Computer Associates 2013 Annual Report Download - page 59

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We have an established business practice of offering installment payment options to customers and a history of successfully
collecting substantially all amounts due under those 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. We do not typically offer installment payments for perpetual license agreements that are recognized up-front,
within ‘‘Software fees and other.’’
See Note 1, ‘‘Significant Accounting Policies’’ for additional information on our revenue recognition policy.
Accounts Receivable
The allowance for doubtful accounts is a reserve for the impairment of accounts receivable on the Consolidated Balance
Sheets. 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 includes two components: (1) 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 (2) an allowance for losses
inherent in the remaining receivable portfolio based on historical activity.
Income Taxes
We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases, along with net operating losses and tax credit carryforwards. We measure deferred
tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. We recognize the effect on deferred tax assets and liabilities of a change
in tax rates on income in the period that includes the enactment date.
We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. We
utilize a ‘‘more likely than not’’ threshold for the recognition and derecognition of tax positions and measure positions
accordingly. We reflect changes in recognition or measurement in a period in which the change in judgment occurs. We
record interest and penalties related to uncertain tax positions in income tax expense.
Goodwill, Capitalized Software Products, and Other Intangible Assets
Goodwill is tested for impairment at least annually in the fourth quarter of our fiscal year.
We may first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less
than its carrying amount, and, if so, we then apply the two-step impairment test. The two-step impairment test first
compares the fair value of our reporting units, which are the same as our operating segments, to their carrying (i.e., book)
value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and we are not required to
perform further testing. If the carrying value of the reporting unit exceeds its fair value, we determine the implied fair value
of the reporting unit’s goodwill and if the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then
we record an impairment loss equal to the difference.
Based on our impairment analysis in the fourth quarter of fiscal 2013, we determined that the fair value of each of our
reporting units exceeded the carrying value of the unit by more than 10% of the carrying value.
We determine the fair value of our reporting units based on use of income and market approaches. Under the income
approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. These estimates and
assumptions include the revenue growth rates and operating profit margins that are used to project future cash flows,
discount rates, future economic and market conditions and determination of appropriate market comparables. We make
certain judgments and assumptions in allocating shared costs among reporting units. We base our fair value estimates on
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