FORM 10-Q

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FmLeiPtCvteP5JbUmsFpF5rYAuea/cqE3xT8w819qKRdaNZUHwoQIIjuadhUfpiG vEijaFfFXQkg6nfrreQ45g== 0000950123-04-009031.txt : 20040730 0000950123-04-009031.hdr.sgml : 20040730 20040730144709 ACCESSION NUMBER: 0000950123-04-009031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER ASSOCIATES INTERNATIONAL INC CENTRAL INDEX KEY: 0000356028 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 132857434 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09247 FILM NUMBER: 04941955 BUSINESS ADDRESS: STREET 1: ONE COMPUTER ASSOCIATES PLAZA CITY: ISLANDIA STATE: NY ZIP: 11749 BUSINESS PHONE: 6313425224 MAIL ADDRESS: STREET 1: ONE COMPUTER ASSOCIATES PLAZA CITY: ISLANDIA STATE: NY ZIP: 11749 10-Q 1 y99465e10vq.htm FORM 10-Q FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2004


o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period ended from _____ to _____

Commission File Number 1-9247

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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


Title of Class		Shares Outstanding
Common Stock par value $.10 per share		as of July 26, 2004 585,344,608

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX


		Page
PART I. Financial Information
	Review Report of Independent Registered Public Accounting Firm		1
Item 1. Consolidated Condensed Balance Sheets – June 30, 2004 and March 31, 2004			2
	Consolidated Condensed Statements of Operations – Three Months Ended June 30, 2004 and 2003		3
	Consolidated Condensed Statements of Cash Flows – Three Months Ended June 30, 2004 and 2003		4
	Notes to the Consolidated Condensed Financial Statements		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Quarterly Update		16
	Performance Indicators		16
	Results of Operations		17
	Liquidity and Capital Resources		21
	Outlook		24
	Critical Accounting Policies and Business Practices		24
	Risk Factors		25
Item 3. Quantitative and Qualitative Disclosure About Market Risk			26
Item 4. Controls and Procedures			27
PART II. Other Information
Item 1. Legal Proceedings			27
Item 2. Changes in Securities and Use of Proceeds			31
Item 6. Exhibits and Reports on Form 8-K			32
	Signatures		32
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
ACCOUNTANTS' ACKNOWLEDGEMENT LETTER
CERTIFICATION OF CEO
CERTIFICATION OF CFO
CERTIFICATION

PART I. FINANCIAL INFORMATION

REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have reviewed the accompanying consolidated condensed balance sheet of Computer Associates International, Inc. and subsidiaries as of June 30, 2004, and the related consolidated condensed statements of operations and cash flows for the three month periods ended June 30, 2004 and 2003. These consolidated condensed financial statements are the responsibility of the Company’s management.

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

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

We have previously audited, in accordance with standards established by the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Computer Associates International, Inc. and subsidiaries as of March 31, 2004, 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 June 7, 2004, we expressed an unqualified opinion on those consolidated financial statements. As discussed in that report, effective April 1, 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation- Transition and Disclosure- an amendment of SFAS 123,” and effective April 1, 2002, the Company adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of March 31, 2004, 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 30, 2004

Item 1:

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
(in millions)


	June 30,		March 31,
	2004		2004
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	2,059	$	1,793
Marketable securities		111		109
Trade and installment accounts receivable, net		776		949
Federal and state income taxes receivable		96		96
Deferred income taxes		339		311
Other current assets		91		108

TOTAL CURRENT ASSETS		3,472		3,366

Installment accounts receivable, due after one year, net		752		820
Property and equipment, net		625		641
Purchased software products, net		943		1,045
Goodwill, net		4,366		4,366
Other noncurrent assets, net		449		449

TOTAL ASSETS	$	10,607	$	10,687

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Loans payable and current portion of long-term debt	$	825	$	2
Accounts payable		192		177
Salaries, wages, and commissions		207		260
Accrued expenses and other current liabilities		377		407
Deferred subscription revenue (collected) — current		1,188		1,210
Taxes payable, other than income taxes payable		69		123
Federal, state, and foreign income taxes payable		367		256
Deferred income taxes		16		20

TOTAL CURRENT LIABILITIES		3,241		2,455

Long-term debt, net of current portion		1,474		2,298
Deferred income taxes		538		618
Deferred subscription revenue (collected) — noncurrent		258		276
Deferred maintenance revenue		268		293
Other noncurrent liabilities		28		29

TOTAL LIABILITIES		5,807		5,969

Stockholders’ equity		4,800		4,718

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	10,607	$	10,687

See Notes to the Consolidated Condensed Financial Statements.

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


	For the Three
	Months Ended
	June 30,
	2004		2003
REVENUE
Subscription revenue	$	569	$	447
Software fees and other		76		67
Maintenance		127		159
Financing fees		33		54
Professional services		55		59

TOTAL REVENUE		860		786

EXPENSES
Amortization of capitalized software costs		112		116
Cost of professional services		55		55
Selling, general, and administrative		307		321
Product development and enhancements		172		162
Commissions and royalties		66		52
Depreciation and amortization of other intangibles		32		33
Other gains/expenses, net		3		4
Shareholder litigation settlement		5		–

TOTAL EXPENSES BEFORE INTEREST AND TAXES		752		743
Income from continuing operations before interest and taxes		108		43
Interest expense, net		26		31

Income from continuing operations before income taxes		82		12
Income taxes		29		4

INCOME FROM CONTINUING OPERATIONS		53		8
Income from discontinued operation, net of income taxes		–		–

NET INCOME	$	53	$	8

BASIC EARNINGS PER SHARE
Income from continuing operations	$	0.09	$	0.01
Income from discontinued operation		–		–

Net income	$	0.09	$	0.01

Basic weighted-average shares used in computation		586		578
DILUTED EARNINGS PER SHARE
Income from continuing operations	$	0.09	$	0.01
Income from discontinued operation		–		–

Net income	$	0.09	$	0.01

Diluted weighted-average shares used in computation		615		580

See Notes to the Consolidated Condensed Financial Statements.

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


	For the Three Months
	Ended June 30,
	2004			2003
OPERATING ACTIVITIES:
Net income	$	53		$	8
Income from discontinued operation, net of tax		–			–

Income from continuing operations		53			8
Adjustments to reconcile income from continuing operations to net cash provided by continuing operating activities:
Depreciation and amortization		144			149
Provision for deferred income taxes		(114	)		(32	)
Compensation expense related to stock and pension plans		9			1
Gain on sale of assets, net		–			(18	)
Decrease in noncurrent installment accounts receivable, net		72			101
(Decrease) increase in deferred subscription revenue (collected) — noncurrent		(16	)		39
Decrease in deferred maintenance revenue		(23	)		(46	)
Decrease in trade and current installment accounts receivable, net		142			162
Decrease in deferred subscription revenue (collected) — current		(12	)		(13	)
Changes in other operating assets and liabilities, excluding effects of acquisitions and divestitures		18			(182	)

NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES		273			169

INVESTING ACTIVITIES:
Acquisitions of purchased software		–			(13	)
Settlements of purchase accounting liabilities		(5	)		(5	)
Purchases of property and equipment, net		(9	)		(6	)
Proceeds from divestiture of assets		14			18
Purchases of marketable securities, net		(10	)		(1	)
Increase in capitalized software development costs and other		(15	)		(10	)

NET CASH USED IN CONTINUING INVESTING ACTIVITIES		(25	)		(17	)

FINANCING ACTIVITIES:
Debt repayments, net		(1	)		(826	)
Exercises of common stock options and other		39			9
Purchases of treasury stock		(11	)		(4	)

NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES		27			(821	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH		275			(669	)
Effect of exchange rate changes on cash		(9	)		27

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		266			(642	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1,793			1,405

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,059		$	763

See Notes to the Consolidated Condensed Financial Statements.

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004

NOTE A – BASIS OF PRESENTATION

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

Operating results for the three-month period ended June 30, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2005. For further information, refer to the Company’s Consolidated Financial Statements and Notes thereto included in the Annual Report on Form 10-K (Form 10-K) for the fiscal year ended March 31, 2004.

ACCPAC Divestiture: In fiscal year 2004, the Company divested its subsidiary, ACCPAC International, Inc. (ACCPAC). As a result, ACCPAC has been classified as a discontinued operation for all periods presented, and its results of operations and cash flow have been reclassified in the Consolidated Condensed Financial Statements. All related footnotes to the Consolidated Condensed Financial Statements have been adjusted to exclude the effect of the operating results of ACCPAC. See Note H for additional information.

Basis of Revenue Recognition: The Company derives revenue from licensing software products, providing customer technical support (referred to as maintenance) and providing professional services, such as consulting and education. The Company licenses to customers the right to use its software products pursuant to software license agreements. Since the Company recognizes subscription revenue from software license agreements evenly (or ratably) over the applicable license agreement term, the timing and amount of such revenue recognized during an accounting period is determined by the license agreement duration and value reflected in each software license agreement. Revenue from sales to distributors, resellers and value-added resellers (VARs) is recognized when those partners sell the software products to their customers. Beginning July 1, 2004, certain sales of products to distributors, resellers and VARs will incorporate the right to receive certain unspecified future software products, and revenue from those contracts will therefore be recognized on a ratable basis. Revenue from professional services arrangements is generally recognized as the services are performed. For a more detailed description of the Company’s revenue recognition policy, refer to Note 1 to the Consolidated Financial Statements in the Company’s Form 10-K for the fiscal year ended March 31, 2004.

Business Model: Under the Company’s Business Model, software license agreements include flexible contractual provisions that, among other things, allow customers to receive unspecified future software products for no additional fee. These agreements combine the right to use the software product with maintenance for the term of the agreement. Under these agreements, once all four of the revenue recognition criteria of Statement of Position (SOP) 97-2 “Software Revenue Recognition,” issued by the American Institute of Certified Public Accountants, are met, the Company is required to recognize revenue ratably over the term of the license agreement. For license agreements signed prior to October 2000 (the prior business model), once all four of the 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. For a detailed description of the Company’s Business Model, refer to Item 1, “Business” in the Company’s Form 10-K for the fiscal year ended March 31, 2004.

Cash Dividends: In June 2004, the Company’s Board of Directors declared its regular, semi-annual cash dividend of $0.04 per share. The dividend totaled approximately $23 million and was paid on July 15, 2004 to stockholders of record on June 30, 2004.

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004

Statement of Cash Flows: For the three months ended June 30, 2004 and 2003, interest payments were $42 million and $60 million, respectively, and income taxes paid were $23 million and $137 million, respectively.

NOTE B – COMPREHENSIVE INCOME

Comprehensive income includes unrealized (losses) gains on the Company’s available-for-sale securities, net of related tax, and foreign currency translation adjustments. The components of comprehensive income for the three-month periods ended June 30, 2004 and 2003 are as follows:


	For the Three Months
	Ended June 30,
	2004			2003
	(in millions)
Net income	$	53		$	8
Unrealized (losses) gains on marketable securities, net of tax		(5	)		2
Foreign currency translation adjustment		(5	)		37

Comprehensive income	$	43		$	47

NOTE C – EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing (i) the sum of net income and the after-tax amount of interest expense recognized in the period associated with Convertible Senior Notes that are dilutive by (ii) the sum of the weighted-average number of common shares outstanding for the period and dilutive common share equivalents.


	For the Three Months
	Ended June 30,
	2004			2003
	(in millions, except per share amounts)
Net income	$	53		$	8
Interest expense associated with Convertible Senior Notes, net of tax		1	(1)		–	(2)

Numerator in calculation of diluted earnings per share	$	54		$	8

Weighted-average shares outstanding and common share equivalents
Weighted-average common shares outstanding		586			578
Weighted-average Convertible Senior Note shares outstanding		23			–
Weighted-average stock options outstanding, net		4			2
Weighted-average shareholder settlement shares (see Note J)		2			–

Denominator in calculation of diluted earnings per share		615	(3)		580	(4)

Diluted earnings per share	$	0.09		$	0.01

(1)		Includes interest expense related to the 1.625% Convertible Senior Notes (convertible into 23 million shares) issued in December 2002. If for the three month-period ended June 30, 2004 the common share equivalents for the 5% Convertible Senior Notes (convertible into 27 million shares) issued in March 2002 had been dilutive, interest expense, net of tax, related to the 5% Convertible Senior Notes would also have been added back to net income in order to calculate diluted earnings per share. The interest expense, net of tax, for the three-month period ended June 30, 2004 related to the 5% Convertible Senior Notes totaled approximately $5 million.

(2)		If for the three-month period ended June 30, 2003 the common share equivalents for the 5% Convertible Senior Notes and the 1.625% Convertible Senior Notes (collectively, the Notes) had been dilutive, interest expense, net of tax, related to the Notes would have been added back to net income in order to calculate diluted earnings per share. The related interest expense, net of tax, for the three-month period ended June 30, 2003 totaled approximately $6 million.

(3)		Common share equivalents related to the 5% Convertible Senior Notes are not included in the diluted share computation since their effect would be antidilutive. If the 5% Convertible Senior Notes had been dilutive for the three-month period ended June 30, 2004, the number of shares used in the calculation of diluted earnings per share would have been 642 million.

(4)		Common share equivalents related to the Notes are not included in the diluted share computation since their effect would be antidilutive. If the Notes had been dilutive for the three-month period ended June 30, 2003, the number of shares used in the calculation of diluted earnings per share would have been 630 million.

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004

NOTE D – ACCOUNTING FOR STOCK-BASED COMPENSATION

Prior to April 1, 2003, the Company accounted for its stock-based compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations.

Effective April 1, 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123.” The Company selected the prospective method to transition to the fair value method of measuring stock-based compensation expense.

