11-K
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE,
SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 30, 2007
OR
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TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the transition period from to
Commission file number 1-9247
A. Full title of the plan and the address of the plan, if different from that of the issuer named below:
B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
CA, Inc., One CA Plaza, Islandia, New York 11749
Report of Independent Registered Public Accounting Firm
CA Savings Harvest Plan Committee
CA Savings Harvest Plan:
We have audited the accompanying statements of net assets available for benefits of CA Savings
Harvest Plan (the Plan) as of March
30, 2007 and 2006, and the related statements of changes in net assets available for benefits for
the years then ended. These financial statements are the responsibility of the Plans management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the net assets available for benefits of the Plan as of March 30, 2007 and 2006, and the
changes in net assets available for benefits for the years then ended, in conformity with U.S.
generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic financial statements
taken as a whole. The accompanying supplemental schedule H, line 4i schedule of assets (held at
end of year) as of March 30, 2007 is presented for purposes of additional analysis and is not a
required part of the basic financial statements but is supplementary information required by the
Department of Labors Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the
Plans management. This supplemental schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a whole.
/s/ KPMG LLP
New York, New York
September 26, 2007
2
CA SAVINGS HARVEST PLAN
Statements of Net Assets Available for Benefits
March 30, 2007 and 2006
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2007 |
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2006 |
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Assets: |
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Investments, at fair value: |
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Mutual funds |
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$ |
927,337,301 |
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$ |
819,277,321 |
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CA common stock |
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122,507,293 |
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174,419,315 |
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Participant loans |
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13,863,132 |
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14,192,516 |
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Total investments |
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1,063,707,726 |
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1,007,889,152 |
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Employers contributions receivable |
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23,067,273 |
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543,603 |
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Participants contributions receivable |
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2,652,982 |
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Total assets |
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1,086,774,999 |
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1,011,085,737 |
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Liabilities: |
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Administrative fees payable |
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59,873 |
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41,050 |
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Net assets available for benefits |
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$ |
1,086,715,126 |
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$ |
1,011,044,687 |
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See accompanying notes to financial statements.
3
CA SAVINGS HARVEST PLAN
Statements of Changes in Net Assets Available for Benefits
Years ended March 30, 2007 and 2006
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2007 |
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2006 |
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Additions to assets available for benefits: |
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Investment income (loss): |
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Net
appreciation (depreciation) in fair value of investments |
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$ |
(15,725,322) |
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$ |
58,976,182 |
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Dividend income |
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79,151,212 |
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36,688,489 |
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Participant loan interest |
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1,029,504 |
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808,532 |
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Total investment income |
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64,455,394 |
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96,473,203 |
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Contributions: |
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Participants |
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74,817,942 |
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67,509,664 |
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Employer |
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34,004,548 |
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9,969,111 |
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Total additions |
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173,277,884 |
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173,951,978 |
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Deductions from assets available for benefits: |
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Benefits paid to participants |
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97,361,499 |
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82,103,401 |
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Administrative expenses |
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245,946 |
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242,881 |
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Total deductions |
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97,607,445 |
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82,346,282 |
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Net increase |
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75,670,439 |
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91,605,696 |
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Net assets available for benefits at beginning of year |
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1,011,044,687 |
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919,438,991 |
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Net assets available for benefits at end of year |
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$ |
1,086,715,126 |
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$ |
1,011,044,687 |
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See accompanying notes to financial statements.
4
CA
SAVINGS HARVEST PLAN
Notes to Financial Statements
March 30, 2007 and 2006
(1) Description of the Plan
The
following description of the CA Savings Harvest Plan (the Plan), provides only general information. Participants should refer
to the plan document for a more complete description of the Plans provisions.
(a) General
The Plan, which has a fiscal year-end of March 30, is a defined contribution plan covering
all eligible salaried U.S. employees of CA, Inc. (the Company). Employees are eligible to
participate in the Plan with respect to pre and after tax contributions effective on their
hire date. Eligibility with respect to employer matching and discretionary contributions
occurs in the month following completion of one full year of service. The Plan is subject
to the provisions of the Employee Retirement Income Security Act of 1974, as amended
(ERISA).
The Plan is administered by the CA Savings Harvest Plan Committee (Plan Committee) which
consists of employees of the Company. The trustee of the Plan is Fidelity
Management Trust Company.
(b) Contributions
Plan participants may elect to contribute a percentage of their base compensation ranging
from 2% to 20%. Each participant may change this election at any time.
To comply with the applicable Internal Revenue Code (IRC) provision, pre-tax contributions
elected by any participant may not exceed $15,500 and $15,000 for the calendar years ended
December 31, 2007 and 2006, respectively. The Plan also allows participants age 50 and over
to make an extra catch-up contribution on a pre-tax basis, which may not exceed $5,000 for each of the calendar years ended December 31, 2007 and 2006.
Participants may also contribute on an after-tax basis.
For eligible participants, the Company makes a matching contribution to the Plan on behalf
of each participant equal to 50% of such participants contribution up to a maximum of 2.5%
of the participants base compensation (contributions are subject to certain IRC
limitations). The matching contributions are allocated in the same manner as participant
contributions. The total matching contribution for the plan year ended March 30, 2007 was
$13,453,446 of which $2,516,171 was funded from plan forfeitures. The total matching
contribution for the plan year ended March 30, 2006 was $13,013,793 of which $3,044,682 was
funded from plan forfeitures.
