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2003 ANNUAL REPORT |Fiscal Year Ending March 2003
As Flexible as the Future

Table of contents

  • Page 1
    As Flexible as the Future 2003 ANNUAL REPORT | Fiscal Year Ending March 2003

  • Page 2
    ... E N TS Chairman and CEO's Letter to Shareholders 1 New Technology, New Markets 8 Board of Directors 14 Managing On-Demand 6 Driving Quality Full Circle 12 It's All About the Customer 10 Leadership Team 15 Financial Review Fiscal 2003 16 F I N A N C I A L S U M M A RY 2003 (in millions, except...

  • Page 3
    ... to drive CA's success. This past year, we appealed to customers by increasing our market presence in three ways. First, we offer the software industry's most comprehensive and innovative management solutions. Second, our business model makes it easier for customers to license, install and run...

  • Page 4
    ... term, by their own economic concerns and consequent budget constraints. Our role is to be realistic, while being prepared for longer-term opportunities. TOMMY BENNETT ROBERT B. LAMM IRA ZAR WAI WONG GREGORY CORGAN STEVEN M. WOGHIN ANDREW GOODMAN NANCY BHAGAT SANJAY KUMAR CHARLIE HOLLERAN

  • Page 5
    ...they not only appreciate our unrivaled licensing flexibility, but they also view it as a competitive edge for CA. Wall Street analyst firm CIBC World Markets RUSSELL M. ARTZT UNA O'NEILL STEPHEN RICHARDS MARK COMBS FRANK YANG KEVIN LONG GARY QUINN MARY STRAVINSKAS YOGESH GUPTA GARY STARKEY

  • Page 6
    ... beginning. In 2003, CA achieved global ISO 9001:2000 certification for our quality management system used by all CA operations worldwide. Our pursuit of "gold-standard" quality is also apparent in our continued focus on corporate governance. During the year, Robert B. Lamm joined CA as Director of...

  • Page 7
    ... April 2003, CA announced a host of solutions within our Unicenter brand to manage on-demand ® computing. We will expand our managing on-demand offerings to include our BrightStor and eTrust™ brands. ® As the market evolves, we plan to apply our core enterprise management, security and storage...

  • Page 8
    ...globally on technology and software this year, much of it will be tightly tied to bottom lines. Instead of buying the hottest new technology, companies are looking to invest only in those technologies that directly support their businesses, don't require an overhaul of their entire computing systems...

  • Page 9
    ... for error. We're also working on new products within our BrightStor storage and eTrust security families of solutions to manage on-demand computing. As resources are reallocated from one business process to another, backup and recovery and information security policies have to be kept up to date as...

  • Page 10
    ...enterprise management, storage and security, CA continues to provide customers with competitive advantages through portal and business intelligence, application life-cycle management and database management solutions. CA's CleverPathâ„¢, AllFusionâ„¢ and Advantageâ„¢ information management solutions...

  • Page 11
    ...as groundbreaking solutions for tomorrow's security needs. Similarly, we've rolled out new solutions for storage management. Our new BrightStor backup products have been benchmarked as the fastest data backup and recovery products on the market. We've also delivered innovative products to manage the...

  • Page 12
    ...better adapt to changing business and technology needs, while better managing their software budgets and monitoring performance. For example, one of our customers adjusts and tunes its network and system component thresholds based on certain performance indicators that CA helped the customer develop...

  • Page 13
    ... that address their business needs. Our customers are asking us for technical and strategic expertise before and after they license and implement our software. As a result, in April 2003, we combined our technical pre-sales, professional services and education organizations to form CA Technology...

  • Page 14
    ... would have rested, we raised the bar. In 2003, CA achieved "true global" ISO 9001: 2000 certification, the new and ultimate step in ISO certification for product processes. CA is the only enterprise software company that uses one system to manage quality throughout its worldwide operations - truly...

  • Page 15
    ...be the best we can be, CA is focused on improving the v9 storage software solution. This particular product enhance- quality of every aspect of our business in every country where we operate. ment underwent one of the most aggressive beta testing programs in CA's history, and has met the highest...

