Computer Associates 2005 Annual Report Download - page 48

Table of Contents
• We have moved to a named account structure, where our direct sales organization will focus on developing relationships with the
largest and most important customers. Other accounts will primarily be serviced by reseller partners.
• We will also partner with OEMs and global systems integrators that play an important role in determining technology purchases in
large enterprises.
• Channel partnerships will also allow us to more cost effectively pursue the small and medium size customer market and will provide
us a larger technical pool from which we can draw resources to provide professional services to our customers.
Strategic Acquisitions
• While internal product development is critical to our long-term success, targeted acquisitions of technologies are equally important.
• We will continue to make small- to medium-sized acquisitions in our core areas of systems and security management for the
enterprise, similar to our recent acquisitions of Pest Patrol, Netegrity, Concord, and Niku.
Significant Business Events
The Government Investigation
In fiscal year 2002, the USAO and the SEC commenced an investigation concerning certain of our past accounting practices, including
our revenue recognition procedures in periods prior to the adoption of the Business Model in October 2000.
In September 2004, we reached agreements with the USAO and the SEC by entering into a Deferred Prosecution Agreement (DPA) with
the USAO and by consenting to the SEC’ s filing of a Final Consent Judgment in the United States District Court for the Eastern District
of New York (the Federal Court). The Federal Court approved the DPA on September 22, 2004 and entered the Final Consent Judgment
on September 28, 2004. The agreements resolve the USAO and SEC investigations into certain of our past accounting practices,
including our revenue recognition policies and procedures, and obstruction of their investigations.
Under the DPA, the Company has agreed to establish a $225 million fund for purposes of restitution to our current and former
stockholders, with $75 million paid within 30 days of the date of approval of the DPA by the Court, $75 million to be paid within one
year after the approval date and $75 million to be paid within 18 months after the approval date. The Company has made the first
$75 million payment. The Company has, among other things, taken the following actions: (1) added two new independent directors to
the Board of Directors; (2) established a compliance committee of the Board of Directors by amending the charter of its Audit
Committee and renaming it as the Audit and Compliance Committee; (3) appointed a Chief Compliance Officer and began
implementation of an enhanced compliance and ethics program; (4) begun to reorganize the Finance Department; (5) established an
executive disclosure committee chaired by the Company’ s chief executive officer; and (6) enhanced the Company’ s Hotline (now
Helpline) and issued the Company’ s “Compliance and Helpline Policy.”
On March 16, 2005, pursuant to the DPA and Final Consent Judgment, the United States District Court issued an order appointing
attorney Lee S. Richards III, Esq., of Richards Spears Kibbe & Orbe LLP, to serve as Independent Examiner. The Independent Examiner
is reviewing our compliance with the DPA and Final Consent Judgment and reported his findings and recommendations to the USAO,
SEC and Board of Directors on or about September 16, 2005, and will do so quarterly thereafter. We issued a report on our progress
under the DPA and Final Consent Judgment in the proxy statement filed with the SEC in July 2005.
Refer to Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements for additional information concerning the
government investigation.
Acquisitions and Divestures
In June 2005, we entered into a definitive agreement to acquire 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 had announced we had signed a partnership
to resell, service, and support Niku’ s Clarity software. We anticipate integrating Clarity IT-MG with our Business Service Optimization
(BSO) unit. The acquisition was completed on July 29, 2005.
In June 2005, we acquired the common stock of 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.
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