Computer Associates 2005 Annual Report Download - page 49

Table of Contents
We plan to make Concord’ s eHealth and Spectrum software available both as independent products and as integrated components of our
Unicenter product portfolio.
In November 2004, we completed the acquisition of Netegrity, a leading provider of security software solutions in the area of access and
identity management, in a transaction valued at approximately $455 million in the aggregate. Netegrity was a provider of business
security software, principally in the areas of identity and access management, and we have made Netegrity’ s identity and access
management solutions available both as independent products and as integrated components of our eTrust Identity and Access
Management Suite.
In August 2004, we acquired Pest Patrol, a privately held provider of anti-spyware 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, spam, and inappropriate
use of the Web by employees.
In March 2004, we sold our approximate 90% interest in ACCPAC. Our net proceeds totaled $104 million for all of our outstanding
equity interests of ACCPAC, including options and change of control payments for certain ACCPAC officers and managers. We
received approximately $90 million of the net proceeds in fiscal year 2004 and the remainder in fiscal year 2005. ACCPAC specializes
in accounting, customer relationship management, human resources, warehouse management, manufacturing, electronic data
interchange, and point-of-sale software for small and medium-sized businesses. As a result of the sale, we realized a gain, net of taxes, of
approximately $60 million in fiscal year 2004. In the second quarter of fiscal year 2005, we recorded an adjustment to the gain of $2
million, net of tax, that reduced the net gain to $58 million. Approximately 600 of our employees were transferred to Sage in fiscal year
2004. The sale completed our multi-year effort to exit the business applications market.
Restructuring and Reorganization
In the second quarter of fiscal year 2005, we announced a restructuring plan that was designed to more closely align our investments with
strategic growth opportunities. The restructuring plan included a workforce reduction of approximately five percent or 750 positions
worldwide, slightly lower than our original estimate of 800 positions. The plan is expected to yield about $70 million in savings on an
annualized basis. In connection with the restructuring plan, we recorded a charge of approximately $28 million in the second quarter of
fiscal year 2005 for severance and other termination benefits, and we do not expect to incur any additional charges related to the
restructuring plan. As of March 31, 2005, we have made substantially all payments under the plan.
In April 2003 and in connection with the reorganization of the U.S. channel sales organization and the combination of the pre and post
sales technical organizations, we eliminated approximately 450 positions worldwide during the quarter ended June 30, 2003. The
combination of our pre and post sales organizations resulted in the creation of what we refer to as our CA Technology Services
organization. The reorganization of our U.S. channel sales organization included the creation of a 300 person customer interaction call
center located in Tampa, Florida. Each of these actions enabled us to achieve efficiencies associated with certain redundant functions
that resulted in the elimination of certain positions. We also expensed approximately $15 million of severance and other termination
benefits in the first quarter of fiscal year 2004 related to the headcount reduction. We estimate that we achieved annual cost savings of
approximately $50 million associated with the headcount reductions.
Business Model
As described in greater detail in Item 1, “Business,” of the Company’ s Form 10-K/A, we license our software products directly to
customers as well as through distributors, resellers, and VARs. We generate revenue from the following sources: license fees —
licensing our products on a right-to-use basis; maintenance fees — providing customer technical support and product enhancements; and
service fees — providing professional services such as product implementation, consulting, and education services. The timing and
amount of fees recognized as revenue during a period are determined individually by license agreement, based on its duration and
specific terms.
Under our Business Model, we provide customers with the flexibility to license software under month-to-month licenses or to fix their
costs by committing to longer-term agreements. We also permit customers to change their software mix as their business and technology
needs change, which includes the right to receive software in the future within defined product lines for no additional fee. As a result of
the right our customers have to receive unspecified future upgrades, we are required under accounting principles generally accepted in
the United States of America (GAAP) to recognize revenue from our license agreements evenly on a monthly basis (also known as
ratably) over the license term. We believe recognizing license revenue ratably over the term of the license agreement more accurately
reflects the earnings process; we also believe that it improves the predictability of our reported revenue streams. Under agreements
entered into prior to October 2000 (the prior business model), and as is common practice in the software industry, we did not offer our
customers the right to receive unspecified future upgrades. As a result, for most license agreements entered into
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