  • Page 16
    ... and CEO Computer Associates International, Inc. Alex Serge Vieux Chairman, CEO and Founder DASAR, Inc. L to R: The Honorable Alfonse M. D'Amato, Sanjay Kumar, Jay W. Lorsch, Gary J. Fernandes, Russell M. Artzt, Walter P. Schuetze, Lewis S. Ranieri, Robert E. La Blanc, Kenneth D. Cron, Alex...

  • Page 17
    ... Manager Stephen Richards Executive Vice President Gregory Corgan Senior Vice President Gary Starkey Senior Vice President and General Manager Andrew Goodman Senior Vice President Mary Stravinskas Treasurer and Vice President Yogesh Gupta Senior Vice President and Chief Technology Officer...

  • Page 18
    ... C I A L R E V I E W F I SC A L 20 0 3 Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Selected Financial Data 31 Report of Management 32 Report of Independent Auditors 33 Consolidated Balance Sheets 34 Consolidated Statements of Operations 36 Consolidated...

  • Page 19
    ... software in the future within defined product lines for no additional fee. We believe our Business Model improves the predictability of our revenue streams, since we recognize license revenue evenly on a monthly basis, or "ratably," over the life of the license agreement. Under our prior business...

  • Page 20
    ... overall economy and the technology industry also impacted fiscal year 2002 revenue. During fiscal year 2001, approximately $1.429 billion was recognized as revenue up-front at license agreement signing under our prior business model and was included in the "Software fees and other" line item on the...

  • Page 21
    ... of product sales with extended payment terms under our prior business model, which required up-front revenue recognition. This discount initially reduced the related installment accounts receivable, and was referred to as "unamortized discounts." Over the life of the applicable license agreement...

  • Page 22
    ... $222 million from fiscal year 2001 to $303 million, primarily as a result of our shift in focus to professional services engagements that are centered around our products. The decrease was also attributable to our divestiture in October 2000 of Sterling's Federal Systems Group (FSG), a provider of...

  • Page 23
    ...due to the lower revenue achievement associated with our transition to our Business Model without an associated change in the overall sales compensation. The decrease in commissions and royalties expense was principally the result of a decline in license agreement bookings associated with the weaker...

  • Page 24
    ... 31, 2003 on a pro-forma basis in the Notes to our Consolidated Financial Statements. Beginning in fiscal year 2004, we adopted the fair value-based method of recording stock options outlined in SFAS No. 123. As a result of evolving practice, stock options will be considered employee compensation...

  • Page 25
    ...) (.09) (.11) (1) As a result of the assumption of issuing stock options in the last month of the fiscal year, the compensation expense is expected to be negligible. The above table provides sensitivity analysis related to the granting of stock options and the associated expense incurred over the...

  • Page 26
    ... Revolver Commercial Paper 6.770% Senior Notes due April 2003 6.250% Senior Notes due April 2003 6.375% Senior Notes due April 2005 5.000% Convertible Senior Notes due March 2007 6.500% Senior Notes due April 2008 1.625% Convertible Senior Notes due December 2009 International line of credit Other...

  • Page 27
    ... rate of 5.39%. As of March 31, 2003, the cumulative number of shares purchased under our various open market common stock repurchase programs since fiscal year 1991 was 178 million, including 8 million shares purchased in fiscal year 2003. The remaining number of shares authorized for repurchase is...

  • Page 28
    ... the software product with maintenance for the term of the agreement. Under these agreements, we are required to recognize revenue ratably on a monthly basis over the term of the license agreement beginning upon completion of the four SOP 97-2 recognition criteria noted above. For license agreements...

  • Page 29
    ... 97-2 revenue recognition criteria noted above are met and when these entities sell the software products to their customers. This is commonly referred to as the sell-through method. We have an established business practice of offering installment payment options to customers and have a history of...

  • Page 30
    ... impairment" line item in the Consolidated Statements of Operations. The carrying value of capitalized software products, both purchased software and internally developed software, and other intangible assets, are reviewed on a regular basis for the existence of internal and external facts or...