In addition to its matching contribution, the Company may make a discretionary contribution
to the Plan on behalf of eligible participants in an amount that the board of directors of
the Company may, in its sole discretion, determine. The discretionary contribution for the
plan year ended March 30, 2007 was $23,067,273 which was paid in the form of 869,478 shares
of common stock of the Company. The discretionary contribution is allocated to each
eligible participant who is an employee of the Company on March 30 of that year, generally
in the same ratio that the participants base compensation for the plan year bears to the
base compensation of all participants for such plan year. The discretionary contribution
for the plan year ended March 30, 2007 was allocated directly to the CA Stock Fund and
funded into each participants account in June 2007. Subsequent to this initial allocation,
the participants of the Plan have the ability to re-direct these investments into the other
investment options. The board of directors did not approve a discretionary contribution
for the plan year ended March 30, 2006.
5
(c) Vesting
Participants are immediately vested in their elective contributions. The matching and
discretionary contributions made by the Company vest as follows:
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After years |
Percent vested |
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of service |
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0 |
% |
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Less than 2 |
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20 |
% |
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2 |
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40 |
% |
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3 |
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60 |
% |
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4 |
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80 |
% |
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5 |
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100 |
% |
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6 |
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In addition, 100% vesting occurs upon death or total disability of a participant, upon
attainment of normal retirement age, or upon termination of the Plan.
(d) Participant Accounts
A separate account is established and maintained in the name of each participant and
reflects the participants balance invested therein. Such balance includes contributions,
earnings and losses, and if applicable, expenses, allocated to each participants account.
Allocation of earnings, losses, and expenses is based upon the percentage investment that
each participants account balance bears to the total of all participant account balances.
Forfeited balances of terminated participants non-vested accounts may be used to reduce
future Company contributions and pay for the Plans administrative expenses.
(e) Investment Options
The assets of the Plan are held in custody by Fidelity Management Trust Company. As of
March 30, 2006 participants were able to invest in any of the following fifteen investment
fund options:
Fidelity Retirement Money Market Portfolio invests in U.S. dollar denominated money
market securities and repurchase agreements.
Fidelity Intermediate Bond Fund invests at least 80% of its assets in investment grade
debt securities and repurchase agreements.
Fidelity Puritan Fund invests approximately 60% of its assets in stocks and other equity
securities and the remainder in bonds and other debt securities.
Dodge and Cox Stock Fund invests at least 80% of its assets in common stocks.
Fidelity Growth and Income Portfolio invests a majority of its assets in common stocks,
and may invest in bonds.
Fidelity Spartan U.S. Equity Index Fund invests at least 80% of its assets in common
stocks included in the Standard and Poors 500 index.
American Funds Growth Fund of America invests primarily in common stocks.
Artisan Mid Cap Fund invests primarily in companies that have market capitalizations
between $600 million and $6 billion.
Fidelity Low Priced Stock Fund invests at
least 80% of its assets in what the Company believes to be low-priced stocks.
Fidelity Magellan Fund invests primarily in common stocks of domestic and foreign
issuers.
6
Fidelity Small Cap Stock Fund invests at least 80% of its assets in common stocks of
companies with small market capitalizations.
Hotchkis and Wiley Mid Cap Value Fund invests in mid-sized companies with market
capitalizations similar to those found in the Russell Midcap Index.
Fidelity Diversified International Fund invests primarily in foreign securities,
primarily in common stock.
American
Beacon Small Cap Value Fund invests at least 80% of its
assets in equity securities of US companies with market capitalization of $2.6 Billion or
less.
CA Stock Fund invests solely in the common stock of the Company.
Participants may direct contributions or transfer their current investment balances between
funds on a daily basis.
The Fidelity Low Priced Stock Fund is closed to new investors effective July 30, 2004.
Participants who had a position in the fund on July 30, 2004 are able to continue to invest
in the fund.
(f) Payment of Benefits
The Plan provides for benefit distributions to plan participants or their beneficiaries
upon the participants retirement, termination of employment or death. Any participant may
apply to withdraw all or part of his/her vested account balance subject to specific
hardship withdrawal criteria in the Plan.
(g) Participant Loans
Any participant may take a loan from his/her account once certain provisions of the Plan
have been met. Upon the death, retirement or termination of employment of the participant,
the Plan may deduct the total unpaid balance or any portion thereof from any payment or
distribution to which the participant or his/her beneficiaries may be entitled. Interest
rates on loans are fixed based on the prevailing market rate (the prevailing prime rate
plus 1%) when the application for the loan is submitted. The prevailing rate at March 30,
2007 was 9.25%. All loans are being repaid in equal semimonthly installments and extend
from periods of one to five years. Certain loans that were transferred from other plans had
terms in excess of five years as they were for purchases of principal residences. Loans
outstanding as of March 30, 2007 and 2006 bore interest ranging from 5.00% to 10.50%, and the terms range from 1 to 20 years. Participant loan
fees, which are included in administrative expenses on the accompanying statements of
changes in net assets available for benefits, are borne by the participant and amounted to
$39,521 and $41,355 for the plan years ended March 30, 2007 and 2006, respectively.
(h) Administrative Expenses
Administrative expenses consist of participant fees, including loan fees, and costs of
recordkeeping and administration.
(i) Forfeited Accounts
When participants leave the Company, the unvested portion of their Employer Contribution
Account (Matching and Discretionary) will be forfeited as of the earlier of the date they
receive a distribution of their vested account or the date they have 5 consecutive
Break-in-Service Years. At March 30, 2007 and 2006 forfeited non-vested accounts totaled
$237,638 and $412,436 respectively, and are available to fund future matching contributions
and to pay administrative expenses of the Plan as noted above.
