UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

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

Commission File Number 1-9247

CA, Inc.

(Exact name of registrant as specified in its charter)

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

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

1-800-225-5224
(Registrant’s telephone number, including area code)

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

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

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

(Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

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

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

Title of Class		Shares Outstanding
Common Stock		as of July 15, 2011
par value $0.10 per share		504,696,161

 

 

CA, INC. AND SUBSIDIARIES

INDEX

				Page
PART I.		Financial Information
		Report of Independent Registered Public Accounting Firm		1
Item 1.		Unaudited Condensed Consolidated Financial Statements		2
		Condensed Consolidated Balance Sheets - June 30, 2011 and March 31, 2011		2
		Condensed Consolidated Statements of Operations - Three Months Ended June 30, 2011 and 2010		3
		Condensed Consolidated Statements of Cash Flows - Three Months Ended June 30, 2011 and 2010		4
		Notes to the Condensed Consolidated Financial Statements		5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
		Overview		23
		Executive Summary		25
		Quarterly Update		27
		Performance Indicators		28
		Results of Operations		31
		Liquidity and Capital Resources		38
		Critical Accounting Policies and Business Practices		43
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		44
Item 4.		Controls and Procedures		44
PART II.		Other Information
Item 1.		Legal Proceedings		45
Item 1A.		Risk Factors		45
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		45
Item 3.		Defaults Upon Senior Securities		46
Item 4.		Removed and Reserved		46
Item 5.		Other Information		46
Item 6.		Exhibits		46
		Signatures		47
EX-10.1
EX-10.2
EX-12.1
EX-15
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

The Board of Directors and Stockholders
CA, Inc.:

We have reviewed the condensed consolidated balance sheet of CA, Inc. and subsidiaries as of June 30, 2011, the related condensed consolidated statements of operations and cash flows for the three-month periods ended June 30, 2011 and 2010. These condensed consolidated financial statements are the responsibility of the Company’s management.

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

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of CA, Inc. and subsidiaries as of March 31, 2011, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated May 16, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2011, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

New York, New York
July 22, 2011

Item 1.

CA, INC. AND SUBSIDIARIES

(unaudited)

(in millions, except share and per share amounts)

		June 30,				March 31,
		2011				2011
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	2,761			$	3,049
Marketable securities — current			84				75
Trade and installment accounts receivable, net			597				849
Deferred income taxes — current			207				246
Other current assets			192				152
TOTAL CURRENT ASSETS			3,841				4,371
Marketable securities — noncurrent			105				104
Property and equipment, net of accumulated depreciation of $664 and $632, respectively			426				437
Goodwill			5,695				5,688
Capitalized software and other intangible assets, net			1,275				1,284
Deferred income taxes — noncurrent			249				284
Other noncurrent assets, net			261				246
TOTAL ASSETS		$	11,852			$	12,414
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of long-term debt and loans payable		$	19			$	269
Accounts payable			104				100
Accrued salaries, wages and commissions			213				293
Accrued expenses and other current liabilities			413				395
Deferred revenue (billed or collected) — current			2,475				2,600
Taxes payable, other than income taxes payable — current			33				75
Federal, state and foreign income taxes payable — current			—				124
Deferred income taxes — current			69				68
TOTAL CURRENT LIABILITIES			3,326				3,924
Long-term debt, net of current portion			1,288				1,282
Federal, state and foreign income taxes payable — noncurrent			410				414
Deferred income taxes — noncurrent			66				64
Deferred revenue (billed or collected) — noncurrent			909				969
Other noncurrent liabilities			130				141
TOTAL LIABILITIES			6,129				6,794
STOCKHOLDERS’ EQUITY
Preferred stock, no par value, 10,000,000 shares authorized; No shares issued and outstanding			—				—
Common stock, $0.10 par value, 1,100,000,000 shares authorized; 589,695,081 and 589,695,081 shares issued; 498,926,923 and 502,299,607 shares outstanding, respectively			59				59
Additional paid-in capital			3,562				3,615
Retained earnings			4,321				4,106
Accumulated other comprehensive loss			(48	)			(65	)
Treasury stock, at cost, 90,768,158 shares and 87,395,474 shares, respectively			(2,171	)			(2,095	)
TOTAL STOCKHOLDERS’ EQUITY			5,723				5,620
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	11,852			$	12,414

See accompanying Notes to the Condensed Consolidated Financial Statements.

CA, INC. AND SUBSIDIARIES

(unaudited)

(in millions, except per share amounts)

		For the Three
		Months Ended
		June 30,
		2011				2010
REVENUE
Subscription and maintenance revenue		$	1,007			$	939
Professional services			90				78
Software fees and other			66				52
TOTAL REVENUE			1,163				1,069
EXPENSES
Costs of licensing and maintenance			67				67
Cost of professional services			88				71
Amortization of capitalized software costs			50				45
Selling and marketing			326				290
General and administrative			114				117
Product development and enhancements			118				128
Depreciation and amortization of other intangible assets			47				44
Other expenses (gains), net			10				(11	)
Restructuring and other			1				(3	)
TOTAL EXPENSES BEFORE INTEREST AND INCOME TAXES			821				748
Income from continuing operations before interest and income taxes			342				321
Interest expense, net			9				13
Income from continuing operations before income taxes			333				308
Income tax expense			105				87
INCOME FROM CONTINUING OPERATIONS			228				221
Income (loss) from discontinued operations, net of income taxes			13				(4	)
NET INCOME			241				217
BASIC INCOME (LOSS) PER SHARE
Income from continuing operations			0.45				0.43
Income (loss) from discontinued operations			0.03				(0.01	)
Net income			0.48				0.42
Basic weighted average shares used in computation			500				510
DILUTED INCOME (LOSS) PER SHARE
Income from continuing operations			0.45				0.43
Income (loss) from discontinued operations			0.02				(0.01	)
Net income			0.47				0.42
Diluted weighted average shares used in computation			501				511

See accompanying Notes to the Condensed Consolidated Financial Statements.

CA, INC. AND SUBSIDIARIES

(unaudited)

(in millions)

