of specific customers) to enhance the sales and customer satisfaction process.

Our sales organization operates on a worldwide basis. Each geographic territory offers all or most of our software products. As of March 31, 2005, we had approximately 5,100 sales and sales support personnel, including our solution-focused Sales Specialists, Account Directors, and Customer Advocates.

We operate through branches and subsidiaries located in 47 countries outside the United States. Each of these organizations has a sales team that offers all or most of our software products in its territory. Approximately 49% of our revenue in fiscal year 2005 was derived from operations outside the United States.

We actively encourage VARs to market our software products. VARs often combine our software products with specialized consulting services. A VAR services a particular market or sector and provides enhanced user-specific solutions.

Quality

We strive for consistently high product quality. Our goal is to continue to improve our processes to increase efficiency, speed time-to-market, and enhance customer satisfaction. Our overall commitment to quality helps us deliver software solutions and provide professional services to meet customers’ needs.

We achieved global ISO 9001:2000 certification in March 2003. This certification is recognized globally as the highest standard of quality a company can achieve within the ISO 9000 series of standards.

We also compensate many of our senior and management-level employees based upon improvements in customer satisfaction, as measured by independent customer satisfaction surveys.

And, we support our customers through the following means:

	•		CA Technical Support — We have highly skilled customer response specialists who provide quality assistance online or over the phone, 24 hours a day, 365 days a year.
	•		CA CustomerConnect — Customers can order and download software products, update their account information, and obtain support or assistance at any time through our website, ca.com/customerconnect. We have approximately 68,000 registered users on CustomerConnect. As part of CustomerConnect, we offer “SupportConnect,” which provides web-based problem diagnosis, program fixes, access to our customer support databases, and other sources of information.
	•		CA Technology Services — The CA Technology Services organization offers customers a single point of contact for a broad range of post-sales services, from education and training to consulting and implementation. Our post-sales service engagements focus on our software products, helping us to ensure that our customers receive the highest level of satisfaction.
	•		CA Education — Our education programs are designed to help our customers gain better value from our software. These programs are available at customer sites, CA Learning Centers, and through computer or web-based programs.

Product Development

We continue to invest extensively in product development and enhancements. We anticipate that we will continue to adapt our software products to the rapid changes in the computer industry and will continue to enhance our products to help them remain compatible with hardware changes. We expect that we will continue to be able to improve our software products to work with the latest hardware platforms and operating systems.

We have several programs designed to involve customers throughout our software product development process. The Development Buddy Program gives customers direct access to our development resources and provides us with feedback to help produce new software products. Our beta software program involves delivery of new software products to selected customers for testing before we make the products generally available. Our Product Advisory Council of experienced IT professionals acts as an independent adviser for software design and development. We also work with approximately 250 recognized worldwide user groups, comprised of licensed customers, who actively communicate with each other and with us about our software products. Each of these programs provides us with valuable information that we use to develop and enhance our software products.

We also pursue “next-generation” technologies that we believe our customers need to enhance their businesses. Our research and development efforts, across all of our product areas, include emerging technologies such as:

	•		Linux — We continue to support all widespread enterprise software product technology platforms available to our customers, including the Linux operating system. Linux is an operating system developed by volunteers on the Internet and distributed freely in electronic form. We offer Linux-based software across all of our solution areas for distributed (desktop or server environment) and mainframe computing systems.
	•		Wireless — We have extended as well as developed new software solutions to help customers manage, secure, and provide information access throughout a wireless environment. Our products are designed to help customers integrate enterprise management capabilities, secure wireless networks, increase performance and productivity, and improve service levels.
	•		Web services — Web services allow communication over the Internet regardless of the operating system or programming language. Our software products are designed to help customers manage, secure, and integrate Web services into their computing systems.

In the United States, product development is primarily performed at our facilities in San Diego, California; Lisle, Illinois; Leawood, Kansas; Framingham, Massachusetts; Waltham, Massachusetts; Mount Laurel, New Jersey; Princeton, New Jersey; Islandia, New York; Pittsburgh, Pennsylvania; Plano, Texas; and Herndon, Virginia. Internationally, we also

perform product development in Australia, China, France, Germany, India, Israel, Japan, and the United Kingdom. For fiscal years ended March 31, 2005, 2004 and 2003, the costs of product development and enhancements charged to operations were $704 million, $693 million, and $688 million, respectively. In fiscal years 2005, 2004 and 2003, we capitalized costs of $70 million, $44 million, and $40 million, respectively, for internally developed software. The increase in capitalized costs for fiscal year 2005 as compared with fiscal year 2004 was principally related to an increase in the quality assurance portion of the development cycle for certain of our products that had reached technological feasibility.

Some of our software products have been acquired from other companies and individuals. We continually seek to complement and improve our software portfolio through acquisitions and strategic partnerships. The purchase price of acquired software products (purchased software) is capitalized and amortized over the estimated useful life of such products over a period not exceeding seven years.

Proprietary Rights

Certain aspects of our products and technology are proprietary. We rely on U.S. and foreign intellectual property laws, including patent, copyright, trademark, and trade secret laws to protect our proprietary rights. As of March 31, 2005, we have received approximately 300 patents worldwide and approximately 1,700 patent applications are pending worldwide for our software technology. However, the extent and duration of protection given to different types of intellectual property rights vary under different countries’ legal systems. Generally, our U.S. and foreign patents expire at various times over the next twenty years. While the duration of our patents varies, we believe that the duration of our patents is adequate. The expiration of any of our patents will not have a material adverse effect on our business. In some countries, full-scale intellectual property protection for our products and technology may be unavailable, and/or the laws of other jurisdictions may not protect our proprietary technology rights to the same extent as the laws of the United States. We also maintain contractual restrictions in our agreements with customers, employees, and others to protect our intellectual property rights. In addition, we occasionally license software and technology from third parties, including some competitors, and incorporate them into our own software products.

The source code for our products is protected both as a trade secret and as a copyrighted work. Some of our customers are beneficiaries of a source code escrow arrangement that enables the customer to obtain a contingent, future-limited right to access our source code. If our source code is accessed, the likelihood of misappropriation or other misuse of our intellectual property may increase.

We are not aware that our products and technologies infringe the proprietary rights of third parties. Third parties, however, may assert infringement claims against us in the future with respect to current or future products, and any such assertion may require us to enter into royalty arrangements or result in costly and time-consuming litigation. Although we have a number of United States and foreign patents and pending applications that may have value to various aspects of our products and technology, we are not aware of any single patent itself that is essential to us or to any of our principal business product areas.

Competition

The markets in which we compete are marked by rapid and substantial technological change, the steady emergence of new companies and products, evolving industry standards, and changing customer needs. Some of the factors with which our products compete include, but are not limited to: performance, quality, breadth of product group, integration of products, brand name recognition, price, functionality, customer support, frequency of upgrades and updates, manageability of products, and reputation.

We compete with many established companies in the markets we serve. Some of these companies have substantially greater financial, marketing, and technological resources, larger distribution capabilities, earlier access to customers, and greater opportunity to address customers’ various information technology requirements than us. These factors may provide our competitors with an advantage in penetrating markets with their products. We also compete with many smaller, less established companies that may be able to focus more effectively on specific product areas or markets. We believe, however, that the breadth and quality of our product offerings as well as our products’ hardware independence provide us with a competitive advantage in the marketplace. We compete with many software providers across our product areas. However, because of the breadth of our product offerings, an individual competitor does not generally compete with us across all of our product areas. Some of our key competitors include BMC, EMC, HP, IBM, McAfee, and Symantec.

Risks

Current and potential stockholders should consider carefully the risk factors described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Any of these factors, or others, many of which are beyond our control, could negatively affect our future business, financial condition, operating results, and cash flow.

Customers

No individual customer accounted for a material portion of our revenue during any of the past three fiscal years, or a material portion of deferred subscription revenue reported in the balance sheet at the end of any period in the past three fiscal years. At March 31, 2005, six customers accounted for approximately 60% of our outstanding prior business model net receivables, including one customer with a license arrangement that extends through fiscal year 2012 and a net unbilled receivable of approximately $390 million. The majority of our software products are used with relatively expensive computer hardware. As a result, most of our revenue is generated from customers who have the ability to make substantial commitments to software and hardware implementations. Our software products are used in a broad range of industries, businesses, and applications. Our customers include manufacturers, technology companies, retailers, banks, insurance companies, other financial services providers, educational institutions, health care institutions, and governmental agencies.

Employees

     The table below sets forth the approximate number of employees by location and department as of March 31, 2005:

		Employees as
		of March 31,
Location		2005
Corporate headquarters			2,200
Other U.S. offices			5,600
International offices			7,500
Total			15,300

		Employees as
		of March 31,
Department		2005
Product development			5,300
Sales and support			5,100
Professional services			1,300
Information technology support, finance, and administration			3,600
Total			15,300

As of March 31, 2005 and 2004, we had approximately 15,300 employees. In connection with the September 2004 restructuring, we reduced our workforce by approximately 750 positions worldwide. The decrease in the number of employees due to the restructuring was offset by an increase of approximately 400 employees as a result of our acquisition of Netegrity and an increase of approximately 350 employees primarily as a result of our product development efforts in India. We believe our employee relations are satisfactory.

(d) Financial Information About Geographic Areas

Refer to Note 4, “Segment and Geographic Information” of the Consolidated Financial Statements for financial data pertaining to our segment and geographic operations.

(e) Available Information

Our website address is ca.com. All filings we make with the SEC, including our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K, and any amendments, are available for free on our website as soon as reasonably practicable after they are filed or furnished to the SEC. Our SEC filings are available to be read or copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information regarding the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Our filings can also be obtained for free on the SEC’s Internet site at sec.gov. The reference to our website address does not constitute incorporation by reference of the information contained on the website in this Report or other filings with the SEC, and the information contained on the website is not part of this document.

Our website also contains information about our initiatives in corporate governance, including: our corporate governance principles; information concerning our Board of Directors including e-mail communication with them; the CA Code of Ethics (applicable to all of our employees, including our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, and our directors); our Instructions for Calling the CA Compliance and Ethics Helpline; information concerning our Board Committees including the charters of the Audit and Compliance Committee, the Compensation and Human Resources Committee, the Corporate Governance Committee, and the Corporate Operations Committee; information on the Deferred Prosecution Agreement (DPA) we entered into in September 2004 as part of our settlement to resolve government investigations into past accounting practices including our progress under governance initiatives required under the DPA; and 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 at the address listed on the cover of this Form 10-K/A. Refer to the Corporate Governance section in the Investors section of our website for details.

Item 2. Properties.

Our principal real estate properties are located in areas necessary to meet sales and operating requirements. All of the properties are considered to be both suitable and adequate to meet current and anticipated operating requirements.

As of March 31, 2005, we leased 82 facilities throughout the United States and 147 facilities outside the United States. Expiration dates on significant lease obligations extend to 2023.

We own an approximately 850,000-square-foot corporate headquarters in Islandia, New York, as well as various facilities throughout the United States ranging from 15,000 to 235,000 square feet. We own one facility in Germany totaling approximately 100,000 square feet, one facility in Italy with approximately 140,000 square feet, and an approximately 215,000-square-foot European headquarters in the United Kingdom.

We own and lease various computer, telecommunications, electronic, and transportation equipment. We also lease mainframe and distributed computers at our facilities in Islandia, New York, and Lisle, Illinois. This equipment is used for internal product development, technical support efforts, and administrative purposes. We consider our computer and other equipment to be adequate for our current and anticipated needs. Refer to “Contractual Obligations” under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements for information concerning lease obligations.

Item 3. Legal Proceedings.

Refer to Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements for information regarding legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Executive Officers of the Registrant.

The name, age, present position, and business experience of our executive officers as of June 24, 2005, are listed below:

Name		Age		Position
John A. Swainson		51		President, Chief Executive Officer, and Director
Jeff Clarke		43		Chief Operating Officer
Russell M. Artzt		58		Executive Vice President and Director
Mark J. Barrenechea		40		Executive Vice President — Technology Strategy
Michael J. Christenson		46		Executive Vice President — Strategy and Business Development
Gregory W. Corgan		51		Executive Vice President — Worldwide Sales
Robert W. Davis		46		Executive Vice President and Chief Financial Officer
Donald Friedman		59		Executive Vice President and Chief Marketing Officer
Kenneth V. Handal		56		Executive Vice President, General Counsel and Corporate Secretary
Gary Quinn		44		Executive Vice President — Partner Advocacy
Robert G. Cirabisi		41		Senior Vice President and Chief Accounting Officer
Patrick J. Gnazzo		58		Senior Vice President, Business Practices, and Chief Compliance Officer
Yogesh Gupta		44		Senior Vice President and Chief Technology Officer
Una O’Neill		35		Senior Vice President — Technology Services
Douglas E. Robinson		49		Senior Vice President and Corporate Controller
Mary Stravinskas		44		Senior Vice President and Treasurer

Mr. Swainson was named Chief Executive Officer of the Company in February 2005 and President and Director in 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 and Marketing of IBM Corporation’s Software Group, responsible for selling its diverse line of software products through multiple channels. From 1997 to July 2004, he was General Manager of the Application Integration and Middleware division of IBM Corporation’s Software Group, a division he started in 1997.

Mr. Clarke was named Chief Operating Officer of the Company in April 2004. Earlier in April 2004, he was named Executive Vice President and Chief Financial Officer and he continued to serve as Chief Financial Officer until February 2005. From 2002 through November 2003, he was Executive Vice President, Global Operations at HP, where he was

responsible for the supply chain and procurement operations. He joined Compaq Computer Corporation in 1998 and held several positions, including Chief Financial Officer of Compaq from 2001 until the time of Compaq’s merger with HP in 2002.

Mr. Artzt has been with the Company since June 1976 and an Executive Vice President since April 1987. He was named Executive Vice President of Products in 2004. From April 2002 to 2004, Mr. Artzt was Executive Vice President — eTrust Solutions and from 1987 to March 2002, he was Executive Vice President — Research and Development. Previously Mr. Artzt served as Senior Development Officer. Mr. Artzt was a Director of the Company from November 1980 until the annual meeting of stockholders in August 2005, when he did not stand for re-election.

Mr. Barrenechea joined the Company in June 2003 as Senior Vice President of Product Development and was named Executive Vice President — Product Development in June 2004. Prior to joining the Company, Mr. Barrenechea served in a variety of positions at Oracle Corporation, including Senior Vice President, Applications Development, and as a member of the Executive Management Committee.

Mr. Christenson joined the Company as Executive Vice President of Strategy and Business Development in February 2005. Mr. Christenson retired in 2004 from Citigroup Global Markets, Inc. after a 23 year career as an investment banker where he was responsible for that company’s Global Private Equity Investment Banking, North American Regional Investment Banking, and Latin American Investment Banking. In addition, he was a member of the Operating Committee of the Global Investment Banking Division and the Investment Committee of SSB Capital Partners. Prior to these roles, he served as head of Citigroup’s Global Technology Investment Banking and Global Media Investment Banking.

Mr. Corgan was appointed Executive Vice President of Worldwide Sales of the Company in April 2004. Mr. Corgan joined the Company in 2003 as Senior Vice President of North American Sales. Prior to joining the Company, from June 2001 to November 2002, Mr. Corgan was Senior Vice President for Worldwide Operations at Terraspring, Inc., an infrastructure software company, and from February 2000 to February 2001, he was Chief Executive Officer of OneChem Ltd., a provider of Web-based application software and connectivity services for the chemical industry. Previously, Mr. Corgan was with IBM for 24 years, where he held numerous management positions in software sales, marketing, and technical support.

Mr. Davis joined the Company in February 2005 as Executive Vice President and Chief Financial Officer. In this role, he is responsible for all of the Company’s financial functions for its business units worldwide. This includes the controller role, planning, treasury, tax, risk management, procurement, and facilities. Prior to joining the Company, Mr. Davis was with Dell Inc. since 1996. From 2001 to February 2005, Mr. Davis was Vice President for Corporate Finance and from November 2002 to February 2005, he was Chief Accounting Officer. In this position, Mr. Davis helped develop and implement Dell’s growth plan and enhanced its forecasting and reporting systems. From 1999 to 2001, he served as Vice President of Worldwide Corporate Planning at Dell. Prior to joining Dell, Mr. Davis was Assistant Corporate Controller at MCI Communications Corporation. Mr. Davis began his career at Price Waterhouse.

Mr. Friedman joined the Company in April 2005 as Executive Vice President and Chief Marketing Officer. From 2002 to April 2005, he provided management and marketing consulting services to technology companies on re-branding, marketing, business development and channel development. From 2000 to 2001, he was Chief Executive Officer and President of Sheldahl. In addition, he spent three decades at IBM and served in a variety of management and marketing roles, including Vice President of Marketing and Strategy for IBM’s Server Group.

Mr. Handal was named Executive Vice President and General Counsel in July 2004. He was named Corporate Secretary in April 2005. From 1996 to July 2004, Mr. Handal served as Associate General Counsel for the Altria family of companies, which includes Kraft Foods and Philip Morris. His responsibilities included serving as in-house compliance and ethics counsel, as well as overseeing critical aspects of Altria litigation. Prior to joining Altria, Mr. Handal was a partner in the law firm of Arnold & Porter LLP. He was also an Assistant United States Attorney for the Southern District of New York.

Mr. Quinn has been an Executive Vice President of Partner Advocacy since April 2004. He was an Executive Vice President of Sales for EMEA, Latin America, and the North American Channel business from April 2001 to April 2004. He was an Executive Vice President — Global Information and Administrative Services from April 1998 to April 2001 and was Senior Vice President — Global Information Services from April 1996 to April 1998. Prior to April 1996, he served in various management positions within the marketing and technical organizations. He joined the Company in December 1985.

Mr. Cirabisi was named Senior Vice President and Chief Accounting Officer of the Company in July 2004. From April 2002 to July 2004, he served as Vice President of Investor Relations. Mr. Cirabisi joined the Company in 2000 as U.S.

Controller. Prior to joining CA, he had over 13 years of public accounting experience, where he performed audit and business advisory services.

Mr. Gnazzo joined the Company as Senior Vice President, Business Practices and Chief Compliance Officer effective in January 2005. From February 1993 through January 2005, he was Vice President, Business Practices and Chief Compliance Officer at United Technologies Corporation where he built and led their ethics program. His responsibilities included managing more than 160 business practices officers worldwide who were responsible for the implementation of that company’s ethics and compliance programs for its over 190,000 employees in over 180 countries.

Mr. Gupta has served as Senior Vice President and Chief Technology Officer of the Company since August 2000. From 1998 to August 2000, he served as Senior Vice President of the Company’s eBusiness strategy. Prior to that time, he held a variety of senior management positions in development, marketing, and planning at the Company. Mr. Gupta joined the Company in 1989.

Ms. O’Neill was named Senior Vice President and General Manager of CA Technology Services in April 2003. From April 2002 to April 2003, she was Senior Vice President of Worldwide Pre-Sales, where she managed the Company’s worldwide pre-sales consulting organization. Prior to her global responsibilities, she was a Vice President of pre-sales consulting within Europe, the Middle East and Africa. Ms. O’Neill joined the Company in 1994.

Mr. Robinson has been Senior Vice President and Corporate Controller since March 2004. Previously, Mr. Robinson served as Interim Chief Financial Officer from October 2003 through March 2004. He has also led the worldwide financial reporting function from April 2003 until October 2003. In August 2000, Mr. Robinson co-founded and was named Executive Vice President and CFO for iCan SP, a Company subsidiary specializing in service management software. He was Senior Vice President — Investor Relations from 1995 to 2000 and established the Company’s internal audit department in 1991. He joined the Company with the acquisition of Cullinet Software in September 1989, where he was Chief Financial Officer.

Ms. Stravinskas was elected Treasurer effective May 2001. She was named Senior Vice President in October 2003, having previously been a Vice President since 1999, and an Assistant Vice President and a manager of various functions within the finance organization. She joined the Company in February 1986.

