Computer Associates 2010 Annual Report Download - page 69

alter the agreement such that it may not be complete and final; and (4) collection is probable. Revenue is recorded net of
applicable sales taxes.
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. The
Company’s standard licensing agreements include a product warranty provision for all products. The likelihood that the
Company will be required to make refunds to customers under such provisions is considered remote.
Subscription and maintenance revenue: Software licenses that include the right to receive unspecified future software products
are considered subscription arrangements under GAAP and are recognized ratably over the term of the license agreement.
Subscription and maintenance revenue is the amount of revenue recognized ratably during the reporting period from either:
(i) subscription license agreements that were in effect during the period, which generally include maintenance that is bundled
with and not separately identifiable from software usage fees or product sales; (ii) maintenance agreements associated with
providing customer technical support and access to software fixes and upgrades which are separately identifiable from
software usage fees or product sales; or (iii) software license agreements bundled with maintenance for which vendor specific
objective evidence of fair value (VSOE) has not been established for maintenance. Revenue for these arrangements is
recognized ratably over the term of the subscription or maintenance term.
Professional services: Revenue from professional service arrangements is generally recognized as the services are performed.
Revenue and costs from committed professional services that are sold as part of a subscription license agreement are
deferred and recognized on a ratable basis over the term of the related software license. VSOE of the fair value of professional
services is established based on daily rates when sold on a stand-alone basis. If it is not probable that a project will be
completed or the payment will be received, revenue recognition is deferred until the uncertainty is removed.
Software fees and other: Software fees and other revenue primarily consists of revenue from the sale of perpetual software
licenses on a stand-alone basis that do not include the right to unspecified software products or in a bundled arrangement
where VSOE exists for any undelivered elements. For bundle arrangements that include either maintenance or both
maintenance and professional services, the Company uses the residual method to determine the amount of license revenue to
be recognized. Under the residual method, consideration is allocated to undelivered elements based upon VSOE of the fair
value of those elements, with the residual of the arrangement fee allocated to and recognized as license revenue. The
Company determines VSOE of the fair value of maintenance from either contractually stated renewal rates or using the bell-
shaped curve method depending on the product.
In the event that agreements with the Company’s customers are executed in close proximity of the other license agreements
with the same customer, the Company evaluates whether the separate arrangements are linked, and, if so, the agreements
together are considered a single multi-element arrangement for which revenue is recognized ratably as subscription and
maintenance revenue or, in the case of a linked professional services arrangement, as professional services revenue, in the
Consolidated Statements of Operations.
(g) Sales commissions: Sales commissions are recognized in the period the commissions are earned by employees, which is
typically upon signing of the contract. Under the Company’s current sales compensation model, during periods of high growth
and sales of new products relative to revenue in that period, the amount of sales commission expense attributable to the
license agreements signed in the period would be recognized fully whereas the revenue may be recognized ratably.
(h) Accounting for share-based compensation: Share-based awards exchanged for employee services are accounted for under
the fair value method. Accordingly, share-based compensation cost is measured at the grant date, based on the fair value of
the award. The expense for awards expected to vest is recognized over the employee’s requisite service period (generally the
vesting period of the award). Awards expected to vest are estimated based upon a combination of historical experience and
future expectations.
The Company has elected to treat awards with only service conditions and with graded vesting as one award. Consequently,
the total compensation expense is recognized straight-line over the entire vesting period, so long as the compensation cost
recognized at any date at least equals the portion of the grant date fair value of the award that is vested at that date.
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