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Table of contents

  • Page 1
    2005 Annual Report Fiscal Year Ending March 2005 Computer Associates 2 0 0 5 Annual Report potential priorities people progress partners

  • Page 2
    Progress Letter from the President and CEO Letter from the COO Potential Partners People Board of Directors Form 10K 02 03 09 12 16 21 24 25 FINANCIAL SUMMARY 2005 2004 _____ (IN MILLIONS, EXCEPT PER SHARE DATA) Total Revenue Net Income (Loss) from Continuing Ops Diluted EPS (LPS) from ...

  • Page 3
    ... ward, our priorities are clear. We are measuring our progress toward fulfilling our potential, not only with our technology and market opportunities, but also with our partners and the more than 15,000 people worldwide who make CA one of the world's largest IT management software companies today.

  • Page 4

  • Page 5
    ... issues intensified during the winter of 2003 and spring of 2004, with the removal of a number of executives, including the company's CEO, and concluded in September 2004 with CA's signing of a Deferred Prosecution Agreement (DPA) with the Department of Justice. In that agreement the company took...

  • Page 6
    Letter from President and Chief Executive Officer John Swainson I offer this brief history simply to provide a context for the position the company finds itself in today. We leave fiscal 2005: Í Í Í Led by a new, experienced senior management team With an infrastructure that promotes integrity, ...

  • Page 7
    ... and CEO SAP AG SAP is a world-leading provider of business software solutions. Today, more than 27,000 customers in over 120 countries run more than 91,500 installations of SAP ® software - from distinct solutions addressing the needs of small and midsize businesses to enterprise-scale suite...

  • Page 8
    ... the number of vendors and partners, is a clear sign of a maturing technology market. We are heading for an industry structure made up of a few large platform providers (IBM, Microsoft, etc.); one or two category leaders in segments like Systems Management, Security, Content Management, Database and...

  • Page 9
    .... But the real solution is to replace the hodgepodge of old homegrown systems with a modern ERP infrastructure. Accordingly, we are now in the process of implementing a new full SAP system for financials, HR, CRM and Service Management. Restore the confidence of CA employees and rebuild the culture...

  • Page 10
    ... Lee Hayes Vice President of Enterprise Technology Sallie Mae Sallie Mae , the leading provider of education funding in the United States, currently owns or manages ® student loans for eight million borrowers and employs more than 10,000 individuals at offices nationwide. Sallie Mae issued more...

  • Page 11
    .... The challenge is to determine whether to develop those solutions in-house, partner or acquire. The technology industry is littered with companies that made costly, wrong calls. CA invests over $650 million per year in R&D to develop products in-house. With a growth strategy and vision in place...

  • Page 12
    ... executive team is being measured on several new metrics: customer satisfaction, ROIC, billings growth and cash flow from operations growth. Finally, I'd like to briefly touch on CA's fiscal 2006 budget planning process, in which we employed a rigorous procedure that challenged department heads...

  • Page 13
    ... them use technology to achieve the company's business goals across a range of disciplines. In a relationship that spans over 20 years, CA has proven its willingness to step up to the plate and deliver innovative solutions necessary to secure and manage Caterpillar's growing enterprise. For more...

  • Page 14
    ... (left) and Executive Vice President of Products Russ Artzt (right) are focused on investments and solutions that help customers securely manage their IT infrastructures from one end to the other. CA's Executive Vice President of Technology Strategy and Chief Technology Architect, Mark Barrenechea...

  • Page 15
    ...: Enterprise Systems Management, Security Management, Storage Management and Business Service Optimization. The software products developed in each of these areas work together to offer comprehensive management and security of IT environments. CA operates a fifth business unit, the CA Products Group...

  • Page 16
    ... determine actions to be taken. Executive Vice President and Chief Marketing Officer Don Friedman is revitalizing the CA brand worldwide to build awareness of the value CA delivers. When it comes to security, no other technology company has the experience and product depth to help customers manage...

  • Page 17
    ... the information and tools to financially and operationally optimize the use of IT. These solutions can enable IT to become a strategic contributor to business success. *Source: Company estimates. CA PRODUCTS GROUP Over our 29-year history, we have developed a number of robust solutions that...

  • Page 18
    ... our customers. This is the number one priority to which CA is fully committed. Over the past 18 months, we have been working to change from a company that sells lots of great software products to one that listens to customers and offers relevant, comprehensive solutions to meet customers' business...

  • Page 19
    Gary Quinn, executive vice president for partner advocacy, makes communication a priority for Priorities 2005 Partners building long-term partnerships.

  • Page 20
    ... Solution Provider Program to recruit, train and educate value-added resellers on CA products and solutions, and we have made it attractive for partners to commit long term. We are rolling this initiative out worldwide and instituting a number of similar efforts with global systems integrators...

  • Page 21
    At left, Michael Christenson, executive vice president of strategy and business development, keeps CA focused on opportunities that deliver value to customers.