Under the prospective method, the Company recognizes compensation expense computed under the fair value recognition provisions of SFAS No. 123 related to all stock awards granted after March 31, 2003. The Company recognized pre-tax stock-based compensation in the following line items on the Consolidated Condensed Statements of Operations for the periods indicated:


	For the Three Months
	Ended June 30,
	2004		2003
	(in millions)
Cost of professional services	$	1	$	–
Selling, general, and administrative		4		–
Product development and enhancements		4		–

Total	$	9	$	–

The following table illustrates the pro forma effect on net income and basic and dilutive earnings per share as if the fair value method had been applied to all stock-based employee awards:


	For the Three Months
	Ended June 30,
	2004			2003
	(in millions, except per share amounts)
Net income, as reported	$	53		$	8
Add stock-based employee compensation expense, net of tax, included in net income		8			–
Deduct total stock-based employee compensation expense, net of tax, determined under the fair value based method for all awards		(16	)		(23	)

Pro forma net income (loss)	$	45		$	(15	)

Basic earnings (loss) per share
As reported	$	0.09		$	0.01
Pro forma		0.08			(0.03	)
Diluted earnings (loss) per share
As reported	$	0.09		$	0.01
Pro forma		0.08			(0.03	)

The compensation expense and pro forma net income are not necessarily indicative of future period amounts.

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004

For the three-month periods ended June 30, 2004 and 2003, the Company issued options covering 93,845 and 151,125 shares of Common Stock, respectively. The weighted-average fair value at the date of grant for options granted during the three-month periods ended June 30, 2004 and 2003 was $15.58 and $12.32, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The weighted-average assumptions that were used for option grants in the respective periods are as follows:


	For the Three Months
	Ended June 30,
	2004			2003
	(in millions)
Dividend yield		.28	%		.35	%
Expected volatility factor		67	%		67	%
Risk-free interest rate		3.6	%		2.2	%
Expected life (in years)		4.5			4.5

For the three-month period ended June 30, 2004, the Company issued 52,780 restricted shares of Common Stock. The weighted-average fair value at the date of grant for the restricted shares was $28.42.

NOTE E – ACCOUNTS RECEIVABLE

Net trade and installment accounts receivable consist of the following:


	June 30,			March 31,
	2004			2004
	(in millions)
Current:
Billed accounts receivable	$	446		$	812
Unbilled amounts due within the next 12 months — Business Model		1,483			1,446
Unbilled amounts due within the next 12 months — prior business model		659			702
Less: Allowance for doubtful accounts		(58	)		(64	)

Net amounts expected to be collected		2,530			2,896
Less: Unearned revenue — current		(1,754	)		(1,947	)

Net trade and installment accounts receivable — current	$	776		$	949

Noncurrent:
Unbilled amounts due beyond the next 12 months — Business Model	$	1,259		$	1,107
Unbilled amounts due beyond the next 12 months — prior business model		1,003			1,104
Less: Allowance for doubtful accounts		(47	)		(52	)

Net amounts expected to be collected		2,215			2,159
Less: Unearned revenue — noncurrent		(1,463	)		(1,339	)

Net installment accounts receivable — noncurrent	$	752		$	820

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004

The components of unearned revenue consist of the following:


	June 30,		March 31,
	2004		2004
	(in millions)
Current:
Unamortized discounts	$	99	$	113
Unearned maintenance		93		104
Deferred subscription revenue (uncollected)		895		903
Noncurrent deferred subscription revenue (uncollected) associated with amounts to be billed within the next 12 months		633		800
Unearned professional services		34		27

	$	1,754	$	1,947

Noncurrent:
Unamortized discounts	$	122	$	141
Unearned maintenance		82		91
Deferred subscription revenue (uncollected)		1,259		1,107

	$	1,463	$	1,339

NOTE F – IDENTIFIED INTANGIBLE ASSETS

In the table below, capitalized software includes both purchased and internally developed software costs; other identified intangible assets include both purchased customer relationships and trademarks/trade name costs. Internally developed capitalized software costs and other identified intangible asset costs are included in “Other noncurrent assets, net” on the Consolidated Condensed Balance Sheets. The gross carrying amounts and accumulated amortization for identified intangible assets subject to amortization are as follows:


	At June 30, 2004
	Gross		Accumulated		Net
	Assets		Amortization		Assets
	(in millions)
Capitalized software:
Purchased	$	4,536	$	3,593	$	943
Internally developed		440		299		141
Other		370		185		185

Total	$	5,346	$	4,077	$	1,269


	At March 31, 2004
	Gross		Accumulated		Net
	Assets		Amortization		Assets
	(in millions)
Capitalized software:
Purchased	$	4,536	$	3,491	$	1,045
Internally developed		424		289		135
Other		370		175		195

Total	$	5,330	$	3,955	$	1,375

For the first quarter of fiscal years 2005 and 2004, amortization of capitalized software costs was $112 million and $116 million, respectively. Amortization of other identified intangible assets was $10 million for each of the periods presented.

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004

Based on the identified intangible assets recorded through June 30, 2004, annual amortization expense is expected to be as follows:


	Year Ended March 31,
	2005		2006		2007		2008		2009		2010
	(in millions)
Capitalized software:
Purchased	$	398	$	374	$	259	$	10	$	4	$	–
Internally developed		41		39		31		21		13		5
Other		39		39		23		23		23		23

Total	$	478	$	452	$	313	$	54	$	40	$	28

NOTE G – RECLASSIFICATIONS

Certain prior period balances have been reclassified to conform with the current period presentation.

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


	For the Three Months
	Ended June 30,
	2004		2003
	(in millions)
Gains attributable to sales of fixed assets	$	–	$	(18	)
Expenses attributable to fluctuations in foreign currency exchange rates		3		14
Expenses attributable to legal settlements		–		8

	$	3	$	4

The results of operations and cash flows of ACCPAC have been classified as a discontinued operation for all periods presented on the Company’s Consolidated Condensed Financial Statements. See Note H for additional information.

Approximately $8 million of deferred maintenance revenue at March 31, 2004 related to the Company’s indirect business (distributors, resellers, and VARs) has been reclassified from “Billed accounts receivable,” a component of “Trade and installment accounts receivable, net” to “Deferred maintenance revenue” on the Consolidated Condensed Balance Sheet to conform to the June 30, 2004 presentation.

NOTE H – DIVESTITURES

In March 2004, the Company sold its approximate 90% interest in ACCPAC to The Sage Group, plc. (Sage). The Company’s net proceeds totaled $104 million for all of the outstanding equity interests of ACCPAC, including options and change of control payments for certain ACCPAC officers and managers. The Company received approximately $90 million of the net proceeds in fiscal year 2004 and the remainder in the first quarter of fiscal year 2005. The sale completes the Company’s multiyear effort to exit the business applications market. Pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the results of operations of ACCPAC have been recorded as discontinued operations for all periods presented. The operating results of the ACCPAC discontinued operation are summarized as follows:

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004


	For the Three
	Months Ended
	June 30, 2003
Software fees and other	$	12
Maintenance		12

Total revenue	$	24
Pre-tax income from discontinued operation	$	–
Net income from discontinued operation	$	–

NOTE I – ACQUISITIONS

The Company acquired PLATINUM technology International, inc. and Sterling Software, Inc. in May 1999 and March 2000, respectively. The Company also acquired several smaller businesses prior to fiscal year 2000. The Company has not completed any acquisitions since March 2000 that generated additional acquisition-related liabilities. Accrued acquisition-related costs and changes in these accruals were as follows:


	Duplicate
	Facilities &			Employee
	Other Costs			Costs
	(in millions)
Balance at March 31, 2003	$	74		$	23
Settlements		(10	)		(9	)
Adjustments		(6	)		(2	)

Balance at March 31, 2004	$	58		$	12
Settlements		(2	)		(3	)

Balance at June 30, 2004	$	56		$	9

The duplicate facilities and other costs relate to operating leases which expire at various times through 2010, negotiated buyouts of operating lease commitments, taxes, and other contractual liabilities. The employee costs consist of involuntary termination benefits. The adjustments, which reduced the corresponding liability and related goodwill asset accounts, relate to obligations that were settled at amounts less than originally estimated. The remaining liability balances are included in “Accrued expenses and other current liabilities” on the Consolidated Condensed Balance Sheets.

NOTE J – CONTINGENCIES

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004

order to make the statements made, in light of the circumstances under which they were made, not misleading in connection with the Company’s financial performance. Each of the named individual plaintiffs in the 2002 lawsuits sought to represent a class consisting of purchasers of the Company’s Common Stock and call options and sellers of put options for the period from May 28, 1999, through February 25, 2002. The 2002 cases were consolidated, and the Company’s former independent auditor, Ernst & Young LLP, was named as a defendant. In addition, in May 2003, a class action lawsuit captioned John A. Ambler v. Computer Associates International, Inc., et al. was filed in the Federal Court. The complaint in this matter, a purported class action on behalf of the Computer Associates Savings Harvest Plan (the CASH Plan) and the participants and beneficiaries of the CASH Plan for a class period running from March 30, 1998, through May 30, 2003, asserted claims of breach of fiduciary duty under ERISA, the federal Employee Retirement Income Security Act. The named defendants were the Company, the Company’s Board of Directors, the CASH Plan, the Administrative Committee of the CASH Plan, and the following current or former employees and/or directors of the Company: Charles B. Wang; Sanjay Kumar; Ira Zar; Russell M. Artzt; Peter A. Schwartz; Charles P. McWade; and various unidentified alleged fiduciaries of the CASH Plan. The complaint alleged that the defendants breached their fiduciary duties by causing the CASH Plan to invest in Company securities and sought damages in an unspecified amount.

A derivative lawsuit was filed against certain current and former directors of the Company, based on essentially the same allegations as those contained in the February and March 2002 stockholder lawsuits discussed above. This action was commenced in April 2002 in Delaware Chancery Court, and an amended complaint was filed in November 2002. The defendants named in the amended complaints were the Company as a nominal defendant, current Company directors Messrs. Artzt, Lewis S. Ranieri, and Alfonse M. D’Amato, and former Company directors Ms. Shirley Strum Kenny and Messrs. Wang, Kumar, Willem de Vogel, Richard Grasso, and Roel Pieper. The derivative suit alleged breach of fiduciary duties on the part of all the individual defendants and, as against the current and former management director defendants, insider trading on the basis of allegedly misappropriated confidential, material information. The amended complaints sought an accounting and recovery on behalf of the Company of an unspecified amount of damages, including recovery of the profits allegedly realized from the sale of Common Stock of the Company.

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004

price of the Company’s stock is below $23.43 per share at the time of distribution. In settling the derivative suit, the Company committed to maintain certain corporate governance practices. Under the settlement, the Company and the individual defendants are released from any potential claim by shareholders relating to accounting-related or other public statements made by the Company or its agents from January 1998 through February 2002 (and from January 1998 through May 2003 in the case of the employee ERISA action), and the individual defendants are released from any potential claim by the Company or its shareholders relating to the same matters. Ernst & Young LLP is not a party to the settlement. The settlement was reviewed by the independent directors who chair the Corporate Governance, Audit, and Compensation and Human Resource Committees of the Board of Directors as well as by all non-interested, independent directors who were not named in any of the suits. It was also approved by the Board’s independent directors as a whole.

The Company has been providing documents and other information to the United States Attorney’s Office for the Eastern District of New York and the staff of the Northeast Regional Office of the SEC in connection with an ongoing investigation concerning certain of the Company’s accounting practices, including its revenue recognition procedures in periods prior to the adoption of the Company’s Business Model in October 2000. On January 8, 2004, the Company received a “Wells Notice” from the staff of the SEC. The Wells Notice notifies the Company that the staff of the SEC is considering recommending that the SEC bring a civil enforcement proceeding against the Company for possible violations of the federal securities laws arising from the Company’s premature recognition of revenue from software license agreements in periods prior to the adoption of the Company’s Business Model, including revenue from contracts that were not fully executed or otherwise finalized until after the quarter in which the revenue associated with such contracts had been recognized. On April 14, 2004, the Company responded to the Wells Notice.

In response to the investigation described in the preceding paragraph, the Board of Directors authorized the Audit Committee to conduct an independent investigation into the timing of revenue recognition by the Company. On October 8, 2003, the Company reported that the ongoing investigation by the Audit Committee had preliminarily found that revenues were prematurely recognized in the fiscal year ended March 31, 2000, and that a number of software license agreements appeared to have been signed after the end of the quarter in which revenues associated with such software license agreements had been recognized in that fiscal year. Those revenues, as the Audit Committee found, should have been recognized in the quarter in which the software license agreements were signed. Those preliminary findings were reported to government investigators.

Following the Audit Committee’s preliminary report and at its recommendation, the Company asked for and received the resignations of four executives who oversaw the relevant financial operations during the period in question, including the Company’s then Chief Financial Officer, Ira Zar. On January 22, 2004, one of these individuals pleaded guilty to federal criminal charges of conspiracy to obstruct justice in connection with the ongoing joint investigation, and on April 8, 2004, Mr. Zar and two other executives pleaded guilty to charges of conspiracy to obstruct justice and conspiracy to commit securities fraud in connection with the investigation. The SEC filed related actions against each of the four executives alleging that they participated in a widespread practice that resulted in the improper recognition of revenue by the Company. Without admitting or denying the allegations in the complaints, Mr. Zar and two other executives each consented to a permanent injunction against violating, or aiding and abetting violations of, the securities laws, and also to a permanent bar from serving as an officer or director of a publicly held company. Litigation against the four executives with respect to the Commission’s claims for disgorgement and penalties is continuing.

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004

A number of other employees, primarily in the Company’s legal and finance departments, have been terminated or have resigned as a result of matters under investigation by the Audit Committee, including Steven Woghin, the Company’s former General Counsel. Stephen Richards, the Company’s former Executive Vice President of Sales, resigned from his position and was relieved of all duties in April 2004, and left the Company at the end of June 2004. Additionally, on April 21, 2004, Sanjay Kumar resigned as Chairman, a director and Chief Executive Officer of the Company, and assumed the role of Chief Software Architect. Thereafter, Mr. Kumar resigned from the Company effective June 30, 2004.

