Computer Associates 2005 Annual Report Download - page 53

Table of Contents
deferred subscription revenue related to our direct business increased approximately $301 million, or 36%, for the fiscal year ended
March 31, 2005 over the comparable prior fiscal year to $1.127 billion. In addition, we recorded $144 million of new deferred
subscription revenue for the fiscal year ended March 31, 2005 related to our indirect business. Subscription revenue was further
increased as a result of how we record maintenance revenue under our Business Model as described below.
Approximately 8% of the deferred subscription revenue balance at March 31, 2005 is associated with multi-year contracts signed with
the U.S. Federal Government and are generally subject to annual fiscal funding approval.
Under the prior business model, maintenance revenue was separately identified and was reported on the “Maintenance” line item on the
Consolidated Statements of Operations. Under the Business Model, maintenance that is bundled with product sales is not separately
identified in our customers’ license agreements and therefore is included within the “Subscription revenue” line item on the
Consolidated Statements of Operations. Under the prior business model, financing revenue was also separately identified on the
Consolidated Statements of Operations. Under the Business Model, financing fees are no longer applicable and the entire contract value
is now recognized as subscription revenue over the term of the contract. The quantification of the impact that each of these factors had on
the increase in subscription revenue is not determinable.
Subscription revenue for the fiscal year ended March 31, 2004 increased $523 million from fiscal year 2003 to $2.101 billion. Similar to
the increase in fiscal year 2005, the increase was primarily due to our transition to our Business Model. Fiscal year 2004 included
subscription revenue earned from prior business model software license agreements that renewed during fiscal year 2004. These license
agreements did not contribute to revenue in fiscal year 2003. During fiscal years 2004 and 2003, we added new deferred subscription
revenue of $2.298 billion and $1.883 billion, respectively.
Maintenance
As expected, maintenance revenue for fiscal years 2005 and 2004 continued to decline, reflecting a decrease of $79 million and
$128 million, respectively, from the prior fiscal years to $441 million and $520 million, respectively. The decrease in maintenance
revenue for both years reflects the transition to and increased number of license agreements executed under our Business Model, where
maintenance revenue, bundled along with license revenue, is reported on the “Subscription revenue” line item on the Consolidated
Statements of Operations. The combined maintenance and license revenue on these types of license agreements is recognized on a
monthly basis ratably over the term of the agreement. The decrease was partially offset by new maintenance revenue earned from
customers who elected optional maintenance at the expiration of their non-term-based license agreements. The quantification of the
impact that each of these factors had on the decrease in maintenance revenue is not determinable since maintenance bundled with
software licenses under our Business Model is not separately identified. For the fiscal year ended March 31, 2005, maintenance revenue
from our indirect business increased $36 million from the fiscal year ended March 31, 2004, to $59 million.
Software Fees and Other
Software fees and other revenue consist of revenue related to distribution and OEM partners that have been recorded on a sell-through
basis, revenue associated with joint ventures, royalty revenues, and other revenue. Revenue related to distribution partners and OEMs is
sometimes referred to as our “indirect” or “channel” revenue. For the fiscal year ended March 31, 2005, software fees and other revenue
decreased $77 million from the fiscal year ended March 31, 2004, to $254 million. In the second quarter of fiscal year 2005, we began
offering more flexible license terms to our channel partners, which necessitates the deferral of revenue for the majority of our channel
business. The ratable recognition of this deferred revenue is reflected on the “Subscription revenue” line item on the Consolidated
Statements of Operations. The Company experienced approximately a 19% increase in the dollar amount of indirect license contract
bookings in the fiscal year ended March 31, 2005 versus the comparable prior fiscal year. Indirect license contract bookings represent
the total undiscounted incremental value of all licenses sold as part of our channel business. The increase in bookings resulted in
$144 million of new deferred subscription revenue related to the channel business that will be deferred and recognized ratably as
“Subscription revenue” over the term of the applicable software licenses. In addition, for the fiscal year ended March 31, 2005 and 2004,
$54 million and $66 million, respectively, of indirect maintenance revenue was deferred. These amounts are amortized into revenue
over the term of the arrangement on the “Maintenance” line item on the Consolidated Statements of Operations. The decrease in
software fees and other revenue was partially offset by approximately $21 million of license revenue associated with the sale of
Netegrity products and an approximate $10 million benefit associated with the resolution of a prior business model contract dispute in
the second quarter of fiscal year 2005.
For the fiscal year ended March 31, 2004, software fees and other decreased $33 million from the fiscal year ended March 31, 2003, to
$331 million. The decrease was primarily due to an increase in the amount of channel sales recognized as deferred maintenance of
approximately $53 million over the fiscal year ended March 31, 2003. This deferred maintenance will be amortized into revenue over
time on the “Maintenance” line item on the Consolidated
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