PART II

Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed on the New York Stock Exchange. The following table sets forth, for the fiscal quarters indicated, the quarterly high and low closing sales prices on the New York Stock Exchange:

		Fiscal Year 2005								Fiscal Year 2004
		High				Low				High				Low
Fourth Quarter		$	30.82			$	26.42			$	28.83			$	25.27
Third Quarter		$	31.52			$	26.03			$	28.96			$	22.15
Second Quarter		$	27.67			$	22.61			$	27.47			$	22.07
First Quarter		$	29.17			$	25.30			$	24.04			$	13.47

On March 31, 2005, the closing price for our common stock on the New York Stock Exchange was $27.10. At March 31, 2005 we had approximately 16,000 stockholders of record.

We have paid semiannual cash dividends each year since July 1990, and we paid a dividend of $0.08 per share in fiscal years 2005 and 2004. As announced in April 2005, beginning in fiscal year 2006 we intend to increase our annual cash dividend to $0.16 per share, which is expected to be paid out in quarterly installments of $0.04 per share as and when declared by the Board of Directors.

Sales of Unregistered Securities

In March 2005, we redeemed our outstanding $660 million aggregate principal amount 5% Convertible Senior Notes (5% Notes) that were due March 15, 2007. The 5% Notes were issued in fiscal year 2002 and were eligible for redemption as of March 2005. The redemption price was equal to $1,020 per $1,000 principal amount of the 5% Notes, or 102% of the par value of the 5% Notes, plus accrued and unpaid interest to, but excluding, the redemption date. In March 2005, substantially all of the 5% Note holders converted their holdings into common stock at a conversion price of $24.34 per share and, as a result, we issued approximately 27 million shares from treasury. See “Purchases of Equity Securities by the Issuer” below for information concerning the issuance and exercise of a related call spread repurchase option.

In connection with our settlement of certain civil litigation, we issued from treasury approximately 3.8 million shares of common stock in December 2004. Refer to Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements for additional information. We did not receive any additional consideration for these shares, which were issued pursuant to the registration exemption contained in Section 3(a)(10) of the Securities Act of 1933.

Purchases of Equity Securities by the Issuer

The following table sets forth, for the months indicated, our purchases of common stock in the fourth quarter of fiscal year 2005.

Maximum

Total Number

Number

of Shares

of Shares that

Purchased as

May Yet Be

Total Number

Average

Part of Publicly

Purchased Under

of Shares

Price Paid

Announced Plans

the Plans

Period

Purchased

per Share

or Programs

or Programs

(in thousands, except average price paid per share)

January 2005

—

$

—

—

19,210

February 2005

3,513

26.89

3,513

15,697

March 2005

29,106

25.02

1,991

13,706

Total

32,619

5,504

Concurrent with the issuance of our 5% Notes in 2002, we had entered into a call spread repurchase option transaction (5% Notes Call Spread). The option purchase price of the 5% Notes Call Spread was $95 million and was charged to Stockholders’ Equity in March 2002. Under the terms of the 5% Notes Call Spread, we could elect to receive (i) outstanding shares equivalent to the number of shares that would be issued if all of the 5% Notes were converted into shares (27 million shares) upon payment of an exercise price of $24.83 per share; or (ii) a net cash settlement, net share settlement or a combination, whereby we would receive cash or shares equal to the increase in the market value of the 27 million shares from the aggregate value at the $24.83 exercise price, subject to an upper limit of $36.60. In March 2005, we exercised the 5% Notes Call Spread to buy 27 million shares of common stock at the exercise price of $24.83 (an aggregate of $673 million).

Our corporate buyback program was originally announced in August 1990 and was subsequently amended by the Board of Directors to increase the number of shares we are authorized to purchase. As of March 31, 2005, approximately 14 million shares were available to be repurchased under our buyback program. The program has no expiration date. Since the inception of our corporate buyback program, we have purchased approximately 186 million shares. In April 2005, we announced our intention to repurchase shares valued at up to $100 million in each quarter of fiscal year 2006, for an annual share repurchase value of up to $400 million.

Item 6. Selected Financial Data.

The information set forth below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this 2005 Form 10-K/A. The information provided in the following table has been adjusted to reflect the Company’s adoption of SFAS No. 123(R) (refer to Note 9, “Stock Plans” of the Consolidated Financial Statements for additional information) and the restatements indicated below.

As previously disclosed in the Original 2005 Form 10-K, the information with respect to fiscal years 2004, 2003, 2002 and 2001 has been restated to reflect the effects of certain prior period transactions that were previously improperly reported and other items (refer to the information under the “Explanatory Note” immediately preceding Part I, Item 1 of the Original 2005 Form 10-K). The restated fiscal year 2001 information set forth below also reflects an earlier restatement as described below under the heading “Prior Restatement of Previously Reported Selected Financial Data.” Additionally, the financial statements for fiscal years 2005 through 2002 have been restated to incorporate adjustments to revenue associated with the Company’s review of its revenue recognition policies. The restated financial statements from which this information is derived have been audited for fiscal years 2005, 2004, 2003 and 2001. The related financial statements for fiscal year 2002 are unaudited. See Note 12, “Restatements,” to the Consolidated Financial Statements for additional information.

The information in the following table has also been adjusted to remove the historical results of ACCPAC, which has been classified as a discontinued operation for all periods presented (refer to Note 2, “Acquisitions, Divestitures, and Restructuring” of the Consolidated Financial Statements for information concerning the ACCPAC divestiture).

STATEMENT OF OPERATIONS DATA

		Year Ended March 31,
		2005 (1)(6)				2004(1)(6)				2003(1)(6)				2002(1)(6)				2001(1)(2)(6)
		(restated)				(restated)				(restated)				(restated)				(restated)
						(in millions, except per share amounts)
Revenue		$	3,560			$	3,320			$	3,057			$	2,910			$	4,609
Loss from continuing operations(3)			(2	)			(81	)			(340	)			(1,158	)			(375	)
Basic loss from continuing operations per share(3)		$	(0.01	)		$	(0.14	)		$	(0.60	)		$	(2.01	)		$	(0.65	)
Diluted loss from continuing operations per share(3)		$	(0.01	)		$	(0.14	)		$	(0.60	)		$	(2.01	)		$	(0.65	)
Dividends declared per common share			0.08				0.08				0.08				0.08				0.08

BALANCE SHEET AND OTHER DATA

		March 31,
		2005				2004(1)				2003(1)				2002(1)				2001(1)(2)
		(restated)				(restated)				(restated)				(restated)				(restated)
										(in millions)
Cash provided by continuing operating activities		$	1,527			$	1,279			$	1,310			$	1,241			$	1,335
Working capital			341				935				13				506				342
Total assets(4)			11,163				10,760				11,312				12,399				14,458
Deferred subscription revenue(5)			5,541				4,366				3,959				3,548				1,875
Long-term debt (less current maturities)			1,810				2,298				2,298				3,334				3,629
Stockholders’ equity		$	4,942			$	4,832			$	4,477			$	4,682			$	5,799

Prior Restatement of Previously Reported Selected Financial Data

Following the completion of the investigation by the Audit Committee of our Board of Directors on April 26, 2004, we filed a Current Report on Form 8-K to restate certain financial data for the fiscal years ended March 31, 2001 and 2000 (we refer to this restatement as the prior restatement as distinct from the later restatements described below). On September 22, 2004, we filed an amended Current Report on Form 8-K/A that included, among other things, a provision to provide audited restated financial statements for the fiscal years ended March 31, 2001 and 2000. We filed an amended Current Report on Form 8-K/A dated October 18, 2005 that included the audited restated financial statements for the fiscal years ended March 31, 2001 and 2000 (these three Current Reports, together, the Prior Restatement 8-Ks). None of the adjustments set forth for this prior restatement affected the amounts shown in our Consolidated Balance Sheets as of March 31, 2005, 2004, 2003, or 2002, and the related Consolidated Statements of Operations, Stockholders’ Equity, and Cash Flows for each of the fiscal years ended March 31, 2005, 2004, 2003, or 2002. As a result of the conduct leading to the prior restatement, the United States Attorney’s Office for the Eastern District of New York (USAO) and the SEC had previously launched investigations of the Company’s accounting practices and related obstruction of their investigations. On September 22, 2004, we reached agreements with the USAO and SEC by entering into the Deferred Prosecution Agreement (DPA) with the USAO and by consenting to the SEC’s filing of a Final Consent Judgment in the United States District Court for the Eastern District of New York. Refer to Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements as well as the Current Report on Form 8-K/A dated October 18, 2005 for more information concerning the Audit Committee’s investigation and the agreements with the USAO and SEC.

The Audit Committee’s investigation included a detailed review of our compliance with American Institute of Certified Public Accountants’ Statement of Position (SOP) 97-2, “Software Revenue Recognition.” Under SOP 97-2, a requirement for revenue recognition is “persuasive evidence of an arrangement.” Pursuant to paragraph 16 of SOP 97-2, if a vendor has a customary business practice of utilizing written contracts, which has been our general business practice, then to satisfy the evidence of an arrangement requirement, a contract must be signed by both parties. The internal investigation revealed that this requirement was not met in a number of cases during the prior business model period and an analysis of the extent and quantification of the prematurely recognized revenue was performed, which forms the basis of the prior restatement. The analysis included a review of arrangements where customer signatures were obtained late as well as where the customer signature was timely but our countersignature was obtained late. The analysis also included a review of other revenue recognition requirements so as to ensure the accuracy and completeness of the restatement.

The Audit Committee’s investigation found accounting irregularities that led to material misstatements of our financial reports for fiscal years 2001 and 2000, and prior periods. The effect of such prior period errors which have an impact on fiscal year 2000 have been considered as part of our prior restatement in the Prior Restatement 8-Ks. The Audit Committee believes that several factors contributed to the improper recognition of revenue in these periods, including a practice of holding the financial period open after the end of the fiscal quarters, providing customers with contracts with preprinted signature dates, late countersignatures by Company personnel, backdating of contracts, and not having sufficient controls to ensure the proper accounting under SOP 97-2. In addition, the Audit Committee found that certain former executives and other personnel were engaged in the practice of “cleaning up” contracts by, among other things, removing fax time stamps before providing agreements to the outside auditors. Certain of these executives and personnel have admitted to misleading our outside counsel, the Audit Committee and its counsel, and accounting advisers regarding these accounting practices. The exact findings of fact with respect to the Company’s actions can be found in the DPA, Final Consent Judgment, and related documents filed, including in the Current Report on Form 8-K/A filed September 22, 2004. We believe that we now have adequate systems and controls in place to assure proper treatment of revenue recognition for contracts executed under our current Business Model but will also consider additional improvements.

As noted in the restated financial data tables that were filed as part of the Prior Restatement 8-Ks, the net effect on revenue related to the restatement was an increase of $558 million and a decrease of $2 million in the fiscal years ended March 31, 2001 and 2000, respectively. The net effect on net loss for fiscal 2001 was a decrease of $333 million and the net effect on net income for fiscal 2000 was immaterial. Although not presented separately in the restated financial data tables, the Company estimates that the net effect on revenue in periods prior to fiscal year 2000 was an aggregate decrease of $561 million and the aggregate impact on net income for these years was a decrease of $333 million.

In addition to the prior restatement, in the Original 2005 Form 10-K, the Company restated its consolidated financial statements for the fiscal years ended March 31, 2004 and 2003, the quarterly periods in fiscal years 2005 and 2004, and the selected financial data for fiscal years 2002 and 2001. Also, in this Amended Form 10-K, the Company is restating its consolidated financial statements for the fiscal years ended March 31, 2005, 2004, and 2003, as well as the quarterly periods in fiscal years ended March 31, 2005 and 2004, and the selected financial data for fiscal year ended March 31, 2002. The effects of these subsequent restatements are more fully described under the “Explanatory

Note” immediately preceding Part I, Item 1 of this Form 10-K/A, and are reflected in the table of selected financial data. See Note 12, “Restatements,” to the Consolidated Financial Statements for additional information.

We have not separately amended our Annual Reports on Form 10-K for the fiscal years ended March 31, 2004, 2003, 2002, 2001 and 2000 or our Quarterly Reports on Form 10-Q for the quarterly periods for the fiscal years ended March 31, 2005, 2004, 2003, 2002, 2001 and 2000. Consequently, the financial and other information contained in such reports should be read in conjunction with the restated financial data for these fiscal periods, which is set forth in the Prior Restatement 8-Ks and this Form 10-K/A.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) is intended to provide an understanding of our financial condition, change in financial condition, cash flow, liquidity, and results of operations. As described in Note 2, “Acquisitions, Divestitures, and Restructuring” of the Consolidated Financial Statements, in fiscal year 2004 we divested a subsidiary, ACCPAC International, Inc. (ACCPAC). The assets, liabilities, results of operations, and cash flow of ACCPAC have been classified as a discontinued operation for all periods presented prior to the sale of ACCPAC in March 2004. The following discussion and analysis of financial condition and results of operations excludes the effect of the discontinued operation.

Additionally, the information below reflects the effects of (1) the restatements announced in 2004 as more fully described in Part I, Item 6 of the 2005 Form 10-K/A, (2) the subsequent restatements more fully described in the “Explanatory Note” immediately preceding Part I, Item 1 of this Form 10-K/A, and (3) the restatement to reflect the modified retrospective adoption of SFAS No. 123(R) more fully described in Note 9, “Stock Plans” of the Consolidated Financial Statements, included in this Form 10-K/A. This Form 10-K/A is not superseding or restating financial statements contained in the company’s quarterly report on Form 10-Q for the quarter ended June 30, 2005 or any current report on Form 8-K filed subsequent to March 31, 2005. However, the financial statements for the first quarter of the 2005 fiscal year, which are also contained in the Form 10-Q for the quarter ended June 30, 2005 for comparison purposes, have been restated in the Amended Form 10-K/A (though not in the Form 10-Q for the quarter ended June 30, 2005). Accordingly, the information in the Form 10-Q for the quarter ended June 30, 2005 should be considered in light of the information in the Amended Form 10-K/A.

Business Overview

We are one of the world’s largest providers of management software. Our software enables our customers to manage their complex IT infrastructures across systems and networks, security, and storage solutions.

Our platform-neutral, integrated technologies help customers manage the investments they have made in IT and make it possible for them to manage all of the computers, networks, and other technologies that comprise their computing environment. Our products enable customers to better manage and reduce IT costs and risks.

Our products participate in a number of high-growth areas, including systems and security management, and business services optimization — which helps organizations align IT to business processes. Our products include both mainframe and distributed solutions, each of which comprise about half of our revenue.

We are focused on four key strategies to drive growth:

Internal Product Development

•		In fiscal year 2005, we invested approximately 20 percent of our revenue in research and development to deliver innovative and relevant technology. In particular, we are focused on market leadership in the core areas of systems management and security management.
•		In April 2005, we reorganized our product development group into five business units to enable us to be more accountable to business and customer needs and to be more responsive to the changing dynamics of the management software marketplace.

International Expansion

•		We are increasing our investments in emerging markets, such as China, India, and other countries, to expand our reach and to grow sales. Partnerships and relationships with systems integrators and channel participants are of particular importance in these regions.
•		In addition to our focus on enterprise customers, we are pursuing the small and medium sized customer market, particularly in the Europe, Middle East, and Africa (EMEA) region.

Alternative Routes to Market

•		We have a direct sales force of over 2,200 quota-carrying salespeople who generate most of our revenue. However, not all customers buy technology directly from the software vendor, providing additional growth opportunities in the area of indirect sales. Developing further channel partnerships is a top priority for us.
•		To help accelerate the growth of our channel business, we recently launched a new Enterprise Solution Provider Program that makes it easier for customers to buy products and to eliminate potential conflicts between direct and indirect sales channels.

•		We have moved to a named account structure, where our direct sales organization will focus on developing relationships with the largest and most important customers. Other accounts will primarily be serviced by reseller partners.
•		We will also partner with OEMs and global systems integrators that play an important role in determining technology purchases in large enterprises.
•		Channel partnerships will also allow us to more cost effectively pursue the small and medium size customer market and will provide us a larger technical pool from which we can draw resources to provide professional services to our customers.

Strategic Acquisitions

•		While internal product development is critical to our long-term success, targeted acquisitions of technologies are equally important.
•		We will continue to make small- to medium-sized acquisitions in our core areas of systems and security management for the enterprise, similar to our recent acquisitions of Pest Patrol, Netegrity, Concord, and Niku.

Significant Business Events

The Government Investigation

In fiscal year 2002, the USAO and the SEC commenced an investigation concerning certain of our past accounting practices, including our revenue recognition procedures in periods prior to the adoption of the Business Model in October 2000.

In September 2004, we reached agreements with the USAO and the SEC by entering into a Deferred Prosecution Agreement (DPA) with the USAO and by consenting to the SEC’s filing of a Final Consent Judgment in the United States District Court for the Eastern District of New York (the Federal Court). The Federal Court approved the DPA on September 22, 2004 and entered the Final Consent Judgment on September 28, 2004. The agreements resolve the USAO and SEC investigations into certain of our past accounting practices, including our 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 our current and former stockholders, with $75 million paid within 30 days of the date of approval of the DPA by the 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 has made the first $75 million payment. The Company has, among other things, taken the following actions: (1) added two new independent directors to the Board of Directors; (2) established a compliance committee of the Board of Directors by amending the charter of its Audit Committee and renaming it as the Audit and Compliance Committee; (3) appointed a Chief Compliance Officer and began implementation of an enhanced compliance and ethics program; (4) begun to reorganize the Finance Department; (5) established an executive disclosure committee chaired by the Company’s chief executive officer; and (6) enhanced the Company’s Hotline (now Helpline) and issued the Company’s “Compliance and Helpline Policy.”

On March 16, 2005, pursuant to the DPA and Final Consent Judgment, the United States District Court issued an order appointing attorney Lee S. Richards III, Esq., of Richards Spears Kibbe & Orbe LLP, to serve as Independent Examiner. The Independent Examiner is reviewing our compliance with the DPA and Final Consent Judgment and reported his findings and recommendations to the USAO, SEC and Board of Directors on or about September 16, 2005, and will do so quarterly thereafter. We issued a report on our progress under the DPA and Final Consent Judgment in the proxy statement filed with the SEC in July 2005.

Refer to Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements for additional information concerning the government investigation.

Acquisitions and Divestures

In June 2005, we entered into a definitive agreement to acquire Niku a leading provider of information technology management and governance solutions, in an all cash transaction valued at approximately $350 million, or approximately $280 million net of cash acquired. Niku’s primary software product, Clarity IT-MG, is an integrated suite that spans the full IT life cycle, from investment selection, to execution and delivery of initiatives, to results assessment. In January 2005, we had announced we had signed a partnership to resell, service, and support Niku’s Clarity software. We anticipate integrating Clarity IT-MG with our Business Service Optimization (BSO) unit. The acquisition was completed on July 29, 2005.

In June 2005, we acquired the common stock of Concord, a leading provider of network service management software solutions, in an all cash transaction valued at approximately $337 million. We also assumed approximately $20 million in net debt from Concord for a total purchase price of approximately $357 million, excluding acquisition costs. Concord was a provider of infrastructure software principally in the areas of network health, performance, and fault management.

We plan to make Concord’s eHealth and Spectrum software available both as independent products and as integrated components of our Unicenter product portfolio.

In November 2004, we completed the acquisition of Netegrity, a leading provider of security software solutions in the area of access and identity management, in a transaction valued at approximately $455 million in the aggregate. Netegrity was a provider of business security software, principally in the areas of identity and access management, and we have made Netegrity’s identity and access management solutions available both as independent products and as integrated components of our eTrust Identity and Access Management Suite.

In August 2004, we acquired Pest Patrol, a privately held provider of anti-spyware and security solutions, in an all-cash transaction of 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 inappropriate use of the Web by employees.

In March 2004, we sold our approximate 90% interest in ACCPAC. Our net proceeds totaled $104 million for all of our outstanding equity interests of ACCPAC, including options and change of control payments for certain ACCPAC officers and managers. We received approximately $90 million of the net proceeds in fiscal year 2004 and the remainder in fiscal year 2005. ACCPAC specializes in 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, we realized a gain, net of taxes, of approximately $60 million in fiscal year 2004. In the second quarter of fiscal year 2005, we recorded an adjustment to the gain of $2 million, net of tax, that reduced the net gain to $58 million. Approximately 600 of our employees were transferred to Sage in fiscal year 2004. The sale completed our multi-year effort to exit the business applications market.

