Computer Associates 2005 Annual Report Download - page 57

Table of Contents
over the life of the related software contract period. Cost of professional services for the fiscal year ended March 31, 2004 and 2003
included approximately $5 million of stock-based compensation expense.
Selling, General, and Administrative (SG&A)
SG&A expenses for fiscal year 2005 increased $46 million from fiscal year 2004 to $1.346 billion. The increase was primarily
attributable to an increase in personnel related costs. SG&A for the fiscal year ended March 31, 2005 and 2004 included approximately
$53 million and $59 million, respectively, of stock-based compensation expense. In addition, in fiscal year 2005 we recorded a credit of
approximately $25 million for the provision of doubtful accounts, which is lower than the credit of $53 million we recorded in fiscal year
2004. The credit in the provision for doubtful accounts is a result of the reduction in the prior business model accounts receivable. Under
the Business Model, amounts due from customers are offset by related deferred subscription revenue, resulting in little or no carrying
value on the balance sheet. In addition, under the Business Model, customer payments are often received in advance of revenue
recognition, which results in a reduced net credit exposure. Each of these items reduces the need to provide for estimated bad debts.
SG&A for the years ended March 31, 2005 and 2004 also included approximately $24 million and $30 million, respectively, of legal
expenses related to the government investigation and, for the year ended March 31, 2005, included $31 million for consulting and other
fees associated with our Sarbanes-Oxley compliance program. Further, in the fourth quarter of fiscal year 2005, we realized a gain of
approximately $8 million on the sale of an investment that was included in SG&A.
SG&A expenses for fiscal year 2004 decreased $84 million from fiscal year 2003 to $1.300 billion. The decrease was primarily
attributable to a reduction in the provision of doubtful accounts of $121 million. As noted above, this decrease is a result of how we
account for contractual commitments under the Business Model. The decrease in SG&A was partially offset by a $15 million expense
for severance and other termination benefits in connection with the reorganization of the U.S. channel sales organization and the creation
of CA Technology Services in April 2003, as well as other increases in personnel and related costs. In addition, we incurred legal and
other professional service expenses associated with the investigations conducted by the Audit Committee, the SEC, and the U.S.
Attorney’ s Office of approximately $30 million, which represents an increase of approximately $24 million from fiscal year 2003.
SG&A for the fiscal years ended March 31, 2004 and 2003 each included approximately $59 million and $78 million, respectively, of
stock-based compensation expense.
Product Development and Enhancements
For fiscal year 2005, product development and enhancement expenditures, also referred to as research and development, increased
$11 million compared to fiscal year 2004 to $704 million. Product development and enhancement expenditures were approximately
20% and 21% of total revenue for fiscal years ended March 31, 2005 and 2004, respectively. Product development and enhancements for
the years ended March 31, 2005 and 2004 included approximately $31 million and $33 million, respectively, of stock-based
compensation expense. During fiscal year 2005, we continued to focus on and invest in product development and enhancements for
emerging technologies such as wireless, Web services and on-demand computing, as well as a broadening of our enterprise product
offerings.
Product development and enhancement expenditures for fiscal year 2004 increased $5 million from fiscal year 2003 to $693 million.
The increase was primarily a result of an increase in general operating expenditures, as we continue to invest in product development and
enhancements such as emerging technologies and a general broadening of our enterprise product offerings. Product development and
enhancement expenditures were approximately 21% and 23% of total revenue in each of the fiscal years ended March 31, 2004 and 2003,
respectively. Product development and enhancements for the years ended March 31, 2004 and 2003 included approximately $33 million
and $44 million, respectively, of stock-based compensation expense.
Commissions and Royalties
Commissions and royalties for fiscal year 2005 increased $72 million from fiscal year 2004 to $339 million. The increase was primarily
due to the increase in new deferred subscription revenue recorded in fiscal year 2005 on which sales commissions are based, as
compared with fiscal year 2004. Commissions are expensed in the period that they are earned by employees, which is typically in the
period we record the related deferred subscription revenue.
Commissions and royalties for fiscal year 2004 increased $24 million from fiscal year 2003 to $267 million. The increase was primarily
due to the increase in new deferred subscription revenue recorded in fiscal year 2004 as compared with fiscal year 2003. The increase
was partially offset by a $14 million reduction in royalties to third parties, as we continue to focus on internal product development and
enhancements.
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