  • Page 22
    ... in developing true strategic partnerships. We have found such a partner in CA, which has taken the time to understand our needs and demonstrated flexibility in tailoring business solutions that fit our company. " Ronald E. Logue Chairman & CEO State Street Corporation State Street Corporation is...

  • Page 23
    ... approximately 300 patents worldwide with approximately 1,700 patents pending. We were the first management software company to achieve global ISO certification for quality and have continued to raise that bar. Today, more than 1,000 of our CA Technology Servicesâ„¢ consultants are certified in the...

  • Page 24
    CA People At Work Our CA team of more than 15,000 in over 150 offices in 45 countries is committed to the success of our customers worldwide. CA 2005 PAGE 22

  • Page 25
    ... 2005" William A. Swope Vice President Director, Digital Enterprise Brand Management Intel Corporation Intel Corporation, the world's largest chip maker, is also a leading manufacturer of computer, networking and communications products. For over 35 years, Intel has developed technology, enabling...

  • Page 26
    Form 10-K/A COMPUTER ASSOCIATES INTERNATIONAL INC - CA Filed: October 19, 2005 (period: March 31, 2005) Amendment to a previously filed 10-K

  • Page 27
    ... 13. Item 14. Directors and Executive Officers of the Registrant. Executive Compensation. Security Ownership of Certain Beneficial Owners and Management. Certain Relationships and Related Transactions. Principal Accounting Fees and Services. PART IV Item 15. Exhibits, Financial Statement Schedules...

  • Page 28
    ... or organization) One Computer Associates Plaza, Islandia, New York (Address of principal executive offices) (631) 342-6000 (Registrant' s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: (Title of each class) Common stock, par value $0.10 per...

  • Page 29
    ... Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions Item 14...

  • Page 30
    ... 2005 and 2004 that were previously reported in our quarterly reports on Form 10-Q, and the consolidated financial statements for the fourth quarter of fiscal year 2004 that were reported in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC). In this Form 10...

  • Page 31
    ...provider of information technology management and governance solutions, in an all cash transaction valued at approximately $350 million, or approximately $280 million net of cash acquired. Niku' s primary software product, Clarity IT-MG, is an integrated suite that spans the full IT life cycle, from...

  • Page 32
    ... areas: infrastructure management, security management, storage management, application life cycle management, data management and application development, and portal and business intelligence. Our products are supported by a software layer we call CA Common Services so that they can work alone or...

  • Page 33
    ...Advantage CA-IDMS Database. CleverPath for Portal and Business Intelligence - These solutions enable businesses to centralize information access; refine, analyze, and sort data; create and distribute informative reports; and develop executive dashboards that mirror their business processes. Products...

  • Page 34
    ... for additional education or services, and help ensure that our customers maximize the benefits of their licensed software. We have Sales Specialists (sales persons who focus on a single product area, such as storage management or security management) and Account Directors (individuals responsible...

  • Page 35
    ... web-based problem diagnosis, program fixes, access to our customer support databases, and other sources of information. CA Technology Services - The CA Technology Services organization offers customers a single point of contact for a broad range of post-sales services, from education and training...

  • Page 36
    ... limited to: performance, quality, breadth of product group, integration of products, brand name recognition, price, functionality, customer support, frequency of upgrades and updates, manageability of products, and reputation. We compete with many established companies in the markets we serve. Some...

  • Page 37
    ... number of employees by location and department as of March 31, 2005: Employees as of March 31, 2005 Location Corporate headquarters Other U.S. offices International offices Total 2,200 5,600 7,500 15,300 Department Employees as of March 31, 2005 Product development Sales and support...

  • Page 38
    ... of Contents Directors and Executive Officers. These documents can also be obtained in print by writing to our Executive Vice President, General Counsel, and Corporate Secretary, Kenneth V. Handal, at the Company' s world headquarters in Islandia at the address listed on the cover of this Form 10...

  • Page 39
    ... Assistant United States Attorney for the Southern District of New York. Mr. Quinn has been an Executive Vice President of Partner Advocacy since April 2004. He was an Executive Vice President of Sales for EMEA, Latin America, and the North American Channel business from April 2001 to April 2004. He...

  • Page 40
    ... 2004. He has also led the worldwide financial reporting function from April 2003 until October 2003. In August 2000, Mr. Robinson co-founded and was named Executive Vice President and CFO for iCan SP, a Company subsidiary specializing in service management software. He was Senior Vice President...

  • Page 41
    ... under the heading "Prior Restatement of Previously Reported Selected Financial Data." Additionally, the financial statements for fiscal years 2005 through 2002 have been restated to incorporate adjustments to revenue associated with the Company' s review of its revenue recognition policies. The...

  • Page 42
    ... Financial Statements for information concerning the ACCPAC divestiture). STATEMENT OF OPERATIONS DATA 2005(1)(6) (restated) Year Ended March 31, 2002(1)(6) 2003(1)(6) 2004(1)(6) (restated) (restated) (restated) (in millions, except per share amounts) 2001(1)(2)(6) (restated) Revenue Loss...