Restructuring and Reorganization

In the second quarter of fiscal year 2005, we announced a restructuring plan that was designed to more closely align our investments with strategic growth opportunities. The restructuring plan included a workforce reduction of approximately five percent or 750 positions worldwide, slightly lower than our original estimate of 800 positions. The plan is expected to yield about $70 million in savings on an annualized basis. In connection with the restructuring plan, we recorded a charge of approximately $28 million in the second quarter of fiscal year 2005 for severance and other termination benefits, and we do not expect to incur any additional charges related to the restructuring plan. As of March 31, 2005, we have made substantially all payments under the plan.

In April 2003 and in connection with the reorganization of the U.S. channel sales organization and the combination of the pre and post sales technical organizations, we eliminated approximately 450 positions worldwide during the quarter ended June 30, 2003. The combination of our pre and post sales organizations resulted in the creation of what we refer to as our CA Technology Services organization. The reorganization of our U.S. channel sales organization included the creation of a 300 person customer interaction call center located in Tampa, Florida. Each of these actions enabled us to achieve efficiencies associated with certain redundant functions that resulted in the elimination of certain positions. We also expensed approximately $15 million of severance and other termination benefits in the first quarter of fiscal year 2004 related to the headcount reduction. We estimate that we achieved annual cost savings of approximately $50 million associated with the headcount reductions.

Business Model

As described in greater detail in Item 1, “Business,” of the Company’s Form 10-K/A, we license our software products directly to customers as well as through distributors, resellers, and VARs. We generate revenue from the following sources: license fees — licensing our products on a right-to-use basis; maintenance fees — providing customer technical support and product enhancements; and service fees — providing professional services such as product implementation, consulting, and education services. The timing and amount of fees recognized as revenue during a 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 under month-to-month licenses or to fix their costs by committing to longer-term agreements. We also permit customers to change their software mix as their business and technology needs change, which includes the right to receive software in the future within defined product lines for no additional fee. As a result of the right our customers have to receive unspecified future upgrades, we are required under accounting principles generally accepted in the United States of America (GAAP) to recognize revenue from our license agreements evenly on a monthly basis (also known as ratably) over the license term. We believe recognizing license revenue ratably over the term of the license agreement more accurately reflects the earnings process; we also believe that it improves the predictability of our reported revenue streams. Under agreements entered into prior to October 2000 (the prior business model), and as is common practice in the software industry, we did not offer our customers the right to receive unspecified future upgrades. As a result, for most license agreements entered into

prior to October 2000, we were required under GAAP to record the present value of the license agreement as revenue at the time the license agreement was signed.

Under our Business Model, the portion of the license revenue that has not yet been recognized creates what we refer to as deferred subscription revenue. Deferred subscription revenue is recognized as revenue evenly on a monthly basis over the duration of the license agreements. When recognized, this revenue is reported on the “Subscription revenue” line item on our Consolidated Statements of Operations. If a customer pays for software prior to the recognition of revenue, the amount deferred is reported as a liability entitled “Deferred subscription revenue (collected)” on our Consolidated Balance Sheets.

Not all of our active customer contracts have been transitioned to our Business Model, which has created what we refer to as a “Transition Period,” during which the license agreements under our prior business model come up for renewal. During this Transition Period, we are building deferred subscription revenue, from which subscription revenue will be amortized. Total deferred subscription revenue, and the associated subscription revenue that comes out of it, is expected to increase over time as we continue to renew customer contracts that were executed under the prior business model, sell additional products and capacity to existing customers, as well as enter into new contracts with new customers. We expect that the majority of contracts executed under the prior business model will be transitioned to our Business Model by the end of fiscal year 2006.

While the impact of changing from an up-front revenue recognition model to our Business Model initially postponed recognition of amounts that previously would have been recognized earlier under the up-front model, we generally did not change our cost structure. Therefore, we have primarily experienced losses since we introduced our Business Model. We expect that our revenues will continue to increase at a greater rate than our expenses.

Under both the prior business model and current Business Model, customers often pay for the right to use our software products over the term of the associated software license agreement. We refer to these payments as installment payments. While the transition to the current Business Model has changed the timing of revenue recognition, in most cases it has not changed the timing of how we bill and collect cash from customers. As a result, our cash generated from operations has generally not been affected by the transition to the current Business Model over the past several years. We do not expect any significant changes in our cash generated from operations as a result of this transition.

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 particularly during the Transition Period it is 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:

														Percent
For the Year Ended March 31,		2005				2004				Change				Change
(dollars in millions)		(restated)				(restated)
Subscription revenue		$	2,544			$	2,101			$	443				21%
Total revenue		$	3,560			$	3,320			$	240				7%
Subscription revenue as a percent of total revenue			72	%			63	%			9	%			14%
New deferred subscription revenue (direct)		$	3,493			$	2,298			$	1,195				52%
New deferred subscription revenue (indirect)		$	144				N/A				N/A				N/A
Weighted average license agreement duration in years (direct)			3.10				2.78				0.32				12%
Cash from continuing operating activities		$	1,527			$	1,279			$	248				19%
Loss from continuing operations		$	(2	)		$	(81	)		$	79				(98%)

														Percent
As of March 31,		2005				2004				Change				Change
(dollars in millions)
Total cash, cash equivalents, and marketable securities		$	3,125			$	1,902			$	1,223				64	%
Total debt		$	2,636			$	2,300			$	336				15	%

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 because of our subscription-based Business Model.

Subscription Revenue — Subscription revenue is the ratable revenue recognized in a period from amounts previously recorded as deferred subscription revenue. If the weighted average life of our license agreements remains constant, an increase in deferred subscription revenue will result in an increase in subscription revenue. Since we expect an increase in deferred subscription revenue in fiscal year 2006, we also expect subscription revenue to continue to increase for that period.

New Deferred Subscription Revenue — New deferred subscription revenue represents the total undiscounted incremental value (contract value) of subscription software licenses sold in a period. In the second quarter of fiscal year 2005, we began offering more flexible license terms to our channel partners, necessitating ratable recognition of revenue for the majority of our indirect business. Prior to July 1, 2004, such channel license revenue had been recorded on a sell-through basis (when a distributor, reseller, or VAR sells the software product to their customers) and reported on the “Software fees and other” line item on the Consolidated Statements of Operations. New deferred subscription revenue excludes the value associated with maintenance-only license agreements, license-only indirect sales, and professional services arrangements and does not include that portion of bundled maintenance or unamortized discounts that get converted into subscription revenue upon renewal of prior business model contracts.

New deferred subscription revenue is what we expect to collect over time from our customers based upon contractual license agreements. This amount is recognized as subscription revenue ratably over the applicable software license term. The license agreements that contribute to new deferred subscription revenue represent binding payment commitments by customers over periods generally up to three years. New deferred subscription revenue is sometimes referred to as “bookings” and is used by management as a gauge of the level of business activity in a particular quarter. Our bookings typically increase in each consecutive fiscal quarter, with the fourth quarter being the strongest. However, since the level of bookings can be impacted by the volume and dollar amount of contracts coming up for renewal, an increase in bookings does not necessarily equate to an increase in billings or cash receipts.

The contribution to current period revenue from new deferred subscription revenue from any single license agreement is relatively small, since revenue is recognized ratably over the applicable license agreement term. This diminishes the importance of having to complete transactions prior to the end of a particular quarter and allows us to enter into agreements with terms that are more favorable to the Company.

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 annual weighted average duration of 3.10 and 2.78 years for the fiscal years 2005 and 2004, respectively, were derived from the following quarterly new deferred subscription revenue amounts and quarterly weighted average durations in years:

		Fiscal Year 2005								Fiscal Year 2004
						Weighted								Weighted
		New Deferred				Average				New Deferred				Average
		Subscription				Duration				Subscription				Duration
		Revenue				in Years				Revenue				in Years
						(dollars in millions)
Fourth Quarter		$	1,469			3.40				$	836			2.70
Third Quarter			845			2.95					670			2.90
Second Quarter			649			2.90					405			2.70
First Quarter			530			2.75					387			2.85
		$	3,493			3.10				$	2,298			2.78

We believe license agreement durations averaging approximately three years increase the value customers receive from our software licenses by giving customers the flexibility to vary their software mix as their needs change. We also believe this flexibility improves our customer relationships and encourages greater accountability by us to each of our customers. The increase in new deferred subscription revenue and the weighted average duration in years for the fourth quarter of fiscal year 2005 was primarily attributable to the extension of license agreements with two large customers. One agreement has an incremental value of approximately $276 million and has a duration of four years and one agreement has an incremental value at approximately $114 million and has a duration of five years. Excluding these two agreements, the weighted average duration of our license agreements for the fourth quarter of fiscal year 2005 would have been 3.0 years.

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 in our Consolidated Statements of Operations for the fiscal years ended March 31, 2005, 2004, and 2003. These comparisons of financial results are not necessarily indicative of future results.

		Fiscal Year 2005												Fiscal Year 2004
										Percentage												Percentage
		Percentage of								of				Percentage of								of
		Total								Dollar				Total								Dollar
		Revenue								Change				Revenue								Change
										2005/												2004/
		2005				2004				2004				2004				2003				2003
		(restated)				(restated)								(restated)				(restated)
Revenue:
Subscription revenue			72	%			63	%			21	%			63	%			52	%			33	%
Maintenance			12	%			16	%			(15	%)			16	%			21	%			(20	%)
Software fees and other			7	%			10	%			(23	%)			10	%			12	%			(9	%)
Financing fees			2	%			4	%			(43	%)			4	%			7	%			(39	%)
Professional services			7	%			7	%			4	%			7	%			8	%			(6	%)
Total revenue			100	%			100	%			7	%			100	%			100	%			9	%

Total Revenue

Total revenue for the fiscal year ended March 31, 2005 increased $240 million from the fiscal year ended March 31, 2004, to $3.560 billion. This increase was partially a result of the transition to our Business Model, which contributed additional subscription revenue from the prior fiscal year. The increase in total revenue was also partially attributable to the sales of Netegrity products which contributed approximately $32 million of revenue in the second half of fiscal year 2005. In addition, as our international contracts are denominated in local currencies, the strengthening of both the euro and the British pound as well as certain other currencies against the U.S. dollar increased our revenue by approximately $103 million. Total revenue in fiscal year 2005 as compared with fiscal year 2004 was negatively impacted by anticipated decreases in maintenance and financing fees resulting from how these items are accounted for under the Business Model. The recognition of maintenance and financing fees under our Business Model is discussed further under “Subscription revenue” in this MD&A. Our revenues were further negatively impacted by the fact that beginning in the second quarter of fiscal year 2005, revenue from certain contracts in our channel business is recorded as new deferred subscription revenue, which will be ratably recognized into subscription revenue in future periods compared to prior periods when the majority of such revenue was recognized up-front.

Total revenue for the fiscal year ended March 31, 2004 increased $263 million from the fiscal year ended March 31, 2003, to $3.320 billion. This increase in total revenue was primarily due to the transition to our Business Model that began during the third quarter of fiscal year 2001. This transition resulted in an increase in subscription revenue from fiscal year 2003, partially offset by an anticipated decrease in maintenance and financing fees as described below. Professional services and software fees and other revenue collectively decreased by $47 million for fiscal year 2004 as described below. In addition, in fiscal year 2004, there was a positive impact to revenue of $173 million compared to fiscal year 2003 due to fluctuations in foreign currency exchange rates, primarily associated with the strengthening of both the euro and the British pound versus the U.S. dollar. Continued cautious capital spending by our existing and potential customers impacted bookings of new license agreements and revenue in fiscal year 2004.

Subscription Revenue

Subscription revenue represents the portion of revenue ratably recognized on software license agreements entered into under our Business Model. Many of the licenses recorded between October 2000, when our Business Model was implemented, and the end of fiscal year 2005 continued to contribute to subscription revenue on a monthly, ratable basis. As a result, subscription revenue for fiscal year 2005 includes the ratable recognition of bookings recorded in fiscal year 2005, as well as bookings recorded between October 2000 and the end of fiscal year 2004. This is the primary reason for the increase in subscription revenue in fiscal year 2005 versus fiscal year 2004.

Subscription revenue for the fiscal year ended March 31, 2005 increased $443 million from fiscal year 2004, to $2.544 billion. For the years ended March 31, 2005 and 2004, we added new deferred subscription revenue related to our direct business of $3.493 billion and $2.298 billion, respectively. Licenses executed under our Business Model in the years ended March 31, 2005 and 2004 had weighted average durations of 3.1 and 2.8 years, respectively. Annualized deferred subscription revenue represents the total value of all 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. Annualized

deferred subscription revenue related to our direct business increased approximately $301 million, or 36%, for the fiscal year ended March 31, 2005 over the comparable prior fiscal year to $1.127 billion. In addition, we recorded $144 million of new deferred subscription revenue for the fiscal year ended March 31, 2005 related to our indirect business. Subscription revenue was further increased as a result of how we record maintenance revenue under our Business Model as described below.

Approximately 8% of the deferred subscription revenue balance at March 31, 2005 is associated with multi-year contracts signed with the U.S. Federal Government and are generally subject to annual fiscal funding approval.

Under the prior business model, maintenance revenue was separately identified and was reported on the “Maintenance” line item on the Consolidated Statements of Operations. Under the Business Model, maintenance that is bundled with product sales is not separately identified in our customers’ license agreements and therefore is included within the “Subscription revenue” line item on the Consolidated Statements of Operations. Under the prior business model, financing revenue was also separately identified on the Consolidated Statements of Operations. Under the Business Model, financing fees are no longer applicable and the entire contract value is now recognized as subscription revenue over the term of the contract. The quantification of the impact that each of these factors had on the increase in subscription revenue is not determinable.

Subscription revenue for the fiscal year ended March 31, 2004 increased $523 million from fiscal year 2003 to $2.101 billion. Similar to the increase in fiscal year 2005, the increase was primarily due to our transition to our Business Model. Fiscal year 2004 included subscription revenue earned from prior business model software license agreements that renewed during fiscal year 2004. These license agreements did not contribute to revenue in fiscal year 2003. During fiscal years 2004 and 2003, we added new deferred subscription revenue of $2.298 billion and $1.883 billion, respectively.

Maintenance

As expected, maintenance revenue for fiscal years 2005 and 2004 continued to decline, reflecting a decrease of $79 million and $128 million, respectively, from the prior fiscal years to $441 million and $520 million, respectively. The decrease in maintenance revenue for both years reflects the transition to and increased number of license agreements executed under our Business Model, where maintenance revenue, bundled along with license revenue, is reported on the “Subscription revenue” line item on the Consolidated 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. The decrease was partially offset by new maintenance revenue earned from customers who elected optional maintenance at the expiration of their non-term-based license agreements. The quantification of the impact that each of these factors had on the decrease in maintenance revenue is not determinable since maintenance bundled with software licenses under our Business Model is not separately identified. For the fiscal year ended March 31, 2005, maintenance revenue from our indirect business increased $36 million from the fiscal year ended March 31, 2004, to $59 million.

Software Fees and Other

Software fees and other revenue consist of revenue related to distribution and OEM partners that have been recorded on a sell-through basis, revenue associated with joint ventures, royalty revenues, and other revenue. Revenue related to distribution partners and OEMs is sometimes referred to as our “indirect” or “channel” revenue. For the fiscal year ended March 31, 2005, software fees and other revenue decreased $77 million from the fiscal year ended March 31, 2004, to $254 million. In the second quarter of fiscal year 2005, we began offering more flexible license terms to our channel partners, which necessitates the deferral of revenue for the majority of our channel business. The ratable recognition of this deferred revenue is reflected on the “Subscription revenue” line item on the Consolidated Statements of Operations. The Company experienced approximately a 19% increase in the dollar amount of indirect license contract bookings in the fiscal year ended March 31, 2005 versus the comparable prior fiscal year. Indirect license contract bookings represent the total undiscounted incremental value of all licenses sold as part of our channel business. The increase in bookings resulted in $144 million of new deferred subscription revenue related to the channel business that will be deferred and recognized ratably as “Subscription revenue” over the term of the applicable software licenses. In addition, for the fiscal year ended March 31, 2005 and 2004, $54 million and $66 million, respectively, of indirect maintenance revenue was deferred. These amounts are amortized into revenue over the term of the arrangement on the “Maintenance” line item on the Consolidated Statements of Operations. The decrease in software fees and other revenue was partially offset by approximately $21 million of license revenue associated with the sale of Netegrity products and an approximate $10 million benefit associated with the resolution of a prior business model contract dispute in the second quarter of fiscal year 2005.

For the fiscal year ended March 31, 2004, software fees and other decreased $33 million from the fiscal year ended March 31, 2003, to $331 million. The decrease was primarily due to an increase in the amount of channel sales recognized as deferred maintenance of approximately $53 million over the fiscal year ended March 31, 2003. This deferred maintenance will be amortized into revenue over time on the “Maintenance” line item on the Consolidated

Statements of Operations. The decrease in software fees and other was partially offset by an increase in the amount of indirect license revenue recorded in fiscal year 2004 as compared with fiscal year 2003.

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 was referred to as “Unamortized discounts.” The related unamortized discount is amortized over the life of the applicable license agreement and is reported as financing fees. Under our Business Model, additional unamortized discounts are no longer recorded, since we no longer recognize revenue on an up-front basis for sales of products with extended payment terms. As expected, for fiscal years 2005 and 2004, financing fees continued to decline, reflecting a decrease of $57 million and $85 million, respectively, from the prior fiscal years to $77 million and $134 million, respectively. The decrease in financing fee revenue for both years 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.

Professional Services

Professional services revenue for fiscal year 2005 increased $10 million from fiscal year 2004 to $244 million. The increase was primarily attributable to growth in security software engagements, which utilize Access Control and Identity Management solutions as well as growth in IT Service and Asset Management solutions. The increase was also partially attributable to approximately $4 million of services revenue associated with the sale of Netegrity products. This increase in services revenue was limited due to an increase in services sold in combination with related software products of approximately $14 million, which requires that such services revenue be recognized ratably over the life of the related software contract period.

Professional services revenue for fiscal year 2004 decreased $14 million from fiscal year 2003 to $234 million. The decrease was a result of the weak spending environment that affected the IT service sector in general, our continued shift in focus to professional services engagements that are focused solely on our software products, as well as services sold in combination with related software products of approximately $6 million, which requires that such services revenue be recognized ratably over the life of the related software contract period. Our professional services headcount was reduced by approximately 250 as a result of the creation of our CA Technology Services group in April 2003. Quantification of the impact that these factors had on the decrease in professional services revenue is not determinable.

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 fiscal years ended March 31, 2005, 2004 and 2003. These comparisons of financial results are not necessarily indicative of future results.

		Fiscal Year 2005												Fiscal Year 2004
		(dollars in millions)
		(restated)				(restated)								(restated)				(restated)
		2005				2004				Change				2004				2003				Change
United States		$	1,838			$	1,755				5	%		$	1,755			$	1,748				—
International			1,722				1,565				10	%			1,565				1,309				20	%
		$	3,560			$	3,320				7	%		$	3,320			$	3,057				9	%

International revenue increased $157 million, or 10%, in fiscal year 2005 as compared with fiscal year 2004. The increase in international revenue was primarily attributable to a positive impact to revenue from fluctuations in foreign currency exchange rates of approximately $103 million for fiscal year 2005 over fiscal year 2004. The increase in foreign currency exchange is primarily associated with the strengthening of both the euro and the British pound versus the U.S. dollar. The increase was also a result of an increase in contract bookings in prior periods associated with our European business. The increase in revenue from the United States was primarily attributable to an increase in contract booking in prior periods as well as an increase in professional services revenue. The increase was partially offset by decreases in revenue from maintenance, finance fees, and software fees and other revenue.

International revenue increased $256 million, or 20%, in fiscal year 2004 as compared with fiscal year 2003. The increase in international revenue was primarily attributable to a positive impact to revenue from fluctuations in foreign currency exchange rates of approximately $173 million for fiscal year 2004 over fiscal year 2003, which was primarily caused by the strengthening of both the euro and the British pound versus the U.S. dollar. The increase was also a result of an increase in contract bookings in prior periods associated with our European business. Despite an increase in fiscal year 2004 of combined subscription, maintenance, and financing revenue in the United States of approximately $59 million, compared with fiscal year 2003, total revenue in the United States declined slightly primarily due to a decrease in professional services revenue and software fees and other.

Price changes and inflation did not have a material impact in fiscal years 2005, 2004, or 2003.

