Computer Associates 2006 Annual Report Download - page 36

We have entered into a Deferred Prosecution Agreement (DPA) with the U.S. Attorney’s Office for the Eastern
District of New York (USAO) and a Final Consent Judgment with the SEC (the Consent Judgment) and if we
violate either agreement we may be subject to, among other things, criminal prosecution or civil penalties
which could adversely affect our credit ratings, stock price, ability to attract or retain employees and,
therefore, our sales, revenue and client base.
Our agreements with the USAO and the SEC resolve their investigations into certain of our past accounting
practices, including our revenue recognition policies and procedures, and obstruction of their investigations,
provided we comply with certain continuing requirements under these agreements. We describe some of these
requirements below. (For more information about our agreements with the USAO and the SEC, see Note 7,
“Commitments and Contingencies”, in the Notes to the Consolidated Financial Statements as well as our Current
Report on Form 8-K filed on September 22, 2004.)
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 will 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 the 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 the conduct of 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 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 hotline for employees to report potential violations of the law
or other misconduct; and agreeing to the appointment of an Independent Examiner, who is serving a term of
18 months (subject to extension by the USAO and the SEC) and is examining our practices and began issuing reports
on such practices to the USAO, the SEC and our Board of Directors beginning in September 2005 and has and will
continue to do so quarterly thereafter (for more information about the Independent Examiner and the potential
extension of this term, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operation — Significant Business Events”). We have taken many steps to carry out these internal reforms (for more
information about our reforms, see Note 7, “Commitments and Contingencies”, in the Notes to the Consolidated
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