7
(j) Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan
to discontinue its contributions at any time and to terminate the Plan subject to the
provisions of ERISA. In the event of termination of the Plan, participants will become 100%
vested in their accounts.
(2) Summary of Significant Accounting Policies
The accompanying financial statements of the Plan have been prepared in accordance with U.S.
generally accepted accounting principles. The more significant accounting policies followed by
the Plan are as follows:
(a) Basis of Presentation
The accompanying financial statements have been prepared on the accrual method of
accounting.
(b) Investments Valuation and Income Recognition
Investments in mutual funds and CA common stock are stated at fair value based upon quoted
prices in published sources. Participant loans are stated at cost.
Purchases and sales of securities are recorded on a trade-date basis. Dividend income is
recorded on the ex-dividend date and interest is recorded when earned.
(c) Payments of Benefits
Benefits to participants or their beneficiaries are recorded when paid.
(d) Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, and changes therein, and disclosure of contingent
assets and liabilities. Actual results could differ from those estimates and assumptions.
(3) Investments
The following individual investments exceeded 5% of the Plans assets available for benefits at
March 30, 2007 and 2006:
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2007 |
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2006 |
Mutual funds: |
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Fidelity Retirement Money Market Portfolio |
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$ |
173,589,671 |
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$ |
155,139,977 |
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Fidelity Puritan Fund |
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85,648,278 |
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78,507,140 |
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Fidelity Growth and Income Portfolio |
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64,766,040 |
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69,424,870 |
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Spartan U.S. Equity Index Fund |
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84,584,037 |
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78,852,563 |
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Dodge and Cox Stock Fund |
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84,284,926 |
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52,845,970 |
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Fidelity Magellan Fund |
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79,496,725 |
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87,554,374 |
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Fidelity Diversified International Fund |
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142,678,079 |
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107,933,085 |
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Hotchkis and Wiley Mid Cap Value Fund |
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60,665,148 |
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51,820,323 |
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CA common stock |
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122,507,293 |
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174,419,315 |
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8
During
the plan years ended March 30, 2007 and 2006, net appreciation
(depreciation) in fair value of
investments was as follows:
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2007 |
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2006 |
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Mutual funds |
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$ |
(15,612,109 |
) |
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$ |
57,955,220 |
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CA common stock |
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(113,213 |
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1,020,962 |
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$ |
(15,725,322 |
) |
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$ |
58,976,182 |
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(4) Related-Party Transactions
Certain plan investments are shares of mutual funds managed by Fidelity Investments, an
affiliate of Fidelity Management Trust Company (FMTC). Investment management fees and costs of
administering the mutual funds are paid to Fidelity Investments from the mutual funds and are
reflected in the change in net asset values of the mutual funds. FMTC is the trustee as defined
by the Plan and a party-in-interest with respect to the Plan. Fees paid by the Plan to FMTC were
$227,124 and $160,008 for the plan years ended March 30, 2007 and 2006, respectively, and
include participant fees and recordkeeping and administrative costs. The Plan also holds shares
of CA common stock, the Plan Sponsor, and is a party-in-interest with respect
to the Plan. All transactions with Fidelity and the Plan Sponsor are covered by an exemption from the prohibited
transaction provisions of ERISA and the IRC.
(5) Tax Status
The Internal Revenue Service has determined and informed the Company in a letter dated March 12,
2004, that the Plan and related trust are designed in accordance with applicable sections of the
IRC. The Plan has been amended since receiving the determination letter. However, the Plan
committee and the Plans tax counsel believe that the Plan is designed and is currently being
operated in material compliance with the applicable provisions of the IRC.
(6) Risks and Uncertainties
The Plan may invest in various types of investment securities. Investment securities are exposed
to various risks, such as interest rate, market, and/or credit risks. Due to the level of risk
associated with certain investment securities, it is at least reasonably possible that changes
in the values of investment securities will occur in the near term and that such changes could
materially affect participants account balances and the amounts reported in the statements of
net assets available for benefits. At March 30, 2007 and 2006
approximately 11.3% and 17.53% respectively, of
the Plans net assets were invested in the common stock of CA, Inc. The underlying value of the
CA, Inc. common stock is entirely dependent upon the performance of CA, Inc. and the markets
evaluation of such performance.
(7) Litigation
Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004
The Company, its former Chairman and CEO Charles B. Wang, its former Chairman and CEO Sanjay Kumar,
its former Chief Financial Officer Ira Zar, and its Vice Chairman and Founder Russell M. Artzt were
defendants in one or more stockholder class action lawsuits, filed in July 1998, February 2002, and
March 2002 in the United States District Court for the Eastern District of New York (the Federal
Court), alleging, among other things, that a class consisting of all persons who purchased the
Common Stock during the period from January 20, 1998 until July 22, 1998 were harmed by misleading
statements, misrepresentations, and omissions regarding the Companys future financial performance.
