Computer Associates 2006 Annual Report Download - page 57

from the comparable prior period to $54 million. Partially offsetting these declines was an increase of $49 million
associated with acquisitions completed prior to March 31, 2006.
Maintenance revenue for the fiscal year ended March 31, 2005 decreased $79 million, or 15% from the prior year
predominantly due to the transition of maintenance-only licenses to subscription licenses, partially offset by a
$36 million increase in maintenance revenue from the indirect business from the comparable prior period to
$59 million.
Software Fees and Other
Software fees and other revenue consist of revenue related to distribution and OEM channel partners (sometimes
referred to as our “indirect” or “channel” revenue) that has been recorded on an up-front sell-through basis, revenue
associated with acquisitions prior to the transition to our business model, revenue from joint ventures, royalty
revenues and other revenue. Revenue related to acquisitions is initially recorded on the acquired company’s systems
generally under a perpetual or up-front model, and is typically converted to our ratable model within the first fiscal
year after the acquisition. As these contracts are renewed under our business model, revenue is recognized ratably
on a monthly basis over the term of the agreement.
For the fiscal year ended March 31, 2006, software fees and other revenue decreased $92 million from the fiscal year
ended March 31, 2005, to $162 million. This reduction is due to a $53 million decrease in prior business model
revenue, as ratable revenue from new business model contracts was recorded as subscription revenue in the
Consolidated Statements of Operations. Additionally, we experienced a decrease in indirect revenue associated
with the transition to our subscription model in July 2004 which represented a $50 million reduction from the prior
year as more revenue was deferred as these indirect contracts were renewed. These decreases were offset by other
revenue increases of approximately $11 million.
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. This reduction is due to the decrease in indirect revenue associated with the
transition to our subscription model in July 2004 which represented a $128 million reduction from the prior year as
more revenues were deferred as the contracts were renewed. These decreases were partially offset by approximately
$21 million of license revenue associated with the sale of Netegrity products, an approximate $10 million benefit
associated with the resolution of a prior business model contract dispute in the second quarter of fiscal year 2005
and approximately $20 million due to other activities.
Financing Fees
Financing fees result from the initial discounting to present value of product sales with extended payment terms
under the prior business model, which required up-front revenue recognition. This discount initially reduced the
related installment accounts receivable and is referred to as “Unamortized discounts.” The related unamortized
discount is amortized over the life of the applicable license agreement and is reported as financing fees. Under our
business model, additional unamortized discounts are no longer recorded, since we no longer recognize revenue on
an up-front basis for sales of products with extended payment terms. As expected, for fiscal years 2006 and 2005,
financing fees continued to decline, reflecting a decrease of $32 million and $57 million, respectively, from the prior
fiscal years to $45 million and $77 million, respectively. The decrease in financing fee revenue for both years is
attributable to the discontinuance of offering license agreements under the prior business model and is expected to
decline to zero over the next several years.
Professional Services
Professional services revenue for fiscal year 2006 increased $77 million from fiscal year 2005 to $321 million. The
increase was primarily attributable to growth in professional service engagements relating to acquired companies of
$23 million, growth in security software which utilize our Access Control and Identity Management solutions,
growth in our IT Service and Asset Management engagements and project and portfolio management services.
Professional services revenue for fiscal year 2005 increased $10 million from fiscal year 2004 to $244 million. The
increase was primarily attributable to growth in security software engagements, which utilize Access Control and
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