Computer Associates 2012 Annual Report Download - page 74

by the customer to cancel the license agreement, the expiration of the acceptance period. The Company’s standard licensing
agreements include a product warranty provision for all products. The likelihood that the Company will be required to make refunds
to customers under such provisions is considered remote.
Subscription and Maintenance Revenue: Software licenses that include the right to receive unspecified future software products are
considered subscription arrangements under GAAP and are recognized ratably over the term of the license agreement. Subscription
and maintenance revenue is the amount of revenue recognized ratably during the reporting period from either: (i) subscription license
agreements that were in effect during the period, which generally include maintenance that is bundled with and not separately
identifiable from software usage fees or product sales; (ii) maintenance agreements associated with providing customer technical
support and access to software fixes and upgrades which are separately identifiable from software usage fees or product sales; or
(iii) software license agreements bundled with maintenance for which vendor specific objective evidence (VSOE) has not been
established for maintenance. Revenue for these arrangements is recognized ratably over the term of the subscription or maintenance
term.
Professional Services: 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 subscription license agreement are deferred and
recognized on a ratable basis over the term of the related software license. VSOE of professional services is established based on
daily rates when sold on a stand-alone basis. If it is not probable that a project will be completed or the payment will be received,
revenue recognition is deferred until the uncertainty is removed.
Software Fees and Other: Software fees and other revenue primarily consists of revenue from the sale of perpetual software licenses
that do not include the right to unspecified software products, on a stand-alone basis or in a bundled arrangement where VSOE exists
for any undelivered elements. For bundled arrangements that include either maintenance or both maintenance and professional
services, the Company uses the residual method to determine the amount of license revenue to be recognized. Under the residual
method, consideration is allocated to undelivered elements based upon VSOE of those elements, with the residual of the arrangement
fee allocated to and recognized as license revenue. The Company determines VSOE of maintenance, depending on the product, from
either contractually stated renewal rates or the bell-shaped curve method.
In the event that agreements with the Company’s customers are executed in close proximity of the other license agreements with the
same customer, the Company evaluates whether the separate arrangements are linked, and, if so, the agreements are considered a
single multi-element arrangement for which revenue is recognized ratably as subscription and maintenance revenue or, in the case of
a linked professional services arrangement, as professional services revenue, in the Consolidated Statements of Operations.
(g) Sales Commissions: Sales commissions are recognized in the period the commissions are earned by employees, which is typically
upon signing of the contract. Under the Company’s sales commissions programs, the amount of sales commissions expense
attributable to the license agreements signed in the period would be recognized fully, but the revenue from the license agreements
may be recognized ratably over the subscription and maintenance term.
(h) Accounting for Share-Based Compensation: Share-based awards exchanged for employee services are accounted for under the
fair value method. Accordingly, share-based compensation cost is measured at the grant date, based on the fair value of the award.
The expense for awards expected to vest is recognized over the employee’s requisite service period (generally the vesting period of
the award). Awards expected to vest are estimated based on a combination of historical experience and future expectations.
The Company has elected to treat awards with only service conditions and with graded vesting as one award. Consequently, the total
compensation expense is recognized straight-line over the entire vesting period, so long as the compensation cost recognized at any
date at least equals the portion of the grant date fair value of the award that is vested at that date.
The Company uses the Black-Scholes option-pricing model to compute the estimated fair value of share-based awards in the form of
options. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility, expected term of the option
and risk-free interest rates.
In addition to stock options and restricted share awards (RSAs) with time-based vesting, the Company issues performance share units
(PSUs). Compensation costs for the PSUs are amortized over the requisite service periods based on the expected level of achievement
of the performance targets. At the conclusion of the performance periods, the applicable number of shares of RSAs, restricted stock
units (RSUs) or unrestricted shares granted may vary based on the level of achievement of the performance targets. Additionally, the
grants are subject to the approval of the Company’s Compensation and Human Resources Committee of the Board of Directors (the
62