  • Page 43
    ... a decrease of $27 million; and for 2001, an increase of $18 million. Refer to Note 12, "Restatements" to the Consolidated Financial Statements for additional information. (2) As previously reported on Form 8-K filed with the SEC on April 26, 2004, the Company restated certain financial data for the...

  • Page 44
    ...Statements for additional information. (5) Deferred subscription revenue represents the aggregate portion of all undiscounted contractual and committed license agreements for which revenue has been deferred and will be recognized ratably. This balance is the sum of the following components: deferred...

  • Page 45
    ... (uncollected) - noncurrent, which are reported as contra accounts receivable in Note 5, "Trade and Installment Accounts Receivable" of the Consolidated Financial Statements; deferred subscription revenue (collected) - current and deferred subscription revenue (collected) - noncurrent, which are...

  • Page 46
    ... to the prior restatement, the United States Attorney' s Office for the Eastern District of New York (USAO) and the SEC had previously launched investigations of the Company' s accounting practices and related obstruction of their investigations. On September 22, 2004, we reached agreements with the...

  • Page 47
    ... of our revenue in research and development to deliver innovative and relevant technology. In particular, we are focused on market leadership in the core areas of systems management and security management. • In April 2005, we reorganized our product development group into five business units to...

  • Page 48
    ...provider of information technology management and governance solutions, in an all cash transaction valued at approximately $350 million, or approximately $280 million net of cash acquired. Niku' s primary software product, Clarity IT-MG, is an integrated suite that spans the full IT life cycle, from...

  • Page 49
    ... and security solutions, in an all-cash transaction of approximately $40 million. The products acquired in this transaction were integrated into the Company' s eTrust Threat Management software product portfolio. This portfolio protects organizations from diverse Internet dangers such as viruses...

  • Page 50
    ...revenues will continue to increase at a greater rate than our expenses. Under both the prior business model and current Business Model, customers often pay for the right to use our software products over the term of the associated software license agreement. We refer to these payments as installment...

  • Page 51
    ... reseller, or VAR sells the software product to their customers) and reported on the "Software fees and other" line item on the Consolidated Statements of Operations. New deferred subscription revenue excludes the value associated with maintenance-only license agreements, license-only indirect sales...

  • Page 52
    ... weighted average durations of 3.1 and 2.8 years, respectively. Annualized deferred subscription revenue represents the total value of all new software license agreements entered into during a period divided by the weighted average life of all such license agreements recorded during the same period...

  • Page 53
    ...prior business model, maintenance revenue was separately identified and was reported on the "Maintenance" line item on the Consolidated Statements of Operations. Under the Business Model, maintenance that is bundled with product sales is not separately identified in our customers' license agreements...

  • Page 54
    ...in security software engagements, which utilize Access Control and Identity Management solutions as well as growth in IT Service and Asset Management solutions. The increase was also partially attributable to approximately $4 million of services revenue associated with the sale of Netegrity products...

  • Page 55
    ... of both purchased software and capitalized internally generated software development costs. Internally generated capitalized software costs are related to new products and significant enhancements to existing software products that have reached the technological feasibility stage. Amortization...

  • Page 56

  • Page 57
    ... such as emerging technologies and a general broadening of our enterprise product offerings. Product development and enhancement expenditures were approximately 21% and 23% of total revenue in each of the fiscal years ended March 31, 2004 and 2003, respectively. Product development and enhancements...

  • Page 58
    .... Shareholder Litigation and Government Investigation Settlement In prior fiscal years, a number of stockholder class action lawsuits were initiated that alleged, among other things, that the Company made misleading statements of material fact or omitted to state material facts necessary in order to...

  • Page 59
    ...Financial Statements for additional information. In September 2004, we reached agreements with the USAO and the SEC in connection with their investigations of improper recognition of revenue and related reporting practices during the period January 1, 1998 through September 30, 2000, and the actions...

  • Page 60
    ... tax benefits associated with prior fiscal years. We received a letter from the IRS approving the claim for this refund in September 2004. Selected Quarterly Information The following table has been adjusted to reflect the Company' s adoption of SFAS No. 123(R) (refer to Note 9, "Stock Plans" of the...

  • Page 61
    ...Trade and Installment Accounts receivable" of the Consolidated Financial Statements for additional information). (2) Includes an after-tax charge of approximately $6 million of cash and stock-based compensation expense associated with the appointment of our new President and CEO in November 2004 and...

  • Page 62
    ... "Trade and Installment Accounts receivable" of the Consolidated Financial Statements for additional information). (4) Includes an after-tax charge of approximately $100 million related to Shareholder Litigation Settlement. Refer to "Shareholder Litigation Settlement and Investigation Charge" within...