		For the Three Months
		Ended June 30,
		2011				2010
OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:
Net income		$	241			$	217
(Income) loss from discontinued operations			(13	)			4
Income from continuing operations			228				221
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization			97				89
Provision for deferred income taxes			71				116
Provision for bad debts			—				3
Share-based compensation expense			25				19
Asset impairments and other non-cash charges			2				5
Foreign currency transaction losses (gains)			2				(2	)
Changes in other operating assets and liabilities, net of effect of acquisitions:
Decrease in trade and current installment accounts receivable, net			274				320
Decrease in deferred revenue			(214	)			(310	)
Decrease in taxes payable, net			(241	)			(191	)
(Decrease) increase in accounts payable, accrued expenses and other			(2	)			3
Decrease in accrued salaries, wages and commissions			(82	)			(105	)
Decrease in restructuring liabilities			(6	)			(34	)
Changes in other operating assets and liabilities			(11	)			(12	)
NET CASH PROVIDED BY OPERATING ACTIVITIES — CONTINUING OPERATIONS			143				122
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:
Acquisitions of businesses, net of cash acquired, and purchased software			(29	)			(9	)
Purchases of property and equipment			(19	)			(25	)
Capitalized software development costs			(50	)			(42	)
Purchases of marketable securities			(37	)			—
Proceeds from the sale of marketable securities			18				—
Maturities of marketable securities			11				—
Other investing activities			(1	)			(16	)
NET CASH USED IN INVESTING ACTIVITIES — CONTINUING OPERATIONS			(107	)			(92	)
FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:
Dividends paid			(25	)			(21	)
Purchases of common stock			(153	)			(55	)
Debt borrowings			154				—
Debt repayments			(338	)			(3	)
Exercise of common stock options and other			9				4
NET CASH USED IN FINANCING ACTIVITIES — CONTINUING OPERATIONS			(353	)			(75	)
Effect of exchange rate changes on cash			37				(73	)
NET CHANGE IN CASH AND CASH EQUIVALENTS — CONTINUING OPERATIONS			(280	)			(118	)
CASH PROVIDED (USED) BY OPERATING ACTIVITIES — DISCONTINUED OPERATIONS			(12	)			(5	)
CASH PROVIDED (USED) BY INVESTING ACTIVITIES — DISCONTINUED OPERATIONS			4				16
NET EFFECT OF DISCONTINUED OPERATIONS ON CASH AND CASH EQUIVALENTS			(8	)			11
DECREASE IN CASH AND CASH EQUIVALENTS			(288	)			(107	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			3,049				2,583
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	2,761			$	2,476

See accompanying Notes to the Condensed Consolidated Financial Statements.

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

NOTE A — ACCOUNTING POLICIES

Basis of Presentation: The accompanying unaudited Condensed Consolidated Financial Statements of CA, Inc. (the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP), as defined in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 270, for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2011 (2011 Form 10-K).

In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal, recurring nature.

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

Operating results for the three months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2012.

Divestitures: In June 2011, the Company sold its Internet Security business and in June 2010, the Company sold its Information Governance business. The results of operations for these businesses, and the related gain (loss) on disposal have been presented as discontinued operations in the accompanying Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows. The effects of the discontinued components were immaterial to the Company’s Condensed Consolidated Balance Sheets at March 31, 2011. See Note C, “Divestitures,” for additional information.

Cash and Cash Equivalents: The Company’s cash and cash equivalents are held in numerous locations throughout the world, with approximately 54% being held by the Company’s foreign subsidiaries outside the United States at June 30, 2011.

Fair Value Measurements: Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants. The Company is required to classify certain assets and liabilities based on the following fair value hierarchy:

—		Level 1: Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
—		Level 2: Quoted prices for identical assets and liabilities in markets that are not active, or quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and
—		Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

See Note J, “Fair Value Measurements,” for additional information.

Deferred Revenue (Billed or Collected): The Company accounts for unearned revenue on billed amounts due from customers on a gross basis. Unearned revenue on billed installments (collected or uncollected) is reported as deferred revenue in the liability section of the Company’s Condensed Consolidated Balance Sheets. Deferred revenue (billed or collected) excludes unbilled contractual commitments executed under license and maintenance agreements that will be billed in future periods.

Statements of Cash Flows: For the three months ended June 30, 2011 and 2010, interest payments were approximately $25 million and $35 million, respectively, and income taxes paid were approximately $198 million and $87 million, respectively.

The Company uses a notional pooling arrangement with an international bank to help manage global liquidity requirements. Under this pooling arrangement, the Company and its participating subsidiaries may maintain either cash deposit or borrowing positions through local currency accounts with the bank, so long as the aggregate position of the global pool is a notionally calculated net cash deposit. Because

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

the bank maintains a security interest in the cash deposits, and has the right to offset the cash deposits against the borrowings, the bank provides the Company and its participating subsidiaries favorable interest terms on both cash deposits and borrowings. At June 30, 2011, there was approximately $68 million of borrowings outstanding under this cash pooling arrangement which is included in the “Accrued expenses and other current liabilities” line item on the Company’s Condensed Consolidated Balance Sheet. Borrowings and repayments were approximately $154 million and $86 million, respectively, for the three months ended June 30, 2011. At March 31, 2011, there were no borrowings outstanding under the cash pooling arrangement.

Non-cash financing activities for the three months ended June 30, 2011 and 2010 consisted of treasury shares issued in connection with the following: share-based incentive awards granted under the Company’s equity compensation plans of approximately $51 million (net of approximately $25 million of taxes withheld) and $61 million (net of approximately $25 million of taxes withheld), respectively; and discretionary stock contributions to the CA, Inc. Savings Harvest Plan of approximately $13 million and $25 million, respectively.

NOTE B — ACQUISITIONS

Acquisitions of businesses are accounted for as purchases and, accordingly, their results of operations have been included in the Company’s Condensed Consolidated Financial Statements since the respective dates of the acquisitions. The purchase price for each of the Company’s acquisitions is allocated to the assets acquired and liabilities assumed from the acquired entity.

The pro forma effects of the Company’s fiscal year 2012 acquisitions to the Company’s revenues and results of operations during fiscal year 2011and 2012 were considered immaterial. The purchase price allocation of the Company’s fiscal 2012 acquisitions is as follows:

		Fiscal Year 2012				Estimated
(dollars in millions)		Acquisitions				Useful Life
Finite-lived intangible assets(1)		$	11			9 years
Goodwill			16			Indefinite
Other assets net of other liabilities assumed			3				—
Purchase Price		$	30

Transaction costs for the fiscal year 2012 acquisitions were immaterial. The excess purchase price over the estimated value of the net tangible and identifiable intangible assets was recorded to goodwill. The allocation of a significant portion of the purchase price to goodwill was predominantly due to the intangible assets that are not separable, such as assembled workforce and going concern. The goodwill relating to the fiscal year 2012 acquisitions is expected to be deductible for tax purposes.

The Company had approximately $75 million and $73 million of accrued acquisition-related costs as of June 30, 2011 and March 31, 2011, respectively, all of which related to purchase price amounts withheld subject to indemnification protections.

In June 2011, the Company announced a definitive agreement to acquire privately-held Interactive TKO, Inc., a leading provider of service simulation solutions for developing applications in composite and cloud environments, for $330 million. This acquisition is expected to close in the second quarter of fiscal 2012.

NOTE C — DIVESTITURES

In June 2011, the Company sold its Internet Security business for approximately $14 million to Updata Partners, LLC and recognized a gain on disposal of $23 million, including tax expense of $18 million. In June 2010, the Company sold its Information Governance business for approximately $19 million to Autonomy Corporation plc and recognized a loss on disposal of $5 million, including tax expense of $4 million.

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

The income (loss) from discontinued components, for the three months ended June 30, 2011 and 2010 consists of the following:

		June 30, 2011				June 30, 2010
		(in millions)
Subscription and maintenance revenue		$	15			$	24
Professional services			—				1
Total revenue		$	15			$	25
(Loss) income from operations of discontinued components, net of tax benefit of ($6) million and tax expense of less than a million, respectively		$	(10	)		$	1
Gain (loss) on disposal of discontinued components, net of taxes			23				(5	)
Income (loss) from discontinued operations, net of taxes		$	13			$	(4	)

NOTE D — RESTRUCTURING

Fiscal 2010 restructuring plan: The Fiscal 2010 restructuring plan (Fiscal 2010 Plan) was announced in March 2010 and is composed of a workforce reduction of approximately 1,000 positions and global facilities consolidations. These actions were intended to better align the Company’s cost structure with the skills and resources required to more effectively pursue opportunities in the marketplace and execute the Company’s long-term growth strategy. The total amounts incurred with respect to severance and facilities abandonment under the Fiscal 2010 Plan are $43 million and $2 million, respectively. Actions under the Fiscal 2010 Plan were substantially completed by the end of fiscal year 2011.