In addition, in May 2003, a class action lawsuit captioned John A. Ambler v. Computer Associates
International, Inc., et al. was filed in the Federal Court. The complaint in this matter, a
purported class action on behalf of the Plan and the participants in, and beneficiaries of, the
Plan for a class period running from March 30, 1998, through May 30, 2003, asserted claims of
breach of fiduciary duty under the federal Employee Retirement Income Security Act (ERISA). The
named defendants were the Company, the Companys Board of Directors, the Plan, the Administrative
Committee of the Plan, and the following current or former employees and/or former directors of the
Company: Messrs. Wang, Kumar, Zar, Artzt, Peter A. Schwartz, and Charles P. McWade; and various
unidentified alleged fiduciaries of the Plan. The complaint alleged that the defendants breached
their fiduciary duties by causing the Plan to invest in Company securities and sought damages in an
unspecified amount.
A derivative lawsuit was filed by Charles Federman against certain current and former directors of
the Company, based on essentially the same allegations as those contained in the February and March
2002 stockholder lawsuits discussed above. This action was commenced in April 2002
9
in Delaware
Chancery Court, and an amended complaint was filed in November 2002. The defendants named in the
amended complaint were current Company directors Mr. Lewis S. Ranieri, and The Honorable Alfonse M.
DAmato, and former Company directors Ms. Shirley Strum Kenny and Messrs. Wang, Kumar, Artzt,
Willem de Vogel, Richard Grasso, and Roel Pieper. The Company is named as a nominal defendant. The
derivative suit alleged breach of fiduciary duties on the part of all the individual defendants
and, as against the former management director defendants, insider trading on the basis of
allegedly misappropriated confidential, material information. The amended complaint sought an
accounting and recovery on behalf of the Company of an unspecified amount of damages, including
recovery of the profits allegedly realized from the sale of Common Stock.
On August 25, 2003, the Company announced the settlement of all outstanding litigation related to
the above-referenced stockholder and derivative actions as well as the settlement of an additional
derivative action filed by Charles Federman that had been pending in the Federal Court. As part of
the class action settlement, which was approved by the Federal Court in December 2003, the Company
issued shares of Common Stock then valued at approximately $174 million to the stockholders
represented in the three class action lawsuits and paid $3.3 million to the plaintiffs attorneys
in legal fees and related expenses.
In settling the derivative suits, which settlement was also approved by the Federal Court in
December 2003, the Company committed to maintain certain corporate governance practices. Under the
settlement, the Company, the individual defendants and all other current and former officers and
directors of the Company were released from any potential claim by stockholders arising from
accounting-related or other public statements made by the Company or its agents from January 1998
through February 2002 (and from March 11, 1998 through May 2003 in the case of the employee ERISA
action). The individual defendants were released from any potential claim by or on behalf of the
Company relating to the same matters.
On October 5, 2004 and December 9, 2004, four purported Company stockholders served
motions to vacate the Order of Final Judgment and Dismissal entered by the Federal Court in
December 2003 in connection with the settlement of the derivative action. These motions primarily
sought to void the releases that were granted to the individual defendants under the settlement. On
December 7, 2004, a motion to vacate the Order of Final Judgment and Dismissal entered by the
Federal Court in December 2003 in connection with the settlement of the 1998 and 2002 stockholder
lawsuits discussed above was filed by Sam Wyly and certain related parties. The motion sought to
reopen the settlement to permit the moving stockholders to pursue individual claims against certain
present and former officers of the Company. The motion stated that the moving stockholders did not
seek to file claims against the Company. On June 14, 2005, the Federal Court granted movants
motion to be allowed to take limited discovery prior to the Federal Courts ruling on these motions
(the 60(b) Motions). At a hearing held on August 1, 2007 and in a memorandum and order dated August
2, 2007, the Federal Court denied all of the 60(b) Motions and reaffirmed the 2003 settlements. On
August 16, 2007, a Special Litigation Committee (the Special Litigation Committee) of independent
members of its Board of Directors filed a motion seeking to clarify and/or amend this decision,
which motion was joined by the Company. On or about August 24, 2007, Ranger Governance Ltd.
(Ranger) filed a notice of appeal regarding the Federal
Courts August 2 memorandum and order. In a memorandum and order
dated September 12, 2007, the federal court denied the Special
Litigation Committees motion to clarify and/or amend.
The Government Investigation DPA Concluded
In 2002, the United States Attorneys Office for the Eastern Division of New York (the USAO) and
the staff of the Northeast Regional Office of the SEC commenced an investigation concerning certain
of the Companys past accounting practices, including the Companys revenue recognition procedures
in periods prior to the adoption of the Companys business model in October 2000.
In response to the investigation, the Board of Directors authorized the Audit Committee (now the
Audit and Compliance Committee) to conduct an independent investigation into the timing of revenue
recognition by the Company. On October 8, 2003, the Company reported that the ongoing investigation
by the Audit and Compliance Committee had preliminarily found that revenues were prematurely
recognized in the fiscal year ended March 31, 2000, and that a number of software license
agreements appeared to have been signed after the end of the quarter in which revenues associated
with such software license agreements had been recognized in that fiscal year (the 35-Day Month
practice). Those revenues, as the Audit and Compliance Committee found, should have been recognized
in the quarter in which the software license agreements were signed. Those preliminary findings
were reported to government investigators.
10
In April 2004, the Audit and Compliance Committee completed its investigation and determined that
the Company should restate certain financial data to properly reflect the timing of the recognition
of license revenue for the Companys fiscal years ended March 31, 2001 and 2000. The Audit and
Compliance Committee believes that the Companys financial reporting related to contracts executed
under its current business model is unaffected by the improper accounting practices that were in
place prior to the adoption of the current business model in October 2000 and that had resulted in
the aforementioned restatements, and that the historical issues it had identified in the course of
its independent investigation concerned the premature recognition of revenue. However, certain of
these prior period accounting errors have had an impact on the subsequent financial results of the
Company as described in Note 12 to the Consolidated Financial Statements in the Companys amended
Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005.