Expenses

The following table presents expenses as a percentage of total revenue and the percentage of period-over-period dollar change for the expense line items in our Consolidated Statements of Operations for the fiscal years ended March 31, 2005, 2004, and 2003. These comparisons of financial results are not necessarily indicative of future results.

		Fiscal Year 2005												Fiscal Year 2004
										Percentage												Percentage
		Percentage of								of				Percentage of								of
		Total								Dollar				Total								Dollar
		Revenue								Change				Revenue								Change
										2005/												2004/
		2005				2004				2004				2004				2003				2003
		(restated)				(restated)								(restated)				(restated)
Operating expenses:
Amortization of capitalized software costs			13	%			14	%			(3	%)			14	%			15	%			—
Cost of professional services			6	%			7	%			2	%			7	%			8	%			(7	%)
Selling, general, and administrative			38	%			39	%			4	%			39	%			45	%			(6	%)
Product development and enhancements			20	%			21	%			2	%			21	%			23	%			1	%
Commission and royalties			10	%			8	%			27	%			8	%			8	%			10	%
Depreciation and amortization of other intangible assets			4	%			4	%			(3	%)			4	%			5	%			(4	%)
Goodwill impairment			—				—				—				—				3	%			(100	%)
Other gains/expenses, net			—				2	%			N/A				2	%			3	%			(45	%)
Restructuring charge			1	%			—				N/A				—				—				—
Shareholder litigation and government investigation settlements			7	%			5	%			39	%			5	%			—				N/A
Total operating expenses			97	%			99	%			5	%			99	%			109	%			(1	%)
Interest expense, net			3	%			4	%			(9	%)			4	%			6	%			(31	%)

Amortization of Capitalized Software Costs

Amortization of capitalized software costs consists of the amortization of both purchased software and capitalized internally generated software development costs. Internally generated capitalized software 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 2005 and 2004 decreased $16 million and $2 million, respectively, from the prior fiscal years to $447 million and $463 million, respectively. The total decrease for both years was due primarily to certain purchased software assets becoming fully amortized. We recorded amortization of purchased software products for the fiscal years ended March 31, 2005, 2004, and 2003 of $406 million, $423 million, and $430 million, respectively. We recorded amortization of capitalized internally generated software development costs for the fiscal years ended March 31, 2005, 2004, and 2003 of $41 million, $40 million, and $35 million, respectively.

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 fiscal year 2005 increased $5 million from fiscal year 2004 to $229 million. This increase was partially offset by approximately $12 million of professional services costs related to services sold in combination with related software products, which requires that the total estimated cost of such services be deferred and recognized ratably over the life of the related software contract period. Cost of professional services for the fiscal year ended March 31, 2005 and 2004 included approximately $4 million and $5 million, respectively, of stock-based compensation expense associated with the Company’s adoption of the provisions of SFAS No. 123(R) under the modified retrospective application method. Refer to Note 9, “Stock Plans” for additional information.

The improvement in professional services gross margin is attributable to a more effective utilization of professional staff associated with slightly reduced headcount and increased professional services revenue.

Cost of professional services for fiscal year 2004 decreased $18 million from fiscal year 2003 to $224 million. This decrease was due primarily to the reduction in professional services engagements, a reduction in personnel costs resulting from efficiencies associated with the combination of our pre-sales and post-sales professional services organizations in fiscal year 2004, and a reduction of $3 million due to an increase in services sold in combination with related software products, which requires that the total estimated cost of such services be deferred and recognized ratably

over the life of the related software contract period. Cost of professional services for the fiscal year ended March 31, 2004 and 2003 included approximately $5 million of stock-based compensation expense.

Selling, General, and Administrative (SG&A)

SG&A expenses for fiscal year 2005 increased $46 million from fiscal year 2004 to $1.346 billion. The increase was primarily attributable to an increase in personnel related costs. SG&A for the fiscal year ended March 31, 2005 and 2004 included approximately $53 million and $59 million, respectively, of stock-based compensation expense. In addition, in fiscal year 2005 we recorded a credit of approximately $25 million for the provision of doubtful accounts, which is lower than the credit of $53 million we recorded in fiscal year 2004. The credit in the provision for doubtful accounts is a result of the reduction in the prior business model accounts receivable. Under the Business Model, amounts due from customers are offset by related deferred subscription revenue, resulting in little or no carrying value on the balance sheet. In addition, under the Business Model, customer payments are often received in advance of revenue recognition, which results in a reduced net credit exposure. Each of these items reduces the need to provide for estimated bad debts. SG&A for the years ended March 31, 2005 and 2004 also included approximately $24 million and $30 million, respectively, of legal expenses related to the government investigation and, for the 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 realized a gain of approximately $8 million on the sale of an investment that was included in SG&A.

SG&A expenses for fiscal year 2004 decreased $84 million from fiscal year 2003 to $1.300 billion. The decrease was primarily attributable to a reduction in the provision of doubtful accounts of $121 million. As noted above, this decrease is a result of how we account for contractual commitments under the Business Model. The decrease in SG&A was partially offset by a $15 million expense for severance and other termination benefits in connection with the reorganization of the U.S. channel sales organization and the creation of CA Technology Services in April 2003, as well as other increases in personnel and related costs. In addition, we incurred legal and other professional service expenses associated with the investigations conducted by the Audit Committee, the SEC, and the U.S. Attorney’s Office of approximately $30 million, which represents an increase of approximately $24 million from fiscal year 2003. SG&A for the fiscal years ended March 31, 2004 and 2003 each included approximately $59 million and $78 million, respectively, of stock-based compensation expense.

Product Development and Enhancements

For fiscal year 2005, product development and enhancement expenditures, also referred to as research and development, increased $11 million compared to fiscal year 2004 to $704 million. Product development and enhancement expenditures were approximately 20% and 21% of total revenue for fiscal years ended March 31, 2005 and 2004, respectively. Product development and enhancements for the years ended March 31, 2005 and 2004 included approximately $31 million and $33 million, respectively, of stock-based compensation expense. During fiscal year 2005, we continued to focus on and invest in product development and enhancements for emerging technologies such as wireless, Web services and on-demand computing, as well as a broadening of our enterprise product offerings.

Product development and enhancement expenditures for fiscal year 2004 increased $5 million from fiscal year 2003 to $693 million. The increase was primarily a result of an increase in general operating expenditures, as we continue to invest in product development and enhancements such as emerging technologies and a general broadening of our enterprise product offerings. Product development and enhancement expenditures were approximately 21% and 23% of total revenue in each of the fiscal years ended March 31, 2004 and 2003, respectively. Product development and enhancements for the years ended March 31, 2004 and 2003 included approximately $33 million and $44 million, respectively, of stock-based compensation expense.

Commissions and Royalties

Commissions and royalties for fiscal year 2005 increased $72 million from fiscal year 2004 to $339 million. The increase was primarily due to the increase in new deferred subscription revenue recorded in fiscal year 2005 on which sales commissions are based, as compared with fiscal year 2004. Commissions are expensed in the period that they are earned by employees, which is typically in the period we record the related deferred subscription revenue.

Commissions and royalties for fiscal year 2004 increased $24 million from fiscal year 2003 to $267 million. The increase was primarily due to the increase in new deferred subscription revenue recorded in fiscal year 2004 as compared with fiscal year 2003. The increase was partially offset by a $14 million reduction in royalties to third parties, as we continue to focus on internal product development and enhancements.

Depreciation and Amortization of Other Intangible Assets

Depreciation and amortization of other intangible assets for fiscal year 2005 decreased $4 million from fiscal year 2004 to $130 million. The decrease in depreciation and amortization of other intangible assets was a result of certain intangible assets from past acquisitions becoming fully amortized.

Depreciation and amortization of other intangible assets for fiscal year 2004 decreased $6 million from fiscal year 2003 to $134 million. The decrease in depreciation and amortization of goodwill and other intangible assets was a result of certain intangible assets from past acquisitions becoming fully amortized.

Goodwill Impairment

During the fourth quarters of fiscal years 2005 and 2004, we performed our annual goodwill impairment review under SFAS No. 142 and determined that no impairment charge was necessary. Refer to “Critical Accounting Policies and Estimates” for additional information about our annual review process.

As a result of our annual goodwill impairment review during the fourth quarter of fiscal year 2003, we recorded a non-cash goodwill impairment charge of $80 million related to our professional services organization. The impairment was attributable to our lower-than-expected results and our projected performance at the date of the review.

Other Gains/Expenses, Net

Gains and losses attributable to sales of fixed assets, certain foreign currency exchange rate fluctuations, and certain other infrequent events have been included in the “Other gains/expenses, net” line item on the Consolidated Statements of Operations. The components of “Other gains/expenses, net” are as follows:

		Year Ended March 31,
		2005				2004				2003
		(in millions)
(Gains) losses attributable to sales of fixed assets		$	—			$	(19	)		$	3
Expenses attributable to fluctuations in foreign currency exchange rates			8				41				66
(Gains) expenses attributable to legal settlements			(13	)			26				15
Impairment of capitalized software			—				4				—
Payment to Ranger Governance Ltd			—				—				10
Total		$	(5	)		$	52			$	94

Restructuring Charge

In the second quarter of fiscal year 2005, we announced a restructuring plan that was designed to more closely align our investments with strategic growth opportunities. The restructuring plan included a workforce reduction of approximately five percent or 750 positions worldwide, slightly lower than our original estimate of 800 positions. The plan is expected to yield about $70 million in savings on an annualized basis. In connection with the restructuring plan, we recorded a charge of approximately $28 million in the second quarter of fiscal year 2005 for severance and other termination benefits, and we do not expect to incur any additional charges related to this restructuring plan. As of March 31, 2005, we have made substantially all payments under 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 in order to make the statements, in light of the circumstances under which they were made, not misleading in connection with the Company’s financial performance. Refer to Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements for additional information concerning the shareholder litigation.

In August 2003, we announced the settlement of all outstanding litigation related to these actions. Under the settlement, we agreed to issue a total of up to 5.7 million shares of common stock to the shareholders represented in the three class action lawsuits, including payment of attorneys’ fees. In January 2004, approximately 1.6 million settlement shares were issued along with approximately $3.3 million to the plaintiffs’ attorneys for attorney fees and related expenses. In March 2004, approximately 200,000 settlement shares were issued to participants and beneficiaries of the CASH Plan. On October 8, 2004, the Federal Court signed an order approving the distribution of the remaining 3.8 million settlement shares, less administrative expenses. All the remaining shareholder litigation settlement shares were issued in December 2004. Of the 3.8 million settlement shares, approximately 51,000 were used for the payment of administrative expenses in connection with the settlement, approximately 76,000 were liquidated for cash distributions to class members entitled to receive a cash distribution, and the remaining settlement shares were distributed to class members entitled to receive a distribution of shares.

The final shareholder litigation settlement value of approximately $174 million was calculated using the New York Stock Exchange (NYSE) closing price of our common stock on December 14, 2004, the date the settlement shares were issued, and also includes certain administrative costs associated with the settlement. An initial estimate for the value of

the shareholder litigation settlement was established on August 22, 2003. The chart below summarizes the NYSE closing price of our common stock and the estimated value of the shareholder litigation settlement since the initial estimate was established.

						Shareholder
		NYSE Closing				Litigation Settlement
		Stock Price				Estimated Value
						(in millions)
December 14, 2004		$31.03				$174
September 30, 2004		26.30				156
June 30, 2004		28.06				163
March 31, 2004		26.86				158
December 31, 2003		27.34				158
September 30, 2003		26.11				150
August 22, 2003		25.00				144

The shareholder litigation settlement expense for fiscal year 2005 of $16 million was a result of the increase in our stock price since March 31, 2004. The aggregate shareholder litigation settlement expense recorded was $174 million, including $158 million in fiscal year 2004. Refer to Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements for additional information.

In September 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. Under the DPA, we agreed, among other things, to establish a restitution fund of $225 million to compensate present and former Company shareholders for losses caused by the misconduct of certain former Company executives. In connection with the DPA, we recorded a $10 million charge in the fourth quarter of fiscal year 2004 and $218 million in the second quarter of fiscal year 2005 associated with the establishment of the shareholder restitution fund and related administrative fees. The first payment of $75 million was made during the third quarter of fiscal year 2005. The second payment of $75 million will be made in the second quarter of fiscal year 2006 and the final payment of $75 million will be made in the fourth quarter of fiscal year 2006. Refer to Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements for additional information.

Interest Expense, Net

Interest expense, net for fiscal year 2005 decreased $11 million as compared to fiscal year 2004 to $106 million. The decrease was primarily due to an increase in our average cash balance during the fiscal year ended March 31, 2005 as compared to the fiscal year ended March 31, 2004, which resulted in an increase in interest income of approximately $28 million. The decrease in interest expense was partially reduced by additional interest expense of $8 million incurred as a result of the issuance of the 2005 Senior Notes and an increase in the weighted average interest rate, which resulted in a $9 million increase in interest expense. Refer to the “Liquidity and Capital Resources” section of this MD&A and Note 6, “Debt” of the Consolidated Financial Statements and for additional information.

Interest expense, net for fiscal year 2004 decreased $52 million as compared to fiscal year 2003 to $117 million. The decrease was primarily due to a reduction in average debt outstanding, which resulted in a $46 million decrease in interest expense; a reduction in the weighted average interest rate, which resulted in a $9 million decrease in interest expense; and accelerated amortization of financing fees in the third quarter of fiscal year 2003. This decrease was partially offset by a $3 million gain related to the early retirement of a portion of outstanding debt in fiscal year 2003.

Operating Margins

For fiscal year 2005, our pretax income from continuing operations was $2 million as compared to a pretax loss from continuing operations of $98 million in fiscal year 2004. The improvement in operating margins was primarily related to an increase in revenue and an improvement in cost controls, partially offset by the shareholder litigation and government investigation settlement expense of $234 million recorded in fiscal year 2005.

Income Taxes

Our effective tax rate from continuing operations was approximately 200%, 17%, and 24% for fiscal years 2005, 2004, and 2003, respectively. Refer to Note 8, “Income Taxes” of the Consolidated Financial Statements for additional information.

The income tax expense for the fiscal year ended March 31, 2005 includes a charge of $55 million or $0.09 per share reflecting the estimated cost of repatriating approximately $500 million under the American Jobs Creation Act of 2004. We received a benefit of approximately $35 million or $0.06 per share in the quarter ending June 30, 2005 reflecting the Department of Treasury and Internal Revenue Service (IRS) Notice 2005-38 issued on May 10, 2005

which will substantially reduce the taxes associated with the repatriation. Income tax expense was partially offset by a $26 million or $0.04 per share tax benefit attributable to a refund claim originally made for additional tax benefits associated with prior fiscal years. We received a letter from the IRS approving the claim for this refund in September 2004.

Selected Quarterly Information

The following table has been adjusted to reflect the Company’s adoption of SFAS No. 123(R) (refer to Note 9, “Stock Plans” of the Consolidated Financial Statements for additional information). In addition, as disclosed under the “Explanatory Note” immediately preceding Part I, Item I of the Company’s Form 10-K/A, the selected quarterly financial data has been restated. Also refer to Note 12, “Restatements” of the Consolidated Financial Statements for additional information, including a reconciliation of amounts previously reported with the corrected amounts.

2005 Quarterly Results		June 30				Sept. 30(1)				Dec. 31(2)				Mar. 31(3)				Total
		(restated)				(restated)				(restated)				(restated)				(restated)
		(in millions, except per share amounts)
Revenue			$861				$865				$917				$917				$3,560
Percent of annual revenue			24	%			24	%			26	%			26	%			100	%
Income (loss) from continuing operations			$47				$(96	)			$31				$16				$(2	)
Basic earnings (loss) from continuing operations per share			$0.08				$(0.17	)			$0.05				$0.03				$(0.01	)
Diluted earnings (loss) from continuing operations per share			$0.08				$(0.17	)			$0.05				$0.03				$(0.01	)

2004 Quarterly Results		June 30				Sept. 30(4)				Dec. 31(5)				Mar. 31(6)				Total
		(restated)				(restated)				(restated)				(restated)				(restated)
		(in millions, except per share amounts)
Revenue			$792				$812				$848				$868				$3,320
Percent of annual revenue			24	%			24	%			26	%			26	%			100	%
(Loss) income from continuing operations			$(12	)			$(105	)			$8				$28				$(81	)
Basic earnings (loss) from continuing operations per share			$(0.02	)			$(0.18	)			$0.02				$0.05				$(0.14	)
Diluted earnings (loss) from continuing operations per share			$(0.02	)			$(0.18	)			$0.02				$0.05				$(0.14	)

Liquidity and Capital Resources

Cash, cash equivalents, and marketable securities totaled $3.125 billion on March 31, 2005, an increase of $1.223 billion from the March 31, 2004 balance of $1.902 billion. Cash generated from continuing operating activities for fiscal year 2005 was $1.527 billion, an increase of $248 million from the prior year’s cash from continuing operations of $1.279 billion.

Cash generated from continuing operating activities was positively impacted by a decrease in taxes paid of approximately $411 million. The decrease in taxes paid during fiscal year 2005 was primarily attributable to a new IRS Revenue Procedure, which grants taxpayers a twelve month deferral for cash received from customers to the extent such receipts were not recognized in revenue for financial statement purposes. In addition, cash generated from continuing

operating activities was positively impacted by a reduction in cash paid for interest of approximately $17 million. Cash generated from continuing operations activities for the fiscal year ended March 31, 2005 was negatively impacted by the $75 million payment in connection with agreements reached with the USAO and the SEC. Refer to “Other matters” below for additional information.

During fiscal year 2005, we issued $1 billion of Senior Notes and redeemed approximately $660 million in outstanding debt compared to a net debt reduction of approximately $826 million in fiscal year 2004. During fiscal year 2004, we used existing cash balances and cash from operations to repay approximately $826 million in outstanding debt compared to a net debt reduction of approximately $730 million in fiscal year 2003.

As of March 31, 2005 and 2004, our debt arrangements consisted of the following:

2005

2004

Maximum

Outstanding

Maximum

Outstanding

Debt Arrangements

Available

Balance

Available

Balance

(in millions)

2002 Revolving Credit Facility (terminated December 2004)

$

––

$

––

$

470

$

––

2004 Revolving Credit Facility (expires December 2008)

1,000

––

––

––

Commercial paper

400

––

400

––

6.375% Senior Notes due April 2005

––

825

––

825

5.000% Convertible Senior Notes (called March 2005)

––

––

––

660

6.500% Senior Notes due April 2008

––

350

––

350

4.750% Senior Notes due November 2009

––

500

––

––

1.625% Convertible Senior Notes due December 2009

––

460

––

460

5.625% Senior Notes due November 2014

––

500

––

––

International line of credit

5

––

5

––

Other

––

1

––

5

Total

$

2,636

$

2,300

At March 31, 2005, we had $2.636 billion in debt and $3.125 billion in cash and marketable securities. Our net liquidity position was, therefore, approximately $489 million.

We expect to use existing cash balances and future cash generated from operations to pay our debt balances as they mature and, based on historical precedent, we expect to continue to generate annual cash flow from operations in excess of $1 billion.

In December 2004, we entered into a new unsecured, revolving credit facility (the 2004 Revolving Credit Facility). The maximum amount available at any time under the 2004 Revolving Credit Facility is $1 billion. The 2004 Revolving Credit Facility expires December 2008 and no amount was drawn as of March 31, 2005. Refer to Note 6, “Debt” of the Consolidated Financial Statements for additional information.

The new credit facility replaces the 2002 Revolving Credit Facility that was due to expire in January 2005. The 2002 Revolving Credit Facility was terminated effective December 2, 2004 and was undrawn as of that date.

In November 2004, we issued an aggregate of $1 billion of unsecured senior notes (2005 Senior Notes) in a transaction pursuant to Rule 144A. We issued $500 million of 4.75%, 5-year notes due November 2009 and $500 million of 5.625%, 10-year notes due November 2014. Refer to Note 6, “Debt” of the Consolidated Financial Statements for additional information.

In March 2005, we redeemed our outstanding $660 million aggregate principal amount 5% Convertible Senior Notes (5% Notes) that were due March 15, 2007. The 5% Notes were issued in fiscal year 2002 and were eligible to be called for redemption as of March 2005. Substantially all of the 5% Note holders converted their holdings into common stock of the Company (aggregate 27 million shares). Refer to Note 6, “Debt” of the Consolidated Financial Statements for additional information.