Fiscal 2007 restructuring plan: In August 2006, the Company announced the Fiscal 2007 restructuring plan (Fiscal 2007 Plan) to significantly improve the Company’s expense structure and increase its competitiveness. The Fiscal 2007 Plan’s objectives included a workforce reduction of approximately 3,100 employees, global facilities consolidations and other cost reductions. The total amounts incurred with respect to severance and facilities abandonment under the Fiscal 2007 Plan are $220 million and $120 million, respectively. Actions under the Fiscal 2007 Plan were substantially completed by the end of fiscal year 2010.

Accrued restructuring costs at June 30, 2011 and changes in the accruals during the three months ended June 30, 2011 and 2010 associated with the Fiscal 2010 and Fiscal 2007 Plans were as follows:

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

						Facilities
Fiscal 2010 Plan		Severance				Abandonment
		(in millions)
Accrued balance at March 31, 2010		$	46			$	2
Activity for the period ended June 30, 2010
Change in estimate			(3	)			—
Payments			(22	)			—
Accretion and other			(1	)			—
Accrued balance at June 30, 2010		$	20			$	2
Accrued balance at March 31, 2011		$	4			$	1
Activity for the period ended June 30, 2011
Change in estimate			(1	)			—
Payments			(1	)			—
Accrued balance at June 30, 2011		$	2			$	1

						Facilities
Fiscal 2007 Plan		Severance				Abandonment
		(in millions)
Accrued balance at March 31, 2010		$	8			$	60
Payments			(2	)			(4	)
Accrued balance at June 30, 2010		$	6			$	56
Accrued balance at March 31, 2011			4				46
Change in estimate			—				1
Payments			(1	)			(4	)
Accretion and other			—				1
Accrued balance at June 30, 2011		$	3			$	44

The severance liability is included in the “Accrued salaries, wages and commissions” line item on the Condensed Consolidated Balance Sheet. The facilities abandonment liability is included in the “Accrued expenses and other current liabilities” and “Other noncurrent liabilities” line items on the Condensed Consolidated Balance Sheet. The costs are included in the “Restructuring and other” line item on the Condensed Consolidated Statements of Operations.

Accretion and other includes accretion of the Company’s lease obligations related to facilities abandonment as well as changes in the assumptions related to future sublease income. These costs are included in the “General and administrative” expense line item on the Condensed Consolidated Statements of Operations.

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

NOTE E — MARKETABLE SECURITIES

At June 30, 2011, available-for-sale securities consisted of the following:

						June 30, 2011
		(in millions)
		Aggregate				Gross				Gross
		Cost				Unrealized				Unrealized				Aggregate
		Basis				Gains				Losses				Fair Value
U.S. treasury and agency securities		$	68			$	—			$	—			$	68
Municipal securities			1				—				—				1
Corporate debt securities			120				—				—				120
		$	189			$	—			$	—			$	189

At June 30, 2011, the Company did not have any debt securities that were in a continuous unrealized loss position for greater than 12 months. Proceeds from the sale of marketable securities and realized gains and realized losses were approximately $18 million and less than $1 million, respectively. At June 30, 2011, $84 million of marketable securities had scheduled maturities of less than one year, and approximately $105 million had maturities of greater than one year but not exceeding three years.

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

NOTE F — TRADE AND INSTALLMENT ACCOUNTS RECEIVABLE

Trade and installment accounts receivable, net represents amounts due from the Company’s customers and is presented net of allowance for doubtful accounts. These balances include revenue recognized in advance of customer billings but do not include unbilled contractual commitments executed under license agreements. The components of “Trade and installment accounts receivable, net” were as follows:

		June 30,				March 31,
		2011				2011
		(in millions)
Accounts receivable — billed		$	535			$	758
Accounts receivable — unbilled			64				86
Other receivables			19				27
Less: Allowance for doubtful accounts			(21	)			(22	)
Trade and installment accounts receivable, net		$	597			$	849

NOTE G — GOODWILL, CAPITALIZED SOFTWARE AND OTHER INTANGIBLE ASSETS

The gross carrying amounts and accumulated amortization for capitalized software and other intangible assets at June 30, 2011 were approximately $7,471 million and $6,196 million, respectively. These amounts include fully amortized intangible assets of approximately $5,592 million, which was composed of purchased software of approximately $4,662 million, internally developed software of approximately $527 million and other identified intangible assets subject to amortization of approximately $403 million. The gross carrying amounts and accumulated amortization for identified intangible assets that were not fully amortized were as follows:

		At June 30, 2011
		Gross
		Amortizable				Accumulated				Net
		Assets				Amortization				Assets
						(in millions)
Purchased software products		$	770			$	221			$	549
Capitalized development cost and other intangibles:
Internally developed software products			715				207				508
Other identified intangible assets subject to amortization			394				176				218
Total capitalized software and other intangible assets		$	1,879			$	604			$	1,275

The gross carrying amounts and accumulated amortization for capitalized software and other intangible assets at March 31, 2011 were approximately $7,417 million and $6,133 million, respectively. These amounts included fully amortized assets of approximately $5,290 million, which was composed of purchased software of approximately $4,662 million, internally developed software products of approximately $508 million and other intangible assets subject to amortization of approximately $120 million. The gross carrying amounts and accumulated amortization for identified intangible assets that were not fully amortized were as follows:

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

		At March 31, 2011
		Gross
		Amortizable				Accumulated				Net
		Assets				Amortization				Assets
						(in millions)
Purchased software products		$	768			$	198			$	570
Capitalized development cost and other intangibles:
Internally developed software products			693				205				488
Other intangible assets subject to amortization			652				440				212
Other intangible assets not subject to amortization			14				—				14
Total capitalized software costs and other intangible assets		$	2,127			$	843			$	1,284

Based on the capitalized software and other intangible assets recorded through June 30, 2011, the annual amortization expense over the next five fiscal years is expected to be as follows:

		Year Ended March 31,
		2012				2013				2014				2015				2016
		(in millions)
Capitalized software:
Purchased		$	85			$	78			$	70			$	59			$	57
Internally developed			117				130				112				87				56
Other identified intangible assets subject to amortization			63				51				45				38				24
Total		$	265			$	259			$	227			$	184			$	137

Goodwill activity for the first quarter of fiscal year 2012 was as follows:

		Amounts
		(in millions)
Balance at March 31, 2011		$	5,688
Revisions to purchase price allocation of prior year acquisitions			(3	)
Balance at March 31, 2011 as revised			5,685
Amounts allocated to loss on discontinued operations			(7	)
Acquisitions			16
Foreign currency translation adjustment			1
Balance at June 30, 2011		$	5,695

NOTE H — DEFERRED REVENUE

The components of “Deferred revenue (billed or collected) — current” and “Deferred revenue (billed or collected) — noncurrent” at June 30, 2011 and March 31, 2011 were as follows:

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

		June 30,				March 31,
		2011				2011
		(in millions)
Current:
Subscription and maintenance		$	2,319			$	2,444
Professional services			145				145
Financing obligations and other			11				11
Total deferred revenue (billed or collected) — current			2,475				2,600
Noncurrent:
Subscription and maintenance			878				940
Professional services			28				27
Financing obligations and other			3				2
Total deferred revenue (billed or collected) — noncurrent			909				969
Total deferred revenue (billed or collected)		$	3,384			$	3,569

NOTE I — DERIVATIVES

The Company is exposed to financial market risks arising from changes in interest rates and foreign exchange rates. Changes in interest rates could affect the Company’s monetary assets and liabilities, and foreign exchange rate changes could affect the Company’s foreign currency denominated monetary assets and liabilities and forecasted transactions. The Company enters into derivative contracts with the intent of mitigating a portion of these risks.