In September 2004, the Company reached agreements with the USAO and the Northeast Regional office
of the SEC by entering into a Deferred Prosecution Agreement (DPA) with the USAO and consenting to
the entry of a Final Consent Judgment (Consent Judgment, and together with the DPA, the Agreements)
in a parallel proceeding brought by the SEC in the Federal Court. The Federal Court approved the
DPA on September 22, 2004 and entered the Consent Judgment on September 28, 2004. The agreements
resolved USAO and SEC
investigations into certain of the Companys past accounting practices, including its revenue
recognition policies and procedures during certain periods prior to the adoption of the business
model in October 2000, and obstruction of their investigations.
Under the DPA, the Company established a $225 million fund for purposes of restitution to current
and former stockholders of the Company. Pursuant to the DPA, the Company proposed and the USAO
accepted, on or about November 4, 2004, the appointment of Kenneth R. Feinberg as Fund
Administrator. Also, pursuant to the Agreements, Mr. Feinberg submitted to the USAO on or about
June 28, 2005, a Plan of Allocation for the Restitution Fund, which was approved by the Federal
Court on August 18, 2005. The Companys payments to the restitution fund, which will be allocated
and distributed to certain current and former stockholders of the Company as determined by the Fund
Administrator, are in addition to the amounts that the Company previously agreed to provide current
and former stockholders in settlement of certain class action lawsuits in August 2003 (see
Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004).
Under the Agreements, the Company also agreed to the appointment of an Independent Examiner to
examine the Companys practices for the recognition of software license revenue, its ethics and
compliance policies and other specified matters. The Agreements provided that the Independent
Examiner would also review the Companys compliance with the Agreements and periodically report
findings and recommendations to the USAO, SEC and Board of Directors. On March 16, 2005, the
Federal Court appointed Lee S. Richards III, Esq. of Richards Spears Kibbe & Orbe LLP (now,
Richards Kibbe & Orbe LLP) to serve as Independent Examiner. The Independent Examiner issued
periodic reports concerning the Companys compliance with the Agreements. On May 1, 2007, the
Independent Examiner issued a final report (the Final Report) concerning the Companys compliance
with the Agreements.
On May 15, 2007, the USAO submitted a motion to the Federal Court seeking dismissal of the charges
against the Company. The USAOs motion papers cited the Final Report of the Independent Examiner
and stated that the Company complied with the DPA. On May 21, 2007, based on the Companys
compliance with the DPAs terms, the Federal Court ordered dismissal of the charges that had been
filed against the Company in connection with the DPA. As a result of the dismissal and as provided
in the DPA, the DPA thereupon expired and is thus concluded.
The Consent Judgment contains provisions which are parallel to the DPA, and it permanently enjoins
the Company from violating certain provisions of the federal securities laws, including Section
17(a) of the Securities Act of 1933 (the Securities Act), Sections 10(b), 13(a) and 13(b)(2) of the
Securities Exchange Act of 1934 (the Exchange Act) and Rules 10b-5, 12b-20, 13a-1 and 13a-13 under
the Exchange Act. The injunctive provisions of the Consent Judgment remain in effect.
11
In 2004, David Kaplan, David Rivard, Lloyd Silverstein and Ira Zar, former executives who oversaw
the relevant financial operations during the period in question, resigned at the Companys request.
All four pled guilty to charges of conspiracy to obstruct justice, and/or securities fraud charges,
and have been sentenced.
On September 22, 2004, Mr. Woghin, the Companys former General Counsel, pled guilty to conspiracy
to commit securities fraud and obstruction of justice and has been sentenced.
On April 24, 2006, Messrs. Kumar and Richards pled guilty to charges including conspiracy to commit
securities fraud and wire fraud, committing securities fraud, filing false SEC filings, conspiracy
to obstruct justice and obstruction of justice all counts in the superseding indictment filed by
the USAO. Mr. Kumar was sentenced to a term of imprisonment for twelve years and has been directed
pay restitution in the amount of $798.6 million, of which $50 million was paid on or about July 31,