In April 2004, the Audit Committee completed its internal investigation and determined that the Company should restate certain financial data to properly reflect the timing of the recognition of license revenue for the Company’s fiscal years ended March 31, 2001 and 2000. The Audit Committee believes that the Company’s financial statements under its current Business Model are unaffected by the accounting practices that were in place prior to the adoption of the Business Model in October 2000, and that the historical issues it had identified in the course of its independent investigation concerned the premature recognition of revenue. The Company continues to implement and consider additional remedial actions it deems necessary.

The Company continues to cooperate with the United States Attorney’s Office for the Eastern District of New York and the staff of the SEC. In connection with the government investigation, the Company’s Board of Directors is continuing to review the matter of compensation paid or due to individuals subject to the investigation, and possibly other persons. Following the completion of this review, the Board will take such action as it deems in the best interests of the Company and its stockholders.

The Company is presently discussing with the United States Attorney’s Office and the SEC a resolution of the investigations against the Company. The Company cannot predict the scope, timing, or outcome of the investigation and other matters referred to herein, which may 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 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 the Company’s 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 the Company’s employees may be ascribed to the Company. The Company cannot predict what impact, if any, these matters may have on its business, financial condition, results of operations, and cash flow.

In June 2004, a purported derivative action was filed in the Federal Court by Ranger Governance Ltd. against the following current or former employees and/or directors of the Company: Charles B. Wang; Sanjay Kumar; Russell M. Artzt; Ira H. Zar; Lloyd Silverstein; David Rivard; David Kaplan; Gary Quinn; Stephen Richards; Michael McElroy; Charles P. McWade; and Peter A. Schwartz. The Company was named as a nominal defendant in the litigation. The action alleges violations of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) against Messrs. Kumar and Zar; breach of duty under the faithless servant and unjust enrichment doctrines against Messrs. Wang, Kumar, Silverstein, Rivard and Kaplan; and breach of fiduciary duty, gross negligence, corporate waste, fraud and conspiracy on the part of all the individual defendants in connection with their alleged receipt of unjust compensation and misrepresentations and omissions contained in the Company’s financial statements for fiscal years 1998 through 2003. The complaint seeks recovery of all bonuses and other incentive-based or equity-based compensation and profits allegedly realized from the sale of Common Stock of the Company by Messrs. Kumar and Zar during the 12-month periods prior to the filing of the Company’s financial reports for the fourth quarter of fiscal 2002 through the fourth quarter of fiscal 2003, and reimbursement of compensation earned by all the individual defendants from at least January 1, 1998 to June 29, 2004, as well as other unspecified damages allegedly sustained by the Company. Additionally, the complaint also seeks an accounting of the losses sustained by the Company as a result of the defendants’ actions.

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004

In July 2004, two purported derivative actions were filed in the Federal Court against the following current or former employees and/or directors of the Company: Charles Wang; Sanjay Kumar; Ira H. Zar; David Kaplan; David Rivard; Lloyd Silverstein; Russell Artzt; Alfonse D’Amato; Gary Quinn; Stephen Richards; Michael A. McElroy; Charles P. McWade; Peter A. Schwartz; Gary Fernandes; Robert E. La Blanc; Lewis S. Ranieri; Jay W. Lorsch; Walter P. Schuetze; Alex Serge Vieux; Willem deVogel; Shirley Kenny; and Ernst & Young LLP. The Company is named as a nominal defendant. The lawsuits allege a claim against the defendants seeking injunctive and other relief for violations of Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 14 promulgated thereunder for alleged false and material misstatements made in the Company’s proxy statements issued from 1998 through 2003 concerning the election of the Company’s Board of Directors, and describing the Company’s compensation, incentive and employee benefit plans. The lawsuits also allege breach of fiduciary duty and gross mismanagement on the part of Messrs. Artzt, D’Amato, Fernandes, La Blanc, Vieux, Lorsch, deVogel, and Ranieri and Ms. Kenny, as well as breach of fiduciary duty by Messrs. DeVogel, D’Amato, Ranieri and Schuetze and Ms. Kenny, all former or current members of the Audit Committee of the Company’s Board. Against Ernst & Young LLP, the lawsuits seek unspecified damages for breach of fiduciary duty and the duty of reasonable care, as well as contribution and indemnity under Section 14(a) of the Exchange Act. The complaints request restitution and rescission of the compensation earned under the Company’s executive compensation plan by Messrs. Wang, Kumar, Zar, Kaplan, Rivard, Silverstein, Artzt, Quinn, Richards, McElroy and McWade, and punitive damages against all of the defendants. Additionally, pursuant to Section 304 of the Sarbanes-Oxley Act, the complaints seek reimbursement of bonus or other incentive-based equity compensation received by defendants Kumar and Zar, as well as alleged profits realized from their sale of securities issued by the Company during the time periods they served as the Chief Executive Officer and Chief Financial Officer of the Company, respectively.

The Company is obligated to indemnify its officers and directors under certain circumstances to the fullest extent permitted by Delaware law. As a part of that obligation, the Company has advanced and will continue to advance certain attorneys’ fees and expenses incurred by current and former officers and directors in various litigations arising out of similar allegations, including the litigation described above.

In June 2004, a lawsuit captioned Scienton Technologies, Inc. et al. v. Computer Associates International, Inc., was filed in the United States District Court for the Eastern District of New York. The complaint seeks monetary damages based upon claims for, among other things, breaches of contract, misappropriation of trade secrets, and unfair competition. The Company’s investigation of this matter is in its early stages and the Company has not responded to the complaint. Although the ultimate outcome cannot be determined, the Company believes that the claims are unfounded and that the Company has meritorious defenses. In the opinion of management, the resolution of this lawsuit is not expected to have a material adverse effect on the financial position of the Company.

The Company, various subsidiaries, and certain current and former officers have been named as defendants in various other lawsuits and claims arising in the normal course of business. The Company believes that it has meritorious defenses in connection with such lawsuits and claims, and intends to vigorously contest each of them. In the opinion of the Company’s management, the results of these other lawsuits and claims, either individually or in the aggregate, are not expected to have a material effect on the Company’s financial position, results of operations, or cash flow.

Item 2:

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

This Quarterly Report on Form 10-Q contains certain forward-looking information relating to Computer Associates International, Inc. 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 Report, the words “anticipate,” “believe,” “estimate,” “expect,” and similar expressions are intended to identify forward-looking information. Such information reflects our current views with respect to future events and is subject to certain risks, uncertainties, and assumptions, some of which are described below in the section “Risk Factors” and in our Form 10-K filed with the Securities and Exchange Commission. Should one or more of these risks or uncertainties occur, or should our assumptions prove incorrect, actual results may vary materially from those described in this Report as anticipated, believed, estimated, or expected. We do not intend to update these forward-looking statements except as may be required by law.

QUARTERLY UPDATE

• In April 2004, we named Kenneth D. Cron as Interim Chief Executive Officer, Jeff Clarke as Chief Operating Officer, and Greg Corgan as Senior Vice President for Worldwide Sales; in May 2004, Mr. Corgan became Executive Vice President for Worldwide Sales.

• In May 2004, the Internal Revenue Service issued Revenue Procedure 2004-34, “Changes in Accounting Periods and In Methods of Accounting,” which grants a limited deferral for certain advance collections by the Company to the extent such advance collections were not recognized in revenue for financial statement purposes. Therefore, taxes associated with cash collected from U.S. customers in advance of the ratable recognition of revenue for certain term-based licenses are deferred for up to a year. As a result of implementing this Revenue Procedure, cash paid for income taxes decreased approximately $114 million for the quarter ended June 30, 2004 over the comparable prior fiscal year period.

• In June 2004, we announced that Sanjay Kumar, our Chief Software Architect and former Chairman and CEO, resigned from the Company and that Kenneth V. Handal was joining the Company as Executive Vice President and General Counsel.

PERFORMANCE INDICATORS

Management uses several quantitative performance indicators to assess our financial results and condition. Each provides a measurement of the performance of our Business Model and how well we are executing our plan.

Our subscription-based Business Model is unique among our competitors in the software industry, and it may be difficult to compare our results for many of our performance indicators with those of our competitors. Management focuses on period-over-period improvement when reviewing our performance indicators. The following is a summary of some of the quantitative performance indicators that management uses to review performance:


	For the Three Months
	Ended June 30,									Percent
	2004			2003			Change			Change
	(dollars in millions)
Subscription revenue	$	569		$	447		$	122			27	%
Total revenue	$	860		$	786		$	74			9	%
Subscription revenue as a percent of total revenue		66	%		57	%		9	%		16	%
New deferred subscription revenue	$	530		$	387		$	143			37	%
Weighted-average license agreement duration in years		2.75			2.85			(0.10	)		(4	%)
Cash from continuing operating activities	$	273		$	169		$	104			62	%
Income from continuing operations	$	53		$	8		$	45			563	%

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


	June 30,		March 31,					Percent
	2004		2004		Change			Change
	(dollars in millions)
Total cash, cash equivalents, and marketable securities	$	2,170	$	1,902	$	268			14	%
Total debt	$	2,299	$	2,300	$	(1	)		–

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 which we believe are unique to us are defined below.

Subscription Revenue — Subscription revenue is the ratable revenue recognized in a period from amounts previously recorded as deferred subscription revenue. The larger the ratio of subscription revenue to total revenue, the more predictable our revenue streams become. 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 for the remainder of fiscal year 2005, 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 software licenses sold in the current period by our direct sales force. Beginning in the second quarter of fiscal year 2005, we expect to offer more flexible license terms to our channel partners, which will necessitate ratable recognition of revenue for the majority of our channel business. Ratable recognition of revenue for the channel license business will be consistent with our overall Business Model and will be reported on the “Subscription revenue” line item on the Consolidated Condensed Statements of Operations. Prior to July 1, 2004, such channel license revenue has been recorded on a sell-through basis and reported on the “Software fees and other” line item on the Consolidated Condensed Statements of Operations. Prior to this change, new deferred subscription revenue has excluded the value associated with maintenance-only license agreements, channel sales, and professional services arrangements. New deferred subscription revenue is what we expect to collect over time from our customers. 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 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 activity in a particular quarter. Our bookings typically increase in each consecutive fiscal quarter, with the fourth quarter being the strongest.

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. We believe this allows us to balance the importance of recording new deferred subscription revenue from any single transaction with the importance of entering into transactions on mutually beneficial business terms.

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. We believe license agreement durations averaging approximately three years, which is lower than the historical duration of our license agreements, 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 the Company to each of our customers.

RESULTS OF OPERATIONS

The following table presents the percentage of total revenue and the percentage of period-over-period dollar change for the revenue line items on our Consolidated Condensed Statements of Operations for the three-month periods ended June 30, 2004 and 2003. These comparisons of financial results are not necessarily indicative of future results.

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


	For the Three Months
	Ended June 30,
	Percentage of						Percentage of
	Total						Dollar
	Revenue						Change
							2004/
Revenue	2004			2003			2003
Subscription revenue		66	%		57	%		27	%
Software fees and other		9	%		9	%		13	%
Maintenance		15	%		20	%		(20	%)
Financing fees		4	%		7	%		(39	%)
Professional services		6	%		7	%		(7	%)
Total revenue		100	%		100	%		9	%

Revenue:

Total Revenue

Total revenue for the quarter ended June 30, 2004 increased $74 million, or 9%, from the prior year comparable quarter, to $860 million. The transition to the Business Model resulted in an increase in subscription revenue from the prior fiscal year period, partially offset by an anticipated decrease in maintenance and financing fees as described below. In addition, there was a positive impact to revenue of approximately $22 million compared to the prior fiscal year quarter 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.

Subscription Revenue

Subscription revenue for the quarter ended June 30, 2004 increased $122 million, or 27%, from the comparable prior year quarter, to $569 million. The increase was primarily due to the increase in new deferred subscription revenue in previous periods. For the quarters ended June 30, 2004 and 2003, we added new deferred subscription revenue of $530 million and $387 million, respectively. Licenses executed under our Business Model in the quarters ended June 30, 2004 and 2003 had weighted-average durations of 2.75 and 2.85 years, respectively. Annualized deferred subscription revenue represents the total value of all new software license agreements signed during a period divided by the weighted-average duration of all such license agreements recorded during the same period. Annualized deferred subscription revenue increased approximately $57 million, or 42%, for the quarter ended June 30, 2004 over the comparable prior year quarter to $193 million. Subscription revenue also increased as a result of how we record maintenance revenue under our Business Model. Under the prior business model, maintenance revenue was separately identified and was reported on the “Maintenance” line item on the Consolidated Condensed Statements of Operations. Under the Business Model, maintenance is bundled with product sales and not separately identified in our customers’ license agreements and therefore is included on the “Subscription revenue” line item on the Consolidated Condensed Statements of Operations. In addition, financing fees are no longer applicable as 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.

Software Fees and Other

Software fees and other revenue primarily consists of revenue and royalties related to distribution and original equipment manufacturer (OEM) partners. Revenue related to distribution partners and OEMs is sometimes referred to as “indirect” or “channel” revenue. Software fees and other revenue for the first quarter of fiscal year 2005 increased $9 million, or 13%, from the comparable prior year quarter to $76 million. The increase

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

was due primarily to a one-time revenue adjustment of approximately $13 million relating to revenue recognized from certain prior business model contracts, which had reduced revenue in prior periods. The Company experienced a 37% increase in the amount of indirect license contract bookings in the first quarter of fiscal year 2005 as compared with the first quarter of the prior fiscal year. The increase was offset by an increase of $16 million in deferred maintenance, which is amortized into revenue on the “Maintenance” line item on the Consolidated Condensed Statements of Operations.