Interest rate swaps: The Company has interest rate swaps with a total notional value of $500 million, $200 million of which were entered into during the first quarter of fiscal year 2011, that swap a total of $500 million of its 6.125% Senior Notes due December 2014 into floating interest rate debt through December 1, 2014. These swaps are designated as fair value hedges.

At June 30, 2011, the fair value of these derivatives was an asset of approximately $23 million, of which approximately $11 million is included in “Other current assets” and approximately $12 million is included in “Other noncurrent assets, net” in the Company’s Condensed Consolidated Balance Sheets.

At March 31, 2011, the fair value of these derivatives was an asset of approximately $15 million, of which approximately $11 million is included in “Other current assets” and approximately $4 million is included in “Other noncurrent assets, net” in the Company’s Condensed Consolidated Balance Sheets.

During fiscal year 2009, the Company entered into interest rate swaps with a total notional value of $250 million to hedge a portion of its variable interest rate payments on its revolving credit facility. These derivatives were designated as cash flow hedges and matured in October 2010. The amount of loss reclassified from “Accumulated other comprehensive income” into “Interest expense, net” in the Company’s Condensed Consolidated Statements of Operations was approximately $2 million for the three months ended June 30, 2010.

Foreign currency contracts: The Company enters into foreign currency option and forward contracts to manage foreign currency risks. The Company has not designated its foreign exchange derivatives as hedges. Accordingly, changes in fair value from these contracts are recorded as “Other expenses (gains), net” in the Company’s Condensed Consolidated Statements of Operations. At June 30, 2011, foreign currency contracts outstanding consisted of purchase and sales contracts with a total notional value of approximately $635 million and durations of less than nine months. The net fair value of these contracts at June 30, 2011 was approximately $2 million, of which approximately $10 million is included in “Other current assets” and approximately $8 million is included in “Accrued expenses and other current liabilities” in the Company’s Condensed Consolidated Balance Sheet. The net fair value of these contracts at March 31, 2011 was approximately $6 million, of which approximately $7 million is included in “Other current assets” and approximately $1 million is included in “Accrued expenses and other current liabilities” in the Company’s Condensed Consolidated Balance Sheet.

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

A summary of the effect of the interest rate and foreign exchange derivatives on the Company’s Condensed Consolidated Statements of Operations is as follows:

		Amount of Net (Gain)/Loss Recognized in the
		Condensed Consolidated Statements of Operations
		(in millions)
		Three Months Ended				Three Months Ended
Location of Amounts Recognized		June 30, 2011				June 30, 2010
Interest expense, net — interest rate swaps designated as cash flow hedges		$	—			$	2
Interest expense, net — interest rate swaps designated as fair value hedges		$	(3	)		$	(3	)
Other expenses (gains), net — foreign currency contracts		$	7			$	(13	)

The Company is subject to collateral security arrangements with most of its major counterparties. These arrangements require the Company to hold or post collateral when the derivative fair values exceed contractually established thresholds. The aggregate fair values of all derivative instruments under these collateralized arrangements were in a net asset position at June 30, 2011 and March 31, 2011. The Company posted no collateral at June 30, 2011 or March 31, 2011. Under these agreements, if the Company’s credit ratings had been downgraded one rating level, the Company would still not have been required to post collateral.

NOTE J — FAIR VALUE MEASUREMENTS

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30 and March 31, 2011.

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

		At June 30, 2011												At March 31, 2011
		Fair Value								Estimated				Fair Value								Estimated
		Measurement Using								Fair				Measurement Using								Fair
		Input Types								Value				Input Types								Value
(in millions)		Level 1				Level 2				Total				Level 1				Level 2				Total
Assets:
Money market funds		$	1,778			$	—			$	1,778	(1)		$	2,009			$	—			$	2,009	((2)
Marketable securities(3)			—				189				189				—				179				179
Foreign exchange derivatives(4)			—				10				10				—				7				7
Interest rate derivatives(4)			—				23				23				—				15				15
Total Assets		$	1,778			$	222			$	2,000			$	2,009			$	201			$	2,210
Liabilities:
Foreign exchange derivatives(4)		$	—			$	8			$	8			$	—			$	1			$	1
Total Liabilities		$	—			$	8			$	8			$	—			$	1			$	1

At June 30 and March 31, 2011, the Company did not have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis at June 30, 2011 and March 31, 2011:

		At June 30, 2011								At March 31, 2011
		(in millions)								(in millions)
		Carrying				Estimated				Carrying				Estimated
		Value				Fair Value				Value				Fair Value
Liabilities:
Total debt(1)		$	1,307			$	1,402			$	1,551			$	1,619
Facilities abandonment reserve(2)		$	48			$	55			$	52			$	59

The carrying values of financial instruments classified as current assets and current liabilities, such as cash and cash equivalents, accounts payable, accrued expenses, and short-term debt, approximate fair value due to the short-term maturity of the instruments. The fair values of total debt, including current maturities, have been based on quoted market prices.

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

NOTE K — COMMITMENTS AND CONTINGENCIES

In September 2010, a lawsuit captioned Uniloc USA, Inc. et ano. v. National Instruments Corp., et al. was filed in the United States District Court for the Eastern District of Texas against the Company and 10 other defendants. The complaint alleges, among other things, that Company technology, including Internet Security Suite Plus 2010 (“ISS”), infringes a patent licensed to plaintiff Uniloc USA, Inc., entitled “System for Software Registration,” U.S. Patent No. 5,490,216 (“‘216 Patent”). The complaint seeks monetary damages and interest in an undisclosed amount, a temporary, preliminary and permanent injunction against alleged acts of infringement, and attorneys’ fees and costs, based upon the plaintiffs’ patent infringement claims. In November 2010, the Company filed an answer that, among other things, disputes the plaintiffs’ claims and seeks a declaratory judgment that the Company does not infringe the ‘216 Patent and that the ‘216 Patent is invalid. In June 2011, as part of the plaintiffs’ preliminary infringement contentions concerning ISS, the plaintiffs produced to the Company a list of almost 1,100 Company products that the plaintiffs claim also infringe on the ‘216 Patent. The Company has moved to strike this supplemental list because, among other things, the plaintiffs’ apparent position is inconsistent with prior rulings by the Federal Circuit Court concerning the ‘216 Patent; and the plaintiffs failed to demonstrate any good faith basis to support their claim because, among other things, at least some of the products on the product list do not employ any license activation technology (the technology subject to the ‘216 Patent). The Company’s motion is pending. Although the timing and ultimate outcome cannot be determined, the Company believes that the plaintiffs’ claims are unfounded and that the Company has meritorious defenses.

