Computer Associates 2008 Annual Report Download - page 46

payable for fiscal 2008 compared with the increase in fiscal 2007, was primarily a result of management’s determination
in fiscal 2008 that its payable cycle had exceeded an optimal level and that the accounts payable balance should be
reduced from the March 31, 2007 balance. We do not expect a significant impact on future cash flows from further
changes in the payable cycle.
Under our subscription licenses, customers generally make installment payments over the term of the agreement, often
with at least one payment due at contract execution, for the right to use our software products and receive product
support, software fixes and new products when available. The timing and actual amounts of cash received from
committed customer installment payments under any specific license agreement can be affected by several factors,
including the time value of money and the customer’s credit rating. Often, the amount received is the result of direct
negotiations with the customer when establishing pricing and payment terms. In certain instances, the customer
negotiates a price for a single up-front installment payment and seeks its own internal or external financing sources. In
other instances, we may assist the customer by arranging financing on their behalf through a third-party financial
institution. Although the terms and conditions of the financing arrangements are negotiated by us with the financial
institution, the decision whether to enter into these types of financing arrangements remains at the customer’s
discretion. Alternatively, we may decide to transfer our rights and title to the future committed installment payments
due under the license agreement to a third-party financial institution in exchange for a cash payment. In these instances,
the license agreements signed by the customer may contain provisions that allow for the assignment of our financial
interest without customer consent. Once transferred, the future committed installments are payable by the customer to
the third-party financial institution. Whether the future committed installments have been financed directly by the
customer with our assistance or by the transfer of our rights and title to future committed installments to a third-party,
such financing agreements may contain limited recourse provisions with respect to our continued performance under
the license agreements. Based on our historical experience, we believe that any liability that may be incurred as a result
of these limited recourse provisions will be immaterial.
Amounts billed or collected as a result of a single installment for the entire contract value, or a substantial portion of
the contract value, rather than being invoiced and collected over the life of the license agreement are reflected in the
liability section of the Consolidated Balance Sheets as “Deferred revenue (billed or collected).” Amounts received from
either the customer or a third-party financing institution in the current period that are attributable to later years of a
license agreement have a positive impact on billings and cash provided by continuing operating activities. Accordingly,
to the extent such collections are attributable to the later years of a license agreement, billings and cash provided by
operating activities during the license’s later years will be lower than if the payments were received over the license
term. We are unable to predict with certainty the amount of cash to be collected from single installments for the entire
contract value, or a substantial portion of the contract value, under new or renewed license agreements to be executed
in future periods.
For fiscal 2008, gross receipts related to single installments for the entire contract value, or a substantial portion of the
contract value, increased $64 million, compared with fiscal 2007, to $641 million, principally due to activity in the fourth
quarter of fiscal 2008. The increase was principally due to an increase in the aggregate value of single installment
contracts executed and billed within fiscal 2008, compared with fiscal 2007, which resulted in higher collections of
$147 million. This was partly offset by lower collections during fiscal 2008 from single installment contracts billed in the
fiscal 2007 of $83 million. Amounts received from customers, including instances where CA assisted with arranging
third-party financing, increased $138 million, while amounts received from the transfer of our financial interest in
committed payments to a third-party financial institution decreased $74 million. For fiscal 2008, no single customer
represented more than 10% of the gross receipts from single installment payments, compared with two such customers
in the prior fiscal year. $21 million of installments representing the entire contract value or a substantial portion of the
contract value billed in fiscal 2008 are expected to be collected in fiscal 2009, compared with $7 million that had been
billed in fiscal 2007 and was collected in fiscal 2008.
In any quarter, we may receive payments in advance of the contractually committed date on which the payments were
otherwise due. In limited circumstances, we may offer discounts to customers to ensure payment in the current period
of invoices that have been billed, but might not otherwise be paid until a subsequent period because of payment terms
or other factors. Historically, any such discounts have not been material.
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