Computer Associates 2013 Annual Report Download - page 46

Cost of Professional Services
Cost of professional services consists primarily of our personnel-related costs associated with providing professional services
and training to customers. Cost of professional services for fiscal 2013 was consistent with fiscal 2012 and operating margin
for professional services was 7% for each of fiscal 2013 and fiscal 2012.
For fiscal 2012 compared with fiscal 2011, cost of professional services increased primarily as a result of our fiscal 2012
acquisition of Base Technologies. Operating margin for professional services was 7% for each of fiscal 2012 and 2011.
Operating margin for professional services does not include certain additional costs that are allocated to the Services
segment (see ‘‘Performance of Segments’’ below).
Amortization of Capitalized Software Costs
Amortization of capitalized software costs consists of the amortization of both purchased software and internally generated
capitalized software development costs. Internally generated capitalized software development costs relate to new products
and significant enhancements to existing software products that have reached the technological feasibility stage.
The increase in amortization of capitalized software costs for fiscal 2013 compared with fiscal 2012 was due to an
impairment recorded in the fourth quarter of fiscal 2013 of $55 million relating to purchased software (see Note 6, ‘‘Long
Lived Assets,’’ in the Notes to the Consolidated Financial Statements for additional information), as well as an increase in
software development projects that have reached general availability in recent periods and amortization from assets acquired
from our fiscal 2012 acquisitions. We evaluate the useful lives and recoverability of capitalized software and other intangible
assets when events or changes in circumstances indicate that an impairment may exist. These evaluations require complex
assumptions about key factors such as future customer demand, technology trends and the impact of those factors on the
technology we acquire and develop for our products. Impairments or revisions to useful lives could result from the use of
alternative assumptions that reflect reasonably possible outcomes related to future customer demand or technology trends
for assets within the Enterprise Solutions segment.
For fiscal 2012, amortization of capitalized software costs increased compared with fiscal 2011, primarily due to the increase
in projects that reached general availability and amortization associated with technology acquired from our acquisitions.
We expect that our product offerings and go-to-market strategy will be evolving in future periods to include solutions and
product suites that may be delivered either on-premises or via SaaS or cloud platforms and that these product offerings will
become available to customers at more frequent intervals than our historical release cycles. We also expect a more extensive
adoption of agile development methodologies, which are characterized by a more dynamic development process with more
frequent revisions to a product release’s features and functions as the software is being developed. We expect that these
factors will result in us commencing capitalization much later in the development life cycle. As a result, product
development and enhancements expenses are expected to increase in future periods as the amount capitalized for internally
developed software costs decreases. While this would ultimately result in lower future amortization expense for these assets,
we do not expect a material effect in fiscal 2014.
Selling and Marketing
Selling and marketing expenses include the costs relating to our sales force, channel partners, corporate and business
marketing and customer training programs. For fiscal 2013, the decrease in selling and marketing expenses compared with
fiscal 2012 was attributable to a decrease in personnel-related costs of $42 million, a favorable foreign exchange effect of
$24 million, a decrease in commission expense of $22 million, a decrease in severance costs of $17 million, and a decrease
in promotion expense of $17 million. The decrease in the personnel-related and promotion expenses was primarily
attributable to our cost containment efforts.
For fiscal 2012, the increase in selling and marketing expenses compared with fiscal 2011 was attributable to an increase in
personnel-related costs of $63 million, an increase in severance costs of $22 million associated with our fiscal 2012
workforce reduction plan, an increase of $16 million associated with acquisitions, an unfavorable foreign exchange effect of
$13 million and an increase in commission expenses of $12 million. These increases were partially offset by a $28 million
decrease in promotional and travel costs for fiscal 2012 compared with fiscal 2011.
30