Maintenance

As expected, maintenance revenue for the quarter ended June 30, 2004 decreased $32 million, or 20%, to $127 million from the comparable prior year quarter. This decrease in maintenance revenue reflects the transition to, and increased number of license agreements under, our Business Model, where maintenance revenue, bundled along with license revenue, is reported on the “Subscription revenue” line item on the Consolidated Condensed Statements of Operations. The combined maintenance and license revenue on these types of license agreements is recognized on a monthly basis ratably over the term of the agreement. 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 has on the decrease in maintenance revenue is not determinable. Maintenance revenue from our indirect business for the three months ended June 30, 2004 increased $10 million from the comparable prior year period.

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 recognition of revenue. 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 the quarter ended June 30, 2004, these fees decreased $21 million, or 39%, from the comparable prior year quarter to $33 million. The decrease is attributable to the discontinuance of license agreements offered under the prior business model and is expected to decline to zero over the next several years.

Professional Services

Professional services revenue for the quarter ended June 30, 2004 decreased $4 million, or 7%, from the prior year comparable quarter to $55 million. The slight decrease was primarily attributable to an increase in services sold in combination with related software products, which requires that such services revenue be recognized ratably over the life of the related software contract period.

Total Revenue by Geography

The following table presents the amount of revenue earned from the North American and international geographic regions and corresponding percentage changes for the three-month periods ended June 30, 2004 and 2003. These comparisons of financial results are not necessarily indicative of future results.


	Three Months Ended June 30,
	(dollars in millions)
	2004		2003		Change
North America	$	478	$	461		4	%
International		382		325		18	%

	$	860	$	786		9	%

International revenue increased $57 million, or 18%, for the first quarter of fiscal year 2005 as compared with the first quarter of fiscal year 2004. The increase was a result of increased contract bookings in prior periods associated with our European business. The increase in international revenue was also partially attributable to a positive impact to revenue from fluctuations in foreign currency exchange rates of approximately $22 million for the first quarter of fiscal year 2005 over the first quarter of fiscal year 2004, which was primarily caused by the strengthening of both the euro and the British pound versus the U.S. dollar.

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

Price changes did not have a material impact on revenue in the first quarter of fiscal year 2005 or on the comparable prior fiscal year period.

Expenses:

The following table presents expenses as a percentage of total revenue and the percentage of period-over-period dollar change for the line items on our Consolidated Condensed Statements of Operations for the three-month periods ended June 30, 2004 and 2003. These comparisons of financial results are not necessarily indicative of future results.


	For the Three Months
	Ended June 30,
							Percentage
	Percentage of						of
	Total						Dollar
	Revenue						Change
							2004/
	2004			2003			2003
Operating expenses
Amortization of capitalized software costs		13	%		15	%		(3	%)
Cost of professional services		6	%		7	%		–
Selling, general, and administrative		36	%		41	%		(4	%)
Product development and enhancements		20	%		21	%		6	%
Commission and royalties		8	%		7	%		27	%
Depreciation and amortization of other intangible assets		4	%		4	%		(3	%)
Other gains/expenses, net		–			1	%		N/A
Shareholder litigation settlement		1	%		–			N/A
Total operating expenses		87	%		95	%		1	%
Interest expense, net		3	%		4	%		(16	%)

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 each of the quarters ended June 30, 2004 and 2003 totaled $55 million. Cost of professional services for the quarter ended June 30, 2004 and 2003 included approximately $1 million and less than $1 million, respectively, of stock-based compensation expense associated with the Company’s adoption of the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123.

Selling, General and Administrative (SG&A)

SG&A expenses for the quarter ended June 30, 2004 decreased $14 million, or 4%, from the comparable prior year quarter, to $307 million. The decrease was primarily attributable to a $15 million pre-tax expense recorded in the first quarter of fiscal year 2004 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. SG&A for the quarter ended June 30, 2004 and 2003 included approximately $4 million and less than $1 million, respectively, of stock-based compensation expense associated with the Company’s adoption of the fair value recognition provisions of SFAS No. 123.

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

Product Development and Enhancements

For the quarter ended June 30, 2004, product development and enhancement expenditures, also referred to as research and development, increased $10 million, or 6%, from the comparable prior year quarter, to $172 million. For the quarters ended June 30, 2004 and 2003, product development and enhancement expenditures represented approximately 20% and 21% of total revenue, respectively. Product development and enhancements for the quarter ended June 30, 2004 and 2003 included approximately $4 million and less than $1 million, respectively, of stock-based compensation expense associated with the Company’s adoption of the fair value recognition provisions of SFAS No. 123. We continue 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.

Commissions and Royalties

Commissions and royalties for the first quarter of fiscal year 2005 increased $14 million, or 27%, from the comparable prior year quarter, to $66 million. This increase was primarily due to the increase in new deferred subscription revenue recorded in the first quarter of fiscal year 2005 from the comparable prior year period, partially offset by a $2 million reduction in royalties to third parties, as technology from several royalty agreements has been replaced by internally developed or acquired technology. Commissions are expensed in the period earned by employees, which is typically upon the recording of a contract.

Shareholder Litigation Settlement

The shareholder litigation settlement expense is calculated using the NYSE closing price of our Common Stock on the last day of the most recently completed quarter and also includes certain administrative costs associated with the settlement. The additional shareholder litigation settlement expense as a result of the change in our stock price was $5 million in the first quarter of fiscal year 2005. The aggregate shareholder litigation settlement expense recorded since the settlement was reached, including $158 million in fiscal year 2004, totaled $163 million. Until all settlement shares are issued, the projected impact will be reviewed quarterly and the expense adjusted accordingly. We expect to issue the balance of the shares (or corresponding amounts of cash) in the second quarter of fiscal year 2005, or at such time as the claims administration process has been completed. Refer to Note J “Contingencies” and Part II, Item 1, “Legal Proceedings” of this Form 10-Q for additional information.

Net Interest Expense

Net interest expense for the first quarter of fiscal year 2005 decreased $5 million, or 16%, as compared to the prior fiscal year first quarter to $26 million. Of the change, $9 million was due to a decrease in average debt outstanding, offset by an increase of $4 million due to an increase in the weighted-average interest rate.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and marketable securities totaled $2.17 billion at June 30, 2004, an increase of $268 million from the March 31, 2004 balance of $1.902 billion. Cash generated from continuing operating activities for the quarters ended June 30, 2004 and 2003 was $273 million and $169 million, respectively.

Cash generated from continuing operating activities for the three months ended June 30, 2004 versus the comparable prior year period was positively impacted by a decrease in taxes paid of approximately $114 million and a reduction in cash paid for interest of approximately $18 million. The decrease in taxes paid during the three-month period ended June 30, 2004 was primarily due to a reduction in estimated taxes payable resulting from IRS Revenue Procedure 2004-34. See “Quarterly Update” above. We repaid approximately $1 million in outstanding debt and purchased approximately $11 million in treasury stock during the first three months of fiscal year 2005 using existing cash balances at March 31, 2004 and cash from operations.

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

As of June 30, 2004 and March 31, 2004, our debt arrangements consisted of the following:

June 30, 2004

March 31, 2004

Maximum

Outstanding

Maximum

Outstanding

Debt Arrangements:

Available

Balance

Available

Balance

(in millions)

2002 Revolving Credit Facility (expires January 2005)

470

–

470

–

Commercial Paper

400

–

400

–

6.375% Senior Notes due April 2005

–

825

–

825

5.000% Convertible Senior Notes due March 2007

–

660

–

660

6.500% Senior Notes due April 2008

–

350

–

350

1.625% Convertible Senior Notes due December 2009

–

460

–

460

International line of credit

–

Other

–

Total

2,299

2,300

2002 Revolving Credit Facility

On December 31, 2002, we entered into an unsecured, bank revolving credit facility (the 2002 Revolving Credit Facility). The maximum amount that may be outstanding at any time under the 2002 Revolving Credit Facility is $470 million. The 2002 Revolving Credit Facility expires January 31, 2005, and no amount was drawn as of June 30, 2004. The interest rates on the 2002 Revolving Credit Facility are determined based on a ratings grid, which applies a margin to the prevailing London InterBank Offered Rate (LIBOR). We capitalized the initial transaction fees associated with the 2002 Revolving Credit Facility, which totaled approximately $6 million. We are amortizing these fees over the term of the 2002 Revolving Credit Facility in “Interest expense, net” on the Consolidated Condensed Statements of Operations.

Commercial Paper

As of June 30, 2004, there were no borrowings outstanding under our $400 million commercial paper (CP) program. We expect any future outstanding borrowings under the CP program to be supported by cash and marketable securities on hand and undrawn amounts available under the 2002 Revolving Credit Facility.

Fiscal Year 1999 Senior Notes

In fiscal year 1999, we issued $1.750 billion of unsecured Senior Notes in a transaction pursuant to Rule 144A under the Securities Act of 1933 (Rule 144A). As of June 30, 2004, $825 million and $350 million of our 6.375% and 6.5% Senior Notes, respectively, remained outstanding. The 6.375% Senior Notes are due in April 2005 and were therefore reclassified from “long-term debt, net of current portion” to “Loans payable and current portion of long-term debt” on the June 30, 2004 Consolidated Condensed Balance Sheet.

5% Convertible Senior Notes

In fiscal year 2002, we issued $660 million of unsecured 5% Convertible Senior Notes (5% Notes), due March 15, 2007, in a transaction pursuant to Rule 144A. The 5% Notes are senior unsecured indebtedness and rank equally with all existing senior unsecured indebtedness. Concurrent with the issuance of the 5% Notes, we entered into call spread repurchase option transactions to partially mitigate potential dilution from conversion of the 5% Notes. The Notes may not be redeemed by the Company during the first three years that they are outstanding and may be called thereafter until maturity at the Company’s option at declining premiums to par. For further information, refer to Note 6 to the Consolidated Financial Statements included in our Form 10-K for the fiscal year ended March 31, 2004.

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

1.625% Convertible Senior Notes

In fiscal year 2003, we issued $460 million of unsecured 1.625% Convertible Senior Notes (1.625% Notes), due December 15, 2009, in a transaction pursuant to Rule 144A. The 1.625% Notes are senior unsecured indebtedness and rank equally with all existing senior unsecured indebtedness. Concurrent with the issuance of the 1.625% Notes, we entered into call spread repurchase option transactions to partially mitigate potential dilution from conversion of the 1.625% Notes. For further information, refer to Note 6 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2004.

International Line of Credit

An unsecured and uncommitted multi-currency line of credit is available to meet short-term working capital needs for subsidiaries operating outside the United States. As of June 30, 2004, this line totaled $5 million, of which less than $1 million was drawn and approximately $1.9 million was allocated in support of a bank guarantee.

Other Matters

At June 30, 2004, we had $2.299 billion in debt and $2.170 billion in cash and marketable securities. Our net debt position was, therefore, approximately $129 million.

In December 2003, the United States District Court for the Eastern District of New York approved the settlement of all outstanding litigation related to past accounting issues. Included in the settlement are both shareholder and ERISA class action suits and related derivative litigation. As part of the settlement, we agreed to issue to the shareholder classes a total of up to 5.7 million shares of our Common Stock, which includes payment of attorneys’ fees. At the time of the distribution to the class members, if the price of the Company’s stock is below $23.43 per share, a portion of the remaining settlement shares (currently up to 1.5 million shares) will be distributed to the class members in cash at the price of $23.43 per share. Therefore, as of June 30, 2004, the Company’s maximum cash distribution is approximately $35 million. The Company expects to issue the balance of the shares (or corresponding amounts of cash) in the second quarter of fiscal year 2005, or at such time as the claims administration process has been completed. See Part II, Item 1, “Legal Proceedings” for additional information.

Our senior unsecured notes and bank credit facilities are rated BBB- and Ba1 by Standard & Poor’s and Moody’s Investors Service, respectively. Our CP program is rated A-3 by Standard & Poor’s and Not-Prime by Moody’s Investors Service. Peak borrowings under all debt facilities during the first quarter of fiscal year 2005 totaled approximately $2.3 billion, with a annualized weighted-average interest rate of 5.2%.

Capital resource requirements as of June 30, 2004 consisted of lease obligations for office space, equipment, mortgage or loan obligations, and amounts due as a result of product and company acquisitions.

It is expected that existing cash, cash equivalents, marketable securities, the availability of borrowings under existing and renewable credit lines, and cash expected to be provided from operations will be sufficient to meet ongoing cash requirements, including any potential fine or penalty, which may be significant, associated with the on-going SEC and DOJ investigation. See Part II, Item 1, “Legal Proceedings” of this Form 10-Q for additional information. We expect our long-standing history of providing extended payment terms to our customers to continue.

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

OUTLOOK

This outlook for the remainder of fiscal year 2005 contains certain forward looking statements and information relating to us that are based on the beliefs and assumptions made by management, as well as information currently available to management. Should business conditions change or should our assumptions prove incorrect, actual results may vary materially from those described below. We do not intend to update these forward looking statements except as may be required by law.

The outlook for our full fiscal year 2005 results is largely based on the assumption that there will be limited-to-modest improvement in the current economic and IT environments. We also believe that customers will continue to be cautious with their technology purchases.

Our outlook for the second quarter of fiscal year 2005 is to generate revenue in the range of $830 million to $850 million and earnings per share in the range of $0.03 to $0.05. Our outlook for the full fiscal year 2005 is to generate revenue in the range of $3.4 billion to $3.5 billion and earnings per share in the range of $0.25 to $0.30.

CRITICAL ACCOUNTING POLICIES AND BUSINESS PRACTICES

A detailed discussion of our critical accounting policies and the use of estimates in applying those policies is included in our Form 10-K for the year ended March 31, 2004. In many cases, a high degree of judgment is required, either in the application and interpretation of accounting literature or in the development of estimates that impact our financial statements. These estimates may change in the future if underlying assumptions or factors change. The following is a summary of the critical accounting policies for which estimates were updated as of June 30, 2004.

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 multiyear software agreements;

• Current customer information/events, such as extended delinquency, requests for restructuring, and filing for bankruptcy;

• Results of analytical analysis of both historical and current data; and

• The overall economic 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) a general allowance for all other 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, less of an allowance for doubtful accounts is required.

