Computer Associates 2006 Annual Report Download - page 66

Liquidity and Capital Resources
Our cash balances, including cash equivalents, are held in numerous locations throughout the world, and a
substantial portion resides outside the United States. In fiscal year 2006, the Company repatriated approximately
$584 million in cash to the United States in order to avail itself of the provisions of the American Jobs Creation Act
of 2004. The aggregate amount of taxes related to the repatriation was approximately $55 million.
Sources and Uses of Cash
Cash, cash equivalents and marketable securities totaled $1.87 billion on March 31, 2006, a decrease of $1.26 billion
from the March 31, 2005 balance of $3.13 billion. Cash generated from continuing operations was $1.38 billion and
represented the Company’s primary source of liquidity in fiscal year 2006. This cash generated was primarily used
to fund acquisitions, repay debt and repurchase common shares.
In fiscal year 2006, cash provided by continuing operating activities was positively impacted by a decrease of
receivable cycles and an increase of payable cycles. During the quarter ended September 30, 2005, the Company
undertook a review of its accounts receivable and accounts payable collection/payment cycles and determined that
improvements in each could be made. The improvements associated with accounts receivable were related
principally to improved collection procedures, including an increased emphasis on obtaining payment of initial
customer invoices at the time of contract signing. Management believes that these improvements are sustainable but
any further improvements in the accounts receivable collection cycle will not materially impact liquidity in future
years. The increase in accounts payable, accrued expenses and other current liabilities of $106 million was
principally related to a concerted effort to make payments to vendors on an extended basis. Management has
determined that its payables cycle has exceeded an optimal level and that it should be reduced. Therefore, the
Company expects a reduction in the level of days payable outstanding, which will likely have an adverse effect on
future cash provided by operating activities, particularly in the first quarter of fiscal year 2007.
Under both the prior business model and current business model, customers generally pay for the right to use our
software products over the term of the associated software license agreement. We refer to these payments as
installment payments. While the transition to the current business model has changed the timing of revenue
recognition, in most cases it has not changed the timing of how we bill and collect cash from customers. As a result,
our cash generated from operations has generally not been affected by the transition to the current business model
over the past several years. We do not expect any significant changes in our cash generated from operations as a
result of this transition.
The timing and amount of installment payments committed under any specific license agreement is often the result
of negotiations with the customer and can vary from year to year. In fiscal year 2006, our cash provided by
continuing operations was positively impacted by certain arrangements under which the entire contract value or a
substantial portion of the contract value was due in one single installment upon execution of the agreement, rather
than being invoiced on an annual basis over the life of the contract. Upon receipt, these amounts are reflected as
increases in deferred subscription revenue (collected) in the liability section of the balance sheet. Deferred
subscription revenue (collected), both current and non-current, of $1.96 billion at March 31, 2006 increased
approximately $280 million, compared to $1.68 billion at March 31, 2005. The increase of the non-current portion,
from $273 million to $448 million, was primarily related to these types of arrangements, approximately half of
which related to the fourth quarter of fiscal year 2006. As previously noted, collections of these amounts positively
impact current year cash flows provided from operating activities and collections that would have been attributable
to later years (i.e. the non-current portion) will not be available as a source of cash in such later years as the revenue
is recognized. Although we cannot predict with certainty the amount of future license agreements that will be
executed with similar payment terms, we expect the aggregate dollar value of these arrangements to decline in fiscal
year 2007 as compared to fiscal year 2006.
The Company’s estimate of the fair value of net installment accounts receivable recorded under the prior business
model approximates carrying value. Amounts due from customers under our business model are offset by deferred
subscription value related to these license agreements, leaving no or minimal net carrying value on the balance sheet
for such amounts. The fair value of such amounts may exceed this carrying value but cannot be practically assessed
since there is no existing market for a pool of customer receivables with contractual commitments similar to those
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