2007. Mr. Richards was sentenced to a term of imprisonment for seven years.
Derivative Actions Filed in 2004
In June 2004, a purported derivative action was filed in the Federal Court by Ranger against
certain current or former employees and/or directors of the Company. In July 2004, two additional
purported derivative actions were filed in the Federal Court by purported Company stockholders
against certain current or former employees and/or directors of the Company. In November 2004, the
Federal Court issued an order consolidating these three derivative actions. The plaintiffs filed a
consolidated amended complaint (the Consolidated Complaint) on January 7, 2005. The Consolidated
Complaint names as defendants Messrs. Wang, Kumar, Zar, Artzt, DAmato, Richards, Ranieri and
Woghin; Messrs. Kaplan, Rivard and Silverstein; Michael A. McElroy; Messrs. McWade and Schwartz;
Gary Fernandes; Robert E. La Blanc; Jay W. Lorsch; Kenneth Cron; Walter P. Schuetze; Messrs. de
Vogel and Grasso; Roel Pieper; KPMG LLP; and Ernst & Young LLP. The Company is named as a nominal
defendant. The Consolidated Complaint alleges a claim against Messrs. Wang, Kumar, Zar, Kaplan,
Rivard, Silverstein, Artzt, DAmato, Richards, McElroy, McWade, Schwartz, Fernandes, La Blanc,
Ranieri, Lorsch, Cron, Schuetze, de Vogel, Grasso, Pieper and Woghin for contribution towards the
consideration the Company had previously agreed to provide current and former stockholders in
settlement of certain class action litigation commenced against the Company and certain officers
and directors in 1998 and 2002 (see Stockholder Class Action and Derivative Lawsuits Filed
Prior to 2004) and seeks on behalf of the Company compensatory and consequential damages in an
amount not less than $500 million in connection with the USAO and SEC investigations (see The
Government Investigation). The Consolidated Complaint also alleges a claim seeking unspecified
relief against Messrs. Wang, Kumar, Zar, Kaplan, Rivard, Silverstein, Artzt, DAmato, Richards,
McElroy, McWade, Fernandes, La Blanc, Ranieri, Lorsch, Cron, Schuetze, de Vogel and Woghin for
violations of Section 14(a) of the Exchange Act for alleged false and material misstatements made
in the Companys proxy statements issued in 2002 and 2003. The Consolidated Complaint also alleges
breach of fiduciary duty by Messrs. Wang, Kumar, Zar, Kaplan, Rivard, Silverstein, Artzt, DAmato,
Richards, McElroy, McWade, Schwartz, Fernandes, La Blanc, Ranieri, Lorsch, Cron, Schuetze, de
Vogel, Grasso, Pieper and Woghin. The Consolidated Complaint also seeks unspecified compensatory,
consequential and punitive damages against Messrs. Wang, Kumar, Zar, Kaplan, Rivard, Silverstein,
Artzt, DAmato, Richards, McElroy, McWade, Schwartz, Fernandes, La Blanc, Ranieri, Lorsch, Cron,
Schuetze, de Vogel, Grasso, Pieper and Woghin based upon allegations of corporate waste and fraud.
The Consolidated Complaint also seeks unspecified damages against Ernst & Young LLP (E&Y) and KPMG
LLP (KPMG) for breach of fiduciary duty and the duty of reasonable care, as well as contribution
and indemnity under Section 14(a) of the Exchange Act. The Consolidated Complaint requests
restitution and rescission of the compensation earned under the Companys executive compensation
plan by Messrs. Artzt, Kumar, Richards, Zar, Woghin, Kaplan, Rivard, Silverstein, Wang, McElroy,
McWade and Schwartz. Additionally, pursuant to Section 304 of the Sarbanes-Oxley Act, the
Consolidated Complaint seeks reimbursement of bonus or other incentive-based equity compensation
received by defendants Wang, Kumar, Schwartz and Zar, as well as alleged profits realized from
their sale of securities issued by the Company during the time periods they served as the Chief
Executive Officer (Messrs. Wang and Kumar) and Chief Financial Officer (Messrs. Schwartz and Zar)
of the Company. Although no relief is sought from the Company, the Consolidated Complaint seeks
monetary damages, both compensatory and consequential, from the other defendants, including current
or former employees and/or directors of the Company, E&Y and KPMG in an amount totaling not less
than $500 million.
12
The consolidated derivative action was stayed pending resolution of the 60(b) Motions, which were
recently denied (see Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004). On
February 1, 2005, the Company established the Special Litigation Committee to, among other things,
control and determine the Companys response to the Consolidated Complaint and the 60(b) Motions.
On April 13, 2007, the Special Litigation Committee issued its reports, which announced the Special
Litigation Committees conclusions, determinations, recommendations and actions with respect to the
claims asserted in the Derivative Actions and in
the 60(b) Motions. Also, in response to the Consolidated Complaint, the Special Litigation
Committee served a motion which seeks the Federal Courts approval of the Special Litigation
Committees conclusions. As summarized in the Companys Current Report on Form 8-K filed with the
SEC on April 13, 2007 and in the bullets below, the Special Litigation Committee concluded as
follows:
The Special Litigation Committee has concluded that it would be in the best interests of the
Company to pursue certain of the claims against Charles Wang (CAs former Chairman and CEO)
including filing a motion to set aside releases granted to Mr. Wang in 2000 and 2003. The Special
Litigation Committee has determined and directed that these claims be pursued vigorously by CA
using counsel retained by the Company. Certain other claims against Mr. Wang should be dismissed as
they are duplicative of the ones to be pursued and are for various legal reasons infirm. The
Special Litigation Committee will seek dismissal of these claims.
The Special Litigation Committee has reached a binding term sheet settlement (subject to court
approval) with Sanjay Kumar (CAs former Chairman and CEO). Pursuant to this settlement, the
Company will receive a $15.25 million judgment against Mr. Kumar secured in part by real property
and executable against his future earnings. This amount is in addition to the $52 million that Mr.
Kumar will repay to CAs shareholders as part of his criminal restitution proceedings. Based on his
sworn financial disclosures, the Special Litigation Committee believes that, following his
agreement with the government, Mr. Kumar had no material assets remaining. As a result, the Special
Litigation Committee will seek dismissal of all claims against him.
The Special Litigation Committee has concluded that it would be in the best interests of the
Company to pursue certain of the claims against former officer Peter Schwartz (CAs former CFO).
The Special Litigation Committee has determined and directed that these claims be pursued
vigorously by CA using counsel retained by the Company. Certain other claims against Mr. Schwartz
should be dismissed as they are duplicative of the ones to be pursued and are for various legal
reasons infirm. The Special Litigation Committee will seek dismissal of these claims.