Based on the Company’s experience, the Company believes that the damages amounts claimed in the aforementioned case are not a meaningful indicator of the potential liability. Claims, suits, investigations and proceedings are inherently uncertain and it is not possible to predict the ultimate outcome of the aforementioned case. Due to the nature and early stage of the Uniloc matter, the Company is unable to estimate a range of reasonably possible loss for this case.

The Company, various subsidiaries, and certain current and former officers have been named as defendants in various other lawsuits and claims arising in the normal course of business. The Company believes that it has meritorious defenses in connection with these other lawsuits and claims, and intends to vigorously contest each of them.

In the opinion of the Company’s management based upon information currently available to the Company, while the outcome of the Uniloc case and these other lawsuits and claims is uncertain, the likely results of the Uniloc case and these other lawsuits and claims against the Company, either individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flows, although the effect could be material to the Company’s results of operations or cash flows for any interim reporting period.

The Company is obligated to indemnify its officers and directors under certain circumstances to the fullest extent permitted by Delaware law. As a part of that obligation, the Company has advanced and will continue to advance certain attorneys’ fees and expenses incurred by current and former officers and directors in various lawsuits and investigations.

NOTE L — STOCKHOLDERS’ EQUITY

Stock Repurchases: On May 12, 2011, the Company’s Board of Directors approved a stock repurchase program that authorized the Company to acquire up to an additional $500 million of its common stock. At June 30, 2011, the Company remained authorized to purchase up to approximately $632 million of additional shares of common stock under its stock repurchase programs. During the three months ended June 30, 2011, the Company repurchased approximately 6.4 million shares of its common stock for approximately $150 million, all of which was settled through cash payment as of June 30, 2011.

Comprehensive Income: Comprehensive income includes net income, unrealized gains on cash flow hedges, unrealized gains and losses on marketable securities and foreign currency translation adjustments. The components of comprehensive income for the three months ended June 30, 2011 and 2010 are as follows:

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

		Three Months
		Ended June 30,
		2011				2010
		(in millions)
Net income		$	241			$	217
Net unrealized gain on cash flow hedges, net of tax			—				1
Unrealized gain/(loss) on marketable securities, net of tax			—				—
Foreign currency translation adjustments			17				(34	)
Total comprehensive income		$	258			$	184

Cash Dividends: The Company’s Board of Directors declared the following dividends during the three months ended June 30, 2011 and 2010:

Three Months Ended June 30, 2011:
(in millions, except per share amounts)

Declaration Date		Dividend Per Share		Record Date		Total Amount		Payment Date
May 12, 2011		$0.05		May 23, 2011		$25		June 16, 2011

Three Months Ended June 30, 2010:
(in millions, except per share amounts)

Declaration Date

Dividend Per Share

Record Date

Total Amount

Payment Date

May 12, 2010

$

0.04

May 31, 2010

$

21

June 16, 2010

NOTE M — INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of net income per share under the two-class method. Under the two-class method, net income is reduced by the amount of dividends declared in the period for each class of common stock and participating securities. The remaining undistributed income is then allocated to common stock and participating securities as if all of the net income for the period had been distributed. Basic net income per common share excludes dilution and is calculated by dividing net income allocable to common shares by the weighted average number of common shares outstanding for the period. Diluted net income per common share is calculated by dividing net income allocable to common shares by the weighted average number of common shares as of the balance sheet date, as adjusted for the potential dilutive effect of non-participating share-based awards. The following table reconciles net income per common share for the three months ended June 30, 2011 and 2010.

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

		Three Months
		Ended June 30,
		2011				2010
		(in millions, except per share
		amounts)
Basic income from continuing operations per common share:
Income from continuing operations		$	228			$	221
Less: Income from continuing operations allocable to participating securities			(3	)			(3	)
Income from continuing operations allocable to common shares		$	225			$	218
Weighted average common shares outstanding			500				510
Basic income from continuing operations per common share		$	0.45			$	0.43
Diluted income from continuing operations per common share:
Income from continuing operations		$	228			$	221
Less: Income from continuing operations allocable to participating securities			(3	)			(3	)
Income from continuing operations allocable to common shares		$	225			$	218
Weighted average shares outstanding and common share equivalents
Weighted average common shares outstanding			500				510
Weighted average effect of share-based payment awards			1				1
Denominator in calculation of diluted income per share			501				511
Diluted income from continuing operations per common share		$	0.45			$	0.43

For the three months ended June 30, 2011 and 2010, respectively, approximately 5 million and 10 million shares of Company common stock underlying restricted stock awards and options to purchase common stock were excluded from the calculation because their effect on income per share was anti-dilutive during the respective periods. Weighted average restricted stock awards of approximately 7 million and 7 million for the three months ended June 30, 2011 and 2010, respectively, were considered participating securities in the calculation of net income available to common shareholders.

NOTE N — ACCOUNTING FOR SHARE-BASED COMPENSATION

The Company recognized share-based compensation in the following line items on the Condensed Consolidated Statements of Operations for the periods indicated:

		Three Months
		Ended June 30,
		2011				2010
		(in millions)
Costs of licensing and maintenance		$	1			$	1
Cost of professional services			1				1
Selling and marketing			10				7
General and administrative			8				4
Product development and enhancements			5				6
Share-based compensation expense before tax			25				19
Income tax benefit			(8	)			(6	)
Net share-based compensation expense		$	17			$	13

The following table summarizes information about unrecognized share-based compensation costs as of June 30, 2011:

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

						Weighted
		Unrecognized				Average Period
		Compensation				Expected to be
		Costs				Recognized
		(in millions)				(in years)
Stock option awards		$	7				2.5
Restricted stock units			20				2.4
Restricted stock awards			91				2.2
Performance share units			44				3.0
Total unrecognized share-based compensation costs		$	162				2.5

There were no capitalized share-based compensation costs at June 30, 2011 or 2010.

The value of performance share unit (PSU) awards is determined using the closing price of the Company’s common stock on the last trading day of the quarter until the PSUs are granted. Compensation costs for the PSUs are amortized over the requisite service periods based on the expected level of achievement of the performance targets. At the conclusion of the performance periods for the PSUs, the applicable number of shares of restricted stock awards (RSAs), restricted stock units (RSUs) or unrestricted shares granted may vary based upon the level of achievement of the performance targets and the approval of the Company’s Compensation and Human Resources Committee (which may reduce any award for any reason in its discretion).

