Computer Associates 2005 Annual Report Download - page 146

Table of Contents
Note 12 — Restatements
(a) As previously announced in a 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 for improperly. In a few instances, these transactions involved
contemporaneous purchases and sales (or investments and licenses) of software products and services with the same or related third
parties. These transactions appear not to have been negotiated on an arm’ s-length basis and to have no valid commercial purpose. In
several other cases, the terms of certain license agreements were altered by side agreements that would have prevented the full
recognition of related revenue until some future period. While the Company entered into all of these transactions in fiscal years 1998
through 2001, the accounting treatment required the initial deferral of revenue, and subsequent recognition of revenue in the period the
contract became fixed and determinable, and therefore these transactions have also affected the financial statements for each of the
subsequent fiscal years, including fiscal year 2005 and future periods. Accordingly, restatements are being made to eliminate the impact
of these prior-period errors on subsequent periods. Additionally, as previously disclosed, during the first quarter of fiscal year 2005, the
Company recognized $13 million of revenue relating to certain prior business model contracts which had reduced revenue in prior fiscal
periods. Since we are restating current and prior fiscal periods to correct prior period errors, we have determined that the $13 million of
revenue recognized in the first quarter of fiscal 2005 should be reported in the applicable periods to which it related. The cumulative
impact of these restatements have the effect of reducing the March 31, 2002 balance of retained earnings, a component of stockholders’
equity, by $42 million. The effects of this restatement increase software fees and other revenue by $23 million and $15 million in fiscal
years 2004 and 2003, respectively; decrease operating expenses by $16 million in fiscal year 2003; and decrease the loss from continuing
operations by $14 million and $20 million in fiscal years 2004 and 2003, respectively. The restatements have no impact on cash flows
provided by continuing operating activities.The Company will record additional other revenue in the future as a result of the restatement
of approximately $19 million through fiscal year 2009.
(b) Finally, as a result of the Company’ s review of its revenue recognition policies, the Company determined that there was an
accounting error in that the revenue recorded on renewals of certain prior business model license agreements, when superseded by
subscription based license agreements prior to the expiration of such prior business model license agreements, was not always
recognized on a straight-line basis over the life of the new subscription based license agreements. The cumulative impact of these
restatements have the effect of increasing the March 31, 2002 balance of retained earnings, a component of stockholders’ equity, by
$10 million. The effects of this restatement increased total revenue by $30 million, $21 million, and $15 million in fiscal years 2005,
2004, and 2003, respectively; and decrease the loss from continuing operations by $19 million, $13 million, and $9 million in fiscal
years 2005, 2004 and 2003, respectively. These restatements have no impact on cash flows provided by continuing operating activities.
The Company will have an aggregate reduction to revenue in the future as a result of the restatement of approximately $80 million
during fiscal years 2006 through 2011.
The following tables summarize the annual consolidated statements of operations and balance sheet data for the periods indicated, giving
effect to the restatements described above and to the retrospective adoption of SFAS No. 123(R):
Year Ended March 31, 2005
Previously As
STATEMENT OF OPERATIONS DATA Reported(1) Adjusted(2) Restated(3)
(in millions, except per share data)
Subscription revenue $2,430 $2,544 $2,544
Maintenance 498 441 441
Financing fees 104 77 77
Total revenue 3,530 3,560 3,560
Selling, general, and administrative 1,323 1,323 1,346
Income from continuing operations before taxes 11 41 2
Tax (benefit) expense (2) 9 4
Income (loss) from continuing operations 13 32 (2)
Basic income (loss) from continuing operations per share $0.02 $0.05 $(0.01)
Diluted income (loss) from continuing operations per share $ 0.02 $ 0.05 $ (0.01)
(1) As presented in the
Company’ s original
Form 10-K for the
fiscal year ended
March 31, 2005.
(2) Adjusted to reflect
the additional
restatement
described in
paragraph “b”
above.