Computer Associates 2007 Annual Report Download - page 51

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incentive compensation (bonus) plans. External royalties were $35 million for fiscal year 2007 and were flat as compared to
the prior fiscal year.
Commissions, royalties and bonuses for fiscal year 2006 increased $55 million from fiscal year 2005 to $394 million. Sales
commission expense increased approximately $36 million over the prior year, and was primarily due to a new sales
commission plan for fiscal year 2006 that did not appropriately align commission payments with our overall performance.The
impact of the higher sales commission expense was partially offset by lower bonus expenses in fiscal year 2006 as compared
to fiscal year 2005 of approximately $8 million, primarily due to the reductions in our variable compensation programs,
including management bonuses. Royalties also increased over the prior year by approximately $25 million primarily due to an
increased level of royalties associated with recent acquisitions, royalties associated with the newly formed Ingres Corporation
as well as higher sales of certain royalty bearing channel products.
For further description of the changes to the Incentive Compensation Plan and related processes, refer to “— Critical
Accounting Policies and Estimates — Sales Commissions”. Refer also to Item 1A, “Risk Factors”.
Depreciation and Amortization of Other Intangible Assets
Depreciation and amortization of other intangible assets for fiscal year 2007 increased $14 million from fiscal year 2006 to
$148 million.The increase in depreciation and amortization of other intangible assets was primarily due to the amortization of
intangibles recognized in conjunction with recent acquisitions and our ERP system that went live in April 2006.
Depreciation and amortization of other intangible assets for fiscal year 2006 increased $4 million from fiscal year 2005 to
$134 million. The increase in depreciation and amortization of other intangible assets was a result of certain intangible assets
acquired during the year, resulting from recent acquisitions.
Other Gains, Net
Gains and losses attributable to divestitures of certain assets, certain foreign currency exchange rate fluctuations, and certain
other infrequent events have been included in the “Other gains, net” line item in the Consolidated Statements of Operations.
The components of “Other gains, net” are as follows:
(IN MILLIONS) 2007 2006 2005
YEAR ENDED MARCH 31,
Gains attributable to divestitures of certain assets $ (17) $ (7) $ —
Fluctuations in foreign currency exchange rates —(9) 8
Expenses / (gains) attributable to legal settlements 41 (13)
Total $ (13) $ (15) $ (5)
For fiscal year 2007, the gains attributable to divestiture of certain assets was primarily related to the sale of an investment in
marketable securities for a gain of approximately $14 million. For fiscal year 2006, the gain attributable to divestitures of
certain assets related primarily to the non-cash gain recognized on the sale of assets which were contributed during the
formation of Ingres Corporation. For fiscal year 2005, the gain attributable to legal settlements was primarily the result of a
favorable decision for the Company, who was the plaintiff in an intellectual property lawsuit.
Restructuring and Other
In August 2006, we announced a cost reduction and restructuring plan (the fiscal 2007 plan) to significantly improve our
expense structure and increase our competitiveness. The total cost of the fiscal 2007 plan is currently expected to be
approximately $200 million, most of which is expected be recognized by the end of fiscal year 2008. The fiscal 2007 plan’s
objectives include a workforce reduction, global facilities consolidations and other cost reduction initiatives. For fiscal year
2007, we have incurred approximately $147 million of expenses, primarily related to severance and lease termination costs
under the fiscal 2007 plan, of which approximately $104 million remains unpaid at March 31, 2007. The severance portion of
the remaining liability balance is included in the “Salaries, wages and commissions” line on the Consolidated Balance Sheet.
The facilities portion of the remaining liability balance is included in “Accrued expenses and other current liabilities” on the
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