Deferred Tax Assets

As of June 30, 2004, our deferred tax assets, net of a valuation allowance, totaled $354 million. The value of these deferred tax assets is predicated on the assumption 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. Future results may vary from these estimates. Due to the uncertainties related to these matters, the valuation allowance is based on information available at the time. As additional information becomes available, we reassess the potential realization of these deferred tax assets and may revise our estimates of the valuation allowance.

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

Goodwill, Capitalized Software Products, and Other Intangible Assets

SFAS No. 142 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. No indicators of impairment were identified during the first three months of fiscal year 2005.

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. Such 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. No indicators of impairment were identified during the first three months of fiscal year 2005.

Accounting for Stock-Based Compensation

As described in Note D “Accounting for Stock-Based Compensation” of this Form 10-Q, we have used the Black-Scholes option-pricing model historically to determine the estimated fair value of each option grant. 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 conditions generally outside of our control. As a result, if other assumptions had been used in the current period to estimate fair value, stock-based compensation expense could have been materially impacted.

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 and the determination as to whether an exposure is reasonably estimable. Due to the uncertainties related to these matters, accruals are based on 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 Part II, Item 1, “Legal Proceedings” of this Form 10-Q for a description of our material legal proceedings.

RISK FACTORS

Current and potential stockholders should consider carefully the risk factors described below. These risks are described in more detail in our Form 10-K for the fiscal year ended March 31, 2004 as filed with the SEC. Any of these factors, or others, many of which are beyond our control, could negatively affect our revenue, profitability and cash flow.

• We could be subject to substantial fines, penalties, or other sanctions as a result of a joint inquiry by the SEC and U.S. Attorney’s Office.

• We are subject to intense competition, and we expect to face increased competition in the future.

• We have lost senior management employees; it may be difficult to replace these employees and to attract and retain other key personnel.

• Certain software is licensed from third parties.

• Our products must remain compatible with ever-changing operating environments.

• We have a significant amount of debt.

• Our credit ratings have been downgraded and could be downgraded further.

• Customers are still adapting to our Business Model.

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

• We may become dependent upon large transactions.

• Customer decisions are influenced by general economic conditions.

• Third-party microcode could impact product development.

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

• The software business is marked by easy entry and large, entrenched businesses.

• Future product development is dependent upon access to third-party operating systems.

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

• Third parties could claim that our products infringe their intellectual property rights.

• Fluctuations in foreign currencies could result in transaction losses.

• Acts of terrorism or war may adversely affect our business.

• Our stock price is subject to significant fluctuations.

• The success of our international operations is subject to many factors.


Item 3:		QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 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.

As of June 30, 2004, our outstanding debt approximated $2.3 billion, approximately all of which was 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 $6 million. Each 25 basis point increase or decrease in interest rates would have no material annual effect on variable rate debt interest based on the balances of such debt as of June 30, 2004.

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 $11 million.

Foreign Currency Exchange Risk

We conduct business on a worldwide basis through subsidiaries in 45 countries. 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 expenses in the local currency of our subsidiaries. A 1% change in all foreign currencies against the U.S. dollar would generally have an insignificant effect on our annual net income (loss).

Equity Price Risk

As of June 30, 2004, 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 4:		CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

The Company’s Interim Chief Executive Officer and its Chief Operating Officer and Chief Financial Officer have carried out an evaluation of the effectiveness of the Company’s “disclosure controls and procedures” as of the end of the period covered by this Quarterly Report on Form 10-Q (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, these officers have concluded that as of such date, the Company’s disclosure controls and procedures were effective.

Changes in internal control over financial reporting

As required by Rule 13a-15(d) under the Securities Exchange Act of 1934, Company management conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the quarter covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.

Beginning with the introduction of its current Business Model in October 2000, the Company has improved controls that were deficient in the processing of new contracts in prior periods which resulted in a restatement of our financial statements, as filed with the SEC on Form 8-K on April 26, 2004. The restatement principally concerned the premature recognition of revenue. Through the period covered by this report, the Company implemented additional controls over contract processing, including formal communication of contract receipt deadlines, improved verification of executed agreements, and centralized collection of internationally processed contracts.

PART II. OTHER INFORMATION


Item 1:		LEGAL PROCEEDINGS

The Company, its former Chairman and CEO Charles B. Wang, its former Chairman and CEO Sanjay Kumar, and Russell M. Artzt were defendants in a number of stockholder class action lawsuits, the first of which was filed July 23, 1998, alleging that a class consisting of all persons who purchased the Company’s Common Stock during the period from January 20, 1998, until July 22, 1998, were harmed by misleading statements, misrepresentations, and omissions regarding the Company’s future financial performance. These cases, which sought monetary damages, were consolidated into a single action in the United States District Court for the Eastern District of New York (the “Federal Court”), the proposed class was certified, and discovery was completed. Additionally, in February and March 2002, a number of stockholder lawsuits were filed in the Federal Court against the Company and Messrs. Wang, Kumar, Ira H. Zar, the Company’s former Chief Financial Officer, and in one instance, Mr. Artzt. The lawsuits generally 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 made, in light of the circumstances under which they were made, not misleading in connection with the Company’s financial performance. Each of the named individual plaintiffs in the 2002 lawsuits sought to represent a class consisting of purchasers of the Company’s Common Stock and call options and sellers of put options for the period from May 28, 1999, through February 25, 2002. The 2002 cases were consolidated, and the Company’s former independent auditor, Ernst & Young LLP, was named as a defendant. In addition, in May 2003, a class action lawsuit captioned John A. Ambler v. Computer Associates International, Inc., et al. was filed in the Federal Court. The complaint in this matter, a purported class action on behalf of the Computer Associates Savings Harvest Plan (the CASH Plan) and the participants and beneficiaries of the CASH Plan for a class period running from March 30, 1998, through May 30, 2003, asserted claims of breach of fiduciary duty under ERISA, the federal Employee Retirement Income Security Act. The named defendants were the Company, the Company’s Board of Directors, the CASH Plan, the Administrative Committee of the CASH Plan, and the following current or former employees and/or directors of the Company: Charles B. Wang; Sanjay Kumar; Ira Zar; Russell M. Artzt; Peter A. Schwartz; Charles P. McWade; and various unidentified alleged fiduciaries of the CASH Plan. The complaint alleged that the defendants breached their fiduciary duties by causing the CASH Plan to invest in Company securities and sought damages in an unspecified amount.

On August 25, 2003, the Company announced the settlement of all outstanding litigation related to the above-referenced stockholder and derivative actions as well as the settlement of an additional derivative action filed in the Federal Court in connection with the settlement. Following the approval of the Federal Court, which was granted in December 2003, the Company 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. The settlement provides that if the Company’s share price is below $23.43 per share at the time of distribution, up to 2.2 million of the 5.7 million shares will be payable in cash at that price — or approximately $52 million in cash. In that case, the stock portion of the settlement would be reduced to no less than 3.5 million shares. 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 0.2 million settlement shares were issued to participants and beneficiaries of the CASH Plan. The remaining 3.8 million settlement shares, less any additional administrative expenses, will be issued to class members in the stockholder class action lawsuits upon completion of the claims administration process. It is currently anticipated that the distribution of the remaining shares will occur by the end of August 2004. At the time of the distribution to the class members, if the price of the Company’s stock is below $23.43 per share, a portion of the remaining settlement shares (currently up to 1.5 million shares) will be distributed to the class members in cash at the price of $23.43 per share. Therefore, the Company’s maximum cash distribution as to the remaining settlement shares is approximately $35 million, but only if the price of the Company’s stock is below $23.43 per share at the time of distribution. In settling the derivative suit, the Company committed to maintain certain corporate governance practices. Under the settlement, the Company and the individual defendants are released from any potential claim by shareholders relating to accounting-related or other public statements made by the Company or its agents from January 1998 through February 2002 (and from January 1998 through May 2003 in the case of the employee ERISA action), and the individual defendants are released from any potential claim by the Company or its shareholders relating to the same matters. Ernst & Young LLP is not a party to the settlement. The settlement was reviewed by the independent directors who chair the Corporate Governance, Audit, and Compensation and Human Resource Committees of the Board of Directors as well as by all non-interested, independent directors who were not named in any of the suits. It was also approved by the Board’s independent directors as a whole.


Item 2:		CHANGES IN SECURITIES AND USE OF PROCEEDS

The following table sets forth, for the months indicated, our purchases of Common Stock in the first quarter of fiscal year 2005:

Total Number

Maximum Number

of Shares

of Shares that

Weighted-

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

(in thousands, except average price paid per share)

April 2004

–

19,605

May 2004

–

19,605

June 2004

394

27.15

394

19,211

Total

394

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 June 30, 2004, approximately 19 million shares were available to be repurchased under our buyback program. The program has no expiration date.


Item 6:		EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

10.1 Employment agreement, dated July 8, 2004, between the Company and Kenneth D. Cron
10.2 Employment agreement, dated June 14, 2004, between the Company and Kenneth V. Handal
15.1 Accountants’ acknowledgement letter
31.1 Certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K:

The Registrant filed a Report on Form 8-K dated April 1, 2004 to report an event under Items 5 and 7.
The Registrant filed a Report on Form 8-K dated April 8, 2004 to report an event under Items 5 and 7.
The Registrant filed a Report on Form 8-K dated April 21, 2004 to report an event under Items 5 and 7.
The Registrant filed a Report on Form 8-K dated April 21, 2004 to report an event under Item 5.
The Registrant filed a Report on Form 8-K dated April 26, 2004 to report an event under Item 5.
The Registrant filed a Report on Form 8-K dated April 26, 2004 to report an event under Items 5 and 7.
The Registrant filed a Report on Form 8-K dated May 7, 2004 to report an event under Item 12.
The Registrant filed a Report on Form 8-K dated May 25, 2004 to report an event under Items 7 and 12.
The Registrant filed a Report on Form 8-K dated June 4, 2004 to report an event under Items 5 and 7.

SIGNATURES


		Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

COMPUTER ASSOCIATES INTERNATIONAL, INC.

Dated: July 30, 2004 By: /s/ Kenneth D. Cron
Kenneth D. Cron
Interim Chief Executive Officer

Dated: July 30, 2004 By: /s/ Jeff Clarke
Jeff Clarke
Chief Operating Officer and
Chief Financial Officer

EX-10.1 2 y99465exv10w1.htm EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT

Exhibit 10.1

EMPLOYMENT AGREEMENT

This Agreement is entered into by and between Computer Associates International, Inc. (the “Company”) and Kenneth D. Cron (“Cron”) on July 8, 2004. In consideration of the Company offering, and Cron accepting, the position of interim Chief Executive Officer (“Interim CEO”) of the Company, Cron and the Company agree as follows:

1. Work Standards. Cron will (a) serve the Company (and such of its subsidiary companies as the Company may designate) faithfully, diligently and to the best of Cron’s ability under the direction of the Board of Directors of the Company, (b) devote his best efforts, attention and energy to the performance of his duties to the Company and (c) not do anything inconsistent with his duties to the Company. Cron’s employment began on April 23, 2004 and shall end on the effective date of the appointment by the Company’s Board of Directors of a new Chief Executive Officer or in accordance with paragraph 14 of this Agreement.

2. Laws; Other Agreements. Cron represents that his employment hereunder will not violate any law or duty by which he is bound, and will not conflict with or violate any agreement or instrument to which Cron is a party or by which he is bound.

3. Compensation. (a) In consideration of services that Cron has rendered and will render to the Company in the future, the Company agrees to pay Cron the following consideration:

(i) The sum of $50,000 per month (less applicable withholdings) commencing on April 23, 2004, payable semi-monthly concurrent with the Company’s normal payroll cycle. The Company will pay this amount until Cron’s employment hereunder terminates. If Cron’s employment hereunder terminates prior to April 23, 2005, the Company will pay Cron the difference between $600,000 and all amounts previously paid pursuant to this paragraph 3(a)(i). If Cron’s employment hereunder terminates on or following such date and during a payroll cycle, the Company will pay Cron through the end of that payroll cycle.

(ii) The sum of $2,000 per month as reimbursement for Cron’s lease on office space commencing on April 23, 2004. This reimbursement shall be paid concurrent with the Company’s month-end payroll for each month of Cron’s employment. If Cron’s employment hereunder terminates prior to April 23, 2005, the Company will pay Cron the difference between $24,000 and all amounts previously paid pursuant to this paragraph 3(a)(ii). If Cron’s employment hereunder terminates on or following such date and during a payroll cycle, the Company will pay the reimbursement through the end of the last month of Cron’s employment.

(iii) Restricted stock units with respect to 52,780 shares of the Company’s Common Stock. The units shall become fully vested on the earlier of the effective date of the appointment of a new Chief Executive Officer by the Company’s Board of Directors and April 23, 2005, at which time the Company shall deliver to Cron 52,780 shares of Common Stock, free from all restrictions (other than such restrictions as may be applicable under the federal securities laws). The other terms of the restricted stock units shall be governed by the terms of the Company’s 2002 Incentive Plan, as amended (as so amended, the “2002 Plan”), and any Award Certificate issued in connection with such units. In the event that Cron voluntarily resigns his position with the Company or is terminated “for cause” (as defined in paragraph 5 of this Agreement) prior to the time the restricted stock units granted under this paragraph 3(a)(iii) vest, he shall forfeit any and all rights he may have to this restricted stock unit grant.

(iv) Options to purchase 83,845 shares of the Company’s Common Stock at a price of $28.42 per share. The options shall become exercisable in full on the earlier of the effective date of the appointment of a new Chief Executive Officer by the Company’s Board of Directors and April 23, 2005. Thereafter, Cron shall have the right to exercise such options at any time during the term of such options. The other terms of the options shall be governed by the terms of the 2002 Plan, and any Award Certificate issued in connection with such options. In the event that Cron voluntarily resigns his position with the Company or is terminated “for cause” (as defined in paragraph 5 of this Agreement) prior to the time the options granted under this paragraph 3(a)(iv) vest, he shall forfeit any and all rights he may have to this option grant.