The Special Litigation Committee has concluded that it would be in the best interests of the
Company to pursue certain of the claims against the former CA executives who have pled guilty to
various charges of securities fraud and/or obstruction of justice including David Kaplan (CAs
former head of Financial Reporting), Stephen Richards (CAs former head of Worldwide Sales), David
Rivard (CAs former head of Sales Accounting), Lloyd Silverstein (CAs former head of the Global
Sales Organization), Steven Woghin (CAs former General Counsel) and Ira Zar (CAs former CFO). The
Special Litigation Committee has determined and directed that these claims be pursued by CA using
counsel retained by the Company, unless the Special Litigation Committee is able to successfully
conclude its ongoing settlement negotiations with these individuals shortly after the conclusion of
their criminal restitution proceedings.
The Special Litigation Committee has reached a settlement agreement (subject to court approval)
with Russell Artzt (currently Vice Chairman and Founder and a former CA Board member). The Special
Litigation Committee noted that during its investigation, it did not uncover evidence that Mr.
Artzt directed or participated in the 35-Day Month practice or that he was involved in the
preparation or dissemination of the financial statements that led to the accelerated vesting of
equity granted under the Companys Key Employee Stock Ownership Plan (KESOP) as alleged in the
Derivative Actions. Pursuant to this settlement, the Company will receive $9 million (the cash
equivalent of approximately 354,890 KESOP shares) and, as a result, the Special Litigation
Committee will seek dismissal of all claims against him.
The Special Litigation Committee has reached a settlement agreement (subject to court approval)
with Charles McWade (CAs former head of Financial Reporting and business development). Pursuant to
this settlement, the Company will receive $1 million and, as a result, the Special Litigation
Committee will seek dismissal of all claims against him.
13
The Special Litigation Committee believes that the claims (the Director Claims) against current
and former CA directors Kenneth Cron, Alfonse DAmato, Willem de Vogel, Gary Fernandes, Richard
Grasso, Shirley Strum Kenny, Robert La Blanc, Jay Lorsch, Roel Pieper, Lewis Ranieri, Walter
Schuetze and Alex Vieux should be dismissed. The Special Litigation Committee has concluded that
these directors did not breach their fiduciary duties and the claims against them lack merit.
The Special Litigation Committee has concluded that while the Company has potentially valid
claims (the McElroy Claims) against former officer Michael McElroy (CAs former senior vice
president of the Legal department), it would be in the best interests of the Company to seek
dismissal of the claims against him.
The Special Litigation Committee has concluded that it would be in the best interests of the
Company to seek dismissal of the claims against CAs former independent auditors, E&Y. The Special
Litigation Committee has recommended this dismissal in light of the relevant legal standards, in
particular, the applicable statutes of limitation. However, the Special Litigation Committee has
recommended that CA promptly sever all economic arrangements with E&Y.
The Special Litigation Committee has concluded that it would be in the best interests of the
Company to seek dismissal of the claims against CAs current independent auditors, KPMG. The
Special Litigation Committee has determined that KPMGs audits were professionally conducted. The
Special Litigation Committee has recommended this dismissal in the exercise of its business
judgment in light of legal and factual hurdles as well as the value of the Companys business
relationship with KPMG.
The Special Litigation Committee has served motions which seek dismissal of the Director Claims,
the McElroy Claims, the claims against E&Y and KPMG, and certain other claims. In addition, the
Special Litigation Committee has asked for the Federal Courts approval for the Company to be
realigned as the plaintiff with respect to claims against certain other parties, including Messrs.
Wang and Schwartz. By letter dated July 19, 2007, counsel for the Special Litigation Committee
advised the Federal Court that the SLC had reached a settlement of the Derivative Litigation with
two of the three derivative plaintiffs Bert Vladimir, represented by Squitieri & Fearon, LLP,
and Irving Rosenzweig, represented by Harwood Feffer LLP (formerly Wechsler Harwood LLP). In
connection with the settlement, both of these plaintiffs have agreed to support the Special
Litigation Committees motion to dismiss and to realign. CA has agreed to pay the attorneys fees
of Messrs. Vladimir and Rosenzweig in an amount up to $525,000 each. If finalized, this settlement
would require approval of the Federal Court. On July 23, 2007, Ranger filed a letter with the
federal court objecting to the proposed settlement and on July 25, 2007, Ranger filed a memorandum
opposing the Special Litigation Committees motion to dismiss and realign.
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 and investigations arising out of similar
allegations, including the litigation described above.
