Computer Associates 2007 Annual Report Download - page 50

Selling, General, and Administrative (SG&A)
SG&A expenses for fiscal year 2007 increased $75 million, or 5%, from fiscal year 2006 to $1.65 billion. The increase was
primarily attributable to the impact of foreign exchange of approximately $40 million, as well as higher personnel related
expenses due to a $24 million discretionary contribution to the CA Savings Harvest Plan, a 401(k) plan that was not made in
prior year, and costs associated with recent acquisitions. In fiscal year 2007, we recorded a charge of approximately $4 million
to the provision for doubtful accounts as compared with a net credit of $24 million in the prior fiscal year associated with the
reduction in the prior business model accounts receivable balances. Under our business model, amounts due from customers
are typically offset by related deferred subscription revenue, resulting in little or no carrying value on the Consolidated Balance
Sheet. In addition, under our business model, customer payments are often received in advance of revenue recognition, which
further results in a lower credit exposure. Each of these items reduces the need to provide for estimated bad debts.
Additionally, office related expenses increased approximately $7 million due to higher rent expense associated with recent
sale-leasebacks of certain facilities, including our Islandia headquarters. The increase was partially offset by lower selling and
marketing related costs of approximately $43 million and lower costs for external consultants of approximately $20 million.
Despite being higher, personnel related costs were favorably impacted by the savings related to the recent restructuring
actions from the fiscal year 2007 cost reduction and restructuring plan as described below.
SG&A expenses for fiscal year 2006 increased $238 million, or 18%, from fiscal year 2005 to $1.58 billion. The increase was
primarily attributable to employee and other costs associated with the Concord, Niku, iLumin, and Wily acquisitions of
approximately $98 million, increased travel, training and relocation costs of approximately $39 million, increased consulting
costs of approximately $55 million related to our ERP implementation, legal fees, and Sarbanes-Oxley compliance programs,
as well as increased marketing and promotion costs of approximately $35 million mostly due to our branding campaign and
channel promotions. Partly offsetting these increases was a reduction of $15 million associated with our decision in the fourth
quarter of fiscal year 2006 to forego the discretionary contribution to the Company-sponsored 401(k) plan. Stock based
compensation increased approximately $4 million in fiscal year 2006, as compared with the prior fiscal year, to $64 million.
SG&A expenses for the fiscal years ended March 31, 2006 and 2005 included credits to the provision for doubtful accounts of
approximately $24 million and $25 million, respectively. As noted above, these credits were associated with the reduction in
the prior business model accounts receivable balances.
Product Development and Enhancements
For fiscal year 2007, product development and enhancement expenditures, which include product support, increased
$15 million, or 2%, compared to fiscal year 2006 to $712 million. For each of the fiscal years ended March 31, 2007
and 2006, product development and enhancement expenditures represented approximately 18% of total revenue. During
fiscal year 2007, we continued to focus on and invest in product development and enhancements for emerging technologies
and products from our recent acquisitions, as well as a broadening of our enterprise product offerings.
For fiscal year 2006, product development and enhancement expenditures, decreased $11 million compared to fiscal year
2005 to $697 million. Product development and enhancement expenditures were approximately 18% and 20% of total
revenue for fiscal years ended March 31, 2006 and 2005, respectively.
Commissions, Royalties and Bonuses
Commissions, royalties and bonuses for fiscal year 2007 decreased $56 million, or 14%, from the comparable prior year
quarter to $338 million. The decline was primarily due to lower commission expense resulting from changes in CA’s Incentive
Compensation Plan (the “Incentive Compensation Plan”) as well as changes in our sales organization and sales coverage
model. The changes to the Incentive Compensation Plan included, among other changes, reducing accelerators in the plan
(under which sales employees are paid commissions at higher rates when they reach certain levels of quota achievement),
revising quotas, and reducing the number of people and functions paid on commissions. We believe that the changes made to
the Incentive Compensation Plan for fiscal year 2007, as well as certain commission-related process improvements, have
enhanced our ability to control overall commissions expense and avoid unexpected increases in commissions expense as
occurred in the second half of fiscal year 2006, as well as improve our ability to effectively estimate, calculate, monitor, and
timely pay sales commissions. The lower commission expense was partially offset by higher bonus expenses resulting from
acquisition related retention payments and an increase in the number of employees who were compensated through annual
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