Computer Associates 2006 Annual Report Download - page 51

Under the DPA, we 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. We
have made all three payments as of March 31, 2006. We have, among other things, taken the following actions:
(1) added three 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) reorganized the Finance and Internal Audit Departments; (5) established an executive disclosure
committee chaired by the our chief executive officer; and (6) enhanced our Hotline (now Helpline) and issued our
“Compliance and Helpline Policy.” We issued a report on our progress under the DPA and Consent Judgment in the
proxy statement filed with the SEC in July 2005. We will report on further progress under the DPA in our 2006
definitive proxy statement to be filed in August 2006.
On March 16, 2005, pursuant to the DPA and 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 Consent Judgment and issued
his six-month report concerning his recommendations regarding best practices on September 15, 2005. On
December 15, 2005, March 15, 2006 and June 15, 2006, Mr. Richards issued his first three quarterly reports
concerning our compliance with the DPA. Refer to Note 7, “Commitments and Contingencies”, in the Notes to the
Consolidated Financial Statements for additional information concerning the government investigation.
Internal Control Issues and Possible Extension of Independent Examiner’s Term of Appointment Under the
DPA
As described elsewhere in this Form 10-K, we are restating our financial results for prior fiscal periods as well as
current and prior interim periods during fiscal years 2006 and 2005 because we did not properly recognize non-cash
stock-based compensation expense, subscription revenue, or sales commission expense for certain periods. In
addition, our outside auditors determined that we did not properly calculate our taxes for certain non-routine tax
matters in the fourth quarter of fiscal year 2006 and had to adjust them. As a result of these errors and other matters,
we have identified material weaknesses in our internal control over financial reporting, as described in Item 9A of
this Form 10-K.
Under the DPA, we are obligated, among other things, to take certain steps to improve internal controls and to
reorganize our Finance Department. If we have not substantially implemented these and other required reforms for a
period of at least two successive quarters before September 30, 2006, the USAO and the SEC may, in their
discretion, extend the term of the Independent Examiner. In his Fourth Report dated June 15, 2006, the Independent
Examiner expressed the view that, in light of certain internal control issues, which are described further in Item 9A
of this Form 10-K, including the fact that we have not yet hired a new chief financial officer, he is no longer able to
conclude that we will be able to meet our obligation under the DPA to have improved internal controls and
reorganized the Finance Department for two successive quarters prior to September 30, 2006. Consequently, we
believe that the term of the Independent Examiner may be extended beyond September 30, 2006. Whether the
USAO and the SEC will decide to extend the term or take any other action in connection with the DPAwill be made
by them in their discretion. We are continuing to review these matters to determine what further steps we should take
to address the internal control issues referenced above. On July 28, 2006, we announced that Nancy E. Cooper was
named Executive Vice President and Chief Financial Officer of the Company, reporting to our Chief Executive
Officer. Her appointment is effective on or about August 15, 2006.
Acquisitions and Divestitures
In March 2006, we acquired the common stock of Wily Technology, Inc. (Wily), a provider of enterprise application
management solutions, for a total purchase price of approximately $374 million, or approximately $361 million net
of acquired cash and marketable securities. Wily is a provider of enterprise application management software
solutions that enable companies to manage their web applications and infrastructure. The acquisition of Wily
extends our application management offerings.
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