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the USAO and by consenting to the SEC’s filing of a Final Consent Judgment (Consent Judgment) in the United
States District Court for the Eastern District of New York. The DPA requires the Company to, among other things,
undertake certain reforms that will affect its internal control over financial reporting. These include implementing a
worldwide financial and enterprise resource planning (ERP) information technology system to improve internal
controls, reorganizing and enhancing the Company’s Finance and Internal Audit Departments, and establishing new
records management policies and procedures.
The Company believes that these and other reforms, such as procedures to assure proper recognition of revenue,
should enhance its internal control over financial reporting. For more information regarding the DPA, refer to the
Company’s Current Report on Form 8-K filed with the SEC on September 22, 2004 and the exhibits thereto,
including the DPA. For more information regarding the Company’s compliance with the DPA and the Consent
Judgment, refer to the information under the heading “Status of the Company’s Compliance with the Deferred
Prosecution Agreement and Final Consent Judgment” in the Company’s definitive proxy materials filed on July 26,
2005 and Note 7, “Commitments and Contingencies — The Government Investigation”, in the Notes to the
Consolidated Financial Statements in this Annual Report on Form 10-K.
Changes to remediate fiscal year 2005 material weaknesses
As previously reported in its amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005, the
Company determined that, as of the end of fiscal year 2005, there were material weaknesses in its internal control
over financial reporting relating to (1) improper accounting of credits attributable to software contracts executed
under the Company’s prior business model, which resulted in financial statement restatements of prior years, (2) an
ineffective control environment associated with its Europe, Middle East and Africa (EMEA) region businesses and
(3) improper accounting for recording revenue from renewals of certain prior business model license agreements,
which resulted in financial statement restatements of prior years.
As reported in the amended Annual Report for fiscal year 2005, the Company began to make a number of changes in
its internal control over financial reporting to remediate these material weaknesses. Many of these changes were
made during the first quarter of fiscal year 2006 and continued through the fourth quarter of fiscal year 2006. The
material weaknesses have been fully remediated by the end of fiscal year 2006.
Specific remediation actions taken by management regarding the material weakness in internal control over
financial reporting related to improper accounting of credits attributable to software contracts executed under the
Company’s prior business model include the following:
• During the quarter ended June 30, 2005, the Company began maintaining a separate schedule of credits
granted under software contracts executed under the Company’s prior business model;
• During the quarter ended June 30, 2005, the financial reporting department began quarterly reviews of
utilized credits to determine the proper accounting for utilized credits that were originally granted under
software contracts executed under the Company’s prior business model; and
• Beginning with the quarter ended June 30, 2005, management and internal audit began periodic testing of the
completeness and accuracy of the credit schedule prepared by the sales accounting department and of all
accounting entries related to the utilization of any such credits by the Company’s customers.
Specific remediation actions taken by management regarding the material weakness relating to the control
environment associated with the EMEA region include the following:
• Disciplinary proceedings against members of management and other employees in the EMEA region,
leading to their resignation or termination subsequent to March 31, 2005;
• The appointment of a new Head of Global Procurement in April 2005;
• The appointment of a new Head of Procurement for the EMEA region in June 2005;
• The appointment of a new General Manager for the EMEA region in June 2005;
• The appointment of a new Head of Facilities for the EMEA region in July 2005;
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