In March 2005, we exercised our call spread repurchase option that was entered into concurrently with the issuance of the 5% Convertible Senior Notes in 2002, to buy 27 million shares of our common stock at the exercise price of $24.83 (aggregate price $673 million).

In April 2005, we repaid, as scheduled, the $825 million 6.375% Senior Notes with our available cash balances. In the remainder of fiscal year 2006, we expect to use cash balances for acquisitions of strategic technology, for continued investment in product development and enhancements, to pay dividends, and to repurchase our common stock, as approved by the Board of Directors.

We repurchased approximately $161 million of common stock in connection with our publicly announced corporate buyback program in fiscal year 2005 compared with $56 million in fiscal year 2004; we received approximately $73 million in proceeds resulting from the exercise of Company stock options in fiscal year 2005 compared with $57 million in fiscal year 2004; and we paid dividends of $47 million in each of the fiscal years 2005 and 2004. As announced in April 2005, beginning in fiscal year 2006 we intend to increase our annual cash dividend to $0.16 per share, which is expected to be paid out in quarterly installments of $0.04 per share as and when declared by the Board of Directors.

Other Matters

In June 2005, we entered into a definitive agreement to acquire Niku Corporation (Niku), a leading provider of information technology management and governance solutions, in an all cash transaction valued at approximately $350 million, or approximately $280 million net of cash acquired. Niku’s primary software product, Clarity IT-MG, is an integrated suite that spans the full IT life cycle, from investment selection, to execution and delivery of initiatives, to results assessment. In January 2005, we had announced we had signed a partnership to resell, service, and support Niku’s Clarity software. We anticipate integrating Clarity IT-MG with our Business Service Optimization (BSO) unit. The acquisition was completed on July 29, 2005.

In June 2005, we acquired the common stock of Concord, a leading provider of network service management software solutions, in an all cash transaction valued at approximately $337 million. We also assumed approximately $20 million in net debt from Concord for a total purchase price of approximately $357 million, excluding acquisition costs.

In March 2005, we announced the settlement of a lawsuit we filed alleging that Quest Software, Inc. (Quest) used our proprietary information and infringed our intellectual property rights in the development of database administration products. The settlement agreement also resolves Quest’s counterclaims challenging the validity of certain of our copyrights. As part of the settlement, Quest paid us $16 million and has agreed to pay royalties for future product sales under a non-exclusive licensing agreement. Under the agreement, neither we nor Quest made any admission regarding fault or liability. As a result of the settlement, we reported a $16 million gain that is included in “Other gains/expenses, net” in the Consolidated Statements of Operations.

In March 2005, we sold our remaining interest in Viewpoint Corporation (Viewpoint), in a private sale for $12 million, net of fees. As a result of the sale, we reported an $8 million gain that is included in “SG&A” in the Consolidated Statements of Operations. At the time of the sale, we controlled more than 5% of Viewpoint’s outstanding common stock.

In November 2004, Fitch Ratings initiated rating of our long-term and short-term debt. This debt is currently rated in the investment grade rating band.

Our senior unsecured notes are rated Ba1 and BBB- by Moody’s Investors Service and Fitch Ratings, respectively, and are on stable outlook. Our senior unsecured notes are rated BBB- by S&P and the outlook is negative. Our CP program is rated A-3, Not-Prime, and F-3 by Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings, respectively.

In September 2004, we reached agreements with the USAO and the SEC in connection with 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. Under the related DPA, we agreed, among other things, to establish a restitution fund of $225 million to compensate present and former Company shareholders for losses caused by the misconduct of certain former Company executives. In connection with the DPA, we recorded a $10 million charge in the fourth quarter of fiscal year 2004 and $218 million in the second quarter of fiscal year 2005 associated with the establishment of the shareholder restitution fund and related administrative fees. The first payment of $75 million was made during the third quarter of fiscal year 2005. The second payment of $75 million will be made in the second quarter of fiscal year 2006 and the final payment of $75 million will be made in the fourth quarter of fiscal year 2006. Refer to Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements for additional information.

In September 2004, we announced a restructuring plan that was designed to more closely align our investments with strategic growth opportunities. The restructuring plan included a workforce reduction of approximately five percent or 750 positions worldwide, slightly lower than our original estimate of 800 positions. The plan is expected to yield about $70 million in savings on an annualized basis. In connection with the restructuring plan, we recorded a charge of approximately $28 million in the second quarter of fiscal year 2005 for severance and other termination benefits, and we do not expect to incur any additional charges related to this restructuring plan. As of March 31, 2005, we have made substantially all payments under the plan.

In fiscal year 2005, we made several strategic acquisitions to complement certain of our product lines. These included Netegrity, a provider of business security software and Pest Patrol, a privately held provider of anti-spyware solutions. The aggregate purchase price for these acquisitions was approximately $505 million, of which $469 million was paid in

cash. Refer to Note 2, “Acquisitions, Divestitures, and Restructuring,” of the Consolidated Financial Statements for additional information relating to our acquisition of Pest Patrol and Netegrity.

In fiscal year 2004, we acquired certain assets from eSecurity Online, Silent Runner, and Miramar Systems. The aggregate purchase price for these assets totaled $53 million, of which $52 million was paid in cash.

In March 2004, we received approximately $90 million in cash from the sale of our approximate 90% interest in ACCPAC. In April 2004, we received the remaining proceeds of approximately $14 million. See Item 1, “Business — Business Developments” in the 2005 Form 10-K/A for additional information.

In January 2004, we established Premier Management Insurance, Inc. (Premier), an insurance subsidiary, to give us access to re-insurance markets, to enhance insurance coverage, and to take advantage of potential future savings in insurance premiums. Premier requires a minimum cash balance of $50 million. As such, $50 million of our cash is deemed restricted and was recorded in the “Other noncurrent assets” line item on the Consolidated Balance Sheets.

Additionally, we reported restricted cash balances of $17 million and $6 million at March 31, 2005 and 2004, respectively, which were included in the “Other noncurrent assets” line item.

In October 2003, we established a software development center in Hyderabad, India (the India Technology Center) for the purpose of enhancing our development and support capabilities and to take advantage of certain incentives made available by the Government of Andhra Pradesh (GoAP) in accordance with local law. We currently employ approximately 770 professionals and have approximately 135,000 square feet of commercially leased office space in Hyderabad. In February 2004, we entered into a definitive agreement with the GoAP to acquire more than 30 acres in an undeveloped Software Technology Park zone outside Hyderabad, where we intend to construct a development facility. We have delivered a $2 million bank guarantee in favor of the GoAP to secure our title to the 30-acre site. To date, we have invested approximately $30 million in connection with operations of the India Technology Center, related capital equipment, and early-stage planning for the development of our facility in Hyderabad.

In April 2003, we received $18 million in proceeds related to the sale of certain fixed assets. Since the fixed assets were fully depreciated, the entire amount was recorded as a gain in the quarter ended June 30, 2003.

We pre-fund contributions to our broad-based, employee defined-contribution retirement plan annually each March. Pre-funded contributions totaled $45 million in each of the years ended March 31, 2005 and 2004.

Peak borrowings under all debt facilities during the fiscal year 2005 totaled approximately $3.3 billion, with a weighted average interest rate of 5.3%.

Capital resource requirements as of March 31, 2005 consisted of lease obligations for office space, equipment, mortgage or loan obligations, and amounts due as a result of product and company acquisitions. Refer to “Contractual Obligations and Commitments” for additional information.

It is expected that existing cash, cash equivalents, marketable securities, the availability of borrowings under existing and renewable credit lines and in the capital markets, and cash expected to be provided from operations will be sufficient to meet ongoing cash requirements. We expect our long-standing history of providing extended payment terms to our customers to continue.

Off-Balance Sheet Arrangements

We have commitments to invest approximately $3 million in connection with joint venture agreements. In prior fiscal years, we sold individual accounts receivable under the prior business model to an external third-party subject to certain recourse provisions. The outstanding principal balance subject to recourse of these receivables approximated $183 million and $207 million as of March 31, 2005 and 2004, respectively. As of March 31, 2005, we have not incurred any losses related to these receivables. Other than the commitments and recourse provisions described above, we do not have any other off-balance sheet arrangements with unconsolidated entities or related parties and, accordingly, off-balance sheet risks to our liquidity and capital resources from unconsolidated entities are limited.

Contractual Obligations and Commitments

We have commitments under certain contractual arrangements to make future payments for goods and services. These contractual arrangements secure the rights to various assets and services to be used in the future in the normal course of business. For example, we are contractually committed to make certain minimum lease payments for the use of property under operating lease agreements. In accordance with current accounting rules, the future rights and related obligations pertaining to such contractual arrangements are not reported as assets or liabilities on our Consolidated Balance Sheets. We expect to fund these contractual arrangements with cash generated from operations in the normal course of business.

The following table summarizes our contractual arrangements at March 31, 2005 and the timing and effect that such commitments are expected to have on our liquidity and cash flow in future periods. In addition, the table summarizes the timing of payments on our debt obligations as reported on our Consolidated Balance Sheet as of March 31, 2005.

		Payments Due by Period
						Less Than				1-3				3-5				More than
Contractual Obligations		Total				1 Year				Years				Years				5 Years
		(in millions)
Long-term debt obligations (inclusive of interest)		$	3,132			$	912			$	168			$	1,421			$	631
Operating lease obligations(1)			499				128				165				89				117
Purchase obligations			27				10				8				2				7
Other long-term liabilities(2)			97				33				24				17				23
Total		$	3,755			$	1,083			$	365			$	1,529			$	778

As of March 31, 2005, we have no material capital lease obligations, either individually or in the aggregate.

Critical Accounting Policies and Estimates

We review our financial reporting and disclosure practices and accounting policies quarterly to help ensure that they provide accurate and transparent information relative to the current economic and business environment. Note 1, “Significant Accounting Policies” of the Consolidated Financial Statements contains a summary of the significant accounting policies that we use. Many of these accounting policies involve complex situations and require a high degree of judgment, either in the application and interpretation of existing accounting literature or in the development of estimates that impact our financial statements. On an ongoing basis, we evaluate our estimates and judgments based on historical experience as well as other factors that are believed to be reasonable under the circumstances. These estimates may change in the future if underlying assumptions or factors change.

We consider the following significant accounting polices to be critical because of their complexity and the high degree of judgment involved in implementing 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 the requirements of Statement of Position 97-2 “Software Revenue Recognition” (SOP 97-2), issued by the American Institute of Certified Public Accountants, as amended by SOP 98-9 “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” In accordance with SOP 97-2, we begin to recognize revenue from licensing and supporting our software products when all of the following criteria are met: (1) we have evidence of an arrangement with a customer; (2) we deliver the products; (3) license agreement terms are deemed fixed or determinable and free of contingencies or uncertainties that may alter the agreement such that it may not be complete and final; and (4) collection is probable.

Our software licenses generally do not include acceptance provisions. An acceptance provision allows a customer to test the software for a defined period of time before committing to license the software. If a license agreement includes an acceptance provision, we do not record deferred subscription revenue or recognize revenue until the earlier of the receipt of a written customer acceptance or, if not notified by the customer to cancel the license agreement, the expiration of the acceptance period.

Under our Business Model, software license agreements include flexible contractual provisions that, among other things, allow customers to receive unspecified future software products for no additional fee. These agreements combine the right to use the software product with maintenance for the term of the agreement. Under these agreements, we recognize revenue ratably over the term of the license agreement beginning upon completion of the four SOP 97-2 recognition criteria noted above. 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.

Maintenance revenue is derived from two primary sources: (1) combined license and maintenance agreements recorded under the prior business model; and (2) stand-alone maintenance agreements.

Under the prior business model, maintenance and license fees were generally combined into a single license agreement. The maintenance portion was deferred and amortized into revenue over the initial license agreement term. Many of these license agreements have not reached the end of their initial terms and, therefore, continue to amortize. This amortization

is recorded to the “Maintenance” line item on the Consolidated Statements of Operations. The deferred maintenance portion, which was optional to the customer, was determined using its fair value based on annual, fixed maintenance renewal rates stated in the agreement. For license agreements entered into under our current Business Model, maintenance and license fees continue to be combined; however, the maintenance is no longer optional on an annual basis but rather is inclusive for the entire term. We report such combined fees on the “Subscription revenue” line item on the Consolidated Statements of Operations.

We record stand-alone maintenance revenue earned from customers who elect optional maintenance for their non-term-based license agreements. Maintenance revenue from such renewals is recognized over the term of the renewal agreement.

The “Deferred maintenance revenue” line item on our Consolidated Balance Sheets principally represents payments received in advance of maintenance services rendered.

Revenue from professional service arrangements is recognized pursuant to the provisions of SOP 97-2, which in most cases is as the services are performed. Revenues from professional services that are sold as part of a software transaction are deferred and recognized on a ratable basis over the life of the related software transaction. If it is not probable that a project will be completed or the payment will be received, revenue is deferred until the uncertainty is removed.

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

We have an established business practice of offering installment payment options to customers and have a history of successfully collecting substantially all amounts due under such agreements. We assess collectibility based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. If, in our judgment, collection of a fee is not probable, we will not recognize revenue until the uncertainty is removed upon receipt of cash payment.

Our standard licensing agreements include a product warranty provision for all products. Such warranties are accounted for in accordance with SFAS No. 5, “Accounting for Contingencies.” The likelihood that we would be required to make refunds to customers under such provisions is considered remote.

Under the terms of substantially all of our license agreements, we have agreed to indemnify customers for costs and damages arising from claims against such customers based on, among other things, allegations that our software products infringe the intellectual property rights of a third party. In most cases, in the event of an infringement claim, we retain the right to (i) procure for the customer the right to continue using the software product; (ii) replace or modify the software product to eliminate the infringement while providing substantially equivalent functionality; or (iii) if neither (i) nor (ii) can be reasonably achieved, we may terminate the license agreement and refund to the customer a pro-rata portion of the fees paid. Such indemnification provisions are accounted for in accordance with SFAS No. 5. The likelihood that we would be required to make refunds to customers under such provisions is considered remote. In most cases and where legally enforceable, the indemnification is limited to the amount paid by the customer.

Accounts Receivable

The allowance for doubtful accounts is a valuation account used to reserve for the potential impairment of accounts receivable on the balance sheet. In developing the estimate for the allowance for doubtful accounts, we rely on several factors, including:

	•		Historical information, such as general collection history of multi-year software agreements;
	•		Current customer information/events, such as extended delinquency, requests for restructuring, and filing for bankruptcy;
	•		Results of analyzing historical and current data; and
	•		The overall macroeconomic environment.

The allowance is comprised of two components: (a) specifically identified receivables that are reviewed for impairment when, based on current information, we do not expect to collect the full amount due from the customer; and (b) an allowance for losses inherent in the remaining receivable portfolio based on the analysis of the specifically reviewed receivables.

We expect the allowance for doubtful accounts to continue to decline as net installment accounts receivable under the prior business model are billed and collected. Under our Business Model, amounts due from customers are offset by deferred subscription revenue (unearned revenue) related to these amounts, resulting in little or no carrying value on the balance sheet. Therefore, a smaller allowance for doubtful accounts is required.

Income Taxes

When we prepare our consolidated financial statements, we estimate our income taxes in each of the jurisdictions in which we operate. We record this amount as a provision for taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” This process requires us to estimate our actual current tax liability in each jurisdiction; estimate differences resulting from differing treatment of items for financial statement purposes versus tax return purposes (known as “temporary differences”), which result in deferred tax assets and liabilities; and assess the likelihood that our deferred tax assets and net operating losses will be recovered from future taxable income. If we believe that recovery is not likely, we establish a valuation allowance. We have recognized as a deferred tax asset a portion of the tax benefits connected with losses related to operations. As of March 31, 2005, our gross deferred tax assets, net of a valuation allowance, totaled $379 million. Realization of these deferred tax assets assumes that we will be able to generate sufficient future taxable income so that these assets will be realized. The factors that we consider in assessing the likelihood of realization include the forecast of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets.

Deferred tax assets result from acquisition expenses, such as duplicate facility costs, employee severance and other costs that are not deductible until paid, net operating losses (NOLs) and temporary differences between the taxable cash payments received from customers and the ratable recognition of revenue in accordance with GAAP. The NOLs expire between 2006 and 2016. An additional valuation allowance of $34 million ($28 million from acquired NOLs) was established in fiscal year 2005 for certain NOLs and other deferred tax assets we believe might not be realized. Future results may vary from these estimates. At this time it is not practicable to determine if we will need to increase the valuation allowance or if such future valuations will have a material impact on our financial statements.

Goodwill, Capitalized Software Products, and Other Intangible Assets

SFAS No. 142, “Goodwill and Other Intangible Assets,” requires an impairment-only approach to accounting for goodwill. Absent any prior indicators of impairment, we perform an annual impairment analysis during the fourth quarter of our fiscal year. We performed our annual assessment for fiscal year 2005 and concluded that there were no impairments to record.

The SFAS No. 142 goodwill impairment model is a two-step process. The first step is used to identify potential impairment by comparing the fair value of a reporting unit with its net book value (or carrying amount), including goodwill. If the fair value exceeds the carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

Determining the fair value of a reporting unit under the first step of the goodwill impairment test, and determining the fair value of individual assets and liabilities of a reporting unit (including unrecognized intangible assets) under the second step of the goodwill impairment test, is judgmental in nature and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and the magnitude of any such charge. Estimates of fair value are primarily determined using discounted cash flow and are based on our best estimate of future revenue and operating costs and general market conditions. These estimates are subject to review and approval by senior management. This approach uses significant assumptions, including projected future cash flow, the discount rate reflecting the risk inherent in future cash flow, and a terminal growth rate.

The carrying value of capitalized software products, both purchased software and internally developed software, and other intangible assets, are reviewed on a regular basis for the existence of internal and external facts or circumstances that may suggest impairment. The facts and circumstances considered include an assessment of the net realizable value for capitalized software products and the future recoverability of cost for other intangible assets as of the balance sheet date. It is not possible for us to predict the likelihood of any possible future impairments or, if such an impairment were to occur, the magnitude thereof.

Product Development and Enhancements

We account for product development and enhancements in accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.” SFAS No. 86 specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established and assumptions are used that reflect our best estimates. If other assumptions had been used in the current period to estimate technological feasibility, the reported product development and enhancement expense could have been impacted.

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 value of certain stock-based awards. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility, expected lives, and risk-free interest rates. These assumptions reflect our best estimates, but these items involve uncertainties based on market and other conditions outside of our control. As a result, if other assumptions had been used, stock-based compensation expense could have been materially impacted. Furthermore, if different assumptions are used in future periods, stock-based compensation expense could be materially impacted in future years.

Legal Contingencies

We are currently involved in various legal proceedings and claims. Periodically, we review the status of each significant matter and assess our potential financial exposure. If the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the determination of probability of a loss and the determination as to whether an exposure is reasonably estimable. Due to the uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to our pending litigation and claims, and may revise our estimates. Such revisions could have a material impact on our results of operations and financial condition. Refer to Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements for a description of our material legal proceedings.

New Accounting Pronouncements

In October 2004, the American Jobs Creation Act of 2004 was signed into law. This act introduces a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided that certain criteria are met. In addition, on December 21, 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” FSP FAS 109-2 provides accounting and disclosure guidance for the repatriation provision. The Company expects to repatriate approximately $500 million of cash under the American Jobs Creation Act of 2004 during fiscal year 2006 and has therefore accrued a $55 million or $0.09 per share tax charge in fiscal year 2005. We received a benefit of approximately $35 million or $0.06 per share in the quarter ending June 30, 2005 reflecting the Department of Treasury and IRS Notice 2005-38 issued on May 10, 2005 which will substantially reduce the taxes associated with the repatriation.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,” an amendment of APB Opinion No. 29. SFAS No. 153 addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. SFAS No. 153 is effective for nonmonetary asset exchanges beginning in the Company’s second quarter of fiscal year 2006. The Company does not believe that adopting of SFAS No. 153 will have any impact on the Company’s consolidated financial statements.