  • Page 31
    ... a result, we recorded a $3 million gain in fiscal year 2003 from the early retirement of a portion of our debt which was included in the "Interest expense, net" line item on the Consolidated Statements of Operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with...

  • Page 32
    ... an approximate $1 million annual effect on variable rate debt interest based on the balances of such debt as of March 31, 2003. Under our prior business model, we offered financing arrangements with installment payment terms in connection with our software solution sales. The aggregate amounts due...

  • Page 33
    ... and committed license agreements pursuant to our Business Model for which revenue has been deferred and will be recognized ratably. This balance is the sum of the following four components: deferred subscription revenue - current and deferred subscription revenue - noncurrent, which are reported as...

  • Page 34
    ... auditors. Their accompanying report is based on an audit conducted in accordance with generally accepted auditing standards. Sanjay Kumar Chairman and Chief Executive Officer Computer Associates International, Inc. May 9, 2003 Ira Zar Executive Vice President and Chief Financial Officer Computer...

  • Page 35
    Report of Independent Auditors The Board of Directors and Stockholders Computer Associates International, Inc. W e have audited the accompanying consolidated balance sheets of Computer Associates International, Inc. and subsidiaries as of March 31, 2003 and 2002, and the related consolidated ...

  • Page 36
    ... total current assets installment accounts receivable, due after one year, net property and equipment Land and buildings Equipment, furniture, and improvements Accumulated depreciation and amortization total property and equipment, net purchased software products, net of accumulated amortization...

  • Page 37
    ...long-term debt, net of current portion deferred income taxes deferred subscription revenue (collected)-noncurrent deferred maintenance revenue other noncurrent liabilities stockholders' equity Preferred stock... other comprehensive loss Treasury stock, at cost - 54,647,731 shares for 2003 and 53,739,...

  • Page 38
    Consolidated Statements of Operations Year Ended March 31, 2003 2002 2001 (in millions except per share amounts) revenue: Subscription revenue Software fees and other Maintenance Financing fees Professional services TOTAL REVENUE $1,414 395 769 290 248 3,116 $ 827 432 958 444 303 2,964 $ 59 1,...

  • Page 39
    ...080 per share) Exercise of common stock options, ESPP, and other 1995 Stock Plan 401(k) discretionary contribution Purchases of treasury stock Balance as of March 31, 2001 Net loss Translation adjustment in 2002 Unrealized loss on equity securities, net of tax Comprehensive loss Dividends declared...

  • Page 40
    ... software, marketing rights and intangibles, net of cash acquired Settlements of purchase accounting liabilities Purchases of property and equipment Proceeds from sale of property and equipment Proceeds from disposition of businesses Purchases of marketable securities Sales of marketable securities...

  • Page 41
    ... software product with maintenance for the term of the agreement. Under these agreements, the Company is required to recognize revenue ratably on a monthly basis over the term of the license agreement beginning upon completion of the four SOP 97-2 recognition criteria noted above (the Business Model...

  • Page 42
    ...97-2 revenue recognition criteria noted above are met and when these entities sell the software product to their customers. This is commonly referred to as the sell-through method. The Company has an established business practice of offering installment payment options to customers and has a history...

  • Page 43
    In fiscal year 2001, software fees and other also included $1.429 billion of revenue attributable to license agreements recorded under the prior business model, whereby the Company executed license agreements that included terms that resulted in the up-front recognition of revenue upon completion of...

  • Page 44
    ... costs using the straight-line method in fiscal years 2003, 2002, and 2001, as anticipated future revenue is projected to increase for several years considering the Company is continuously integrating current enterprise software technology into new software products. Other identified intangible...

  • Page 45
    .... The compensation expense and pro-forma net loss may not be indicative of amounts to be included in future periods. The weighted-average fair value of the Year 2000 Employee Stock Purchase Plan (the Purchase Plan) shares for offering periods commencing in fiscal years 2003, 2002, and 2001 was $4.94...