  • Page 63
    ... and Installment Accounts receivable" of the Consolidated Financial Statements for additional information). Liquidity and Capital Resources Cash, cash equivalents, and marketable securities totaled $3.125 billion on March 31, 2005, an increase of $1.223 billion from the March 31, 2004 balance of...

  • Page 64
    ... December 2008) Commercial paper 6.375% Senior Notes due April 2005 5.000% Convertible Senior Notes (called March 2005) 6.500% Senior Notes due April 2008 4.750% Senior Notes due November 2009 1.625% Convertible Senior Notes due December 2009 5.625% Senior Notes due November 2014 International line...

  • Page 65
    ...provider of information technology management and governance solutions, in an all cash transaction valued at approximately $350 million, or approximately $280 million net of cash acquired. Niku' s primary software product, Clarity IT-MG, is an integrated suite that spans the full IT life cycle, from...

  • Page 66
    ...included in the "Other noncurrent assets" line item. In October 2003, we established a software development center in Hyderabad, India (the India Technology Center) for the purpose of enhancing our development and support capabilities and to take advantage of certain incentives made available by the...

  • Page 67
    ... sources: (1) licensing software products; (2) providing customer technical support (referred to as maintenance); and (3) providing professional services, such as consulting and education. We recognize revenue pursuant to the requirements of Statement of Position 97-2 "Software Revenue Recognition...

  • Page 68
    ...software product with maintenance for the term of the agreement. Under these agreements, we recognize revenue ratably over the term of the license agreement beginning upon completion of the four SOP 97-2 recognition criteria noted above. For license agreements signed prior to October 2000 (the prior...

  • Page 69
    ... will be received, revenue is deferred until the uncertainty is removed. Revenue from sales to distributors, resellers, and VARs is recognized when all four of the SOP 97-2 revenue recognition criteria noted above are met and when these entities sell the software product to their customers. This...

  • Page 70
    ... a material impact on our financial statements. Goodwill, Capitalized Software Products, and Other Intangible Assets SFAS No. 142, "Goodwill and Other Intangible Assets," requires an impairment-only approach to accounting for goodwill. Absent any prior indicators of impairment, we perform an annual...

  • Page 71
    ..." of the Consolidated Financial Statements for a description of our material legal proceedings. New Accounting Pronouncements In October 2004, the American Jobs Creation Act of 2004 was signed into law. This act introduces a special one-time dividends received deduction on the repatriation...

  • Page 72
    ... prosecution or civil penalties which could adversely affect our credit ratings, stock price, ability to attract or retain employees and, therefore, our sales, revenue and client base. Our agreements with the USAO and the SEC resolve their investigations into certain of our past accounting practices...

  • Page 73
    ... these agreements. We describe some of these requirements below. (For more information about our agreements with the USAO and the SEC, refer to Note 7, "Commitments and Contingencies" of the Consolidated Financial Statements as well as our Current Report on Form 8-K filed September 22, 2004.) 36

  • Page 74
    ... committee; establishing new comprehensive records management policies; taking steps to implement best practices regarding recognition of software license revenue; establishing a comprehensive compliance and ethics program; reorganizing our Finance and Internal Audit Departments; establishing a plan...

  • Page 75
    ... accept the incorporated products rather than purchase our products. In addition, the software industry is currently undergoing consolidation as software companies seek to offer more extensive suites and broader arrays of software products, as well as integrated software and hardware solutions. This...

  • Page 76
    .... However, the use of such open source code may ultimately subject some product(s) to unintended conditions so that we are required to take remedial action that may divert resources away from our development efforts. We believe that the use of such open source code will not have a significant impact...

  • Page 77
    ...development costs if our software contains undetected errors or if we fail to meet our customers' expectations. Significant technical challenges also arise with our products because our customers purchase and deploy our products across a variety of computer platforms and integrate them with a number...

  • Page 78
    ..., have substantial resources, a larger installed base of customers in any particular market niche, as well as the ability to develop and market software programs similar to and competitive with the products offered by us. Additionally, these producers can bundle hardware, software, and services...

  • Page 79
    ... 2005, our products will be aligned by software business unit. Our business units will consist of Enterprise Systems Management, Security Management, Storage Management, Business Service Optimization (BSO), and the CA Products Group - which will encompass solutions from a number of CA brands that...

  • Page 80
    ... the panel' s decision and lost its appeal. On March 1, 2004, the European Union began imposing retaliatory tariffs on a specified list of U.S.-source goods. In order to comply with international trade rules the American Jobs Creation Act of 2004 (the Act) repealed the current tax treatment for ETI...

  • Page 81
    ... in the Company' s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC' s rules and forms, and that such information is accumulated and communicated to management, including the Company' s Chief Executive Officer and Chief...

  • Page 82
    ... upfront software license revenue recognition) was superseded by a subscription based license agreement prior to the expiration of the prior business model license agreement. Subsequent to the filing of the Company' s Original 2005 Form 10-K, the Company determined that there was an accounting error...