In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47), “Accounting for Conditional Asset Retirement Obligations.” FIN 47 clarifies the term “conditional asset retirement obligation” as that term is used in FASB No. 143, “Accounting for Asset Retirement Obligations.” It also clarifies when an entity has sufficient information to reasonably estimate the fair value of an asset retirement obligation. The Company is not required to begin applying the provisions of FIN 47 until fiscal year 2006. The Company is in the process of assessing the impact of the pronouncement’s requirements on its financial statements.

Risk Factors

Current and potential stockholders should consider carefully the risk factors described below. Any of these factors, or others, many of which are beyond our control, could negatively affect our revenue, profitability, and cash flow.

Our operating results and revenue are subject to fluctuations caused by many economic factors associated with our industry and the markets for our products which, in turn, may individually and collectively affect our revenue, profitability and cash flow in adverse and unpredictable ways.

Quarterly and annual results of operations are affected by a number of factors, associated with our industry and the markets for our products, including those listed below, which in turn could adversely affect our revenue, profitability, and cash flow in the future.

	•		Timing and impact of threat outbreaks (e.g. worms and viruses);
	•		The rate of adoption of new product technologies and releases of new operating systems;
	•		Demand for products and services;
	•		Length of sales cycle;
	•		Customer implementation of our products;
	•		Magnitude of price and product and/or services competition;
	•		Introduction of new hardware;
	•		General economic conditions in countries in which customers do a substantial amount of business;
	•		Customer budgets for hardware, software and services;
	•		Ability to develop and introduce new or enhanced versions of our products;
	•		Changes in foreign currency exchange rates;
	•		Ability to control costs;
	•		The size of licensing transactions;
	•		Reorganizations of the sales and technical services forces;
	•		The results of litigation, including the government and internal investigations;
	•		Ability to retain and attract qualified personnel; and
	•		Reaction of customers to our Business Model.

Any of the foregoing factors, among others, may cause our operating expenses to be disproportionately high, or cause our revenue and operating results to fluctuate. As a consequence, our business, financial condition, operating results, and cash flow could be adversely affected.

Because we have significant international operations that are affected by economic and market conditions as well as intracompany decisions and capabilities, our sales and revenue may be affected in unpredictable ways.

International revenue has historically represented a significant percentage of our total worldwide revenue. Continued success in selling our products outside the United States will depend on a variety of market and business factors, including:

	•		Reorganizations of the sales and technical services forces;
	•		Fluctuations in foreign exchange currency rates;
	•		Staffing key managerial positions;
	•		The ability to successfully localize software products for a significant number of international markets;
	•		General economic conditions in foreign countries;
	•		Political stability;
	•		Trade restrictions such as tariffs, duties, or other controls affecting foreign operations; and

Any of the foregoing factors, among others, could adversely affect our business, financial condition, operating results, and cash flow.

We have entered into a Deferred Prosecution Agreement (DPA) with the U.S. Attorney’s Office for the Eastern District of New York (USAO) and a Final Consent Judgment with the SEC and if we violate either agreement we may be subject to, among other things, criminal prosecution or civil penalties which could adversely affect our credit ratings, stock price, ability to attract or retain employees and, therefore, our sales, revenue and client base.

Our agreements with the USAO and the SEC resolve their investigations into certain of our past accounting practices, including our revenue recognition policies and procedures, and obstruction of their investigations provided we comply with certain continuing requirements under these agreements. We describe some of these requirements below. (For more information about our agreements with the USAO and the SEC, refer to Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements as well as our Current Report on Form 8-K filed September 22, 2004.)

The DPA

If it is determined that we: deliberately gave false, incomplete or misleading information pursuant to the DPA; have committed any federal crimes subsequent to the DPA; or otherwise knowingly, intentionally, and materially violated any provision of the DPA, we shall be subject to prosecution for any federal criminal violation of which the USAO has knowledge. Any such prosecution may be based on information we have provided to the USAO, the SEC and other governmental agencies in connection with our cooperation under the DPA. This would include information provided because of our entry into the DPA that otherwise may not have been available to the USAO or may otherwise have been subject to privilege. Our continued cooperation with the USAO, the SEC, and our newly appointed Independent Examiner (see below) pursuant to the DPA and Consent Judgment may lead to the discovery of additional information regarding the conduct of the Company, including members of former management in prior periods. We cannot predict the impact, if any, of any such information on our business, financial condition, results of operations, and cash flow.

The Final Consent Judgment with the SEC (the Consent Judgment)

Pursuant to the Consent Judgment, we are enjoined from violating a number of provisions of the federal securities laws. Any further violation of these laws could result in civil remedies, including sanctions, fines and penalties, which may be far more severe than if the violation had occurred without the Consent Judgment being in place. Additionally, if we breach the terms of the Consent Judgment, the SEC may petition the Court to vacate the Consent Judgment and restore the SEC’s original action to the active docket for all purposes. If the action were restored, the SEC could use information in the action that we have provided to the USAO, the SEC, and other governmental agencies in connection with our cooperation under the Consent Judgment. This would include information provided because of our entry into the Consent Judgment that otherwise may not have been available to the SEC or may otherwise have been subject to privilege.

General

Under both the DPA and the Consent Judgment, we are obligated to undertake a number of internal reforms including but not limited to: adding new management and independent directors; establishing a Compliance Committee of the Board of Directors and an executive disclosure committee; establishing new comprehensive records management policies; taking steps to implement best practices regarding recognition of software license revenue; establishing a comprehensive compliance and ethics program; reorganizing our Finance and Internal Audit Departments; establishing a plan to improve communication with government agencies engaged in inquiries or investigations relating to the Company; enhancing our current hotline for employees to report potential violations of the law or other misconduct; and agreeing to the appointment of an Independent Examiner, who will serve a term of 18 months (subject to extension by the USAO and the SEC), and will examine and issue reports on our practices to the USAO, the SEC, and our Board of Directors beginning no later than September 2005 and quarterly thereafter. In the short-term, we cannot predict what impact, if any, the adoption of these reforms (including the upcoming reports of the Independent Examiner) may have on our business, financial condition, results of operations, and cash flow and they may result in the diversion of management attention and employee resources from core business functions or opportunities.

If it were determined that we breached the terms of the DPA or Consent Judgment, we cannot predict the scope, timing, or outcome of the actions that would be taken by the USAO or the SEC. These actions could include the institution of administrative, civil injunctive, or criminal proceedings, the imposition of fines and penalties, which may be significant, suspensions or debarments from government product and/or services contracts, and other remedies and sanctions, any of which could lead to an adverse impact on our credit ratings and ability to obtain financing, an adverse impact on our stock price, loss of additional senior management, the inability to attract or retain key employees, and the loss of customers. In addition, under the law, the illegal acts of our employees may be ascribed to us. We cannot predict what impact, if any, these matters may have on our business, financial condition, results of operations, and cash flow.

Moreover, under both the DPA and Consent Judgment, we are obligated to cooperate with the government in its ongoing investigations of past conduct. While we do not anticipate any further material adjustments to our financial statements for completed periods, the processes described above have not been fully completed, and we may be required to take additional remedial measures.

If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our ability to manage and grow our business may be harmed.

Our ability to successfully implement our business plan and comply with regulations, including the Sarbanes-Oxley Act of 2002, requires effective planning and management system and process. We will need to continue to improve existing and implement new operational and financial systems, procedures and controls to manage our business effectively in the future. As a result, we have recently licensed enterprise resource planning software from SAP AG and have begun a process to expand and upgrade our operational and financial systems. Any delay in the implementation of, or disruption in the transition to our new or enhanced systems, procedures or controls, could harm our ability to accurately forecast sales demand, manage our supply chain, achieve accuracy in the conversion

of electronic data and records, report financial and management information on a timely and accurate basis, and could potentially constitute a breach of the terms of the DPA. In addition, as we add additional functionality, new problems could arise that we have not foreseen. Such problems could adversely impact our ability to do the following in a timely manner: provide quotes; take customer orders; ship products; provide services and support to our customers; bill and track our customers; fulfill contractual obligations; and otherwise run our business. Failure to properly or adequately address these issues could result in the diversion of management’s attention and resources, impact our ability to manage our business and our results of operations, cash flows, and our stock price could be negatively impacted.

We may encounter difficulties in successfully integrating companies and products that we have acquired or may acquire into our existing business and, therefore, such failed integration may adversely affect our infrastructure, market presence, results of operations and stock price.

We have in the past and expect in the future to acquire complementary companies, products, services and technologies. The risks we may encounter include: we may find that the acquired company or assets do not further improve our financial and strategic position as planned; we may have difficulty integrating the operations and personnel of the acquired business; we may have difficulty retaining the technical skills needed to provide services on the acquired products; we may have difficulty incorporating the acquired technologies or products with our existing product lines; we may have product liability, customer liability or intellectual property liability associated with the sale of the acquired company’s products; our ongoing business may be disrupted by transition or integration issues; our management’s attention may be diverted from other business concerns; we may be unable to obtain timely approvals from governmental authorities under applicable competition and antitrust laws; we may have difficulty maintaining uniform standards, controls, procedures and policies; our relationships with current and new employees, customers and distributors could be impaired; the acquisition may result in increased litigation risk including litigation from terminated employees or third parties; and our due diligence process may fail to identify significant issues with the target company’s product quality, financial disclosures, accounting practices, internal control deficiencies, including material weaknesses, product architecture, legal contingencies and other matters. These factors could have a material adverse effect on our business, results of operations, financial condition or cash flows, particularly in the case of a large acquisition or number of acquisitions. To the extent we issue shares of stock or other rights to purchase stock, including options, to pay for acquisitions, existing stockholders’ interests may be diluted and earnings per share may decrease.

We are subject to intense competition in product and service offerings and pricing, and we expect to face increased competition in the future, which could hinder our ability to attract and retain employees and diminish demand for our products and, therefore, reduce our sales, revenue and market presence.

The markets for our products are intensely competitive, and we expect product and service offerings and pricing competition to increase. Some of our competitors have longer operating histories, greater name recognition, larger technical staffs, established relationships with hardware vendors, and/or greater financial, technical, and marketing resources. Competitors for our various products include large technology companies. We also face competition from numerous smaller companies and shareware authors that may develop competing products. The competition may affect our ability to attract and retain the technical skills needed to provide services to our customers, forcing us to become more reliant on delivery of services through third parties. This, in turn, could increase operating costs and decrease our revenue, profitability and cash flow.

Our competitors include large vendors of hardware or operating system software. The widespread inclusion of products that perform the same or similar functions as our products 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 may elect to accept the incorporated products rather than purchase our products. In addition, the software industry is currently undergoing consolidation as software companies seek to offer more extensive suites and broader arrays of software products, as well as integrated software and hardware solutions. This consolidation may negatively impact our competitive position, which could adversely affect our business, financial condition, operating results, and cash flow. Refer to Item 1, “Business – Competition,” for additional information.

Certain software that we use in daily operations is licensed from third parties and thus may not be available to us in the future, which has the potential to delay product development and production and, therefore, decrease revenues and profits.

Some of our products contain software licensed from third parties. Some of these licenses may not be available to us in the future on terms that are acceptable or allow our products to remain competitive. The loss of these licenses or the ability to maintain any of them on commercially acceptable terms could delay development of future products or enhancement of existing products. We may also choose to pay a premium price for such a license in certain

circumstances where continuity of the product would outweigh the premium cost of the license. We do not consider the revenue from products using software licensed from third parties to be material. However, there can be no assurance that at a given point of time, any of the above will not have an adverse impact on our business, financial condition, operating results, and cash flow.

Certain software we use is from open source code sources which under certain circumstances may lead to increased costs and, therefore, decreased cash flow.

Some of our products contain software from open source code sources. The use of such open source code may subject us to certain conditions, including the obligation to offer our products that use open source code for no cost. We monitor our use of such open source code to avoid subjecting our products to conditions we do not intend. However, the use of such open source code may ultimately subject some product(s) to unintended conditions so that we are required to take remedial action that may divert resources away from our development efforts. We believe that the use of such open source code will not have a significant impact on our operations and that our products will be viable after any remediation efforts. However, there can be no assurance that future conditions involving such open source code will not have an adverse impact on our business, financial condition, operating results, and cash flow.

If our products do not remain compatible with ever-changing operating environments we could lose customers and the demand for our products and services could decrease, which would negatively impact sales and revenue.

IBM, HP, Sun Microsystems, and Microsoft are the largest suppliers of systems and computing software and, in most cases, are the manufacturers of the computer hardware systems used by most of our customers. Historically, these operating system developers have modified or introduced new operating systems, systems software, and computer hardware. Such new products could, in the future, incorporate features that perform functions currently performed by our products, or could require substantial modification of our products to maintain compatibility with these companies’ hardware or software. Although we have to date been able to adapt our products and our business to changes introduced by hardware manufacturers and system software developers, there can be no assurance that we will be able to do so in the future. Failure to adapt our products in a timely manner to such changes or customer decisions to forego the use of our products in favor of those with comparable functionality contained either in the hardware or operating system could have a material adverse effect on our business, financial condition, operating results, and cash flow.

Failure to timely adapt to technological change could adversely affect our revenues and earnings.

If we fail to keep pace with technological change in our industry, such failure would have an adverse effect on our revenues and earnings. We operate in a highly competitive industry characterized by rapid technological change, evolving industry standards, changes in customer requirements and frequent new product introductions and enhancements. During the past several years, many new technological advancements and competing products entered the marketplace. The distributed systems and application management markets in which we operate are far more crowded and competitive than our traditional mainframe systems management markets. Our ability to compete effectively and our growth prospects depend upon many factors, including the success of our existing distributed systems products, the timely introduction and success of future software products, and the ability of our products to interoperate and perform well with existing and future leading databases and other platforms supported by our products. We have experienced long development cycles and product delays in the past, particularly with some of our distributed systems products, and expect to have delays in the future. Delays in new product introductions or less-than-anticipated market acceptance of these new products are possible and would have an adverse effect on our revenues and earnings.

Discovery of errors in our software could adversely affect our revenues and earnings and subject us to product liability claims, which may be costly and time consuming.

The software products we offer are inherently complex. Despite testing and quality control, we cannot be certain that errors will not be found in current versions, new versions, or enhancements of our products after commencement of commercial shipments. If new or existing customers have difficulty deploying our products or require significant amounts of customer support, our operating margins could be adversely affected. Moreover, we could face possible claims and higher development costs if our software contains undetected 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. These combinations increase our risk further because in the event of a system-wide failure, it may be difficult to determine which product is at fault; thus, we may be harmed by the failure of another supplier’s products. As a result of the foregoing, we could experience:

	•		Loss of or delay in revenues and loss of market share;
	•		Loss of customers, including the inability to do repeat business with existing key customers;
	•		Damage to our reputation;
	•		Failure to achieve market acceptance;
	•		Diversion of development resources;
	•		Increased service and warranty costs;
	•		Legal actions by customers against us which could, whether or not successful, increase costs and distract our management;
	•		Increased insurance costs; and
	•		Failure to successfully complete service engagements for product installations and implementations.

In addition, a product liability claim, whether or not successful, could be time-consuming and costly and thus could have a material adverse affect on our business, results of operations or financial positions.

Our credit ratings have been downgraded and could be downgraded further which would require us to pay additional interest under our credit agreement and could adversely affect our ability to borrow.

Our credit ratings from Moody’s Investor Service and Standard & Poor’s were downgraded in 2003. In March 2004, Moody’s again lowered our senior unsecured debt rating to Ba1, which is below investment grade, and our short-term rating for commercial paper to Not-Prime. In April 2004, S&P lowered our senior unsecured debt rating to BBB- and our short-term rating for commercial paper to A-3. S&P has placed us on negative outlook. In November 2004, Fitch Ratings initiated rating of our long-term and short-term debt and rated our senior unsecured notes BBB-.

Moody’s, S&P, or any other credit rating agency may further downgrade or take other negative action with respect to our credit ratings in the future. If our credit ratings are further downgraded or other negative action is taken, we would be required to, among other things, pay additional interest under our credit agreements. Any downgrades could affect our ability to obtain additional financing in the future and may affect the terms of any such financing. This could have a material adverse effect on our business, financial condition, operating results, and cash flow.

We have a significant amount of debt and failure to generate sufficient cash as our debt becomes due or to renew credit lines prior to their expiration may adversely affect our business, financial condition, operating results, and cash flow.

As of March 31, 2005, we had approximately $2.6 billion of debt outstanding, consisting of unsecured fixed-rate senior note obligations, convertible senior notes, and unsecured multicurrency credit facilities. Refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations and Commitments” for the payment schedule of our long-term debt obligations, inclusive of interest. We expect that existing cash, cash equivalents, marketable securities, cash provided from operations, and our bank credit facilities will be sufficient to meet ongoing cash requirements. However, failure to generate sufficient cash as our debt becomes due or to renew credit lines prior to their expiration may adversely affect our business, financial condition, operating results, and cash flow.

Failure to protect our intellectual property rights would weaken our competitive position.

Our future success is highly dependent upon our proprietary technology, including our software. Failure to protect such technology could lead to our loss of valuable assets and competitive advantage. We protect our proprietary information through the use of patent, copyright, trademark, trade secret laws, confidentiality procedures, and contractual provisions. Notwithstanding our efforts to protect our proprietary rights, policing unauthorized use or copying of our proprietary information is difficult. Unauthorized use or copying occurs from time to time and litigation to enforce intellectual property rights could result in significant costs and diversion of resources. Moreover, the laws of some foreign jurisdictions do not afford the same degree of protection to our proprietary rights as do the laws of the United States. For

example, we rely on “shrink-wrap” or “click-on” licenses which may be unenforceable in whole or in part in some jurisdictions in which we operate. In addition, patents we have obtained may be circumvented, challenged, invalidated, or designed around by other companies. Our inability to adequately protect our intellectual property for these or other reasons could adversely affect our business, financial condition, operating results, and cash flow. Refer to Item 1, “Business – Proprietary Rights,” for additional information.

We may become dependent upon large transactions and the failure to close such transactions could adversely affect our business, financial condition, operating results, and cash flow.

We have historically been dependent upon large-dollar enterprise transactions with individual customers. As a result of the flexibility afforded by our Business Model, we anticipate that there will be fewer of these transactions in the future. There can be no assurances, however, that we will not be reliant on large-dollar enterprise transactions in the future, and the failure to close such transactions could adversely affect our business, financial condition, operating results, and cash flow.

Our customers’ data centers and IT environments may be subject to hacking or other breaches harming the market perception of the effectiveness of our products.

If an actual or perceived breach of our customer’s network security occurs, allowing access to our customers’ data centers or other parts of their IT environments, regardless of whether the breach is attributable to our products, the market perception of the effectiveness of our products could be harmed. Because the techniques used by computer hackers to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques. Alleviating any of these problems could require significant expenditures of our capital and diversion of our resources from development efforts. Additionally, these efforts could cause interruptions, modifications, delays or cessation of our product licensing, which could cause us to lose existing or potential customers adversely affecting our business, financial condition, operating results, and cash flow.

Our software products, data centers and IT environments may be subject to hacking or other breaches harming the market perception of the effectiveness of our products.

Although we believe we have sufficient controls in place to prevent intentional disruptions, we expect to be an ongoing target of attacks specifically designed to impede the performance of our products. Similarly, experienced computer programmers, or hackers, may attempt to penetrate our network security or the security of our data centers and IT environments and misappropriate proprietary information or cause interruptions of our services. If these intentionally disruptive efforts are successful, our activities could be adversely affected, our reputation and future sales could be harmed, and our business, financial condition, operating results, and cash flow could be adversely affected.

General economic conditions may lead our customers to delay or forgo technology upgrades which could adversely affect our business, financial condition, operating results, and cash flow.

Our products are designed to improve the productivity and efficiency of our customers’ information processing resources. However, a general slowdown in the world economy or a particular region could cause customers to delay or forgo decisions to license new products, to upgrade their existing environments, or to acquire services, particularly with respect to discretionary spending in the software industry, which could adversely affect our business, financial condition, operating results, and cash flow.

The use of third-party microcode could negatively impact our product development.

We anticipate ongoing use of microcode or firmware provided by hardware manufacturers. Microcode and firmware are essentially software programs in hardware form and are, therefore, less flexible than other types of software. We believe that such continued use will not have a significant impact on our operations and that our products will remain compatible with any changes to such code. However, there can be no assurance that future technological developments involving such microcode will not have an adverse impact on our business, financial condition, operating results, and cash flow.