For the three months ended June 30, 2011 and 2010, the Company issued options for approximately 0.6 million shares and 1.0 million shares, respectively. The weighted average fair values and assumptions used for the options granted were as follows:

		Three Months
		Ended June 30,
		2011				2010
Weighted average fair value		$	6.00			$	5.62
Dividend yield			0.91	%			0.82	%
Expected volatility factor(1)			33	%			34	%
Risk-free interest rate(2)			1.7	%			1.9	%
Expected life (in years)(3)			4.5				4.5

The 1-year PSU awards for the fiscal year 2011 and 2010 incentive plan years under the Company’s long-term incentive plans were granted in the first quarter of fiscal years 2012 and 2011, respectively. The table below summarizes the RSAs and RSUs granted under these PSUs:

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

RSAs

RSUs

Weighted

Weighted Average

Incentive Plans

Performance

Shares

Average Grant

Shares

Grant Date Fair

for Fiscal Years

Period

(in millions)

Date Fair Value

(in millions)

Value

2011

1-year

1.1

$ 24.68

0.1

$ 24.48

2010

1-year

2.2

$ 21.47

—(1)

$ 21.38

The 3-year PSUs for the fiscal year 2009 and 2008 incentive plan years under the Company’s long-term incentive plans were granted in the first quarter of fiscal years 2012 and 2011, respectively. Unrestricted shares of common stock were issued in settlement immediately upon grant.

				Unrestricted Shares				Weighted Average Grant
Incentive Plans for Fiscal Years		Performance Period		(in millions)				Date Fair Value
2009		3-year			0.2				$ 24.68
2008		3-year			0.3				$ 21.47

Share-based awards were granted under the Company’s fiscal year 2011 and 2010 Sales Retention Equity Programs in the first quarter of fiscal years 2012 and 2011, respectively. These awards cliff vest at the end of a three-year period beginning on the first anniversary of the grant date. The table below summarizes the RSAs and RSUs granted under these programs:

RSAs

RSUs

Weighted

Weighted Average

Performance

Shares

Average Grant

Shares

Grant Date Fair

Incentive Plans for Fiscal Years

Period

(in millions)

Date Fair Value

(in millions)

Value

2011

1-year

0.3

$ 24.68

0.1

$ 24.09

2010

1-year

0.4

$ 21.47

0.1

$ 21.36

The table below summarizes all of the RSUs and RSAs, including grants made pursuant to the long-term incentive plans discussed above, granted during the three months ended June 30, 2011 and 2010:

		Three Months
		Ended June 30,
		2011				2010
		(shares in millions)
RSUs
Shares			0.6				0.5
Weighted Avg. Grant Date Fair Value (1)		$	24.27			$	21.39
RSAs
Shares			3.5				4.6
Weighted Avg. Grant Date Fair Value (2)		$	24.66			$	21.46

NOTE O — INCOME TAXES

Income tax expense for the three months ended June 30, 2011 was $105 million compared with income tax expense of $87 million for the three months ended June 30, 2010.

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

During the three months ended June 30, 2010, the Company had a net tax benefit of $13 million resulting primarily from the resolution of uncertain tax positions in respect of its international profile.

In April 2011, the U.S. Internal Revenue Service (“IRS”) completed its examination of the Company’s federal income tax returns for the tax years ended March 31, 2005, March 31, 2006 and March 31, 2007 and issued a report of its findings in connection with the examination. The Company disagrees with certain proposed adjustments in the report and intends to vigorously dispute these matters through applicable IRS and judicial procedures, as appropriate. While the Company believes that it has recorded reserves sufficient to cover exposures related to these issues, such that the ultimate disposition of this matter will not have a material adverse effect on the Company’s consolidated financial position, cash flows or results of operations, the resolution of such matters involves uncertainties and there are no assurances that the ultimate resolution will not exceed the amounts recorded. The Company does not believe it is reasonably possible that the amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

The Company’s effective income tax rate, excluding the impact of discrete items, for the three months ended June 30, 2011 and June 30, 2010 was 32.3% and 32.5%, respectively. Changes in the anticipated results of the Company’s international operations, the outcome of tax audits and any other changes in potential tax liabilities may result in additional tax expense or benefit in future periods, which are not considered in the Company’s estimated annual effective tax rate. While the Company does not currently view any such items as individually material to the results of the Company’s operations or financial position, the impact of such items may yield additional tax expense or benefit in the remaining quarters of fiscal year 2012 and future periods and the Company is anticipating a fiscal year 2012 effective tax rate of approximately 31% to 32%.

NOTE P — SEGMENT INFORMATION

In the first quarter of fiscal year 2012, the Company completed its implementation of changing the internal reporting used by its Chief Executive Officer for evaluating segment performance and allocating resources. The new reporting disaggregates the Company’s operations into Mainframe Solutions, Enterprise Solutions and Services segments, and represents a change in the Company’s operating segments under ASC 280, “Segment Reporting”. Prior to fiscal year 2012, the Company reported and managed its business based on a single operating segment under ASC 280.

The Company’s Mainframe Solutions and Enterprise Solutions operating segments comprise its software business organized by the nature of the Company’s software offerings and the product hierarchy in which the platform operates on. The Services operating segment comprises implementation, consulting, education and training services, including those directly related to the mainframe and distributed software that the Company sells to its customers.

The Company regularly enters into a single arrangement with a customer that includes Mainframe Solutions segment software products, Enterprise Solutions segment software products and Services. The amount of contract revenue assigned to segments is generally based on the manner in which the proposal is made to the customer. The software product revenue is assigned to the Mainframe Solutions and Enterprise Solutions segments based on either: (1) a list price allocation method (which allocates a discount in the total contract price to the individual products in proportion to the list price of the products); (2) allocations included within internal contract approval documents; or (3) the value for individual software products as stated in the customer contract. The price for the implementation, consulting, education and training services is separately stated in the contract and these amounts of contract revenue are assigned to the Services segment. The contract value assigned to each segment is then recognized in a manner consistent with the revenue recognition policies the Company applies to the customer contract for purposes of preparing the Condensed Consolidated Financial Statements.

Segment expenses include costs that are controllable by segment managers (i.e., direct costs) and, in the case of the Mainframe Solutions and Enterprise Solutions segments, an allocation of shared and indirect costs (i.e., allocated costs). Segment-specific direct costs include a portion of selling and marketing costs, licensing and maintenance costs, product development costs, general and administrative costs and amortization of the cost of internally developed software. Allocated segment costs primarily include indirect selling and marketing costs and

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

general and administrative costs that are not directly attributable to a specific segment. The basis for allocating shared and indirect costs between the Mainframe Solutions and Enterprise Solutions segments is dependent on the nature of the cost being allocated and is either in proportion to segment revenues or in proportion to the related direct cost category. Expenses for the Services segment consist only of direct costs and there are no allocated or indirect costs for the Services segment.

Unallocated segment expenses include the following: share-based compensation expense; amortization of purchased software; amortization of other intangible assets; derivative hedging gains and losses; and severance, exit costs and related charges associated with the Company’s Fiscal 2007 Plan.

A measure of segment assets is not currently provided to the Company’s Chief Executive Officer and has therefore not been disclosed. Also, goodwill by segment has not been disclosed because the Company has not yet completed its allocation of goodwill among the segments.