  • Page 83
    ... of New York. The DPA requires the Company to, among other things, undertake certain reforms that will affect its internal control over financial reporting. These include implementing a worldwide financial and enterprise resource planning information technology system to improve internal controls...

  • Page 84
    ... Vice President, General Counsel and Corporate Secretary, at the Company' s world headquarters in Islandia at the address listed on the cover of this Form 10-K/A. Item 11. Executive Compensation. Reference is made to our definitive proxy statement, filed with the SEC in July 2005, for information...

  • Page 85
    ...s quarterly reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC after March 31, 2005 for additional exhibits. Regulation S-K Exhibit Number 2.1 Agreement and Plan of Merger, dated as of October 6, 2004, by and among Computer Associates International, Inc., Nova Acquisition Corp...

  • Page 86
    between the Company and The Chase Manhattan Bank, as Trustee. 48 and incorporated herein by reference.

  • Page 87
    ... Notes due 2014. Purchase Agreement dated November 15, 2004, among the Initial Purchasers of the 4.75% Senior Notes due 2009 and 5.625% Senior Notes due 2014, and the Company. 1987 Non-Statutory Stock Option Plan. Previously filed as Exhibit 4.7 to the Company' s Annual Report on Form 10-K for...

  • Page 88
    ...Regulation S-K Exhibit Number 10.4* 1993 Stock Option Plan for Non-Employee Directors. Previously filed as Annex 1 to the Company' s definitive Proxy Statement dated July 7, 1993, and incorporated herein by reference. Previously filed as Exhibit E to the Company' s Annual Report on Form 10-K for...

  • Page 89
    herein by reference. 50

  • Page 90
    ...Company and Sanjay Kumar. Notice of Revocation dated September 22, 2004. 10.27* 10.28 Deferred Prosecution Agreement, including the related Information and Stipulation of Facts. Final Consent Judgment of Permanent Injunction and Other Relief, including SEC complaint. Form of Restricted Stock Unit...

  • Page 91
    10.33* Form of Incentive Stock Option Agreement. Previously filed as Exhibit 10.2 to the Company' s Form 10-Q for the fiscal quarter ended September 30, 2004, and incorporated herein by reference. 51

  • Page 92
    ...Number 10.34* Form of Restricted Stock Award. Previously filed as Exhibit 10.3 to the Company' s Form 10-Q for the fiscal quarter ended September 30, 2004, and incorporated herein by reference. Previously filed as Exhibit 10.1 to the Company' s Form 10-Q for the fiscal quarter ended June 30, 2004...

  • Page 93
    52

  • Page 94
    ... Associates International, Inc. Deferred Compensation Plan for John A. Swainson, dated April 29, 2005. Trust Agreement between Computer Associates International, Inc. and Fidelity Management Trust Company, dated as of April 29, 2005. Employment Agreement, dated December 18, 2004, between the Company...

  • Page 95
    ...caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized. COMPUTER ASSOCIATES INTERNATIONAL, INC. By /s/ JOHN A. SWAINSON John A. Swainson President and Chief Executive Officer /s/ ROBERT W. DAVIS Robert W. Davis Executive Vice President and Chief Financial...

  • Page 96
    ... of Contents COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES ISLANDIA, NEW YORK ANNUAL REPORT ON FORM 10-K/A ITEM 8, ITEM 9A, ITEM 15(a)(1) AND (2), AND ITEM 15(c) LIST OF CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL...

  • Page 97
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the...

  • Page 98
    ... management' s assessment and an opinion on the effectiveness of the Company' s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan...

  • Page 99
    ... upfront software license revenue recognition) was superseded by a subscription based license agreement prior to the expiration of the prior business model license agreement. Subsequent to the filing of the Company' s original 2005 Form 10-K, the Company determined that there was an accounting error...

  • Page 100
    ... Selling, general, and administrative Product development and enhancements Commissions and royalties Depreciation and amortization of other intangible assets Goodwill impairment Other gains/expenses, net Restructuring charge Shareholder litigation and government investigation settlements TOTAL...

  • Page 101
    Diluted weighted average shares used in computation 588 580 575 See Accompanying Notes to the Consolidated Financial Statements. 59

  • Page 102
    ... COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2005 2004 (restated) (restated) (dollars in millions) ASSETS CURRENT ASSETS Cash and cash equivalents Marketable securities Trade and installment accounts receivable, net Federal and state income...

  • Page 103
    ... loans payable Government investigation settlement Shareholder litigation settlement Accounts payable Salaries, wages, and commissions Accrued expenses and other current liabilities Deferred subscription revenue (collected) - current Taxes payable, other than income taxes payable Federal, state, and...

  • Page 104
    ... COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Accumulate d Additiona l Comm on Stock Paid-In Capital (restated) Retained Other Comprehens ive Total Stockholde rs' Equity (restated) Earnings Loss (restated) (in millions, except dividends...

