Computer Associates 2006 Annual Report Download - page 61

Commissions, Royalties and Bonuses
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
approximately $75 million more than the Company had anticipated at the outset of the fourth quarter of fiscal year
2006. The increase 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.
Through the third quarter of fiscal year 2006, the Company had accrued approximately $26 million in annual bonus
expense, of which approximately $10 million was reversed in the fourth quarter of 2006. We are restating our third
quarter results and have identified a material weakness in financial controls as they pertained to the fiscal year 2006
commissions plan. Refer to Part 1, Item 9A, “Controls and Procedures” for additional information concerning the
evaluation of the Company’s internal control processes over the recognition of commission expense. 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.
Commissions, royalties and bonuses 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 value recorded in
fiscal year 2005, on which sales commissions were based, as compared with fiscal year 2004.
Depreciation and Amortization of Other Intangible Assets
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.
Depreciation and amortization of other intangible assets for fiscal year 2005 decreased $4 million from fiscal year
2004 to $130 million. The decrease in depreciation and amortization of other intangible assets was a result of certain
intangible assets from past acquisitions becoming fully amortized.
Other (Gains)/Expenses, Net
Gains and losses attributable to divestitures of fixed assets, certain foreign currency exchange rate fluctuations, and
certain other infrequent events have been included in the “Other (gains)/expenses, net” line item in the Consolidated
Statements of Operations. The components of “Other (gains)/expenses, net” are as follows:
2006 2005 2004
Year Ended March 31,
(in millions)
Gains attributable to divestitures of fixed assets ....................... $ (7) $— $(19)
Fluctuations in foreign currency exchange rates ....................... (9) 8 41
(Gains) expenses attributable to legal settlements ...................... 1 (13) 26
Impairment of capitalized software ................................ — — 4
Total....................................................... $(15) $ (5) $ 52
Restructuring and Other
In the second quarter of fiscal year 2006, we announced a restructuring plan designed to more closely align our
investments with strategic growth opportunities, including a workforce reduction of approximately 5% or 800
positions worldwide. The plan is expected to yield about $75 million in savings on an annualized basis, once the
reductions are fully implemented. We anticipate the total restructuring plan will cost up to $85 million. As of March 31,
2006, we have incurred approximately $66 million of expenses under the plan of which $45 million of these expenses
remain unpaid at March 31, 2006. The remaining liability balance is included in “Accrued expenses and other current
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