The Company’s segment information for the three months ended June 30, 2011 and 2010 is as follows:

Three months ended June 30, 2011		Mainframe				Enterprise
(in millions)		Solutions				Solutions				Services				Total
Revenue		$	646			$	427			$	90			$	1,163
Expenses			276				382				88				746
Segment profit		$	370			$	45			$	2			$	417
Segment operating margin			57	%			11	%			2	%			36	%
Depreciation and amortization		$	24			$	31			$	—			$	55

Reconciliation of segment profit to income from continuing operations before income taxes for the three months ended June 30, 2011:
Segment profit														$	417
Less:
Amortization of purchased software															23
Amortization of other intangible assets															19
Share-based compensation expense															25
Other unallocated operating expenses, net(1)															8
Interest expense, net															9
Income from continuing operations before income taxes														$	333

CA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)

Three months ended June 30, 2010		Mainframe				Enterprise
(in millions)		Solutions				Solutions				Services				Total
Revenue		$	615			$	376			$	78			$	1,069
Expenses			280				351				74				705
Segment profit		$	335			$	25			$	4			$	364
Segment operating margin			54	%			7	%			5	%			34	%
Depreciation and amortization		$	26			$	25			$	—			$	51

Reconciliation of segment profit to income from continuing operations before income taxes for the three months ended June 30, 2010:
Segment profit														$	364
Less:
Amortization of purchased software															22
Amortization of other intangible assets															16
Share-based compensation expense															19
Other unallocated operating gains, net(1)															(14	)
Interest expense, net															13
Income from continuing operations before income taxes														$	308

The table below summarizes the Company’s revenue from the United States and from international (i.e., non-U.S.) locations:

		Three months ended				Three months ended
(in millions)		June 30, 2011				June 30, 2010
United States		$	672			$	613
International			491				456
Total revenue		$	1,163			$	1,069

NOTE Q — SUBSEQUENT EVENTS

On July 20, 2011 the Company announced it would incur a charge of approximately $35 million to $45 million in the second quarter of fiscal 2012 in connection with a workforce reduction. The workforce reduction is expected to be substantially completed by the end of fiscal year 2012.

Item 2:

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

Forward-Looking Statement

This Quarterly Report on Form 10-Q (Form 10-Q) contains certain forward-looking information relating to CA, Inc. (the “Company,” “Registrant,” “CA Technologies,” “CA,” “we,” “our” or “us”), that is based on the beliefs of, and assumptions made by, our management as well as information currently available to management. When used in this Form 10-Q, the words “anticipate,” “believe,” “estimate,” “expect” and similar expressions are intended to identify forward-looking information. Such information includes, for example, the statements made in this Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A), but also appears in other parts of this Form 10-Q. This forward-looking information reflects our current views with respect to future events and is subject to certain risks, uncertainties, and assumptions.

A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements, including: the ability to achieve success in the Company’s strategy by, among other things, increasing sales in new and emerging enterprises and markets, enabling the sales force to sell new products, improving the Company’s brand in the marketplace and ensuring the Company’s set of cloud computing, Software-as-a-Service and other new offerings address the needs of a rapidly changing market, while not adversely affecting the demand for the Company’s traditional products or its profitability; global economic factors or political events beyond the Company’s control; general economic conditions and credit constraints, or unfavorable economic conditions in a particular region, industry or business sector; failure to expand partner programs; the ability to adequately manage and evolve financial reporting and managerial systems and processes; the ability to integrate acquired companies and products into existing businesses; competition in product and service offerings and pricing; the ability to retain and attract qualified key personnel; the ability to adapt to rapid technological and market changes; the ability of the Company’s products to remain compatible with ever-changing operating environments; access to software licensed from third parties; use of software from open source code sources; discovery of errors in the Company’s software and potential product liability claims; significant amounts of debt and possible future credit rating changes; the failure to protect the Company’s intellectual property rights and source code; fluctuations in the number, terms and duration of our license agreements as well as the timing of orders from customers and channel partners; reliance upon large transactions with customers; risks associated with sales to government customers; breaches of the Company’s software products and the Company’s and customers’ data centers and IT environments; third-party claims of intellectual property infringement or royalty payments; fluctuations in foreign currencies; failure to effectively execute the Company’s workforce reductions; successful outsourcing of various functions to third parties; potential tax liabilities; and other factors described more fully in this Form 10-Q and the Company’s other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties occur, or should our assumptions prove incorrect, actual results may vary materially from those described in this Form 10-Q as anticipated, believed, estimated, or expected. We do not intend to update these forward-looking statements, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. This MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements. References in this Form 10-Q to fiscal 2012 and fiscal 2011 are to our fiscal years ending on March 31, 2012 and 2011, respectively.

OVERVIEW

We are the leading independent enterprise information technology (IT) management software and solutions company with expertise across IT environments — from mainframe and physical to virtual and cloud. We develop and deliver software and services that help organizations manage, secure and automate their IT infrastructures and deliver more flexible IT services. This allows companies to more effectively and efficiently respond to business needs.

Item 2:

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

We address components of the computing environment, including people, information, processes, systems, networks, applications and databases, regardless of the hardware or software customers are using. We license our products worldwide. We service companies across most major industries worldwide, including banks, insurance companies, other financial services providers, government agencies, manufacturers, technology companies, retailers, educational organizations and health care institutions. These customers typically maintain IT infrastructures that are both complex and central to their objectives for operational excellence.

We are the leading independent software vendor in the mainframe space, and we continue to innovate on the mainframe platform, which runs many of our largest customers’ most important applications. As the IT landscape continues to evolve, more companies are seeking to improve the efficiency and availability of their IT resources and applications through virtualization, which enables users to run multiple virtual machines on each physical machine and thereby reduce operating costs associated with physical infrastructure. Virtualization is essential to the evolution of cloud computing, the on-demand access to a shared pool of computing resources that can be configured and used as needed. At the same time, the consumption of IT assets is evolving through the adoption of Software-as-a-Service (SaaS), where customers can obtain software on a subscription, “pay-as-you go” model.

As more companies begin to adopt virtualization and cloud computing, data centers are becoming more complex, with mainframes, physical servers, virtualized servers and private, public and hybrid (a combination of public and private) cloud environments. We believe it is essential for companies to effectively manage and secure all of their various computing environments. We expect this evolution will allow business models to change more rapidly than in the past. While these technologies increase flexibility, they can also introduce significant management complexity. We believe that our years of experience and core strength in traditional IT management and security combined with our significant investments will position us as a leader in this portion of the IT industry.

We have a broad portfolio of software solutions that address customer needs, including mainframe; service assurance; security (identity and access management); project and portfolio management; service management; virtualization and service automation; and cloud computing. We deliver our products on-premises or, for certain products, using SaaS.

Our strategy is to help our customers manage, secure and automate IT and to make us their strategic partner as they deploy new technologies and maximize their investments in current systems and applications. This strategy emphasizes accelerating our growth by continuing to build on our portfolio of software and services to address customer needs in the above-mentioned areas of focus through a combination of internal development and acquired technologies. We believe this strategy builds on our core strengths in IT management while also positioning us to compete in high-growth markets, including virtualization, cloud and SaaS. We are also seeking to expand our business beyond our traditional core customers, generally consisting of large enterprises, to reach what we refer to as “emerging enterprises” or “growth accounts” (which we define as companies with annual revenue of $300 million to $2 billion) and customers in “emerging geographies” or “growth geographies.” We are increasing the number of our relationships and expanding existing relationships with various types of service providers, particularly global outsourcers, regional managed service providers and communication network operators.

