Computer Associates 2007 Annual Report Download - page 94

Note 1 — Significant Accounting Policies
(a) Description of Business: CA, Inc. and subsidiaries (the Company) develops, markets, delivers and licenses software
products and services.
(b) Principles of Consolidation: The Consolidated Financial Statements include the accounts of the Company and its majority-
owned and controlled subsidiaries. Investments in affiliates owned 50% or less are accounted for by the equity method and
include gross unconsolidated liabilities of approximately $2 million. Intercompany balances and transactions have been
eliminated in consolidation. Companies acquired during each reporting period are reflected in the results for the Company
effective from their respective dates of acquisition through the end of the reporting period (see Note 2, “Acquisitions and
Divestitures”).
(c) Divestiture: In November 2006, the Company sold its 70% interest in Benit Company, formerly known as Liger Systems
Co. Ltd. (“Benit”), a majority owned subsidiary, to the minority interest holder. As a result, Benit has been classified as a
discontinued operation for all periods presented, and its results of operations have been reclassified in the Consolidated
Statements of Operations. 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. All
related footnotes to the Consolidated Financial Statements have been adjusted to exclude the effect of the operating results of
Benit. See Note 2, “Acquisitions and Divestitures,” for additional information.
(d) Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles in
the United States of America (GAAP) requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Although these estimates are based on management’s
knowledge of current events and actions it may undertake in the future, these estimates may ultimately differ from actual
results.
(e) Translation of Foreign Currencies: Foreign currency assets and liabilities of the Company’s international subsidiaries are
translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average
exchange rates prevailing throughout the year. The effects of exchange rate fluctuations on translating foreign currency assets
and liabilities into U.S. dollars are accumulated as part of the foreign currency translation adjustment in Stockholders’ Equity.
Gains and losses from foreign currency transactions are included in the “Other gains, net” line item in the Consolidated
Statements of Operations in the period in which they occur. Net income includes exchange transaction gains (losses), net of
taxes, of approximately $0 million, $6 million, and $(5) million in the fiscal years ended March 31, 2007, 2006, and 2005,
respectively.
(f) Basis of Revenue Recognition: The Company generates revenue from the following primary sources: (1) licensing software
products; (2) providing customer technical support (referred to as maintenance); and (3) providing professional services,
such as consulting and education.
The Company recognizes revenue pursuant to the requirements of Statement of Position (SOP) 97-2, “Software Revenue
Recognition,” issued by the American Institute of Certified Public Accountants, as amended by SOP 98-9 “Modification of
SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” In accordance with SOP 97-2, the Company
begins to recognize revenue from licensing and supporting its software products when all of the following criteria are met:
(1) the Company has evidence of an arrangement with a customer; (2) the Company delivers the products; (3) license
agreement terms are deemed fixed or determinable and free of contingencies or uncertainties that may alter the agreement
such that it may not be complete and final; and (4) collection is probable.
The Company’s software licenses generally do not include acceptance provisions. An acceptance provision allows a customer
to test the software for a defined period of time before committing to license the software. If a license agreement includes an
acceptance provision, the Company does not recognize revenue until the earlier of the receipt of a written customer
acceptance or, if not notified by the customer to cancel the license agreement, the expiration of the acceptance period.
Under the Company’s business model, software license agreements frequently include flexible contractual provisions that,
among other things, allow customers to receive unspecified future software products for no additional fee. These agreements
combine the right to use the software products with maintenance for the term of the agreement. Under these agreements,
82