Computer Associates 2008 Annual Report Download - page 55

Revenue from professional service arrangements is generally recognized as the services are performed. Revenue from
committed professional services that are sold as part of a software transaction is deferred and recognized on a ratable
basis over the life of the related software transaction. If it is not probable that a project will be completed or the
payment will be received, revenue is deferred until the uncertainty is removed.
Revenue from sales to distributors, resellers, and value added resellers commences when all four of the SOP 97-2
revenue recognition criteria noted above are met and when these entities sell the software product to their customers.
This is commonly referred to as the sell-through method. Revenue from the sale of products to distributors, resellers and
value added resellers that incorporates the right for the end-users to receive certain unspecified future software products
is recognized on a ratable basis.
We have an established business practice of offering installment payment options to customers and have a history of
successfully collecting substantially all amounts due under such 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.
Our standard licensing agreements include a product warranty provision for all products. Such warranties are accounted
for in accordance with Statement of Financial Accounting Standards (SFAS) No. 5, “Accounting for Contingencies.” The
likelihood that we will be required to make refunds to customers under such provisions is considered remote.
Under the terms of substantially all of our license agreements, we have agreed to indemnify customers for costs and
damages arising from claims against such customers based on, among other things, allegations that our software
products infringe the intellectual property rights of a third-party. In most cases, in the event of an infringement claim, we
retain the right to (i) procure for the customer the right to continue using the software product; (ii) replace or modify
the software product to eliminate the infringement while providing substantially equivalent functionality; or (iii) if neither
(i) nor (ii) can be reasonably achieved, we may terminate the license agreement and refund to the customer a pro-rata
portion of the fees paid. Such indemnification provisions are accounted for in accordance with SFAS No. 5. The
likelihood that we will 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.
Accounts Receivable
The allowance for doubtful accounts is a valuation account used to reserve for the potential impairment of accounts
receivable on the balance sheet. 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 is composed of two components: (a) 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 (b) an
allowance for losses inherent in the remaining receivable portfolio-based historical activity.
Income Taxes
When we prepare our consolidated financial statements, we estimate our income taxes in each jurisdiction in which we
operate. On April 1, 2007, we adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48). Among other things, FIN 48
prescribes a “more-likely-than-not” threshold for the recognition and derecognition of tax positions, provides guidance
on the accounting for interest and penalties relating to tax positions and requires that the cumulative effect of applying
the provisions of FIN 48 shall be reported as an adjustment to the opening balance of retained earnings or other
appropriate components of equity or net assets in the statement of financial position.
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