  • Page 105
    Shareholder litigation settlement Exercise of common stock options, ESPP, and other items, net of taxes of $6 401(k) discretionary contribution Purchases of treasury stock Reclassification of tax benefit associated with prior period stock options Restated Balance as of March 31, 2004 11 39 50 (...

  • Page 106
    ... litigation settlement Exercise of common stock options, ESPP, and other items, net of taxes of $19 Issuance of options related to acquisitions, net of amortization 401(k) discretionary contribution Redemption of 5% Convertible Senior Notes Exercise of call spread option Purchases of treasury stock...

  • Page 107
    ...CONTINUING OPERATING ACTIVITIES INVESTING ACTIVITIES: Acquisitions, primarily goodwill, purchased software, and other intangibles assets, net of cash acquired Settlements of purchase accounting liabilities Purchases of property and equipment Proceeds from sale of property and equipment Proceeds from...

  • Page 108
    Table of Contents COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) 2005 (restated) Year Ended March 31, 2004 (restated) (in millions) 2003 (restated) FINANCING ACTIVITIES: Dividends paid Purchases of treasury stock Debt borrowings Debt ...

  • Page 109
    ...: Computer Associates International, Inc. and subsidiaries (the Company) designs, develops, markets, licenses, and supports a wide range of integrated management computer software products. Principles of Consolidation: The Consolidated Financial Statements include the accounts of the Company and its...

  • Page 110
    ... be received, revenue is deferred until the uncertainty is removed. Revenue from sales to distributors, resellers, and value-added resellers (VARs) is recognized when all four of the SOP 97-2 revenue recognition criteria noted above are met and when these entities sell the software product to their...

  • Page 111
    ...of primarily all the indirect revenue. The ratable recognition of this deferred revenue is reflected on the "Subscription revenue" line item on the Consolidated Statements of Operations. Financing Fees: Accounts receivable resulting from prior business model product sales with extended payment terms...

  • Page 112
    ... of capitalized software costs" line item on the Consolidated Statements of Operations. In accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," internally generated software development costs associated with new products and...

  • Page 113
    .... Refer to Note 9, "Stock Plans" for additional information. Also, additional Notes were updated as applicable, for the Company' s adoption of SFAS No. 123(R). Sales Commissions: Sales commissions are expensed in the period earned by employees, which is typically upon the signing of a contract...

  • Page 114
    ... equivalents Weighted average common shares outstanding Weighted average Convertible Senior Note shares outstanding Weighted average stock options outstanding, net Weighted average shareholder settlement shares(2) Denominator in calculation of diluted earnings (loss) per share Diluted loss per share...

  • Page 115
    ...security software, principally in the areas of identity and access management. The Company has made Netegrity' s identity and access management solutions available both as independent products and as integrated components of the Company' s eTrust Identity and Access Management Suite. The acquisition...

  • Page 116
    Deferred income taxes, net Liabilities assumed, net Purchased software products Customer relationships Trademarks/tradenames Goodwill Purchase price 71 $ 4 (12) 37 45 26 258 455

  • Page 117
    ... solutions for approximately $40 million. The products acquired in this transaction were integrated into the Company' s eTrust Threat Management software product portfolio. This portfolio protects organizations from diverse Internet dangers such as viruses, spam, and inappropriate use of the Web...

  • Page 118
    ... of the Company' s supply-chain management, financial management, and human resource management software product groups operating under the name interBiz. Of the $25 million selling price, approximately $12 million was received in the quarter ended June 30, 2002. In January 2003, an agreement was...

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    73

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    ...support of integrated management computer software products operating on a wide range of hardware platforms and operating systems. The Company does not manage its business by solution or focus area and therefore does not maintain financial statements on such a basis. In addition to its United States...

  • Page 121
    ...Trade and Installment Accounts Receivable The Company uses installment license agreements as a standard business practice and has a history of successfully collecting substantially all amounts due under the original payment terms without making concessions on payments, software products, maintenance...

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    Less: Allowance for doubtful accounts Net amounts expected to be collected Less: Unearned revenue - noncurrent Net installment accounts receivable - noncurrent 75 (35) 2,404 (1,809) $ 595 (52) 2,159 (1,339) $ 820

  • Page 123
    ...year 2004. The Company recorded provision expense in fiscal year 2003 of $68 million. Provision expense (credit) is included in the "SG&A" line item on the Consolidated Statements of Operations. The Company' s estimate of the fair value of net installment accounts receivable recorded under the prior...

  • Page 124
    ... made in the Credit Agreement (other than the representation with respect to material adverse changes, but including the representation regarding the absence of certain material litigation) are correct. The Company capitalized the transaction fees associated with the 2004 Revolving Credit Facility...

  • Page 125
    ...the Company' s common stock at a conversion price of $24.34 per share prior to...Company issued $500 million of 4.75%, 5-year notes due November 2009 and $500 million of 5.625%, 10-year notes due November 2014. The Company has the option to redeem the 2005 Senior Notes at any time, at redemption prices...

