Computer Associates 2009 Annual Report Download - page 52

Our standard licensing agreements include a product warranty provision for all products. Such warranties are accounted
for in accordance with Statement of Financial Accounting Standards (SFAS) No. 5, “Accounting for Contingencies.” The
likelihood that we will be required to make refunds to customers under such provisions is considered remote.
Under the terms of substantially all of our license agreements, we have agreed to indemnify customers for costs and
damages arising from claims against such customers based on, among other things, allegations that our software
products infringe the intellectual property rights of a third-party. In most cases, in the event of an infringement claim, we
retain the right to (i) procure for the customer the right to continue using the software product; (ii) replace or modify
the software product to eliminate the infringement while providing substantially equivalent functionality; or (iii) if neither
(i) nor (ii) can be reasonably achieved, we may terminate the license agreement and refund to the customer a pro-rata
portion of the fees paid. Such indemnification provisions are accounted for in accordance with SFAS No. 5. The
likelihood that we will be required to make refunds to customers under such provisions is considered remote. In most
cases and where legally enforceable, the indemnification is limited to the amount paid by the customer.
Accounts Receivable
The allowance for doubtful accounts is a valuation account used to reserve for the potential impairment of accounts
receivable on the balance sheet. In developing the estimate for the allowance for doubtful accounts, we rely on several
factors, including:
•Historical information, such as general collection history of multi-year software agreements;
•Current customer information and events, such as extended delinquency, requests for restructuring, and filings for
bankruptcy;
•Results of analyzing historical and current data; and
•The overall macroeconomic environment.
The allowance is composed of two components: (a) specifically identified receivables that are reviewed for impairment
when, based on current information, we do not expect to collect the full amount due from the customer; and (b) an
allowance for losses inherent in the remaining receivable portfolio-based historical activity.
Income Taxes
SFAS No. 109, “Accounting for Income Taxes,” requires us to estimate our actual current tax liability in each jurisdiction;
estimate differences resulting from differing treatment of items for financial statement purposes versus tax return
purposes (known as “temporary differences”), resulting in deferred tax assets and liabilities; and assess the likelihood
that our deferred tax assets will be recovered from future taxable income. If we believe that recovery is not likely, we
establish a valuation allowance.
Deferred tax assets result from acquisition expenses, such as duplicate facility costs, employee severance and other
costs that are not deductible until paid, net operating losses (NOLs) and temporary differences between the taxable
cash payments received from customers and the ratable recognition of revenue in accordance with GAAP. The NOLs will
expire as follows: $457 million between 2009 and 2028 and $151 million may be carried forward indefinitely.
As of March 31, 2009, our gross deferred tax assets, net of a valuation allowance, totaled $837 million. The factors that
we consider in assessing the likelihood of realization of these deferred tax assets include the forecast of future taxable
income and available tax planning strategies that could be implemented to realize the deferred tax assets.
When we prepare our consolidated financial statements, we estimate our income taxes in each jurisdiction in which we
operate. On April 1, 2007, we adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48). Among other things, FIN 48
prescribes a “more-likely-than-not” threshold for the recognition and derecognition of tax positions.
Goodwill, Capitalized Software Products, and Other Intangible Assets
SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142), requires an impairment-only approach to
accounting for goodwill and other intangibles with an indefinite life. Absent any prior indicators of impairment, we
perform an annual impairment analysis during the fourth quarter of our fiscal year.
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