Page 1 of 7

(b) In addition, Cron shall be eligible to receive:

(i) a 2005 Annual Performance Bonus (payable in cash) pursuant to Section 4.4 of the 2002 Plan, with an Annual Performance Bonus target of $750,000.00, which Annual Performance Bonus shall otherwise be subject to the terms and conditions of the Company’s 2005 Annual Performance Bonus plan; and

(ii) a targeted Performance Bonus of $2,250,000.00 for the period from April 23, 2004 through March 31, 2005, which Performance Bonus shall otherwise be subject to the terms and conditions applicable to the fiscal year ending March 31, 2005 under the Company’s 2005-2007 Long-Term Performance Bonus plan, with the form or forms of payment of any such Performance Bonus to be determined by the Compensation and Human Resource Committee (the “Compensation Committee”) of the Board of Directors at or as promptly as practicable following March 31, 2005 (the date of such determination being referred to as the “Determination Date”) in accordance with the 2002 Plan. Subject to subparagraph (iii), such Performance Bonus shall vest on March 31, 2005, shall be paid to Cron shortly following public announcement of the Company’s financial results for the 2004 fiscal year (anticipated to occur in May 2005), and shall not be subject to any holding period.

(iii) In the event that Cron voluntarily resigns his position with the Company prior to March 31, 2005 or is terminated “for cause” (as defined in paragraph 5 of this Agreement) at any time, he shall forfeit any and all rights he may have to receive any of the benefits provided for in this paragraph 3(b). If Cron’s employment hereunder otherwise would terminate prior to March 31, 2005 for any other reason (including the effectiveness of the appointment by the Company’s Board of Directors of a new Chief Executive Officer), then (A) Cron shall remain an employee of the Company through and including the Determination Date at a salary per month to be determined by the Compensation Committee at the time (less applicable withholdings), (B) management shall recommend that any Restricted Stock, Fair Market Value Options and Premium-Priced Options granted to Cron pursuant to the Performance Bonus described in subparagraph (ii) shall vest in full immediately upon the termination of Cron’s employment hereunder, and (C) Cron shall be entitled to receive the benefits provided for in this paragraph 3(b) if and to the extent that the relevant targets are met and otherwise in accordance with the terms of the 2002 Plan. Capitalized terms used in this paragraph (b) and not defined are used as defined in the 2002 Plan.

4. Benefits and Perquisites. During the term of Cron’s employment, Cron shall be eligible to participate in all pension, welfare and benefit plans and perquisites generally made available to other senior executives of the Company.

5. Termination For Cause. For purposes of this Agreement, termination “for cause” shall mean that the Company terminates Cron’s employment for any of the following reasons: (a) Cron’s continued failure, either due to willful action or as a result of gross neglect, to substantially perform his duties with the Company (other than any such failure resulting from his incapacity due to physical or mental illness) that, if capable of being cured, has not been cured within 30 days after written notice is delivered to Cron by the Board, which notice specifies in reasonable detail the manner in which the Board believes that Cron has not substantially performed his duties, (b) the engaging by Cron in conduct which is demonstrably and materially injurious to the Company or its affiliates, monetarily or otherwise, unless the conduct in question was undertaken in good faith, on an informed basis, with due care and with a rational business purpose and based upon the honest belief that such conduct was in the best interest of the Company or its affiliates, as the case may be, (c) Cron’s indictment or conviction (or plea of guilty or nolo contedere) for any felony or any other crime involving dishonesty, fraud or moral turpitude, (d) Cron’s breach of fiduciary duty to the Company or its affiliates which may reasonably be expected to have a material adverse effect on the Company or its affiliates, (e) violation of the Company’s policies relating to compliance with applicable laws which may reasonably be expected to have a material adverse effect on the Company or its affiliates, (f) violation of the Company’s policies on discrimination, unlawful harassment or substance abuse, (g) violation of the Company’s Workplace Violence Policy, or (h) unauthorized use or disclosure of confidential or proprietary information or related materials, or the violation of any of the terms of the Company’s standard confidentiality policies and procedures, in the case of any item identified in this clause (h) which (i) may reasonably be expected to have a material adverse effect on the Company or its affiliates and (ii) if capable of being cured, has not been cured within 30 days after written notice is delivered to Cron by the Board, which notice specifies in reasonable detail the alleged unauthorized use or disclosure or violation. For purposes of clause (a) of this definition, no act, or failure to act, on Cron’s part shall be deemed “willful” unless done, or omitted to be done, by Cron not in good faith and without reasonable belief that his act, or failure to act, was in the best interest

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of the Company or its affiliates, as the case may be.

6. Indemnification.

(a) To the fullest extent permitted by Section 145 of the Delaware General Corporation Law, the Company shall indemnify Cron in the event that he was, is or becomes a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether brought by a third party or by or in the right of the Company, by reason of the fact that he is or was the Interim CEO of the Company, against expenses (including attorneys’ fees), liability, loss, judgment, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding (collectively, “Expenses”). Such indemnity shall be paid promptly after written demand is presented to the Company.

(b) Expenses actually and reasonably incurred by Cron in defending any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, and whether brought by a third party or by or in the right of the Company, and in which Cron is made or threatened to be made a party by reason of the fact that he is or was the Interim CEO of the Company, shall be paid on behalf of Cron by the Company in advance of the final disposition of such action, suit, or proceeding and promptly following receipt by the Secretary of the Company of (i) an application from Cron setting forth the basis for such indemnification, and (ii) if required by law at the time such application is made, an undertaking by or on behalf of Cron to repay such amount if it shall ultimately be determined that Cron is not entitled to be indemnified by the Company as authorized in this paragraph 6.

(c) Expenses actually and reasonably incurred by Cron in connection with any action brought by Cron for (i) indemnification or advance payment of Expenses by the Company pursuant to paragraphs 6(a)-(b) of this Agreement or (ii) recovery under any directors’ and officers’ liability insurance policies maintained by the Company shall be paid on behalf of Cron by the Company in advance of such action, suit or proceeding promptly following receipt by the Secretary of the Company of the application and, if necessary, the undertaking referred to in paragraph 6(b) above.

(d) If Cron is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Cron for the portion thereof to which Cron is entitled.

(e) Further to the Company’s undertaking pursuant to paragraph 6(a) above to indemnify Cron to the furthest extent provided by applicable law, for purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval), or upon a plea of nolo contendere or its equivalent, shall not create a presumption that Cron did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law.

(f) The rights of Cron hereunder shall be in addition to any other rights Cron may have under the Company’s By-laws or the Delaware General Corporation Law or otherwise. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company’s By-laws and this Agreement, it is the intent of the parties hereto that Cron shall enjoy by this Agreement the greater benefits so afforded by such change. Should the By-laws of the Company be amended after the date of this Agreement such that the indemnification rights thereunder afforded to Cron in his capacity as Interim CEO do not provide the maximum indemnification permitted under applicable law, Cron shall be entitled to the benefit of the indemnification provisions of the Company’s By-laws as in effect on the date of this Agreement, subject only to such provisions not being in violation of applicable law as then in effect.

7. Confidential Information of Others. Cron agrees that in the performance of his duties as Interim CEO, he will not use, disclose to the Company, or induce the Company to use, any confidential information or documents belonging to others.

8. Confidential Information of the Company. As used in this Agreement, the term “Confidential Information” means any and all confidential, proprietary or secret information, including that conceived or developed by Cron, applicable to or in any way related to (a) the present or future business of the Company, (b) the research and development of the Company, or (c) the business of any

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client or vendor of the Company. Such Confidential Information of the Company includes, by way of example and without limitation, trade secrets, processes, formulas, data, program documentation, algorithms, source codes, object codes, know-how, improvements, inventions, techniques, all plans or strategies for marketing, development and pricing, and all information concerning existing or potential clients or vendors. Confidential Information of the Company also includes all similar information disclosed to the Company by other persons. However, Confidential Information shall not include information that (i) becomes generally available to the public other than as a result of disclosure by Cron or any of Cron’s agents, advisors or representatives, (ii) was made available to Cron, with no disclosure to Cron that the information was subject to confidentiality restrictions, prior to its disclosure to Cron by the Company or its agents, advisors or representatives, or (iii) becomes available to Cron, with no disclosure to Cron that the information was subject to confidentiality restrictions, from a source other than the Company or its agents, advisors or representatives, provided such source was, to Cron’s reasonable knowledge, entitled to make the disclosure to Cron.

9. Protection of the Company’s Confidential Information. Cron acknowledges that the Confidential Information of the Company is a special, valuable, and unique asset of the Company, and Cron agrees that at all times during the period of his employment, and at all times after termination of such employment, that he will keep in strict confidence and not disclose (except as required by law or in order for Cron to perform his duties as Interim CEO) all such Confidential Information. Cron agrees that he will abide by all Company policies, rules and procedures that relate to the protection of the Company’s Confidential Information.

10. Return of Materials. Upon termination of employment with the Company, and regardless of the reason for such termination, Cron agrees that he will leave with, or promptly return to, the Company all documents, records, notebooks, magnetic tapes, disks or other materials, including all copies, in his possession or control which contain Confidential Information of the Company or any other information concerning the Company, its products, services or clients, whether prepared by the Cron or others, except for any such materials that were delivered to Cron in his role as a director of the Company and which continue to be necessary or useful to him in the performance of his continuing duties as a director of the Company. In the event that Cron’s employment would terminate as set forth in the second sentence of paragraph 3(b)(iii) of this Agreement, he shall comply with the provisions of this paragraph 10 promptly upon the date his employment otherwise would have terminated without giving effect to the continuation of such employment through the Determination Date as provided for by such sentence.

11. Inventions as Sole Property of the Company. Any inventions, discoveries, concepts or ideas, or expressions thereof, whether or not subject to patents, copyrights, trademarks or service mark protection, and whether or not reduced to practice, conceived or developed by Cron while employed by the Company which relate to or result from the actual or anticipated business, work, research or investigation of the Company or which are suggested by or result from any task assigned to or performed by Cron for the Company shall be the sole and exclusive property of the Company. Cron hereby assigns to the Company the entire right, title and interest to any such inventions, discoveries, concepts, ideas or expressions thereof and Cron agrees to perform, during and after employment, all acts deemed necessary or desirable by the Company to permit and assist it, at the Company’s expense, in obtaining, maintaining, defending and enforcing inventions, discoveries, concepts, ideas, or expressions thereof in any and all countries. Such acts may include, but are not limited to, execution of documents and assistance or cooperation in legal proceedings. Cron hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Cron’s agents and attorneys-in-fact to act for and in Cron’s behalf and instead of Cron, to execute and file any documents and to do all other lawfully permitted acts to further the above purposes with the same legal force and effect as if executed by Cron.

12. List of Prior Inventions. All inventions, discoveries, improvements, concepts or ideas, or expressions thereof, which Cron has made prior to employment by the Company are excluded from the scope of this Agreement. As a matter of record, Cron has set forth on Exhibit A hereto a complete list of inventions, discoveries, improvements, concepts or ideas, or expressions thereof, which might reasonably be expected to relate to the development of integrated enterprise computer software products consistent with the Company’s principal lines of business as conducted at the date hereof and which have been made by Cron prior to his employment by the Company. Cron agrees that under no circumstances will he incorporate in any work performed for the Company: (a) any of the inventions, discoveries, improvements, concepts or ideas, or expressions thereof, disclosed on Exhibit A; and/or (b) any of the technology described in any of the inventions, discoveries, improvements, concepts or ideas, or expressions thereof, disclosed on Exhibit A, without the prior written consent of the Company. Cron

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further agrees that in the event any of the inventions, discoveries, improvements, concepts or ideas, or expressions thereof, disclosed on Exhibit A are incorporated into any work performed for the Company without Company’s written consent, Cron grants the Company a royalty free, perpetual license to make, use, sell, offer to sell, import, copy, reproduce and/or perform any other act (including the right to make, copy and reproduce derivative works) necessary to continue to exploit any work performed by the Cron for the Company.

13. Authorization to Modify Restrictions. Cron acknowledges that the restrictions contained in this Agreement are reasonable, but agrees that if a court having proper jurisdiction holds a particular restriction unreasonable, that restriction shall be modified to the extent necessary in the opinion of such court to make it reasonable, and that the remaining provisions of this Agreement shall nonetheless remain in full force and effect.

14. No Duration of Employment. Notwithstanding anything else contained in this Agreement to the contrary, the Company and Cron each acknowledge and agree that Cron’s employment with the Company may be terminated by either the Company (subject only to the provisions of paragraph 3(b)(iii) of this Agreement) or Cron at any time and for any reason, with or without cause, upon 10 days’ written notice to the other party, provided that this Agreement may be terminated “for cause” immediately upon written notice from the Company to Cron. In addition, this Agreement shall automatically terminate upon Cron’s death or Disability. For purposes hereof, “Disability” shall have the same meaning as set forth in the 2002 Plan. Upon termination of his employment for any reason whatsoever, the Company shall have no further obligation to Cron other than those set forth in paragraphs 3(a), 3(b) and 6 of this Agreement.

15. General.

(a) Any notice required or permitted to be given under this Agreement shall be made either:

(i) by personal delivery to Cron or, in the case of the Company, to the Company’s principal office (“Principal Office”) located at One Computer Associates Plaza, Islandia, New York 11749, Attention: Senior Vice President – Human Resources, or

(ii) in writing and sent by registered mail, postage prepaid, to Cron’s residence with a copy to:

Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Attention: Stephen M. Banker

or, in the case of the Company, to the Company’s Principal Office.

Any provision of this Agreement calling for notice to be delivered by the Board of Directors shall be satisfied by any notice that is executed on behalf of the Board of Directors by any director or officer of the Company acting pursuant to the authorization of the Board and otherwise delivered in accordance with this paragraph 15(a)

(b) This Agreement shall be binding upon Cron and his heirs, executors, assigns, and administrators and shall inure to the benefit of the Company, its successors and assigns and any subsidiary or parent of the Company.