  • Page 126
    ...marketable securities on hand and undrawn amounts available under the 2004 Revolving Credit Facility. 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...

  • Page 127
    .... 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, and its Executive Vice President Russell M. Artzt were defendants in a number of stockholder class action lawsuits, the...

  • Page 128
    ... the United States Attorney' s Office for the Eastern District of New York (USAO) and the staff of the Northeast Regional Office of the Securities and Exchange Commission (SEC) commenced an investigation concerning certain of the Company' s past accounting practices, including the Company' s revenue...

  • Page 129
    ... and consider additional remedial actions it deems necessary. On September 22, 2004, the Company reached agreements with the U.S. Attorney' s Office for the Eastern District of New York (USAO) and the Securities and Exchange Commission (SEC) by entering into a Deferred Prosecution Agreement (the DPA...

  • Page 130
    ... Mr. Richards' term of service is subject to extension by the USAO and SEC. Pursuant to the DPA, the USAO will defer and subsequently dismiss prosecution of a two-count information filed against the Company charging it with committing securities fraud and obstruction of justice if the Company abides...

  • Page 131
    ...certain class action litigation commenced against the Company and certain officers and directors in 1998 and 2002 (refer to "Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004") as well as all damages suffered by the Company in connection with the USAO and SEC investigations (refer...

  • Page 132
    ... investigation by the USAO and SEC and whether certain Company employees have breached their fiduciary duties to the Company and wasted corporate assets; these individuals include Sanjay Kumar, Charles Wang, Ira H. Zar, Lloyd Silverstein, Steven M. Woghin, Stephen Richards, Russell Artzt, Kenneth...

  • Page 133
    ...from: Nondeductible impairment of goodwill Nondeductible portion of class action settlement and litigation charge Federal tax cost of repatriation under the American Jobs Creation Act Nondeductible U.S. share-based compensation Effect of international operations, including foreign export benefit and...

  • Page 134
    ... year period ending March 31, 2000. There was no material impact on the Company' s financial statements as a result of the completion of this audit. In October 2004, the American Jobs Creation Act of 2004 was signed into law. This Act introduces a special one-time dividends received deduction on the...

  • Page 135
    ...of the $500 million estimated repatriation) at March 31, 2005. The Company received a benefit of approximately $35 million in the quarter ending June 30, 2005 reflecting the Department of Treasury and IRS Notice 2005-38 issued on May 10, 2005 which will reduce the estimated taxes associated with the...

  • Page 136
    ... with the pro forma disclosures previously required for those periods by SFAS No. 123, as amended. The Company previously applied Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations for share-based awards granted prior to April...

  • Page 137
    10-K for the fiscal year ended March, 31, 2005, adjusted for the restatements described in paragraphs "a" and "b" of Note 12. (2) Includes minor corrections made to the Company' s previously reported pro forma SFAS No. 123 disclosures as a result of the Company' s adoption of SFAS No. 123(R). 88

  • Page 138
    ... and Human Resource Committee of the Board of Directors (the Committee). Awards under the Plans may include at-the-money stock options, premium-priced stock options, restricted stock (or units), performance share units, or stock awards, or any combination thereof. The non-management members...

  • Page 139
    ... Directors (the 1993 Plan) provided for nonstatutory options to purchase up to a total of 337,500 shares of common stock of the Company to be available for grant to each member of the Board of Directors who is not otherwise an employee of the Company. Pursuant to the 1993 Plan, the exercise price...

  • Page 140
    ... Compensation Plan for Non-Employee Directors (the 2002 Director Plan) was effective as of July 1, 2002. The 2002 Director Plan provides for each director to receive annual director fees in the form of deferred shares and automatic grants to purchase 6,750 shares of common stock of the Company, up...

  • Page 141
    ... 29.81 $ $ $ The Company estimates the fair value of stock options using the Black-Scholes valuation model, consistent with the provisions of SFAS No. 123(R), Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 107, and the Company' s prior period pro forma disclosures of net...

  • Page 142
    ... expected term is the number of years that the Company estimates, based primarily on historical experience, that options will be outstanding prior to exercise. The total cash received from employees as a result of employee stock option exercises in fiscal years 2005, 2004, and 2003 was approximately...

  • Page 143
    ...the Year 2000 Employee Stock Purchase Plan (the Purchase Plan) shares for offering periods commencing in fiscal years 2005, 2004, and 2003 was $6.52, $7.28, and $4.94, respectively. The fair value is estimated on the first date of the offering period using the Black-Scholes option pricing model. The...

  • Page 144
    ..., the Computer Associates Savings Harvest Plan (CASH Plan), for the benefit of the U.S. employees of the Company. The CASH Plan is intended to be a qualified plan under Section 401(a) of the Internal Revenue Code of 1986 (the Code), and contains a qualified cash or deferred arrangement as described...

  • Page 145
    ...each right (other than rights held by an Acquiring Person or Adverse Person) may be exercised to purchase common stock of the Company or a successor company with a market value of twice the $150 exercise price. The rights, which are redeemable by the Company at one cent per right, expire in November...

