Computer Associates 2007 Annual Report Download - page 40

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Introduction
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) is intended to
provide an understanding of our financial condition, change in financial condition, cash flow, liquidity and results of operations.
As described in Note 2, “Acquisitions and Divestures” in the Notes to the Consolidated Financial Statements, in fiscal year
2007 we divested our majority interest in a subsidiary, Benit Company, formerly known as Liger Systems Co. Ltd. (Benit). The
results of operations of Benit have been classified as a discontinued operation for all periods presented prior to the sale of Benit
in November 2006. The assets and liabilities for Benit, as well as the cash flows, were deemed immaterial for separate
presentation as a discontinued operation in the Consolidated Balance Sheets and Consolidated Statements of Cash Flow. The
following discussion and analysis of financial condition and results of operations excludes the effect of the discontinued
operation.
Business Overview
We are one of the world’s leading independent enterprise management software companies. Our software and expertise
enables customers to improve the management of their complex IT infrastructures across systems and networks, security and
storage solutions.
Our technology solutions are comprehensive, integrated, real-time and open.They are not tied to any one platform, but instead
make it possible for customers to manage all of the computers, networks and other technologies that comprise their
computing environments. In turn, this helps customers better manage the investments they have made in ITrather than having
to “rip and replace” them. As a result, customers gain flexibility. They can manage risk, manage cost, increase service and
better align their IT investments with the needs of their organization.
We pursue a number of high-growth areas with our products, including network and systems management, security and
storage. Our solutions are designed for both mainframe and distributed environments, each of which comprise about half of
our revenue.
The CA Business Model
As described in greater detail in Item 1, “Business,” of this Form 10-K, we license our software products directly to customers
as well as through distributors, resellers and value-added resellers (VARs). We generate revenue from the following sources:
license fees — licensing our products on a right-to-use basis; maintenance fees — providing customer technical support and
product enhancements; and service fees — providing professional services such as product implementation, consulting and
education services. The timing and amount of fees recognized as revenue during a reporting period are determined individually
by license agreement, based on the agreement’s duration and specific terms.
Under our business model, we provide customers with the flexibility to license software under month-to-month licenses or to
fix their costs by committing to longer-term agreements.We also typically permit customers to change their software product
mix as their business and technology needs change, which includes the right to receive software products in the future within
defined product lines for no additional fee, commonly referred to as unspecified future software products. As a result of the
right provided to our customers to receive unspecified future software products, as well as maintenance included during the
term of the license, we are required under generally accepted accounting principles in the United States of America (GAAP) to
recognize revenue from certain of our license agreements evenly on a monthly basis (also known as ratably) over the license
term. Under agreements entered into prior to October 2000 (the prior business model), and as is common practice in the
software industry, we did not offer our customers the right to receive unspecified future software products. As a result, for
most license agreements entered into 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 contract value that has not yet been recognized creates what we refer to as
deferred subscription value. Deferred subscription value 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
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