Derivative Actions Filed in 2006
On August 10, 2006, a purported derivative action was filed in the Federal Court by Charles
Federman against certain current or former directors of the Company (the 2006 Federman Action). On
September 15, 2006, a purported derivative action was filed in the Federal Court by Bert Vladimir
and Irving Rosenzweig against certain current or former directors of the Company (the 2006 Vladimir
Action). By order dated October 26, 2006, the Federal Court ordered the 2006 Federman Action and
the 2006 Vladimir Action consolidated. Under the order, the actions are
14
now captioned CA, Inc. Shareholders Derivative Litigation Employee Option Action . On January 31,
2007, plaintiffs filed a consolidated amended complaint naming as defendants the following current
or former directors of the Company: Messrs. Artzt, Cron, DAmato, de Vogel, Fernandes, Goldstein,
Grasso, Kumar, La Blanc, Lofgren, Lorsch, McCracken, Pieper, Ranieri, Schuetze, Swainson, Wang and
Zambonini and Ms. Unger. The Company is named as a nominal defendant. The complaint alleges
purported claims against the individual defendants for breach of fiduciary duty and for violations
of Section 14(a) of the Exchange Act for alleged false and material misstatements made in the
Companys proxy statements issued from 1998 through 2005. The premises for these purported claims
concern the disclosures made by the Company in its Annual Report on Form 10-K for the fiscal year
ended March 31, 2006 concerning the Companys restatement of prior fiscal periods to reflect
additional (a) non-cash, stock-based compensation expense relating to employee stock option grants
prior to the Companys fiscal year 2002, (b) subscription revenue relating to the early renewal of
certain license agreements, and (c) sales commission expense that should have been recorded in the
third quarter of the Companys fiscal year 2006. According to the complaint, certain of the
individual defendants actions allegedly were in violation of the spirit, if not the letter of the
DPA. The complaint seeks an unspecified amount of compensatory and punitive damages, equitable
relief including an order rescinding certain stock option awards, an award of plaintiffs costs and
expenses, including reasonable attorneys fees, and other unspecified damages allegedly sustained
by the Company. On March 30, 2007, the Company and the individual director-defendants separately
moved to dismiss the complaint. In the opinion of management, the resolution of this lawsuit is not
expected to have a material adverse effect on the Companys financial position, results of
operations, or cash flow.
Other Civil Actions
On May 23, 2007, a lawsuit captioned The Bank of New York v. CA, Inc. et al., was filed in the
Supreme Court of the State of New York, New York County. The complaint seeks unspecified damages
and other relief, including acceleration of principal, based upon a claim for breach of contract.
Specifically, the complaint alleges that the Company failed to comply with certain purported
obligations in connection with its 5.625% Senior Notes due 2014, issued in November 2004, insofar
as the Company failed to carry out a purported obligation to cause a registration statement to
become effective to permit the exchange of the notes for substantially similar securities of the
Company registered under the Securities Act that would be freely tradable, and, having failed to
effect such exchange offer, failed to carry out the purported obligation to pay additional interest
of 0.5% per annum after November 18, 2006. On July 13, 2007, the Company filed its verified answer
in this matter. 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 Companys
financial position, results of operations, or cash flows.
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 Companys management, the results
of these other lawsuits and claims, either individually or in the aggregate, are not expected to
have a material adverse effect on the Companys financial position, results of operations, or cash
flows.
15
Supplemental Schedule
CA SAVINGS HARVEST PLAN
Schedule H, Line 4i Schedule of Assets (held at End of Year)
March 30, 2007
|
|
|
|
|
|
|
Identity of issuer, |
|
Description of investment including |
|
|
|
borrower, lessor or |
|
maturity date, rate of interest, collateral, |
|
Current |
|
similar party |
|
par, or maturity value |
|
value |
|
* Fidelity Investments |
|
Fidelity Retirement Money Market Portfolio, 173,589,671 units |
|
$ |
173,589,671 |
|
* Fidelity Investments |
|
Fidelity Intermediate Bond Fund, 4,625,070 units |
|
|
47,638,224 |
|
* Fidelity Investments |
|
Fidelity Puritan Fund, 4,235,820 units |
|
|
85,648,278 |
|
* Fidelity Investments |
|
Fidelity Growth and Income Portfolio, 2,089,227 units |
|
|
64,766,040 |
|
* Fidelity Investments |
|
Spartan U.S. Equity Index Fund 1,675,263 units |
|
|
84,584,037 |
|
* Fidelity Investments |
|
Fidelity Magellan Fund, 870,529 units |
|
|
79,496,725 |
|
* Fidelity Investments |
|
Fidelity Diversified International Fund, 3,745,815 units |
|
|
142,678,079 |
|
* Fidelity Investments |
|
Fidelity Small Cap Stock Fund 926,173 units |
|
|
18,338,221 |
|
* Fidelity Investments |
|
Fidelity Low Priced Stock Fund 357,282 units |
|
|
15,959,792 |
|
Dodge and Cox |
|
Dodge and Cox Stock fund 546,241 units |
|
|
84,284,926 |
|
Artisan |
|
Artisan Mid Cap Fund 1,062,423 units |
|
|
33,338,837 |
|
American Funds |
|
American Funds Growth Fund of America 718,078 units |
|
|
23,775,568 |
|
Hotchkis and Wiley |
|
Hotchkis and Wiley Mid Cap Value Fund 1,983,818 units |
|
|
60,665,148 |
|
American Beacon |
|
American Beacon Small Cap Value
Fund 574,144 units |
|
|
12,573,755 |
|
* CA, Inc. |
|
CA Stock Fund, 4,724,208 shares |
|
|
122,507,293 |
|
* Plan participants |
|
1,806 Loans to participants with
interest rates ranging from 5.00% to 10.5% and terms from 1 year to 20 years |
|
|
13,863,132 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,063,707,726 |
|
|
|
|
|
|
|
|
|
|
* |
|
Party-in-interest as defined by ERISA |
See accompanying report of independent registered public accounting firm.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other
persons who administer the employee benefit plan) have duly caused this annual report to be signed
on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
CA SAVINGS HARVEST PLAN
|
|
|
|
By: |
/s/ Robert Cirabisi
|
|
|
|
Senior Vice President and Corporate Controller |
|
|
|
|
|
|
Date:
September 26, 2007
17
EXHIBIT INDEX
|
|
|
Exhibit 23.1
|
|
Consent of Independent Registered Public Accounting Firm |
18