In the first quarter of fiscal 2012, we completed our implementation of changing our internal reporting used by our Chief Executive Officer for evaluating segment performance and allocating resources. The new reporting disaggregates our operations into three segments, two software segments and one service segment, which are described as follows:

•

Mainframe Solutions — Our Mainframe Solutions segment addresses the mainframe market and is focused on making significant investments in order to be innovative in key management disciplines across our broad portfolio of products. Ongoing development is guided by customer

Item 2:

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

needs, our cross-enterprise management philosophy and our Mainframe 2.0 strategy, which offers management capabilities designed to appeal to the next generation of mainframe staff while also offering productivity improvements to today’s mainframe experts. Our mainframe business assists customers by addressing three major challenges: lowering costs, providing high service levels by sustaining critical workforce skills and increasing agility to help deliver on business goals.

•

Enterprise Solutions — Our Enterprise Solutions segment includes products that operate on non-mainframe platforms, such as service assurance, security (identity and access management), project and portfolio management, service management, virtualization and service automation, SaaS, and cloud offerings. Our offerings help customers address their regulatory compliance demands, privacy needs, and internal security policies. Enterprise Solutions also focuses on delivering growth to the Company in the form of new customer acquisitions and revenue, while leveraging non-traditional routes-to-market and delivery models.

•

Services — Our Services segment offers implementation, consulting, education and training services to customers, which is intended to promote a seamless customer experience and to increase the value that customers realize from our solutions.

The Company’s performance is evaluated by our Chief Executive Officer based on a review of revenue and operating income for each of our operating segments. While our Chief Executive Officer evaluates results in a number of different ways, the operating segments are the primary basis on which resources are allocated and financial results are assessed.

EXECUTIVE SUMMARY

The following is a summary of the analysis of our results contained in our MD&A.

During the first quarter of fiscal 2012, we sold our Internet Security business and during the first quarter of fiscal 2011, we sold our Information Governance business. The results of these business operations are presented in income from discontinued operations.

Total revenue for the first quarter of fiscal 2012 grew 9% to $1,163 million compared with $1,069 million in the year-ago period, primarily due to growth in U.S. revenue of $59 million, which includes revenue relating to a license agreement with one large IT outsourcer that was executed in the fourth quarter of fiscal 2011, increased professional services revenue, and an increase in software fees and other revenue relating to our SaaS offerings. The increases in professional services revenue and software fees and other revenue were both primarily attributable to our recent acquisitions within the last 12 months. Our revenue growth was 7% from existing products and services and 2% from acquired technologies (which we define as technology acquired within the prior 12 months). Excluding the favorable foreign currency effect, our revenue growth was slightly more than 2% for existing products and services and slightly less than 2% for acquired technologies.

During the first quarter of fiscal 2012, revenue reflected a favorable foreign exchange effect of $45 million compared with the first quarter of fiscal 2011.

Total expense before interest and income taxes of $821 million for the first quarter of fiscal 2012 grew 10%, compared with $748 million in the year-ago period. The increase was primarily due to an increase in selling and marketing costs, cost of professional services and losses relating to our foreign exchange derivative contracts. During the first quarter of fiscal 2012, total expense reflected an unfavorable foreign exchange effect of $26 million compared with the first quarter of fiscal 2011.

Income before interest and income taxes increased $21 million, or 7%, in the first quarter of fiscal 2012 compared with the year-ago period, due to revenue increasing at a greater rate than expenses, which we view as an improvement to our operating efficiencies.

Item 2:

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

Tax expense increased $18 million for the first quarter of fiscal 2012 compared with the year-ago period as a result of an increase in income before taxes in the first quarter of fiscal 2012 and also discrete items that occurred in the first quarter of fiscal 2011 that were favorable but did not recur in the first quarter of fiscal 2012. Diluted income from continuing operations per share for the first quarter of fiscal 2012 was $0.45, compared with $0.43 in the year-ago period, primarily reflecting an increase in operating income, and our repurchase of common shares.

For the first quarter of fiscal 2012, our segment performance results were as follows:

For the first quarter of fiscal 2012, Mainframe Solutions revenue increased $31 million from the year-ago period primarily due to revenue associated with a license agreement with one large IT outsourcer executed in the fourth quarter of fiscal 2011 and revenue recognized from new capacity sales. The increase in revenue was the primary reason for the increase in Mainframe Solutions profit from $335 million to $370 million and the increase in operating margin of 54% to 57%.

For the first quarter of fiscal 2012, Enterprise Solutions revenue increased $51 million primarily due to growth in subscription and maintenance revenue within our project and portfolio management and service assurance products and higher revenue attributable to our SaaS products. For the first quarter of fiscal 2012 compared with the first quarter of fiscal 2011, the increase in Enterprise Solutions profit from $25 million to $45 million and the increase in operating margin of 7% to 11% was primarily attributable to the increase in revenue for the first quarter of fiscal 2012, offset by increased investments in our Enterprise Solutions segment, including expenses related to research and development, sales and marketing and personnel.

For the first quarter of fiscal 2012, Services revenue and expense increased $12 million and $14 million, respectively, from the year-ago period primarily due to our first quarter fiscal 2012 acquisition of Base Technologies. As a result of the increase in expenses, margins for the Services segment decreased to 2% in the first quarter of fiscal 2012 compared with 5% in the first quarter of fiscal 2011.

Total revenue backlog at June 30, 2011 of $8,511 million increased 11% compared with $7,640 million at June 30, 2010. The current portion of revenue backlog at June 30, 2011 of $3,702 million increased by 10% compared with the balance of $3,370 million at June 30, 2010. The current portion of revenue backlog represents revenue to be recognized within the next 12 months. Generally, we believe that an increase in the current portion of revenue backlog is a positive indicator of future subscription and maintenance revenue growth.

Total bookings in the first quarter of fiscal 2012 increased 18% from the year-ago period to $865 million primarily due to an increase in bookings relating to subscription and maintenance renewals, professional services and software fees and other sales mostly related to acquisitions. We continue to expect our fiscal 2012 renewal portfolio to be lower by approximately 20% compared with fiscal 2011. For the first quarter of fiscal 2012, renewal yield was below historical levels at just above 80%, primarily as a result of two large transactions with contracted renewal rates that were unusually low, reducing the overall average. Excluding these transactions, the renewal yield would have been in the low 90% range. Renewals in Europe, Middle East and Africa (EMEA) increased primarily due to a large transaction that occurred in the first quarter but had been expected to be renewed later in fiscal 2012. Despite the improved sales performance in this quarter, we continue to expect the fiscal 2012 renewal portfolio in EMEA to be lower compared to fiscal 2011 and therefore, going forward we are looking to improve on the ability of our EMEA sales force to sell new products outside of the renewal cycle. We are taking steps to improve this performance, which include: moving experienced personnel to the region, accelerating the introduction of new products from our acquisitions, adding new sales incentives and changing leadership in the region. We believe that over time, these steps will help improve performance in EMEA.

For the first quarter of fiscal 2012, cash flows from continuing operating activities was $143 million and grew 17% compared with the year-ago period. This growth reflects an increase in cash collections on trade receivables of $150 million, which was partially offset by an increase in income tax payments of $111 million.