Computer Associates 2005 Annual Report Download - page 74

Table of Contents
The DPA
If it is determined that we: deliberately gave false, incomplete or misleading information pursuant to the DPA; have committed any
federal crimes subsequent to the DPA; or otherwise knowingly, intentionally, and materially violated any provision of the DPA, we shall
be subject to prosecution for any federal criminal violation of which the USAO has knowledge. Any such prosecution may be based on
information we have provided to the USAO, the SEC and other governmental agencies in connection with our cooperation under the
DPA. This would include information provided because of our entry into the DPA that otherwise may not have been available to the
USAO or may otherwise have been subject to privilege. Our continued cooperation with the USAO, the SEC, and our newly appointed
Independent Examiner (see below) pursuant to the DPA and Consent Judgment may lead to the discovery of additional information
regarding the conduct of the Company, including members of former management in prior periods. We cannot predict the impact, if any,
of any such information on our business, financial condition, results of operations, and cash flow.
The Final Consent Judgment with the SEC (the Consent Judgment)
Pursuant to the Consent Judgment, we are enjoined from violating a number of provisions of the federal securities laws. Any further
violation of these laws could result in civil remedies, including sanctions, fines and penalties, which may be far more severe than if the
violation had occurred without the Consent Judgment being in place. Additionally, if we breach the terms of the Consent Judgment, the
SEC may petition the Court to vacate the Consent Judgment and restore the SEC’ s original action to the active docket for all purposes. If
the action were restored, the SEC could use information in the action that we have provided to the USAO, the SEC, and other
governmental agencies in connection with our cooperation under the Consent Judgment. This would include information provided
because of our entry into the Consent Judgment that otherwise may not have been available to the SEC or may otherwise have been
subject to privilege.
General
Under both the DPA and the Consent Judgment, we are obligated to undertake a number of internal reforms including but not limited to:
adding new management and independent directors; establishing a Compliance Committee of the Board of Directors and an executive
disclosure 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 to improve communication with government agencies engaged in inquiries or
investigations relating to the Company; enhancing our current hotline for employees to report potential violations of the law or other
misconduct; and agreeing to the appointment of an Independent Examiner, who will serve a term of 18 months (subject to extension by
the USAO and the SEC), and will examine and issue reports on our practices to the USAO, the SEC, and our Board of Directors
beginning no later than September 2005 and quarterly thereafter. In the short-term, we cannot predict what impact, if any, the adoption
of these reforms (including the upcoming reports of the Independent Examiner) may have on our business, financial condition, results of
operations, and cash flow and they may result in the diversion of management attention and employee resources from core business
functions or opportunities.
If it were determined that we breached the terms of the DPA or Consent Judgment, we cannot predict the scope, timing, or outcome of
the actions that would be taken by the USAO or the SEC. These actions could include the institution of administrative, civil injunctive, or
criminal proceedings, the imposition of fines and penalties, which may be significant, suspensions or debarments from government
product and/or services contracts, and other remedies and sanctions, any of which could lead to an adverse impact on our credit ratings
and ability to obtain financing, an adverse impact on our stock price, loss of additional senior management, the inability to attract or
retain key employees, and the loss of customers. In addition, under the law, the illegal acts of our employees may be ascribed to us. We
cannot predict what impact, if any, these matters may have on our business, financial condition, results of operations, and cash flow.
Moreover, under both the DPA and Consent Judgment, we are obligated to cooperate with the government in its ongoing investigations
of past conduct. While we do not anticipate any further material adjustments to our financial statements for completed periods, the
processes described above have not been fully completed, and we may be required to take additional remedial measures.
If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our ability to manage and
grow our business may be harmed.
Our ability to successfully implement our business plan and comply with regulations, including the Sarbanes-Oxley Act of 2002,
requires effective planning and management system and process. We will need to continue to improve existing and implement new
operational and financial systems, procedures and controls to manage our business effectively in the future. As a result, we have recently
licensed enterprise resource planning software from SAP AG and have begun a process to expand and upgrade our operational and
financial systems. Any delay in the implementation of, or disruption in the transition to our new or enhanced systems, procedures or
controls, could harm our ability to accurately forecast sales demand, manage our supply chain, achieve accuracy in the conversion
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