  • Page 46
    ...80 employees were transferred to the acquirer as part of this transaction. In October 2000, the Company completed the sale of the Federal Systems Group (FSG), a provider of government consulting services, for approximately $150 million in cash. FSG was a division of Sterling Software, Inc. (Sterling...

  • Page 47
    ... allocation of Sterling's purchase price. As a result, no gain or loss was recorded on the sale. On May 28, 1999, the Company acquired PLATINUM technology International, inc. (PLATINUM). PLATINUM was engaged in providing software products in the areas of database management, eBusiness, application...

  • Page 48
    ...the design, development, marketing, licensing, and support of integrated enterprise computer software products operating on a wide range of hardware platforms and operating systems. The Company does not manage its business by solution or focus area and therefore does not maintain its revenue on such...

  • Page 49
    ... The Company uses installment license agreements as a standard business practice and has a history of successfully collecting primarily all amounts due under the original payment terms without making concessions on payments, software products, maintenance, or professional services. Net trade and...

  • Page 50
    ... expense and total debt, in addition to a net worth covenant, all of which are defined within the respective credit agreements. The Company is in compliance with all such covenants as of March 31, 2003. Senior Note Obligations As of March 31, 2003 and 2002, the Company had the following unsecured...

  • Page 51
    ... senior notes were both repaid in April 2003 with cash on hand as of March 31, 2003. Other March 31, 2003 MAXIMUM AVAILABLE OUTSTANDING BALANCE MAXIMUM AVAILABLE 2002 OUTSTANDING BALANCE (in millions) Commercial paper International line of credit Other $400 3 - $- - 5 $1,000 51 - $82 15 7 The...

  • Page 52
    ...Chairman of the Company, Charles B. Wang, Sanjay Kumar, and Russell M. Artzt are defendants in a number of stockholder class action lawsuits, the first of which was filed July 23, 1998, alleging that a class consisting of all persons who purchased the Company's common stock during the period January...

  • Page 53
    ... (except Messrs. Kenneth D. Cron, Robert E. La Blanc, Jay W. Lorsch, Walter P. Schuetze, and Alex Serge Vieux) breached their fiduciary duties resulting in alleged damages to the Company of an unspecified amount. The second derivative lawsuit was commenced in June 2002, in New York State Supreme...

  • Page 54
    ...expense resulting from: Goodwill impairment 28 Non-deductible amortization of excess cost over net assets acquired - Effect of international operations, including foreign export benefit (15) State taxes, net of federal tax benefit (9) Valuation allowance 17 Other, net 10 $ (96) Note 9 - Stock Plans...

  • Page 55
    ....04 per share. As of March 31, 2003, a total of 32,696 deferred shares have been awarded to eligible Directors in connection with annual director fees. As of March 31, 2003, 3.5 million of the 3.6 million options outstanding related to acquired companies' stock plans are exercisable at $3.27- $53.36...

  • Page 56
    ... maintains the Year 2000 Employee Stock Purchase Plan (the Purchase Plan) for all eligible employees. Under the terms of the Purchase Plan, employees may elect to withhold between 1% and 25% of their base pay through regular payroll deductions, subject to Internal Revenue Code limitations. Shares of...

  • Page 57
    ...entire amount resulted in a gain that was recorded in the quarter ended June 30, 2003. Note 11-Rights Plan Each outstanding share of the Company's Common Stock carries a stock purchase right issued under the Company's Rights Agreement, dated June 18, 1991, as amended May 17, 1995, May 23, 2001, and...

  • Page 58
    ... Fax: (631) 342-6800 Stockholder Information A copy of the Annual Report on Form 10-K, filed with the Securities and Exchange Commission, is available without charge upon written request addressed to: Investor Relations Computer Associates International, Inc. One Computer Associates Plaza Islandia...

  • Page 59
    FLEXIBLE FOR THE FUTURE For more information on CA solutions, visit our website. ca.com

  • Page 60
    ca.com © 2003 Computer Associates International, Inc. (CA). All trademarks, trade names, service marks and logos referenced herein belong to their respective companies. Printed in the U.S.A. MP189950603 QGO5GM03ARE