  • Page 146
    ... Current Report on Form 8-K filed with the SEC on May 26, 2005, and in addition to the revenue recognition issues identified and disclosed by the Company in April 2004, the Company identified certain additional transactions that were entered into in fiscal years 1998 through 2001 that were accounted...

  • Page 147
    (3) Adjusted to reflect the Company' s adoption of SFAS No. 123(R). See Note 9 for additional information. 94

  • Page 148
    ...364 219 3,057 1,384 243 (448) (108) (340) $ (0.60) $ (0.60) (1) Derived from the "previously reported" column of Note 12 of the Consolidated Financial Statements included in the Company' s Original Form 10-K for the fiscal year ended March 31, 2005. (2) Adjusted to reflect the restatement described...

  • Page 149
    the additional restatement described in paragraph "b" above. (4) Adjusted to reflect the Company' s adoption of SFAS No. 123(R). See Note 9 for additional information. 95

  • Page 150
    ... in the Company' s original Form 10-K for...Company' s adoption of SFAS No. 123(R). See Note 9 for additional information. BALANCE SHEET DATA Previously Reported(1) March 31, 2004 As As Adjusted(2) Adjusted(3) (in millions) Restated(4) Trade and installment accounts receivable, net Deferred...

  • Page 151
    ... in the "previously reported" column of Note 12 of the Consolidated Financial Statements included in the Company' s original Form 10-K for the ...Company' s adoption of SFAS No. 123(R). See Note 9 for additional information. (5) Includes government investigation and shareholder litigation settlement...

  • Page 152
    ...Reported(5) (in millions, except per share data) Subscription revenue Maintenance Software fees and other Financing fees Total revenue Selling, general... from the "previously reported" column of Note 12 of the Consolidated Financial Statements included in the Company' s Original Form 10-K for the ...

  • Page 153
    ... paragraph "b" above. (4) Adjusted to reflect the Company' s adoption of SFAS No. 123(R). See Note 9 for additional information. (5) Derived from the "as reported" column of Note 12 of the Consolidated Financial Statements included in the Company' s Original Form 10-K for the fiscal year ended March...

  • Page 154
    ... 40 $ 0.07 $ 0.07 $ 571 118 90 28 868 311 85 47 19 28 $ 0.05 $ 0.05 (1) Derived from the "previously reported" column of Note 12 of the Consolidated Financial Statements included in the Company' s Original Form 10-K for the fiscal year ended March 31, 2005. (2) Adjusted to reflect the restatement

  • Page 155
    ... No. 123(R). See Note 9 for additional information. Note 13 - Subsequent Events In June 2005, the Company entered into a definitive agreement to acquire Niku Corporation (Niku), a leading provider of information technology management and governance solutions. The aggregate amount of consideration to...

  • Page 156
    ... decline as net installment accounts receivable under the prior business model are billed and collected over the remaining life. Under the Company' s Business Model, cash is often received prior to revenue recognition, thus reducing the need to provide for estimated bad debt associated with recorded...

  • Page 157
    Company' s indirect business (distributors, resellers, and VARs) from the allowance for doubtful accounts to billed accounts receivable. The fiscal year 2003 deductions also include a reclassification of approximately $16 million of certain unclaimed funds from the allowance for doubtful accounts to...

  • Page 158
    ... Company adopted, on a modified retrospective basis, the provisions of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), "Share - Based Payments" (SFAS No. 123(R)) which establishes accounting for stock-based awards exchanged for employee services. /s/ KPMG LLP New York, New...

  • Page 159
    ... SARBANES-OXLEY ACT OF 2002 I, John A. Swainson, certify that: 1. I have reviewed this Amendment to the Annual Report on Form 10-K/A 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...

  • Page 160
    ... SARBANES-OXLEY ACT OF 2002 I, Robert W. Davis, certify that: 1. I have reviewed this Amendment to the Annual Report on Form 10-K/A 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...

  • Page 161
    ...to the Annual Report of Computer Associates International, Inc., a Delaware corporation (the "Company"), on Form 10-K/A for the fiscal year ended March 31, 2005 as filed with the Securities and Exchange Commission (the "Report"), each of John A. Swainson, President and Chief Executive Officer of the...

  • Page 162
    ... William E. McCracken President, Executive Consulting Group Lewis S. Ranieri Chairman, John Swainson President and Chief Executive Officer EXECUTIVE COMMITTEE Gary Quinn Executive Vice President, Partner Advocacy Russell M. Artzt Executive Vice President, Products Mark J. Barrenechea Executive...

  • Page 163
    Form10K 2005 Annual Report Fiscal Year Ending March 2005 We believe that by executing our growth strategy CA can become the trusted partner our customers need to help them securely manage their IT infrastructures, while building long-term shareholder value. At CA, we have our priorities set ...

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    ca.com potential