Computer Associates 2005 Annual Report Download - page 123

Table of Contents
Note 5 — Trade and Installment Accounts Receivable (Continued)
The components of unearned revenue consist of the following:
March 31,
2005 2004
(restated) (restated)
(in millions)
Current:
Unamortized discounts $ 62 $ 73
Unearned maintenance 23 23
Deferred subscription revenue (uncollected) 1,030 973
Noncurrent deferred subscription revenue (uncollected) associated with unbilled amounts due within
the next 12 months 1,133 800
Unearned professional services 57 27
Total unearned revenue — current $ 2,305 $1,896
Noncurrent:
Unamortized discounts $ 79 $141
Unearned maintenance 32 91
Deferred subscription revenue (uncollected) 1,698 1,107
Total unearned revenue — noncurrent $ 1,809 $ 1,339
Unbilled amounts under the Company’ s Business Model are collectible over one to five years. As of March 31, 2005, on a cumulative
basis, approximately 52%, 81%, 92%, 98%, and 100% of amounts due from customers recorded under the Company’ s Business Model
come due within fiscal years ended 2006 through 2010, respectively.
Unbilled amounts under the prior business model are collectible over three to six years. As of March 31, 2005, on a cumulative basis,
approximately 34%, 54%, 68%, 78%, and 88% of amounts due from customers recorded under the prior business model come due
within fiscal years ended 2006 through 2010, respectively.
Under the Company’ s Business Model, amounts due from customers are offset by related deferred subscription revenue (unearned
revenue), which results in little or no carrying value on the balance sheet. In addition, under the Company’ s Business Model, customer
payments are often received in advance of revenue recognition, which minimizes net credit exposure and consequently reduces the need
to provide for estimated bad debts. The Company reviews the reasonableness of its allowance for doubtful accounts each quarter. Based
on those reviews in fiscal year 2005, the Company determined that the allowance for doubtful accounts exceeded the Company’ s
estimate of uncollectible accounts receivable. As a result, the Company recorded a net credit to provision expense of $25 million for
fiscal year 2005. The Company also recorded a credit to the provision expense of $53 million for fiscal year 2004. The Company
recorded provision expense in fiscal year 2003 of $68 million. Provision expense (credit) is included in the “SG&A” line item on the
Consolidated Statements of Operations.
The Company’ s estimate of the fair value of net installment accounts receivable recorded under the prior business model approximates
carrying value. The fair value of the unbilled amounts recorded under the Company’ s Business Model (unbilled amounts due less
deferred subscription revenue) may have a fair value greater than that reported on the balance sheet. Amounts due from customers under
the Company’ s Business Model are offset by unearned revenue related to these license agreements, leaving no or minimal net carrying
value on the balance sheet for such amounts. The fair value of such amounts may exceed this carrying value but cannot be practically
assessed since there is no existing market for a pool of customer receivables with contractual commitments similar to those owned by the
Company. The actual fair value may not be known until these amounts are sold, securitized, or collected. Although these customer
license agreements commit the customer to payment under a fixed schedule, the agreements are considered executory in nature due to
the ongoing commitment to provide “unspecified future deliverables” as part of the agreement terms.
Note 6 — Debt
Credit Facilities
As of March 31, 2005, the Company’ s committed bank credit facilities consisted of a $1 billion, unsecured bank revolving credit facility
expiring in December 2008 (the 2004 Revolving Credit Facility). As of March 31, 2004, the Company’ s committed bank credit facilities
consisted of a $470 million, unsecured bank revolving credit facility (the 2002 Revolving Credit Facility), which was replaced by the
2004 Revolving Credit Facility.
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