(c) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of law principles. Any action relating to this Agreement shall be brought exclusively in the state or federal courts of the State of New York, County of Suffolk.

(d) This Agreement and the documents referred to herein represent the entire agreement between Cron and the Company and supersede any and all previous oral or written communications, representations or agreements. This Agreement may only be modified, in writing, jointly by Cron and a duly authorized representative of the Company.

(e) Without limiting the scope of paragraph 13 of this Agreement, the provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or

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otherwise unenforceable in any respect, and the validity and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be any way impaired and shall remain enforceable to the fullest extent permitted by law.

CAUTION TO CRON: This Agreement affects important rights. DO NOT sign it unless you have read it carefully and are satisfied that you understand it completely.


	COMPUTER ASSOCIATES INTERNATIONAL, INC.

/s/ Kenneth D. Cron	By:	/s/ Andrew Goodman

Kenneth D. Cron	Name: Title:	Andrew Goodman Senior Vice President, HR

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EXHIBIT A
TO
EMPLOYMENT AGREEMENT

I represent that I have disclosed on this Exhibit all inventions, discoveries, improvements, concepts or ideas or expressions thereof, including all patents, patent applications, copyright registrations, copyrighted works (e.g., program code in source or object form or writings) and/or computer programs (collectively “Inventions”) in which I claim any proprietary right or interest that might reasonably be expected to relate to the development of integrated enterprise computer software products consistent with the Company’s principal lines of business as conducted at the date hereof. I agree that any present or future Inventions not listed on this Exhibit are subject to licensing under paragraph 12 of the attached Employment Agreement.

I understand that the Company has made no attempt to verify my claim of ownership to any of the Inventions disclosed on this Exhibit, and that the Company makes no admission that any Inventions disclosed on this Exhibit are owned by me.


Brief Description of Invention		Right, Title or Interested and Date Acquired


























Date		Kenneth D. Cron

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EX-10.2 3 y99465exv10w2.htm EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT

Exhibit 10.2

[Computer Associates Logo]

June 14, 2004

Kenneth V. Handal

1075 Park Avenue

New York, NY 10128

Dear Ken:

Congratulations! Computer Associates International, Inc. (CA) is pleased to offer you the position of Executive Vice President and General Counsel, in our office in Islandia, NY, with a direct report to the Chief Executive Officer. Please note this offer is contingent on upon the successful completion and acceptance of our background verification. We expect your start date to be on or about July 1, 2004.

Your compensation will be an annual base salary of $500,000 paid semi-monthly. Your compensation plan includes an annual bonus with an incentive target of $435,000 and an annual Long Term Incentive Compensation (LTIC) Plan with a $825,000 target, in accordance with the Executive Compensation Plan guidelines and vesting schedule.

The position offered is an exempt position and as such you will not be compensated for overtime. In addition, the executive management of CA will recommend to the Stock Option and Compensation Committee (SO&C) of the Board of Directors (BOD) that they award you (i) an option grant for 55,000 shares (at fair market value), and (ii) a restricted stock grant of 10,000 shares, both upon hire. These CA stock options and restricted stock are subject to the terms and conditions of the Option Plan and/or the Incentive Plan, and are granted at the sole discretion of the SO&C Committee.

Attached is a brief description of your benefits at CA. You will receive more information concerning your benefit program during your orientation on your first day of employment. Also attached is a “Terms and Conditions” rider setting forth other provisions concerning your employment. Note that paragraph 2(b) of the attached “Description of Employment Policies and Procedures” shall not apply with respect to the period of July 1, 2004 through July 1, 2006, as those matters shall be governed by the Terms and Conditions.

This offer is contingent upon your presentation of the original documentation required to establish your identity and permission to work in the United States in accordance with United States immigration law. We have attached the information required to identify the documentation you will need to bring with you on your first day. In the event you cannot produce proper documentation as outlined on the I-9 within 3 business days of your start date, this offer will be considered to have expired.

We look forward to having you join us and we expect that our relationship will be mutually rewarding. To confirm your acceptance of this offer, please forward this document directly back to me via e-mail within five days of receipt. If I have not received your confirmation within five days, this offer will be considered to have expired.

We realize that this is an important decision and want to be certain you have all of the information that you require. Should you have questions or require information beyond what we have already discussed or what is contained in this letter, please call me at 631-342-3288

Sincerely,

Description of Employment Policies and Procedures

These benefits and policies may be modified, changed or terminated at anytime in Computer Associate’s sole discretion. None of these benefits are guaranteed by Computer Associates. Except as required by law, the Plan Administrator of any Computer Associates benefit which is covered by the Employment Retirement Income Security Act of 1974, as amended, shall have the discretionary authority to determine eligibility for benefits and construe the terms of plans. In the event of any discrepancy between this document and any other summary of plan benefits, the particular plan document terms shall govern.

1. As a full-time employee of Computer Associates, you must enroll in the company’s Long-Term Disability Income Plan in order to be covered by our medical and dental insurance plans. On your first day with us, you will be provided with details of the Disability Income Plan. If you do enroll, your insurance coverage will commence as of the date you begin work for Computer Associates. You will be eligible to participate in our employee benefit programs as described in our current Employee Handbook, which will be provided to you during your initial orientation.

2. You should understand and be aware of certain policies of Computer Associates, which are applicable to all of our employees as follows. Please note that CA may change these policies at anytime during your employment.

a. Computer Associates is an Equal Employment Opportunity Employer and, as such, it is Computer Associates’ corporate policy to fill positions with qualified candidates regardless of race, color, sex, age, religion, ancestry, national origin, marital status, sexual preference, disability, veteran status or other protected group status, except where there is a bona fide qualification.

b. Employment with Computer Associates is not for any specific period of time. You are free to resign at any time and, likewise, Computer Associates may terminate its employment arrangement with you at any time with or without cause or advance notice. Neither your offer letter nor this description should be construed as an employment contract or a guarantee of employment for any period in any way.

c. Since our business involves highly confidential proprietary material, we require all employees to execute a standard confidentiality and non-competition agreement. Our offer of employment is subject to your acceptance and execution of this agreement. You will be given a copy to look over and sign on your first day with us.

d. Regular pay is determined by dividing your annual salary by 24 pay periods. Paychecks are direct deposited semi-monthly. Please bring a voided check from your personal bank account on your first day of employment, and you will be asked to fill out an authorization agreement. You are also eligible to become a member of Bethpage Federal Credit Union (“BFCU”). BFCU offers convenient direct deposit checking and other banking services.

3. We are required by the immigration laws to verify each employee’s identity and that each employee is entitled to work in the United States. Therefore, on your first day with us, we will ask you to give us identification (such as a Social Security Card or U.S. birth certificate, plus a valid driver’s license with photograph) and/or documents establishing your right to be employed in the U.S.A. (such as a U.S. passport, a certificate of U.S. citizenship, a valid foreign passport endorsed to permit employment in the U.S.A. or a resident alien “green” card). We are required by law to have this documentation before you may begin to work for Computer Associates. You may view the list of acceptable documents by going to http://www.ins.usdoj.gov/graphics/formsfee/files/i-9.pdf.

4. In order for CA to comply with its reporting obligations, prior to beginning work, we invite you to consider voluntarily self-identifying yourself to your Human Resources Representative as a disabled veteran, veteran of the Vietnam era or an individual with a disability. Self-identification is not mandatory; it is completely voluntary.

TERMS AND CONDITIONS RIDER

Terms and Conditions Rider (“Rider”) attached to and made a part of the letter of Computer Associates International, Inc., (“CA” or the “Company”) to Kenneth V. Handal (“Executive”) dated June 14, 2004 (“Offer Letter”). As used herein, this “Agreement” means the Offer Letter and attachments thereto, including this Rider. Notwithstanding anything in the Offer Letter (and any other attachments thereto) to the contrary, the parties agree as follows:

1. Employment. The Company shall employ Executive, and Executive accepts employment with the Company, upon the additional terms and conditions set forth herein for the period beginning on or about July 1, 2004 (“Commencement Date”) and ending as provided in Section 5 hereof (the “Employment Period”). For all purposes herein, the date Executive ceases to be employed by the Company shall be the referred to herein as the “Termination Date”.

2. Annual Bonus. As used herein, “Annual Bonus” means the annual “Targeted Cash Compensation” (or similar cash incentive compensation bonus) payable, if any, pursuant to the Company’s annual Executive Compensation Plan in effect for the applicable fiscal year. If Executive is employed on the last day of the Company’s fiscal year, then Executive shall have earned the Annual Bonus, if any, for such fiscal year.

3. Acceleration Events. Notwithstanding anything to the contrary herein, or in any other agreement, policy or plan affecting the equity awards referenced in the first two paragraphs of the Offer Letter and future equity awards granted to Executive (collectively “Equity Awards”), all Equity Awards shall be 100% vested upon the occurrence of either of the following: (a) if Executive’s Employment Period is terminated for any reason other than pursuant to Section 5(a) (By Company for Cause), or Section 5(d) (By Executive at will); or (b) upon a “Change of Control” (as defined in the 2002 Incentive Plan). “Equity Awards” includes, without limitation, all long term incentive compensation awards paid in the form of stock options, restricted stock or other equity security-based compensation in accordance with the Executive Compensation Plan in effect for the applicable fiscal year (the “Annual LTIC”). With respect to any Annual LTIC grant pursuant to Section 6(a)(iii) hereof, such Annual LTIC Award shall be exercisable for a minimum of twelve (12) months after the date such equity awards are granted.

4. Additional Benefits. The Company shall provide the Executive with the following:

(a) Transportation. For so long as Executive resides in New York City, the Company shall provide a stipend of not less than $4,000 per month for transportation to and from the Company’s offices from Executive’s residence in the metropolitan New York area.

(b) Legal Fees. Upon the execution of this Agreement, the Company shall pay to Executive’s attorneys legal fees and expenses incurred by Executive in the negotiation and consummation of this Agreement in the amount of $5,000.

5. Term; Early Termination. The Employment Period shall commence on or about July 1, 2004 and expire on July 1, 2006 (the “Contract Expiration Date”). The Employment Period may terminate prior to the Contract Expiration Date by reason of any of the following:

(a) By Company for Cause. The Company may terminate the Employment Period “for cause”, as set forth in this Section 5(a) (“Cause”). For purposes of this Agreement, termination “for cause” shall mean that the Company terminates Executive’s employment for any of the following reasons: (i) Executive’s continued failure, either due to willful action or as a result of gross neglect, to substantially perform his duties with the Company (other than any such failure resulting from his incapacity due to physical or mental illness) that, if capable of being cured, has not been cured within thirty (30) days after written notice is delivered to Executive by the Company, which notice specifies in reasonable detail the manner in which the Company believes that Executive has not substantially

performed his duties, (ii) the engaging by Executive in conduct which is demonstrably and materially injurious to the Company or its affiliates, monetarily or otherwise, unless the conduct in question was undertaken in good faith on an informed basis with due care and with a rational business purpose and based upon the honest belief that such conduct was in the best interest of the Company or its affiliates, as the case may be, (iii) Executive’s indictment or conviction (or plea of guilty or nolo contedere) for any felony or any other crime involving dishonesty, fraud or moral turpitude, (iv) Executive’s breach of fiduciary duty to the Company or its affiliates which may reasonably be expected to have a material adverse effect on the Company or its affiliates, (v) violation of the Company’s policies relating to compliance with applicable laws which may reasonably be expected to have a material adverse effect on the Company or its affiliates, (vi) violation of the Company’s policies on discrimination, unlawful harassment or substance abuse, (vii) violation of the Company’s Workplace Violence Policy, or (viii) unauthorized use or disclosure of confidential or proprietary information, or related materials, or the violation of any of the terms of the Company’s standard confidentiality policies and procedures, in the case of any item identified in this clause (viii) which may reasonably be expected to have a material adverse effect on the Company or its affiliates and that, if capable of being cured, has not been cured within thirty (30) days after written notice is delivered to Executive by the Company, which notice specifies in reasonable detail the alleged unauthorized use or disclosure or violation. For purposes of clause (i) of this definition, no act, or failure to act, on Executive’s part shall be deemed “willful” unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that his act, or failure to act, was in the best interest of the Company or its affiliates, as the case may be.

(b) By Executive for Good Reason. The Executive may terminate the Employment Period for good reason, as follows (“Good Reason”):

(i) the assignment to the Executive of any duties inconsistent in any material respect with the Executive’s position, authority, duties or responsibilities as general counsel with ultimate authority and responsibility for hiring, evaluating, promoting and/or dismissing attorneys of the Legal Department of the Company, or which results in a significant diminution in such position, authority, duties or responsibilities; or

(ii) a material breach by the Company of any provision of this Agreement, provided, however, that no alleged action, diminution or breach set forth in preceding clause (i) or in this clause (ii), respectively, shall be deemed to constitute “Good Reason” unless such action, diminution or breach remains uncured, as the case may be, after the expiration of thirty (30) days following delivery to Company from the Executive of a written notice, setting forth such course of conduct deemed by Executive to constitute “Good Reason”; or

(iii) any other action by the Company which, in the reasonable judgment of the Executive, would cause him to violate his ethical or professional obligations (after written notice of such judgment has been provided by the Executive to the Board’s audit committee and the Company has been given a thirty (30) day period within which to cure such action); or

(iv) upon a Change of Control; or

(v) the relocation of the Company’s corporate headquarters to a site outside of a ninety (90) mile radius of Manhattan; or

(c) By Company at will. The Company may terminate the Employment Period other than for Cause pursuant to Section 5(a) at any time, upon notice to the Executive.

(d) By Executive at will. The Executive may terminate the Employment Period other than for Good Reason pursuant to Section 5(b) at any time, upon notice to the Company.

