Computer Associates 2005 Annual Report Download - page 50

Table of Contents
prior to October 2000, we were required under GAAP to record the present value of the license agreement as revenue at the time the
license agreement was signed.
Under our Business Model, the portion of the license revenue that has not yet been recognized creates what we refer to as deferred
subscription revenue. Deferred subscription revenue is recognized as revenue evenly on a monthly basis over the duration of the license
agreements. When recognized, this revenue is reported on the “Subscription revenue” line item on our Consolidated Statements of
Operations. If a customer pays for software prior to the recognition of revenue, the amount deferred is reported as a liability entitled
“Deferred subscription revenue (collected)” on our Consolidated Balance Sheets.
Not all of our active customer contracts have been transitioned to our Business Model, which has created what we refer to as a
“Transition Period,” during which the license agreements under our prior business model come up for renewal. During this Transition
Period, we are building deferred subscription revenue, from which subscription revenue will be amortized. Total deferred subscription
revenue, and the associated subscription revenue that comes out of it, is expected to increase over time as we continue to renew customer
contracts that were executed under the prior business model, sell additional products and capacity to existing customers, as well as enter
into new contracts with new customers. We expect that the majority of contracts executed under the prior business model will be
transitioned to our Business Model by the end of fiscal year 2006.
While the impact of changing from an up-front revenue recognition model to our Business Model initially postponed recognition of
amounts that previously would have been recognized earlier under the up-front model, we generally did not change our cost structure.
Therefore, we have primarily experienced losses since we introduced our Business Model. We expect that our revenues will continue to
increase at a greater rate than our expenses.
Under both the prior business model and current Business Model, customers often 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.
Performance Indicators
Management uses several quantitative performance indicators to assess our financial results and condition. Each provides a
measurement of the performance of our Business Model and how well we are executing our plan.
Our subscription-based Business Model is unique among our competitors in the software industry and particularly during the Transition
Period it is difficult to compare our results for many of our performance indicators with those of our competitors. The following is a
summary of the principal quantitative performance indicators that management uses to review performance:
Percent
For the Year Ended March 31, 2005 2004 Change Change
(dollars in millions) (restated) (restated)
Subscription revenue $2,544 $2,101 $ 443 21%
Total revenue $ 3,560 $ 3,320 $ 240 7%
Subscription revenue as a percent of total revenue 72% 63% 9% 14%
New deferred subscription revenue (direct) $ 3,493 $ 2,298 $ 1,195 52%
New deferred subscription revenue (indirect) $144 N/A N/A N/A
Weighted average license agreement duration in years (direct) 3.10 2.78 0.32 12%
Cash from continuing operating activities $1,527 $1,279 $ 248 19%
Loss from continuing operations $ (2) $ (81) $ 79 (98%)
Percent
As of March 31, 2005 2004 Change Change
(dollars in millions)
Total cash, cash equivalents, and marketable securities $ 3,125 $ 1,902 $ 1,223 64%
Total debt $ 2,636 $ 2,300 $ 336 15%
Analyses of our performance indicators, including general trends, can be found in the “Results of Operations” and “Liquidity and Capital
Resources” sections of this MD&A. The performance indicators discussed below are those that we believe are unique because of our
subscription-based Business Model.
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