The software business is marked by easy entry and large, entrenched businesses which may lead to increased competition and which could have a material adverse effect on our business, financial condition, operating results, and cash flow.

Many companies with whom we compete, including IBM, Sun Microsystems, HP, and other large computer manufacturers, have substantial resources, a larger installed base of customers in any particular market niche, as well as the ability to develop and market software programs similar to and competitive with the products offered by us. Additionally, these producers can bundle hardware, software, and services together, which is a disadvantage for us since we do not provide hardware and have far fewer services offerings. Competitive products are also offered by numerous independent software companies that specialize in specific aspects of the highly fragmented software industry. Some, like Microsoft, Oracle, and SAP, are the leading developers and vendors in their specialized markets. In addition, new

companies enter the market on a frequent and regular basis, offering products that compete with those offered by us. Increased competition also results from consolidation of existing companies within the industry. Additionally, many customers historically have developed their own products that compete with those offered by us. Competition from any of these sources can result in price reductions or displacement of our products, which could have a material adverse effect on our business, financial condition, operating results, and cash flow.

We may lose access to third-party operating systems which would adversely affect future product development.

In the past, certain of our licensees using proprietary operating systems were furnished with “source code,” which makes the operating system understandable to programmers; “object code,” which directly controls the hardware; and other technical documentation. Since the availability of source code facilitated the development of systems and applications software, which must interface with the operating systems, independent software vendors, such as us, were able to develop and market compatible software. Microsoft, IBM, and other vendors have a policy of restricting the use or availability of the source code for some of their operating systems. To date, this policy has not had a material effect on us. Some companies, however, may adopt more restrictive policies in the future or impose unfavorable terms and conditions for such access. These restrictions may, in the future, result in higher research and development costs for us in connection with the enhancement and modification of our existing products and the development of new products. Although we do not expect that such restrictions will have this adverse effect, there can be no assurances that such restrictions or other restrictions will not have a material adverse effect on our business, financial condition, operating results, and cash flow.

The markets for some or all of our key product areas may not grow.

As announced in April 2005, our products will be aligned by software business unit. Our business units will consist of Enterprise Systems Management, Security Management, Storage Management, Business Service Optimization (BSO), and the CA Products Group — which will encompass solutions from a number of CA brands that fall outside of our core areas of systems and security management. Some or all of these areas may not grow, may decline in growth, or customers may decline or forgo use of products in some or all of these product areas. This is particularly true in newly emerging areas. A decline in these product areas could result in decreased demand for our products and services, which would adversely impact our business, financial condition, operating results, and cash flow.

Third parties could claim that our products infringe their intellectual property rights which could result in significant litigation expense or settlement with unfavorable terms that could adversely affect our business, financial condition, operating results, and cash flow.

From time to time we receive notices from third parties claiming infringement of various forms of their intellectual property. Investigation of these claims, whether with or without merit, can be expensive and could affect development, marketing, or shipment of our products. As the number of software patents issued increases, it is likely that additional claims, which with or without merit, will be asserted. Defending against such claims is time-consuming and could result in significant litigation expense or settlement with unfavorable terms that could adversely affect our business, financial condition, operating results, and cash flow.

Fluctuations in foreign currencies could result in transaction losses.

Most of the revenue and expenses of our foreign subsidiaries are denominated in local currencies. Given the relatively long sales cycle that is typical for many of our products, foreign currency fluctuations could result in substantial changes in the foreign currency impact on these transactions. Additionally, fluctuations of the exchange rate of foreign currencies against the U.S. dollar can affect our revenue within those markets, all of which may adversely impact our business, financial condition, operating results, and cash flow.

Our stock price is subject to significant fluctuations.

Our stock price is subject to significant fluctuations in response to variations in quarterly operating results, the gain or loss of significant license agreements, changes in earnings estimates by analysts, announcements related to our past accounting issues, announcements of technological innovations or new products by us or our competitors, changes in domestic and international economic and business conditions, general conditions in the software and computer industries, and other events or factors. In addition, the stock market in general has experienced extreme price and volume fluctuations that have affected the market price of many companies in industries that are similar or related to those in which we operate and that have been unrelated to the operating performance of these companies. These market fluctuations have in the past adversely affected and may continue to adversely affect the market price of our common stock, which in turn could affect the value of our stock-based compensation and our ability to retain and attract key employees.

Taxation of extraterritorial income could adversely affect our results.

In August 2001, a World Trade Organization (WTO) dispute panel determined that the tax provisions of the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (ETI) constitute an export subsidy prohibited by the WTO Agreement on Subsidies and Countervailing Measures. The U.S. government appealed the panel’s decision and lost its appeal. On March 1, 2004, the European Union began imposing retaliatory tariffs on a specified list of U.S.–source goods. In order to comply with international trade rules the American Jobs Creation Act of 2004 (the Act) repealed the current tax treatment for ETI. The Act replaces the ETI provisions with a domestic manufacturing deduction and includes transition provisions for the ETI phase-out. We are reviewing the provisions of the Act and the impact on our effective tax rate. Although the WTO has not challenged the Act, it remains possible that the WTO may once again challenge the new tax benefits as being an illegal export subsidy.

Other potential tax liabilities may adversely affect our results.

We are subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions and accruals. Should additional taxes be assessed as a result of an audit or litigation, a material effect on our income tax provision and net income in the period or periods in which that determination is made could result.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio, debt, and installment accounts receivable. We have a prescribed methodology whereby we invest our excess cash in debt instruments of government agencies, such as municipal bonds, and high-quality corporate issuers (Standard & Poor’s single “A” rating and higher). To mitigate risk, many of the securities have a maturity date within one year, and holdings of any one issuer, excluding the U.S. government, do not exceed 10% of the portfolio. Periodically, the portfolio is reviewed and adjusted if the credit rating of a security held has deteriorated. We do not utilize derivative financial instruments to mitigate interest rate risk.

We have shifted from a blend of both fixed and floating rate debt instruments to substantially all fixed rate debt instruments to take advantage of historically low interest rates. As of March 31, 2005, our outstanding debt approximated $2.6 billion, approximately all of which is in fixed rate obligations. If market rates were to decline, we could be required to make payments on the fixed rate debt that would exceed those based on current market rates. Each 25 basis point decrease in interest rates would have an associated annual opportunity cost of approximately $7 million. Each 25 basis point increase or decrease in interest rates would have an immaterial annual effect on variable rate debt interest based on the balances of such debt as of March 31, 2005.

We offer financing arrangements with installment payment terms in connection with our software license agreements. The aggregate amounts due from customers include an imputed interest element, which can vary with the interest rate environment. Each 25 basis point increase in interest rates would have an associated annual opportunity cost of approximately $12 million.

Foreign Currency Exchange Risk

We conduct business on a worldwide basis through branches and subsidiaries in 47 countries outside the United States. We are therefore exposed to movement in currency exchange rates. As part of our risk management strategy and consistent with prior years, we did not enter into any foreign exchange derivative transactions. In addition, we manage our level of exposure by denominating a majority of international sales and payments of related expense in the local currencies of our subsidiaries. A 1% change in all foreign currencies against the U.S. dollar would have an insignificant effect on our results from operations.

Equity Price Risk

As of March 31, 2005, we have minimal investments in marketable equity securities of publicly traded companies. These investments were considered available-for-sale with any unrealized gains or temporary losses deferred as a component of stockholders’ equity. It is not customary for us to make investments in equity securities as part of our investment strategy.

Item 8. Financial Statements and Supplementary Data.

Our Consolidated Financial Statements are listed in the List of Consolidated Financial Statements and Financial Statement Schedules filed as part of this Annual Report on Form 10-K/A and are incorporated herein by reference.

The Supplementary Data specified by Item 302 of Regulation S-K as it relates to selected quarterly data is included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Information on the effects of changing prices is not required.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with participation of the Company’s Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this annual report on Form 10-K/A. 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)) related to its financial statement restatements and to an ineffective control environment associated with the Company’s Europe, Middle East and Africa (EMEA) region, as more fully described below. The Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this annual report on Form 10-K/A, the Company’s disclosure controls and procedures were not effective as a result of these material weaknesses.

(b) Management’s report on internal control over financial reporting (as restated)

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has conducted its evaluation of the effectiveness of internal control over financial reporting as of March 31, 2005 based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing the effectiveness of the Company’s internal control over financial reporting. During this evaluation, management identified material weaknesses in the Company’s internal control over financial reporting, as described below. Management has concluded that as a result of these material weaknesses, as of March 31, 2005, the Company’s internal control over financial reporting was not effective based upon the criteria in Internal Control — Integrated Framework issued by COSO.

A material weakness is a control deficiency, or a combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Public Company Accounting Oversight Board Auditing Standard No. 2 identifies a number of circumstances that,

because of their likely significant negative effect on internal control over financial reporting, are to be regarded as at least significant deficiencies as well as strong indicators that a material weakness exists. These indicators include the restatements of previously issued financial statements to reflect the correction of misstatements. Management has identified material weaknesses as of March 31, 2005 related to the restatements of its financial statements and an ineffective control environment in EMEA.

Material Weaknesses in Internal Control over Financial Reporting Relating to the Restatements of Financial Statements and an Ineffective Control Environment in the Company’s EMEA Region

(i) At March 31, 2005, the Company did not have policies and procedures over the accounting for credits attributable to software contracts executed under the Company’s prior business model that were sufficient to prevent or detect the improper accounting for credits initially established under side agreements entered into during fiscal years 1998 through 2001. As a result of this deficiency, the Company’s internal control over financial reporting did not detect the material misstatements that were made as a result of the prior period accounting errors related to the entry into the aforementioned side agreements. In May 2005, the Company announced that it expected to restate its financial statements for fiscal years 2004 through 2002, and to make appropriate adjustments in its interim financial statements for fiscal year 2005, to eliminate the effects of certain prior-period accounting errors. Certain of these errors resulted from software license agreements that the Company entered into in fiscal years 1998 through 2001 which were altered by side agreements that, if correctly accounted for, would have prevented the full recognition of related revenue until later periods. Reference is made to Note 12 (a) to the Consolidated Financial Statements for further discussion of the financial impact of this restatement.

(ii) Since the Original 2005 Form 10-K was filed on June 29, 2005, an additional material weakness in the Company’s internal control over financial reporting as of March 31, 2005 has been identified. At March 31, 2005, the Company did not have policies and procedures to identify, quantify, or record the impact on subscription revenue when a prior business model license agreement (i.e., license agreements entered into before October 2000 that resulted in upfront software license revenue recognition) was superseded by a subscription based license agreement prior to the expiration of the prior business model license agreement. Subsequent to the filing of the Company’s Original 2005 Form 10-K, the Company determined that there was an accounting error in that the revenue recorded on renewals of certain prior business model license agreements, when superseded by a subscription based license agreement prior to the expiration of the prior business model license agreement, was not always recorded on a straight line basis over the life of the new subscription based license agreement. In October 2005, the Company restated its financial statements for fiscal years 2005 through 2002, and for the interim periods in fiscal years 2005 and 2004, to reflect the correction of these accounting errors. This restatement is discussed further in Note 12 (b) to the accompanying consolidated financial statements.

(iii) At March 31, 2005, the Company had an ineffective control environment in its EMEA region. During fiscal year 2005, members of management in the Company’s EMEA region failed to support consistent application of policies and procedures and to foster a culture of integrity and high ethical standards in the region. This resulted in overlooking of conduct involving conflicts of interest with the Company relating to the use of vendor services, overriding Human Resources’ procedures and attempts to frustrate and discourage the reporting and investigation of improper conduct.

Each of the aforementioned material weaknesses in internal control over financial reporting individually resulted in more than a remote likelihood that a material misstatement of the Company’s interim or annual financial statements would not have been prevented or detected.

Management had previously concluded that the Company did not maintain effective internal control over financial reporting as of March 31, 2005 because of the existence of the material weaknesses described in (i) and (iii) above. In connection with the restatement of the Company’s consolidated financial statements described in Note 12 (b) to the consolidated financial statements, management has determined that the material weakness described in (ii) above also existed as of March 31, 2005. Accordingly, management has restated this report on internal control over financial reporting to include this additional material weakness.

The Company’s independent registered public accountants, KPMG LLP, have audited and issued a report on management’s assessment of the Company’s internal control over financial reporting (as restated). That report is included on the page set forth in the List of Consolidated Financial Statements and Financial Statement Schedules.

(c) Changes in internal control over financial reporting

During the fourth quarter of fiscal year 2005, the Company was engaged in an ongoing review of its internal control over financial reporting as described below. Based on that review management believes that, during the fourth quarter of fiscal year 2005 there were changes in the Company’s internal control over financial reporting, as described below, that have materially affected, or are reasonably likely to materially affect, those controls.

As previously reported, and as described further in Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements, in September 2004 the Company reached agreements with the USAO and SEC by entering into the DPA with the USAO and by consenting to the SEC’s filing of a Final Consent Judgment in the United States District Court for the Eastern District of New York. The DPA requires the Company to, among other things, undertake certain reforms that will affect its internal control over financial reporting. These include implementing a worldwide financial and enterprise resource planning information technology system to improve internal controls, reorganizing and enhancing the Company’s Finance and Internal Audit Departments, and establishing new records management policies and procedures. The Company believes that these and other reforms, such as enhanced procedures to assure proper recognition of revenue, should enhance its internal control over financial reporting. For more information regarding the DPA, refer to the Company’s Current Report on Form 8-K filed with the SEC on September 22, 2004 and the exhibits thereto, including the DPA.

During the fourth quarter of fiscal year 2005, the Company also continued documenting, testing, and making improvements to its internal controls in light of Section 404 of the Sarbanes-Oxley Act of 2002. These improvements include additional controls, such as management-level approvals, institution of an anti-fraud program, management-level delegations of duties, segregation of responsibilities, and software order-to-shipment review, as well as more comprehensive documentation of key control activities in the areas of tax, financial reporting, software development, indirect sales, accounts payable and professional services. The process is ongoing and the Company will continue to address items that require remediation and work to improve internal controls and to educate and train employees on controls and procedures in order to establish and maintain effective internal control over financial reporting.

Planned remediation efforts regarding the material weaknesses in internal control over financial reporting related to the restatements of financial statements include the following:

	•		Maintaining a separate schedule of credits granted under software contracts executed under the Company’s prior business model;
	•		Requiring the financial reporting department to review, on a quarterly basis, credits related to software contracts executed under the Company’s prior business model to determine the proper accounting for any such credits;
	•		Periodic testing by Internal Audit of the completeness and accuracy of the credit schedule prepared by the Sales Accounting department and of all accounting entries related to the utilization of any such credits by the Company’s customers; and
	•		Monitoring the renewal of prior business model license agreements to ensure that any remaining deferred maintenance and unamortized discounts are recognized ratably over the life of the new subscription based license agreement.

Subsequent to March 31, 2005, the Company has taken several steps toward remediation of the material weakness relating to the control environment in its EMEA region described above. The Company has been and is implementing enhancements to its internal control over financial reporting intended to provide reasonable assurance that the ineffective control environment in the Company’s EMEA region will be remediated and not recur. Steps already taken include:

	•		The commencement of disciplinary proceedings against members of management and other employees in the EMEA region leading to their resignation or termination subsequent to March 31, 2005;
	•		The appointment of a new General Manager for the EMEA region in June 2005;
	•		The appointment of a new Head of Procurement for the EMEA region in June 2005;
	•		The hiring of a new Head of Facilities for the EMEA region who will commence employment in July 2005; and
	•		The appointment of a new Assistant General Counsel for the EMEA region in December 2004.

The remediation of the control environment in the EMEA region is ongoing. As of March 31, 2005, certain enhancements were not yet in place and/or were not in place for sufficient time to fully determine their effectiveness as of March 31, 2005. Other planned enhancements include, the hiring of new senior finance management personnel for the EMEA region, implementation of additional segregation of duties and responsibilities within the EMEA region and additional education and training. Management is committed to the rigorous enforcement of an effective control environment.

Management believes that the efforts described above, when fully implemented, will be effective in remediation of the material weaknesses identified in Management’s Report on Internal Control Over Financial Reporting, as described above.

Item 9B. Other Information.

Not applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant.

Reference is made to our definitive proxy statement, for the 2005 annual meeting of stockholders, which was filed with the SEC in July 2005, for information concerning our directors. This information is incorporated herein by reference. Also, refer to Part I of this Report for information concerning executive officers under the caption “Executive Officers of the Registrant.”

Information about our compliance with Section 16(a) of the Exchange Act during the 2005 fiscal year is incorporated by reference from the discussion that appears under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement filed with the SEC in July 2005.

Information about the Audit and Compliance Committee of our Board of Directors, including the members of the Committee and our Audit and Compliance Committee financial expert, is incorporated by reference from our definitive proxy statement filed with the SEC in July 2005.

We maintain a Code of Ethics and Business Conduct (Code of Ethics), which is applicable to all employees and directors, on our website at ca.com/codeofethics. Any amendment or waiver to the Code of Ethics that applies to our directors or executive officers will be posted on our website or in a report filed with the SEC on Form 8-K. The Code of Ethics 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 at the address listed on the cover of this Form 10-K/A.

Item 11. Executive Compensation.

Reference is made to our definitive proxy statement, filed with the SEC in July 2005, for information concerning executive compensation, as of the dates indicated in the definitive proxy statement, which information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Reference is made to our definitive proxy statement, filed with the SEC in July 2005, for information concerning security ownership of each person known by us to own beneficially more than 5% of our outstanding shares of common stock, of each of our directors, and all executive officers and directors as a group, and equity compensation plan information, in each case as of the dates indicated in the definitive proxy statement, which information is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

Reference is made to our definitive proxy statement, filed with the SEC in July 2005, for information concerning certain relationships and related transactions, as of the dates indicated in the definitive proxy statement, which information is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

Reference is made to our definitive proxy statement, filed with the SEC in July 2005, for information concerning our independent auditors’ fees and services as well as our Audit and Compliance Committee’s policy on pre-approval of audit and permissible non-audit services of our independent auditors, which is incorporated herein by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)			(1	)		The Registrant’s financial statements together with a separate table of contents are annexed hereto.
			(2	)		Financial Statement Schedules are listed in the separate table of contents annexed hereto.
			(3	)		Exhibits.

NOTE: Please refer to the Company’s quarterly reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC after March 31, 2005 for additional exhibits.

Regulation S-K
Exhibit Number
2.1		Agreement and Plan of Merger, dated as of October 6, 2004, by and among Computer Associates International, Inc., Nova Acquisition Corp., and Netegrity, Inc.		Previously filed as Exhibit 2.1 to Netegrity, Inc.’s Current Report on Form 8-K dated October 6, 2004, and incorporated herein by reference.
2.2		Form of Stockholder Agreement dated as of October 6, 2004, among the stockholders named therein, Computer Associates International, Inc., and Nova Acquisition Corp.		Previously filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K dated October 6, 2004, and incorporated herein by reference.
2.3		Agreement and Plan of Merger, dated as of April 7, 2005, by and among Computer Associates International, Inc., Minuteman Acquisition Corp., and Concord Communications, Inc.		Previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated April 7, 2005, and incorporated herein by reference.
2.4		Agreement and Plan of Merger, dated as of June 9, 2005, by and among Computer Associates International, Inc., Nebraska Acquisition Corp., and Niku Corporation.		Previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated June 9, 2005, and incorporated herein by reference.
3.1		Restated Certificate of Incorporation.		Previously filed as an Exhibit to the Company’s Form 10-Q for the fiscal quarter ended December 31, 1998, and incorporated herein by reference.
3.2		By-Laws of the Company, as amended.		Previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated February 1, 2005, and incorporated herein by reference.
4.1		Certificate of Designation of Series One Junior Participating Preferred Stock, Class A of the Company.		Previously filed as Exhibit 3 to the Company’s Current Report on Form 8-K dated June 18, 1991, and incorporated herein by reference.
4.2		Rights Agreement dated as of June 18, 1991, between the Company and Manufacturers Hanover Trust Company.		Previously filed as Exhibit 4 to the Company’s Current Report on Form 8-K dated June 18, 1991, and incorporated herein by reference.
4.3		Amendment No. 1 dated May 17, 1995, to Rights Agreement dated as of June 18, 1991.		Previously filed as Exhibit C to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1995, and incorporated herein by reference.
4.4		Amendment No. 2 dated May 23, 2001, to Rights Agreement dated as of June 18, 1991.		Previously filed as Exhibit 4.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2001, and incorporated herein by reference.
4.5		Amendment No. 3 dated November 9, 2001, to Rights Agreement dated as of June 18, 1991.		Previously filed as Exhibit 99.1 to the Company’s Form 8-K dated November 9, 2001, and incorporated herein by reference.
4.6		Indenture with respect to the Company’s $1.75 billion Senior Notes, dated April 24, 1998, between the Company and The Chase Manhattan Bank, as Trustee.		Previously filed as Exhibit 4(f) to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1998, and incorporated herein by reference.

