Computer Associates 2006 Annual Report Download - page 125

Note 1 — Significant Accounting Policies (Continued)
indemnification provisions are accounted for in accordance with SFAS No. 5. The likelihood that the Company
would be required to make refunds to customers under such provisions is considered remote. In most cases and
where legally enforceable, the indemnification is limited to the amount paid by the customer.
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 customers have been billed but revenue is
deferred and will be recognized ratably over the license agreement duration.
Software Fees and Other: Software fees and other revenue consist of revenue related to distribution and original
equipment manufacturer (OEM) channel partners that has been recorded on an up-front sell-through basis, revenue
associated with acquisitions prior to transition to our business model, 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 the
end-user customers of our channel partners, which necessitates the deferral of primarily all of the indirect revenue.
The ratable recognition of this deferred revenue is reflected on the “Subscription revenue” line item in 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 values at the then prevailing market rates. In subsequent periods, the accounts
receivable are increased to the amounts due and payable by the customers 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. The fair values of marketable securities and long-term
debt, including current maturities, have been based on quoted market prices. See Note 3, “Marketable Securities”,
and Note 6, “Debt”.
Cost
Estimated
Fair Value Cost
Estimated
Fair Value
March 31, 2006 March 31, 2005
(in millions)
Assets
Marketable securities ......................... $ 30 $ 34 $ 298 $ 297
Liabilities
Long-term debt, including current maturities ....... $1,811 $1,956 $2,636 $2,831
Concentration of Credit Risk: Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of marketable securities and accounts receivable. 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 and
accretion is included in the “Interest expense, net” line item in 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 in the Consolidated Statements of Operations. The
cost of securities sold is based on the specific identification method. Interest and dividends on securities classified
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