Computer Associates 2005 Annual Report Download - page 55

Table of Contents
Expenses
The following table presents expenses as a percentage of total revenue and the percentage of period-over-period dollar change for the
expense line items in our Consolidated Statements of Operations for the fiscal years ended March 31, 2005, 2004, and 2003. These
comparisons of financial results are not necessarily indicative of future results.
Fiscal Year 2005 Fiscal Year 2004
Percentage Percentage
Percentage of of Percentage of of
Total Dollar Total Dollar
Revenue Change Revenue Change
2005/ 2004/
2005 2004 2004 2004 2003 2003
(restated) (restated) (restated) (restated)
Operating expenses:
Amortization of capitalized
software costs 13% 14% (3%) 14% 15%
—
Cost of professional services 6% 7% 2% 7% 8% (7%)
Selling, general, and
administrative 38% 39% 4% 39% 45% (6%)
Product development and
enhancements 20% 21% 2% 21% 23% 1%
Commission and royalties 10% 8% 27% 8% 8% 10%
Depreciation and amortization of
other intangible assets 4% 4% (3%) 4% 5% (4%)
Goodwill impairment
—
—
—
—
3% (100%)
Other gains/expenses, net
—
2% N/A 2% 3% (45%)
Restructuring charge 1%
—
N/A
—
—
—
Shareholder litigation and
government investigation
settlements 7% 5% 39% 5%
—
N
/A
Total operating expenses 97% 99% 5% 99% 109% (1%)
Interest expense, net 3% 4% (9%) 4% 6% (31%)
Note — Amounts may
not add to their respective
totals due to rounding.
Amortization of Capitalized Software Costs
Amortization of capitalized software costs consists of the amortization of both purchased software and capitalized internally generated
software development costs. Internally generated capitalized software costs are related to new products and significant enhancements to
existing software products that have reached the technological feasibility stage. Amortization of capitalized software costs for fiscal
years 2005 and 2004 decreased $16 million and $2 million, respectively, from the prior fiscal years to $447 million and $463 million,
respectively. The total decrease for both years was due primarily to certain purchased software assets becoming fully amortized. We
recorded amortization of purchased software products for the fiscal years ended March 31, 2005, 2004, and 2003 of $406 million,
$423 million, and $430 million, respectively. We recorded amortization of capitalized internally generated software development costs
for the fiscal years ended March 31, 2005, 2004, and 2003 of $41 million, $40 million, and $35 million, respectively.
Cost of Professional Services
Cost of professional services consists primarily of the personnel-related costs associated with providing professional services and
training to customers. Cost of professional services for fiscal year 2005 increased $5 million from fiscal year 2004 to $229 million. This
increase was partially offset by approximately $12 million of professional services costs related to services sold in combination with
related software products, which requires that the total estimated cost of such services be deferred and recognized ratably over the life of
the related software contract period. Cost of professional services for the fiscal year ended March 31, 2005 and 2004 included
approximately $4 million and $5 million, respectively, of stock-based compensation expense associated with the Company’ s adoption
of the provisions of SFAS No. 123(R) under the modified retrospective application method. Refer to Note 9, “Stock Plans” for additional
information.
The improvement in professional services gross margin is attributable to a more effective utilization of professional staff associated with
slightly reduced headcount and increased professional services revenue.
Cost of professional services for fiscal year 2004 decreased $18 million from fiscal year 2003 to $224 million. This decrease was due
primarily to the reduction in professional services engagements, a reduction in personnel costs resulting from efficiencies associated
with the combination of our pre-sales and post-sales professional services organizations in fiscal year 2004, and a reduction of $3 million
due to an increase in services sold in combination with related software products, which requires that the total estimated cost of such
services be deferred and recognized ratably
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