(e) Death or Disability of Executive. The Employment Period shall terminate immediately upon the death of Executive, or in the event of Executive’s Disability, as hereafter defined. Disability shall mean Executive’s inability to perform his responsibilities under this Agreement due to physical/mental disease and/or injury, for (i) a period

of six consecutive months or (ii) shorter periods aggregating six months during any twelve month period, if at the end of such disability period, there is no reasonable probability of Executive promptly resuming services pursuant to the terms of this Agreement. If the Company wishes to seek to terminate this Agreement because of any alleged Disability, the Company shall give Executive at least thirty (30) days written notice of its intention to seek to terminate the Agreement by reason of Disability. Upon the giving of such notice of intention, Executive may cure any previous disability period by promptly resuming his services pursuant to this Agreement within seven (7) days. In the event Executive cannot or does not so resume his services following such notice, then the Company may terminate the Employment Period for Disability.

6. Severance Payments.

(a) Amount. If the Employment Period is terminated for any reason other than pursuant to Section 5(a) (By Company for Cause), Section 5(d) (By Executive at will) or Section 5(e) (Death or Disability of Executive) then (in addition to payment of “Accrued Benefits” as defined and set forth in Section 7 hereof):

(i) the Company shall pay Executive the Executive’s then current Base Salary for the period commencing the day after the Termination Date and continuing to the date twenty-four (24) months after the Termination Date (such period hereinafter referred to as the “Severance Period”). Said payments shall be made in equal installments in accordance with the Company’s normal payroll practices applicable to its senior executives.; plus

(ii) the Company shall pay to Executive a pro-rata portion of the Executive’s Annual Bonus for the performance year in which the Executive’s termination occurs at the time that annual bonuses are paid to other senior executives (determined by multiplying the amount the Executive would have received had employment continued through the end of the performance year by a fraction, the numerator of which is the number of days during the performance year of termination that the Executive is employed by the Company and the denominator of which is 365); plus

(iii) a pro-rata portion of the Annual LTIC for the performance year in which the Executive’s termination occurs shall be granted (as determined by multiplying all amounts of equity and cash the Executive would have received from said Annual LTIC had employment continued through the end of the performance year by a fraction, the numerator of which is the number of days during the performance year of termination that the Executive is employed by the Company and the denominator of which is 365); plus

(iv) subject to the Executive’s continued copayment of premiums, if applicable, at the contribution level paid by active employees, the Company shall at its expense provide for Executive to continue participation for all health and welfare plans which cover the Executive (and eligible dependents) pursuant to and in accordance with the Executive’s rights under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), for the maximum period of time beyond the Termination Date for which Executive (and any eligible dependant) is eligible for COBRA benefits (generally, eighteen (18) months).

(b) Mitigation and Setoff. Executive shall not be required to mitigate (by seeking any other employment, self employment or any other income producing pursuit) any amounts or benefits payable to him upon termination of the Employment Period under this Agreement. Further, Executive shall not be required to set off against any amounts or benefits payable to him upon termination of the Employment Period under this Agreement, any compensation for other employment, consultancy or unemployment benefits received while he is receiving payments and benefits under this Agreement.

7. Salary and Benefits on Termination.

(a) Accrued Benefits. If the Employment Period is terminated pursuant to Section 5 then the Company shall pay to Executive all Base Salary through the Termination Date, plus any unpaid but earned Annual Bonus for any completed prior fiscal year of the Company, plus all unpaid benefits, including but not limited to payment for unused vacation accrued or incurred through the Termination Date.

(b) Extension of Medical Benefits. If the Employment Period is terminated pursuant to Section 5(e)(due to Executive’s death or Disability), then the Executive (and/or any immediate family eligible for the following coverage) also shall be entitled to continue participation in the Company’s group health plans on the same terms as set forth in Section 6(a)(iv) above.

8. Notice of Default. A party shall not be in default of this Agreement and/or any other agreement related to Executive’s employment with the Company (collectively, the “Employment Agreements”) until and unless the party alleging a default (the “Non-Defaulting Party”) shall first give written notice, specifying the nature of the alleged default, to the party or parties against which the default is alleged (the “Defaulting Party”) and to any other parties, and such default continues uncorrected for a period of thirty (30) days after receipt by the Defaulting Party of such notice. The notice and opportunity to cure procedure set forth in this Section 8 shall be a condition precedent to the initiation of any arbitration (if subsequently agreed to by the parties hereto) or litigation regarding the Employment Agreements.

9. Other Provisions.

(a) The Company will indemnify Executive and hold Executive harmless, to the maximum extent permitted by applicable law (including advancement of expenses) and to the extent not covered by insurance, against all costs, charges and expenses incurred or sustained by Executive (including but not limited to reasonable legal fees) in connection with (i) any action, suit or proceeding to which Executive may be made a party, brought by any shareholder of the Company directly or derivatively or by any third party by reason of any act or omission of Executive as an officer, director or employee of the Company or of any parent, subsidiary or affiliate of the Company and/or (ii) any governmental or quasi governmental investigation of or relating to the Company (regardless of whether Executive is named, as a target of any such investigation or otherwise). Such indemnification shall be in addition to any rights of indemnification Executive may have under applicable law or under the Certificate of Incorporation or By-Laws of the Company.

(b) In the event of any dispute arising out of or under this Agreement or the Executive’s employment with the Company, if the arbitrator or court of competent jurisdiction, as applicable, determines that the Executive has prevailed, the Company shall, upon presentment of appropriate documentation, at the Executive’s election, pay or reimburse the Executive for all reasonable legal and other professional fees, costs of arbitration, court proceedings and other reasonable expenses incurred in connection therewith by the Executive.

(c) Terms Defined under the 2002 Incentive Plan. As used in this Agreement, all terms defined herein by reference to the Company’s 2002 Incentive Plan shall mean the definitions in said plan as were effective on the date of execution of this Agreement.

(d) Governing Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

SIGNATURE PAGE FOLLOWS

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.


		Computer Associates International, Inc.

		By:		/s/Andrew Goodman

				Senior Vice President, HR


				/s/Kenneth V. Handal

				Kenneth V. Handal

EX-15.1 4 y99465exv15w1.htm ACCOUNTANTS' ACKNOWLEDGEMENT LETTER ACCOUNTANTS' ACKNOWLEDGEMENT LETTER

Exhibit 15.1

July 30, 2004

Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, New York 11749

Re: Registration Statement Nos. 333-108665, 333-100896, 333-88916, 333-32942, 333-31284, 333-83147, 333-80883, 333-79727, 333-62055, 333-19071, 333-04801, 33-64377, 33-53915, 33-53572, 33-34607, 33-18322, 33-20797, 2-92355, 2-87495 and 2-79751 on Form S-8

With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated July 30, 2004 related to our review of interim financial information.

As discussed in Note A effective April 1, 2003, the Company adopted the fair value method of accounting provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of SFAS 123” and as discussed in Note A effective April 1, 2002, the Company adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”.

Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an accountant, or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act.

/s/ KPMG LLP

New York, New York

EX-31.1 5 y99465exv31w1.htm CERTIFICATION OF CEO CERTIFICATION OF CEO

Exhibit 31.1

CEO CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)

I, Kenneth D. Cron, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Computer Associates International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: July 30, 2004	By:	/s/ Kenneth D. Cron

		Kenneth D. Cron
		Interim Chief Executive Officer

EX-31.2 6 y99465exv31w2.htm CERTIFICATION OF CFO CERTIFICATION OF CFO

Exhibit 31.2

CFO CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)

I, Jeff Clarke, certify that:


Date: July 30, 2004	By:	/s/ Jeff Clarke

		Jeff Clarke
		Chief Operating Officer and Chief Financial Officer

EX-32.1 7 y99465exv32w1.htm CERTIFICATION CERTIFICATION

Exhibit 32

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Computer Associates International, Inc., a Delaware corporation (the “Company”), on Form 10-Q for the quarter ending June 30, 2003 as filed with the Securities and Exchange Commission (the “Report”), each of Kenneth D. Cron, Interim Chief Executive Officer of the Company and Jeff Clarke, Chief Operating Officer and Chief Financial Officer of the Company hereby certifies, pursuant to §906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350), that to his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


/s/ Kenneth D. Cron

Kenneth D. Cron
Interim Chief Executive Officer
July 30, 2004

/s/ Jeff Clarke

Jeff Clarke
Chief Operating Officer and Chief Financial Officer
July 30, 2004

The foregoing certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that Section. The foregoing certification will not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.

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•		In April 2004, we named Kenneth D. Cron as Interim Chief Executive Officer, Jeff Clarke as Chief Operating Officer, and Greg Corgan as Senior Vice President for Worldwide Sales; in May 2004, Mr. Corgan became Executive Vice President for Worldwide Sales.

•		In May 2004, the Internal Revenue Service issued Revenue Procedure 2004-34, “Changes in Accounting Periods and In Methods of Accounting,” which grants a limited deferral for certain advance collections by the Company to the extent such advance collections were not recognized in revenue for financial statement purposes. Therefore, taxes associated with cash collected from U.S. customers in advance of the ratable recognition of revenue for certain term-based licenses are deferred for up to a year. As a result of implementing this Revenue Procedure, cash paid for income taxes decreased approximately $114 million for the quarter ended June 30, 2004 over the comparable prior fiscal year period.

•		In June 2004, we announced that Sanjay Kumar, our Chief Software Architect and former Chairman and CEO, resigned from the Company and that Kenneth V. Handal was joining the Company as Executive Vice President and General Counsel.

•		Historical information, such as general collection history of multiyear software agreements;

•		Current customer information/events, such as extended delinquency, requests for restructuring, and filing for bankruptcy;

•		Results of analytical analysis of both historical and current data; and

•		The overall economic environment.

•		We could be subject to substantial fines, penalties, or other sanctions as a result of a joint inquiry by the SEC and U.S. Attorney’s Office.

•		We are subject to intense competition, and we expect to face increased competition in the future.

•		We have lost senior management employees; it may be difficult to replace these employees and to attract and retain other key personnel.

•		Certain software is licensed from third parties.

•		Our products must remain compatible with ever-changing operating environments.

•		We have a significant amount of debt.

•		Our credit ratings have been downgraded and could be downgraded further.

•		Customers are still adapting to our Business Model.

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

•		We may become dependent upon large transactions.

•		Customer decisions are influenced by general economic conditions.

•		Third-party microcode could impact product development.

•		The software business is marked by easy entry and large, entrenched businesses.

•		Future product development is dependent upon access to third-party operating systems.

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

•		Third parties could claim that our products infringe their intellectual property rights.

•		Fluctuations in foreign currencies could result in transaction losses.

•		Acts of terrorism or war may adversely affect our business.

•		Our stock price is subject to significant fluctuations.

•		The success of our international operations is subject to many factors.



Dated: July 30, 2004	By:	/s/ Kenneth D. Cron
		Kenneth D. Cron
		Interim Chief Executive Officer


Dated: July 30, 2004	By:	/s/ Jeff Clarke
		Jeff Clarke
		Chief Operating Officer and Chief Financial Officer


1.	As a full-time employee of Computer Associates, you must enroll in the company’s Long-Term Disability Income Plan in order to be covered by our medical and dental insurance plans. On your first day with us, you will be provided with details of the Disability Income Plan. If you do enroll, your insurance coverage will commence as of the date you begin work for Computer Associates. You will be eligible to participate in our employee benefit programs as described in our current Employee Handbook, which will be provided to you during your initial orientation.

2.	You should understand and be aware of certain policies of Computer Associates, which are applicable to all of our employees as follows. Please note that CA may change these policies at anytime during your employment.


	a.	Computer Associates is an Equal Employment Opportunity Employer and, as such, it is Computer Associates’ corporate policy to fill positions with qualified candidates regardless of race, color, sex, age, religion, ancestry, national origin, marital status, sexual preference, disability, veteran status or other protected group status, except where there is a bona fide qualification.


	b.	Employment with Computer Associates is not for any specific period of time. You are free to resign at any time and, likewise, Computer Associates may terminate its employment arrangement with you at any time with or without cause or advance notice. Neither your offer letter nor this description should be construed as an employment contract or a guarantee of employment for any period in any way.


	c.	Since our business involves highly confidential proprietary material, we require all employees to execute a standard confidentiality and non-competition agreement. Our offer of employment is subject to your acceptance and execution of this agreement. You will be given a copy to look over and sign on your first day with us.


	d.	Regular pay is determined by dividing your annual salary by 24 pay periods. Paychecks are direct deposited semi-monthly. Please bring a voided check from your personal bank account on your first day of employment, and you will be asked to fill out an authorization agreement. You are also eligible to become a member of Bethpage Federal Credit Union (“BFCU”). BFCU offers convenient direct deposit checking and other banking services.


3.	We are required by the immigration laws to verify each employee’s identity and that each employee is entitled to work in the United States. Therefore, on your first day with us, we will ask you to give us identification (such as a Social Security Card or U.S. birth certificate, plus a valid driver’s license with photograph) and/or documents establishing your right to be employed in the U.S.A. (such as a U.S. passport, a certificate of U.S. citizenship, a valid foreign passport endorsed to permit employment in the U.S.A. or a resident alien “green” card). We are required by law to have this documentation before you may begin to work for Computer Associates. You may view the list of acceptable documents by going to http://www.ins.usdoj.gov/graphics/formsfee/files/i-9.pdf.

4.	In order for CA to comply with its reporting obligations, prior to beginning work, we invite you to consider voluntarily self-identifying yourself to your Human Resources Representative as a disabled veteran, veteran of the Vietnam era or an individual with a disability. Self-identification is not mandatory; it is completely voluntary.


Re:	Registration Statement Nos. 333-108665, 333-100896, 333-88916, 333-32942, 333-31284, 333-83147, 333-80883, 333-79727, 333-62055, 333-19071, 333-04801, 33-64377, 33-53915, 33-53572, 33-34607, 33-18322, 33-20797, 2-92355, 2-87495 and 2-79751 on Form S-8

1.		I have reviewed this Quarterly Report on Form 10-Q of Computer Associates International, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	c)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.