Computer Associates 2009 Annual Report Download - page 51

relatively small percentage of our revenue from software licenses is recognized on an up-front basis, subject to meeting
the same revenue recognition criteria in accordance with SOP 97-2 as described above. Software fees from such
licenses are recognized up-front and are reported in the “Software fees and other” line item in the Consolidated
Statements of Operations. Maintenance fees from such licenses are recognized ratably over the term of the license and
are reported in the “Subscription and maintenance revenue” line item in the Consolidated Statements of Operations.
License agreements under which software fees are recognized up-front do not include the right to receive unspecified
future software products. However, in the event such license agreements are executed within close proximity or in
contemplation of other license agreements that are signed under our subscription model with the same customer, the
licenses together may be deemed a single multi-element agreement, and all such revenue is required to be recognized
ratably and is recorded as “Subscription and maintenance revenue” in the Consolidated Statements of Operations.
We are unable to establish VSOE of fair value for all undelivered elements in license agreements that include software
products for which maintenance pricing is based on both discounted and undiscounted license list prices and
arrangements that contain rights to unspecified future software products. If VSOE of fair value of one or more
undelivered elements does not exist, license revenue is deferred and recognized upon delivery of those elements or
when VSOE of fair value can be established. When the license includes the right to receive unspecified future software
products, license revenue is recognized ratably over the term on the arrangement as VSOE does not exist for the future
unspecified software products.
Since we implemented our subscription model in October 2000, our practice with respect to newly acquired products
with established VSOE of fair value has been to record revenue initially on the acquired company’s systems, generally
under an up-front model; and, starting within the first fiscal year after the acquisition, to enter new licenses for such
products under our subscription model, following which revenue is recognized ratably and recorded as “Subscription and
maintenance revenue.” In some instances, we sell some newly developed and recently acquired products without the
right to receive unspecified future software products. Revenue from these agreements is generally recorded on an up-
front model, to the extent that we are able to establish VSOE of fair value for all undelivered elements and such license
agreements are not deemed to have been linked with other contracts executed within a short time frame with the same
customer or in contemplation of other license agreements with the same customer for which the right exists to receive
unspecified future software products. The software license fees from these contracts are recorded on an up-front basis
as “Software fees and other.” Selling such licenses under an up-front model will result in higher total revenue in a
reporting period than if such licenses were based on our subscription model and the associated revenue recognized
ratably.
Maintenance revenue is derived from two primary sources: (1) the maintenance portion of combined license and
maintenance agreements; and (2) stand-alone maintenance agreements. Maintenance revenue is reported on the
“Subscription and maintenance revenue” line item in the Consolidated Statements of Operations over the term of the
renewal agreement.
Revenue from professional service arrangements is generally recognized as the services are performed. Revenue from
committed professional services that are sold as part of a software transaction is deferred and recognized on a ratable
basis over the life of the related software transaction. If it is not probable that a project will be completed or the
payment will be received, revenue is deferred until the uncertainty is removed.
Revenue from sales to distributors, resellers, and value added resellers commences when all four of the SOP 97-2
revenue recognition criteria noted above are met and when these entities sell the software product to their customers.
This is commonly referred to as the sell-through method. Revenue from the sale of products to distributors, resellers and
value added resellers that incorporates the right for the end-users to receive certain unspecified future software products
is recognized on a ratable basis.
We have an established business practice of offering installment payment options to customers and have a history of
successfully collecting substantially all amounts due under such agreements. We assess collectability based on a
number of factors, including past transaction history with the customer and the creditworthiness of the customer. If, in
our judgment, collection of a fee is not probable, we will not recognize revenue until the uncertainty is removed through
the receipt of cash payment.
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