Regulation S-K
Exhibit Number
4.7		Indenture with respect to the Company’s 5% Convertible Senior Notes due 2007, dated March 18, 2002, between the Company and State Street Bank and Trust Company, as Trustee.		Previously filed as Exhibit 4.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2002, and incorporated herein by reference.
4.8		Registration Rights Agreement dated March 18, 2002, among the Company and the Initial Purchasers of the 5% Convertible Senior Notes.		Previously filed as Exhibit 4.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2002, and incorporated herein by reference.
4.9		Purchase Agreement dated March 13, 2002, among the Initial Purchasers of the 5% Convertible Senior Notes and the Company.		Previously filed as Exhibit 4.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2002, and incorporated herein by reference.
4.10		Indenture with respect to the Company’s 1.625% Convertible Senior Notes due 2009, dated December 11, 2002, between the Company and State Street Bank and Trust Company, as Trustee.		Previously filed as Exhibit 4.1 to the Company’s Form 10-Q for the fiscal quarter ended December 31, 2002, and incorporated herein by reference.
4.11		Registration Rights Agreement dated December 11, 2002, among the Company and the Initial Purchasers of the 1.625% Convertible Senior Notes.		Previously filed as Exhibit 4.2 to the Company’s Form 10-Q for the fiscal quarter ended December 31, 2002, and incorporated herein by reference.
4.12		Purchase Agreement dated December 6, 2002, among the Initial Purchasers of the 1.625% Convertible Senior Notes and the Company.		Previously filed as Exhibit 4.3 to the Company’s Form 10-Q for the fiscal quarter ended December 31, 2002, and incorporated herein by reference.
4.13		Indenture with respect to the Company’s 4.75% Senior Notes due 2009 and 5.625% Senior Notes due 2014, dated November 18, 2004, between the Company and The Bank of New York, as Trustee.		Previously filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated November 15, 2004, and incorporated herein by reference.
4.14		Registration Rights Agreement dated November 18, 2004, among the Company and the Initial Purchasers of the 4.75% Senior Notes due 2009 and 5.625% Senior Notes due 2014.		Previously filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated November 15, 2004, and incorporated herein by reference.
4.15		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.		Previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated November 15, 2004, and incorporated herein by reference.
10.1*		1987 Non-Statutory Stock Option Plan.		Previously filed as Appendix C to the Company’s definitive Proxy Statement dated July 1, 1987, and incorporated herein by reference.
10.2*		Amendment No. 1 to the 1987 Non-Statutory Stock Option Plan dated October 20, 1993.		Previously filed as Exhibit C to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1994, and incorporated herein by reference.
10.3*		1991 Stock Incentive Plan, as amended.		Previously filed as Exhibit 1 to the Company’s Form 10-Q for the fiscal quarter ended September 30, 1997, and incorporated herein by reference.

Regulation S-K
Exhibit Number
10.4*		1993 Stock Option Plan for Non-Employee Directors.		Previously filed as Annex 1 to the Company’s definitive Proxy Statement dated July 7, 1993, and incorporated herein by reference.
10.5*		Amendment No. 1 to the 1993 Stock Option Plan for Non-Employee Directors dated October 20, 1993.		Previously filed as Exhibit E to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1994, and incorporated herein by reference.
10.6*		1996 Deferred Stock Plan for Non-Employee Directors.		Previously filed as Exhibit A to the Company’s Proxy Statement dated July 8, 1996, and incorporated herein by reference.
10.7*		Amendment No. 1 to the 1996 Deferred Stock Plan for Non-Employee Directors.		Previously filed on Exhibit A to the Company’s Proxy Statement dated July 6, 1998, and incorporated herein by reference.
10.8*		1998 Incentive Award Plan.		Previously filed on Exhibit B to the Company’s Proxy Statement dated July 6, 1998, and incorporated herein by reference.
10.9*		Year 2000 Employee Stock Purchase Plan.		Previously filed on Exhibit A to the Company’s Proxy Statement dated July 12, 1999, and incorporated herein by reference.
10.10*		2001 Stock Option Plan.		Previously filed as Exhibit B to the Company’s Proxy Statement dated July 18, 2001, and incorporated herein by reference.
10.11		Credit Agreement dated as of December 31, 2002, among the Company, the Banks which are parties thereto and Bank Of America, N.A., Citicorp North America, Inc., and JP Morgan Chase Bank, as agents, with respect to a $400 million Revolving Loan.		Previously filed as Exhibit 10.1 to the Company’s Form 10-Q for the fiscal quarter ended December 31, 2002, and incorporated herein by reference.
10.12*		Computer Associates International, Inc. 2002 Incentive Plan (amended and restated effective as of March 31, 2004).		Previously filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2004, and incorporated herein by reference.
10.13*		2002 Compensation Plan for Non-Employee Directors.		Previously filed as Exhibit C to the Company’s Proxy Statement dated July 26, 2002, and incorporated herein by reference.
10.14*		2003 Compensation Plan for Non-Employee Directors.		Previously filed as Exhibit A to the Company’s Proxy Statement dated July 17, 2003, and incorporated herein by reference.
10.15*		Offer letter to Jeff Clarke.		Previously filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2004, and incorporated herein by reference.
10.16		Credit Agreement dated as of December 2, 2004, among the Company, the Banks which are parties thereto and Citicorp North America, Inc., Bank Of America, N.A., and JP Morgan Chase Bank, N.A., as agents, with respect to a $1 billion Revolving Loan.		Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 2, 2004, and incorporated herein by reference.
10.17*		Employment agreement, dated March 7, 2005, between the Company and Mark Barrenechea.		Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 7, 2005, and incorporated herein by reference.

Regulation S-K
Exhibit Number
10.18*		Employment agreement, dated February 1, 2005, between the Company and Robert W. Davis.		Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 1, 2005, and incorporated herein by reference.
10.19*		Restricted Stock Award for Robert W. Davis.		Previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated February 1, 2005, and incorporated herein by reference.
10.20*		Relocation Polices including Form of Moving and Relocation Expense Agreement.		Previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K dated February 1, 2005, and incorporated herein by reference.
10.21*		Employment agreement, dated November 22, 2004, between the Company and John A. Swainson.		Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 18, 2004, and incorporated herein by reference.
10.22*		Employment agreement, dated November 22, 2004, between the Company and Jeff Clarke.		Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 18, 2004, and incorporated herein by reference.
10.23*		Restricted Stock Unit Agreement for John A. Swainson.		Previously filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K dated November 18, 2004, and incorporated herein by reference.
10.24*		Form of Moving and Relocation Expense Agreement.		Previously filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K dated November 18, 2004, and incorporated herein by reference.
10.25		Change in Control Severance Policy, effective October 18, 2004.		Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 18, 2004, and incorporated herein by reference.
10.26*		Letter Agreement, dated August 26, 2004, between the Company and Sanjay Kumar.		Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 22, 2004, and incorporated herein by reference.
10.27*		Notice of Revocation dated September 22, 2004.		Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 22, 2004, and incorporated herein by reference.
10.28		Deferred Prosecution Agreement, including the related Information and Stipulation of Facts.		Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 22, 2004, and incorporated herein by reference.
10.29		Final Consent Judgment of Permanent Injunction and Other Relief, including SEC complaint.		Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 22, 2004, and incorporated herein by reference.
10.30*		Form of Restricted Stock Unit Certificate.		Previously filed as Exhibit 10.1 to the Company’s Form 10-Q for the fiscal quarter ended December 31, 2004, and incorporated herein by reference.
10.31*		Form of Non-Qualified Stock Option Certificate.		Previously filed as Exhibit 10.2 to the Company’s Form 10-Q for the fiscal quarter ended December 31, 2004, and incorporated herein by reference.
10.32*		Form of Non-Qualified Stock Option Agreement.		Previously filed as Exhibit 10.1 to the Company’s Form 10-Q for the fiscal quarter ended September 30, 2004, and incorporated herein by reference.
10.33*		Form of Incentive Stock Option Agreement.		Previously filed as Exhibit 10.2 to the Company’s Form 10-Q for the fiscal quarter ended September 30, 2004, and incorporated herein by reference.

Regulation S-K
Exhibit Number
10.34*		Form of Restricted Stock Award.		Previously filed as Exhibit 10.3 to the Company’s Form 10-Q for the fiscal quarter ended September 30, 2004, and incorporated herein by reference.
10.35*		Employment agreement, dated July 8, 2004, between the Company and Kenneth D. Cron.		Previously filed as Exhibit 10.1 to the Company’s Form 10-Q for the fiscal quarter ended June 30, 2004, and incorporated herein by reference.
10.36*		Employment agreement, dated June 14, 2004, between the Company and Kenneth V. Handal.		Previously filed as Exhibit 10.2 to the Company’s Form 10-Q for the fiscal quarter ended June 30, 2004, and incorporated herein by reference.
10.37*		Agreement, dated April 11, 2005, between the Company and John A. Swainson.		Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 11, 2005, and incorporated herein by reference.
10.38*		Agreement, dated April 11, 2005, between the Company and Jeff Clarke.		Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated April 11, 2005, and incorporated herein by reference.
10.39*		Agreement, dated April 11, 2005, between the Company and Robert W. Davis.		Previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated April 11, 2005, and incorporated herein by reference.
10.40*		Agreement, dated April 11, 2005, between the Company and Michael J. Christenson.		Previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K dated April 11, 2005, and incorporated herein by reference.
10.41*		Form of Stock Option Agreement.		Previously filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K dated April 11, 2005, and incorporated herein by reference.
10.42*		Form of Stock Option Agreement.		Previously filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K dated April 11, 2005, and incorporated herein by reference.
10.43*		Form of Stock Option Agreement.		Previously filed as Exhibit 10.7 to the Company’s Current Report on Form 8-K dated April 11, 2005, and incorporated herein by reference.
10.44*		Form of Stock Option Agreement.		Previously filed as Exhibit 10.8 to the Company’s Current Report on Form 8-K dated April 11, 2005, and incorporated herein by reference.
10.45*		Form of Restricted Stock Agreement.		Previously filed as Exhibit 10.9 to the Company’s Current Report on Form 8-K dated April 11, 2005, and incorporated herein by reference.
10.46*		Form of Restricted Stock Agreement.		Previously filed as Exhibit 10.10 to the Company’s Current Report on Form 8-K dated April 11, 2005, and incorporated herein by reference.
10.47*		Form of Restricted Stock Agreement.		Previously filed as Exhibit 10.11 to the Company’s Current Report on Form 8-K dated April 11, 2005, and incorporated herein by reference.
10.48*		Employment Agreement, dated March 23, 2005, between the Company and Donald Friedman.		Previously filed as Exhibit 10.12 to the Company’s Current Report on Form 8-K dated April 11, 2005, and incorporated herein by reference.

Regulation S-K
Exhibit Number
10.49*		Employment Agreement, dated February 14, 2005, between the Company and Michael J. Christenson.		Previously filed as Exhibit 10.13 to the Company’s Current Report on Form 8-K dated April 11, 2005, and incorporated herein by reference.
10.50*		Computer Associates International, Inc. Deferred Compensation Plan for John A. Swainson, dated April 29, 2005.		Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 29, 2005, and incorporated herein by reference.
10.51*		Trust Agreement between Computer Associates International, Inc. and Fidelity Management Trust Company, dated as of April 29, 2005.		Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated April 29, 2005, and incorporated herein by reference.
10.52*		Employment Agreement, dated December 18, 2004, between the Company and Patrick J. Gnazzo.		Previously filed as Exhibit 10.52 to the Company’s Annual Report on Form 10-K dated June 29, 2005, and incorporated herein by reference.
10.53		1995 Key Employee Stock Ownership Plan, as amended on June 26, and February 25, 2003.		Previously filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2003, and incorporated herein by reference.
21		Subsidiaries of the Registrant.		Previously filed as Exhibit 21 to the Company’s Annual Report on Form 10-K dated June 29, 2005, and incorporated herein by reference.
23		Consent of Independent Registered Public Accounting Firm.		Filed herewith.
31.1		Certification of the CEO pursuant to §302 of the Sarbanes-Oxley Act of 2002.		Filed herewith.
31.2		Certification of the CFO pursuant to §302 of the Sarbanes-Oxley Act of 2002.		Filed herewith.
32.1		Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002.		Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.

		COMPUTER ASSOCIATES INTERNATIONAL, INC.
		By		/s/ JOHN A. SWAINSON
				John A. Swainson
				President and Chief Executive Officer
		By		/s/ ROBERT W. DAVIS
				Robert W. Davis
				Executive Vice President and Chief Financial Officer
		By		/s/ DOUGLAS E. ROBINSON
				Douglas E. Robinson
				Senior Vice President, Controller,
				and Principal Accounting Officer
Dated: October 18, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this Amended Annual Report on Form 10-K/A has been signed below by the following persons on behalf of the Registrant, and in the capacities and on the date indicated:

Name				Title
/s/ KENNETH D. CRON				Director
Kenneth D. Cron
/s/ ALFONSE M. D’AMATO				Director
Alfonse M. D’Amato
/s/ ROBERT E. La BLANC				Director
Robert E. La Blanc
/s/ JAY W. LORSCH				Director
Jay W. Lorsch
/s/ WILLIAM E. McCRACKEN				Director
William E. McCracken
/s/ LEWIS S. RANIERI				Non-Executive Chairman
Lewis S. Ranieri
/s/ WALTER P. SCHUETZE				Director
Walter P. Schuetze
/s/ JOHN A. SWAINSON				President, Chief Executive Officer
John A. Swainson				and Director
/s/ LAURA S. UNGER				Director
Laura S. Unger
/s/ RENATO ZAMBONINI				Director
Renato Zambonini

Dated: October 18, 2005

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
ISLANDIA, NEW YORK

ANNUAL REPORT ON FORM 10-K/A
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, 2005

		Page
The following Consolidated Financial Statements of Computer Associates International, Inc. and subsidiaries are included in Items 8 and 9A:
Reports of Independent Registered Public Accounting Firm		56
Consolidated Statements of Operations (restated) — Years Ended March 31, 2005, 2004, and 2003		59
Consolidated Balance Sheets (restated) — March 31, 2005 and 2004		60
Consolidated Statements of Stockholders’ Equity (restated) — Years Ended March 31, 2005, 2004, and 2003		62
Consolidated Statements of Cash Flows (restated) — Years Ended March 31, 2005, 2004, and 2003		64
Notes to the Consolidated Financial Statements		66
The following Consolidated Financial Statement Schedule of Computer Associates International, Inc. and subsidiaries is included in Item 15(c):
Schedule II — Valuation and Qualifying Accounts		99

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

Report of the Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Computer Associates International, Inc.:

We have audited the accompanying consolidated balance sheets of Computer Associates International, Inc. and subsidiaries as of March 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2005. In connection with our audits of the consolidated financial statements, we also audited the consolidated financial statement schedule listed in Item 15(c). These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Computer Associates International, Inc. and subsidiaries as of March 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 12, the consolidated financial statements as of March 31, 2005 and 2004 and for each of the years in the three-year period ended March 31, 2005 have been restated.

As discussed in Note 9, effective April 1, 2005, the Company adopted, on a modified retrospective basis, the provisions of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share – Based Payments” (SFAS No. 123(R)) which establishes accounting for stock-based awards exchanged for employee services.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Computer Associates International, Inc.’s internal control over financial reporting as of March 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated June 29, 2005, except as to the seventh and tenth paragraphs of Management’s Report on Internal Control over Financial Reporting (as restated), which is as of October 18, 2005, expressed an unqualified opinion on management’s assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting as of March 31, 2005.

New York, New York
June 29, 2005, except as to notes 9 and 12 (b), which are as of October 18, 2005

Report of the Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Computer Associates International, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting (as restated) (Item 9A(b)), that Computer Associates International, Inc. and subsidiaries did not maintain effective internal control over financial reporting as of March 31, 2005, because of the effect of material weaknesses identified in management’s assessment, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Computer Associates International, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion 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 and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment as of March 31, 2005:

(i) At March 31, 2005, the Company did not have policies and procedures over the accounting for credits attributable to software contracts executed under the Company’s prior business model that were sufficient to prevent or detect the improper accounting for credits initially established under side agreements entered into during fiscal years 1998 through 2001. As a result of this deficiency, the Company’s internal control over financial reporting did not detect the material misstatements that were made as a result of the prior period accounting errors related to the entry into the aforementioned side agreements. In May 2005, the Company announced that it expected to restate its financial statements for fiscal years 2004 through 2002, and to make appropriate adjustments in its interim financial statements for fiscal year 2005, to eliminate the effects of certain prior-period accounting errors. Certain of these errors resulted from software license agreements that the Company entered into in fiscal years 1998 through 2001 which were altered by side agreements that, if correctly accounted for, would have prevented the full recognition of related revenue until later periods. This restatement is discussed further in Note 12 (a) to the accompanying consolidated financial statements.

(ii) Since the Company’s original 2005 Form 10-K was filed on June 29, 2005, an additional material weakness in the Company’s internal control over financial reporting as of March 31, 2005 has been identified. At March 31, 2005, the Company did not have policies and procedures to identify, quantify, or record the impact on subscription revenue when a prior business model license agreement (i.e., license agreements entered into before October 2000 that resulted in upfront software license revenue recognition) was superseded by a subscription based license agreement prior to the expiration of the prior business model license agreement. Subsequent to the filing of the Company’s original 2005 Form 10-K, the Company determined that there was an accounting error in that the revenue recorded on renewals of certain prior business model license agreements, when superseded by a subscription based license agreement prior to the expiration of the prior business model license agreement, was not always recorded on a straight line basis over the life of the new subscription based license agreement. In October 2005, the Company restated its financial statements for fiscal years 2005 through 2002, and for the interim periods in fiscal years 2005 and 2004, to reflect the correction of these accounting errors. This restatement is discussed further in Note 12 (b) to the accompanying consolidated financial statements.

(iii) At March 31, 2005, the Company had an ineffective control environment in its Europe, Middle East and Africa (“EMEA”) region. During fiscal year 2005, members of management in the Company’s EMEA region failed to support consistent application of policies and procedures and to foster a culture of integrity and high ethical standards in the region. This resulted in overlooking of conduct involving conflicts of interest with the Company relating to the use of vendor services, overriding Human Resources’ procedures and attempts to frustrate and discourage the reporting and investigation of improper conduct.

Each of the aforementioned material weaknesses in internal control over financial reporting individually resulted in more than a remote likelihood that a material misstatement of the Company’s interim or annual financial statements would not have been prevented or detected.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Computer Associates International, Inc. and subsidiaries as of March 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2005. The aforementioned material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2005 consolidated financial statements, and this report does not affect our report dated June 29, 2005, except as to Notes 9 and 12 (b) to the consolidated financial statements, which are as of October 18, 2005, which expressed an unqualified opinion on those consolidated financial statements.

In our opinion, management’s assessment that Computer Associates International, Inc. and subsidiaries did not maintain effective internal control over financial reporting as of March 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by COSO. Also, in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, Computer Associates International, Inc. and subsidiaries has not maintained effective internal control over financial reporting as of March 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by COSO.

Management and we previously concluded that the Company did not maintain effective internal control over financial reporting as of March 31, 2005 because of the material weaknesses described in (i) and (iii) above. In connection with the restatement of the Company’s consolidated financial statements described in Note 12 (b) to the consolidated financial statements, management has determined that the material weakness described in (ii) above also existed as of March 31, 2005. Accordingly, management and we have restated our respective reports on internal control over financial reporting to include this additional material weakness.