Computer Associates 2005 Annual Report Download - page 111

Table of Contents
Note 1 — Significant Accounting Policies (Continued)
Subscription Revenue: Subscription revenue represents the ratable recognition of revenue attributable to license agreements under the
Company’ s Business Model.
Deferred subscription revenue represents the aggregate portion of all undiscounted contractual and committed license amounts pursuant
to the Company’ s Business Model for which revenue is deferred and will be recognized ratably over the license agreement duration.
The Company segregates the total deferred subscription revenue into two components: (i) the amount of cash collected in excess of the
amount recognized as revenue and (ii) the amount that has not yet been collected and has not yet been recognized as revenue. Deferred
subscription revenue (collected) is a liability on the Company’ s balance sheet, whereas deferred subscription revenue (uncollected) is a
component of installment accounts receivable. The components of installment accounts receivable are detailed in Note 5, “Trade and
Installment Accounts Receivable.” Each of these components is further classified as either current or noncurrent.
Software Fees and Other: Software fees and other revenue consists of revenue related to distribution and OEM partners that have been
recorded on a sell-through basis, revenue associated with joint ventures, royalty revenues, and other revenue. Revenue related to
distribution partners and OEMs is sometimes referred to as “indirect” or “channel” revenue. In the second quarter of fiscal year 2005, the
Company began offering more flexible license terms to channel partners, which necessitates the deferral of primarily all the indirect
revenue. The ratable recognition of this deferred revenue is reflected on the “Subscription revenue” line item on the Consolidated
Statements of Operations.
Financing Fees: Accounts receivable resulting from prior business model product sales with extended payment terms were discounted
to their present value at the then prevailing market rates. In subsequent periods, the accounts receivable are increased to the amount due
and payable by the customer through the accretion of financing revenue on the unpaid accounts receivable due in future years. Under the
Company’ s Business Model, additional unamortized discounts are no longer recorded, since the Company does not account for the
present value of product sales as earned revenue at license agreement signing.
Fair Value of Financial Instruments: The following table provides information on the carrying amount and fair value of financial
instruments. The carrying value of financial instruments classified as current assets and current liabilities, such as cash and cash
equivalents, accounts payable, accrued expenses, and short-term debt, approximate fair value due to the short-term maturity of the
instruments. Refer to Note 5, “Trade and Installment Accounts Receivable” for the Company’ s estimate of the fair value of net
installment accounts receivable. The fair values of marketable securities and long-term debt, including current maturities, have been
based on quoted market prices.
March 31, 2005 March 31, 2004
Estimated Estimated
Cost Fair Value Cost Fair Value
(in millions)
Assets
Marketable securities $ 298 $ 297 $ 96 $ 109
Liabilities
Long-term debt, including current maturities $ 2,636 $ 2,831 $ 2,300 $ 2,745
Concentration of Credit Risk: Financial instruments that potentially subject the Company to concentration of credit risk consist
primarily of marketable securities and accounts receivable. The Company’ s marketable securities consist primarily of high-quality
securities with limited exposure to any single instrument. Amounts expected to be collected from customers, as disclosed in Note 5,
“Trade and Installment Accounts Receivable,” have limited exposure to concentration of credit risk due to the diverse customer base and
geographic areas covered by operations.
Marketable Securities: The Company has determined that all of its investment securities should be classified as available-for-sale.
Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in Stockholders’ Equity under the caption
“Accumulated Other Comprehensive Loss.” The amortized cost of debt securities is adjusted for amortization of premiums and accretion
of discounts to maturity. Such amortization is included in the “Interest expense, net” line item on the Consolidated Statements of
Operations. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are
included in the “Selling, general, and administrative” (SG&A) line item on the Consolidated Statements of Operations. The cost of
securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are
included in the “Interest expense, net” line item on the Consolidated Statements of Operations.
68