Computer Associates 2012 Annual Report Download - page 52

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recognize revenue from these subscription licenses ratably over the term of the agreement. These amounts are recorded as
subscription and maintenance revenue.
We also license our software products without the right to unspecified future software products. Revenue from these arrangements is
either recognized at the inception of the license agreement (up-front basis) or ratably over the term of any maintenance agreement
that is bundled with the license. Revenue is recognized up-front only when we have established VSOE for all of the undelivered
elements of the agreement. We use the residual method to determine the amount of license revenue to be recognized up-front. The
residual method allocates arrangement consideration to the undelivered elements based upon VSOE of the fair value of those
elements, with the residual of the arrangement consideration allocated to the license. The portion allocated to the license is
recognized “up-front” once all four of the revenue recognition criteria are met. We establish VSOE of the fair value of maintenance
from either contractually stated renewal rates or using the bell-shaped curve method. VSOE of the fair value of professional services
is established based on hourly rates when sold on a stand-alone basis. Up-front revenue is recorded as Software Fees and Other.
Revenue recognized on an up-front model will result in higher total revenue in a reporting period than if that revenue was recognized
ratably.
If VSOE does not exist for all undelivered elements of an arrangement, we recognize total revenue from the arrangement ratably over
the term of the maintenance agreement. Revenue recognized ratably is recorded as “Subscription and maintenance revenue.”
Revenue recognition does not commence until (1) we have evidence of an arrangement with a customer; (2) we deliver the specified
products; (3) license agreement terms are 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. Revenue from sales to distributors and volume
partners, value-added resellers and exclusive representatives commences, either on an up-front basis or ratably as described above,
when these entities sell the software product to their customers. This is commonly referred to as the sell-through method.
Revenue from professional service arrangements is generally recognized as the services are performed. Revenue and costs from
committed professional services that are sold as part of a software license agreement are deferred and recognized on a ratable basis
over the life of the related software transaction.
In the event that agreements with our customers are executed in close proximity of other license agreements with the same customer,
we evaluate whether the separate arrangements are linked, and, if so, they are considered a single multi-element arrangement for
which revenue is recognized ratably as “Subscription and maintenance revenue” in the Consolidated Statements of Operations.
We have an established business practice of offering installment payment options to customers and a history of successfully
collecting substantially all amounts due under those 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. We do not typically offer
installment payments for perpetual license agreements that are recognized up-front, within “Software fees and other.”
See Note 1, “Significant Accounting Policies” for additional information on our revenue recognition policy.
Accounts Receivable
The allowance for doubtful accounts is a reserve for the impairment of accounts receivable on the Consolidated Balance Sheets. 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 includes two components: (1) 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 (2) an allowance for losses inherent in the
remaining receivable portfolio based on historical activity.
Income Taxes
We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
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