Computer Associates 2007 Annual Report Download - page 49

periods associated with our European business partially offset by an unfavorable foreign exchange impact of approximately
$17 million.
Price changes and inflation did not have a material impact in fiscal years 2007, 2006 or 2005.
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, 2007,
2006, and 2005. These comparisons of financial results are not necessarily indicative of future results.
2007 2006 2005 2007/2006 2006/2005
PERCENTAGE OF
TOTAL REVENUE
PERCENTAGE OF
DOLLAR CHANGE
Operating expenses
Amortization of capitalized software costs 9% 12% 12% (21)% —
Cost of professional services 8% 7% 6% 24% 18%
Selling, general, and administrative 42% 42% 37% 5% 18%
Product development and enhancements 18% 18% 20% 2% (2)%
Commissions, royalties, and bonuses 9% 10% 9% (14)% 16%
Depreciation and amortization of other intangible assets 4% 4% 4% 10% 3%
Other gains, net ——— 13% —
Restructuring and other 5% 2% 1% 128% 214%
Charge for in-process research and development cost ——— ——
Shareholder litigation and government investigation settlements ——7% —(100)%
Total expenses before interest and taxes 95% 96% 96% 3% 5%
Interest expense, net 2% 1% 3% 46% (61%)
Note — amounts may not add to their respective totals due to rounding
Note — previously reported information has been reclassified to exclude discontinued operations
Amortization of Capitalized Software Costs
Amortization of capitalized software costs consists of the amortization of both purchased software and internally generated
capitalized software development costs. Internally generated capitalized software development costs are related to new
products and significant enhancements to existing software products that have reached the technological feasibility stage.
For fiscal year 2007, the amortization of capitalized software costs declined by $95 million from the prior fiscal year to
$354 million. The decline was primarily attributable to certain software costs related with prior acquisitions being fully
amortized.
For fiscal year 2006, the amortization of capitalized software costs increased approximately $2 million from the prior fiscal
year to $449 million. The increase was predominantly due to an increase in purchased software associated with acquisitions
consummated in fiscal years 2006 and 2005.
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 2007 increased $63 million, or 24%, from fiscal year
2006 to $326 million, principally due to the increase in professional services revenue and higher usage of external consultants,
which lowered margins on professional services to 7% for fiscal year 2007, as compared to 17% for the prior year.
Cost of professional services for fiscal year 2006 increased $41 million from fiscal year 2005 to $263 million, mostly due to
increased sales of professional services.The improvement in professional services gross margin from 8% in fiscal year 2005 to
17% in fiscal year 2006 is attributable to a more effective utilization of professional staff and increased professional services
revenue.
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