Computer Associates 2005 Annual Report Download - page 31

Table of Contents
Additionally, as more fully set forth under Item 6, “Selected Financial Data,” the Company previously restated financial information for
the fiscal years ended March 31, 2001 and March 31, 2000 due to other accounting irregularities relating to revenue recognition. This
prior restatement was set forth in a Current Report on Form 8-K filed with the SEC on April 26, 2004 and an amended current report on
Form 8-K/A filed with the SEC on September 22, 2004. The effects of prior restatements are reflected in the selected financial data for
the fiscal year ended March 31, 2001 set forth under Item 6, “Selected Financial Data.”
PART I
Item 1. Business.
(a) General Development of Business
Overview
Computer Associates is one of the world’ s largest providers of management software. We design, market, and license computer software
products that allow businesses to run, manage, and automate critical aspects of their information technology (IT) environments.
The Company was incorporated in Delaware in 1974, commenced operations in 1976, and completed an initial public offering of
common stock in December 1981. Our common stock is traded on the New York Stock Exchange under the symbol “CA.”
We have a broad portfolio of software products that span the areas of infrastructure management, security management, storage
management, application life cycle management, data management and application development, and portal and business intelligence.
We are considered an Independent Software Vendor (ISV). ISVs develop and license software products that can increase the efficiency
of computer hardware platforms or operating systems sold by other vendors. Our products are heterogeneous — they manage both the
mainframe and distributed environments and are designed to operate with all major business computer hardware platforms, operating
systems, and products marketed by other hardware and software companies.
Our software products include those that we have sold for many years and newer products designed to address our customers’ evolving
business needs. Our products are specifically designed to work well with our other software products. Because the time, effort, and cost
to make different software products work together is high, customers place greater value on software products that work well with one
another.
We have a large and broad base of customers and estimate that 99% of the Fortune 500 companies currently use our products. When
customers enter into a software license agreement with us, they often pay for the right to use our software for a specified period of time.
Upon the expiration of the term of the agreement, the customer often must either renew the license agreement or pay usage and
maintenance fees, if applicable, for the right to continue to use our software and receive support. We experienced contract renewal rates
of approximately 90% in fiscal year 2005. We believe that the existing relationships with our customers provide us the opportunity to
cross-sell new software products to them.
Business Developments
We occasionally acquire new software technology to complement our existing core software products. We also have, and intend to
continue to, divest products that no longer fit with our core business strategy.
In August 2005, we acquired the common stock of Niku Corporation (Niku), a leading 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 investment
selection, to execution and delivery of initiatives, to results assessment. In January 2005, we announced we had signed an arrangement to
resell, service, and support Niku’ s Clarity software. We anticipate integrating Clarity IT-MG with our Business Service Optimization
(BSO) unit.
In June 2005, we acquired the common stock of Concord Communications, Inc. (Concord), a leading provider of network service
management software solutions, in an all cash transaction valued at approximately $337 million. We also assumed approximately
$20 million in net debt from Concord for a total purchase price of approximately $357 million, excluding acquisition costs. Concord was
a provider of infrastructure software principally in the areas of network health, performance, and fault management. We plan to make
Concord’ s eHealth and Spectrum software available as independent products and as integrated components of our Unicenter product
portfolio.
In November 2004, we acquired the common stock of Netegrity, Inc, (Netegrity) in a cash transaction of approximately $439 million, or
approximately $340 million net of the cash and marketable securities on Netegrity’ s balance sheet. In
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