Computer Associates 2006 Annual Report Download - page 123

Note 1 — Significant Accounting Policies
Description of Business: CA, Inc. and subsidiaries (the Company) develops, markets, delivers and licenses
software products and services.
Principles of Consolidation: The Consolidated Financial Statements include the accounts of the Company and its
majority-owned and controlled subsidiaries. Investments in affiliates owned 50% or less are accounted for by the
equity method and include gross unconsolidated liabilities of approximately $2 million. Intercompany balances and
transactions have been eliminated in consolidation. Companies acquired during each reporting period are reflected
in the results for the Company effective from their respective dates of acquisition through the end of the reporting
period (see Note 2, “Acquisitions, Divestitures, and Restructuring”).
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting
principles in the United States of America (GAAP) requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based
on management’s knowledge of current events and actions it may undertake in the future, these estimates may
ultimately differ from actual results.
Translation of Foreign Currencies: Foreign currency assets and liabilities of the Company’s international
subsidiaries are translated using the exchange rates in effect at the balance sheet date. Results of operations
are translated using the average exchange rates prevailing throughout the year. The effects of exchange rate
fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated as part of the
foreign currency translation adjustment in Stockholders’ Equity. Gains and losses from foreign currency
transactions are included in the “Other gains/expenses, net” line item in the Consolidated Statements of
Operations in the period in which they occur. Net income (loss) includes exchange transaction losses, net of
taxes, of approximately $6 million, $5 million, and $26 million in the fiscal years ended March 31, 2006, 2005, and
2004, respectively.
Statements of Cash Flows: The Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. Interest payments for the fiscal years ended March 31, 2006, 2005,
and 2004 were $114 million, $120 million, and $137 million, respectively. Income taxes paid for these fiscal years
were $207 million, $12 million (net of a tax refund of $191 million), and $423 million, respectively. The decrease in
taxes paid during fiscal year 2005 was primarily attributable to a new Internal Revenue Service (IRS) Revenue
Procedure, which grants taxpayers a twelve month deferral for cash received from customers to the extent such
receipts were not recognized in revenue for financial statement purposes.
Basis of Revenue Recognition: The Company generates revenue from the following primary sources: (1) licensing
software products; (2) providing customer technical support (referred to as maintenance); and (3) providing
professional services, such as consulting and education.
The Company recognizes revenue pursuant to the requirements of Statement of Position (SOP) 97-2, “Software
Revenue Recognition,” issued by the American Institute of Certified Public Accountants, as amended by SOP 98-9
“Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” In accordance
with SOP 97-2, the Company begins to recognize revenue from licensing and supporting its software products when
all of the following criteria are met: (1) the Company has evidence of an arrangement with a customer; (2) the
Company delivers the products; (3) license agreement terms are deemed fixed or determinable and free of
contingencies or uncertainties that may alter the agreement such that it may not be complete and final; and
(4) collection is probable.
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 record deferred subscription revenue or
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.
Under the Company’s business model, software license agreements include flexible contractual provisions that,
among other things, allow customers to receive unspecified future software upgrades for no additional fee. These
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