Computer Associates 2015 Annual Report Download - page 37

Expenses
Operating Expenses
Operating expenses for fiscal 2015 decreased compared with fiscal 2014 primarily as a result of a decrease in costs
associated with our Fiscal 2014 Plan, as described below, a favorable effect from foreign exchange and a decrease in selling
and marketing costs driven by a decrease in commissions expense due to lower new sales during fiscal 2015. These
decreases were partially offset by an increase in severance costs of $40 million as a result of our fourth quarter fiscal 2015
severance actions.
Operating expenses for fiscal 2014 increased compared with fiscal 2013 primarily as a result of our Fiscal 2014 Plan. The
Fiscal 2014 Plan comprised the termination of 1,900 employees and global facilities consolidations. The Fiscal 2014 Plan
included streamlining our sales structure to eliminate redundancies while maintaining our focus on customers. In addition,
we consolidated our development sites into development hubs to promote collaboration and agile development. Severance
and facility consolidation actions under the Fiscal 2014 Plan were substantially completed by the end of fiscal 2014. Costs
associated with the Fiscal 2014 Plan are included in the ‘‘Other expenses (gains), net’’ line item of our Consolidated
Statements of Operations. Operating expenses for fiscal 2014 were also unfavorably affected by an increase in product
development and enhancements expenses and costs of licensing and maintenance. Partially offsetting these increases in
operating expenses was a decrease in selling and marketing expenses, primarily driven by the lower number of employees
involved in selling and marketing activities and amortization of capitalized software costs. In the first quarter of fiscal 2013,
there was $35 million of income from an intellectual property transaction recognized in ‘‘Other expenses (gains), net,’’ in
addition to an impairment recorded in the fourth quarter of fiscal 2013 of $55 million relating to purchased software.
Costs of Licensing and Maintenance
Costs of licensing and maintenance include technical support, royalties, and other manufacturing and distribution costs. The
costs of licensing and maintenance for fiscal 2015 were generally consistent with fiscal 2014.
The increase in costs of licensing and maintenance for fiscal 2014 compared with fiscal 2013 was primarily attributable to
the addition of technical support personnel in connection with the Fiscal 2014 Plan.
Cost of Professional Services
Cost of professional services consists primarily of our personnel-related costs associated with providing professional services
and training to customers. Cost of professional services decreased for fiscal 2015 compared with fiscal 2014. Operating
margin for professional services decreased to 4% for fiscal 2015 compared with 7% for fiscal 2014. The decrease in
operating margin for professional services was attributable to a number of factors, including the decrease in revenue, lower
utilization rates for professional services personnel due to the decrease in the number of professional services engagements
and costs associated with severance actions that occurred during the fourth quarter of fiscal 2015.
Cost of professional services for fiscal 2014 was consistent with fiscal 2013 and operating margin for professional services
was 7% for each of fiscal 2014 and fiscal 2013.
Operating margin for professional services does not include certain additional direct costs that are included within the
Services segment (see ‘‘Performance of Segments’’ below). Expenses for the Services segment consist of cost of professional
services and other direct costs included within selling and marketing and general and administrative expenses.
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 relate to new products
and significant enhancements to existing software products that have reached the technological feasibility stage.
We evaluate the useful lives and recoverability of capitalized software and other intangible assets when events or changes in
circumstances indicate that an impairment may exist. These evaluations require complex assumptions about key factors such
as future customer demand, technology trends and the impact of those factors on the technology we acquire and develop
for our products. Impairments or revisions to useful lives could result from the use of alternative assumptions that reflect
reasonably possible outcomes related to future customer demand or technology trends for assets within the Enterprise
Solutions segment.
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