Computer Associates 2015 Annual Report Download - page 51

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experience as well as other factors that we believe to be reasonable under the circumstances. These estimates may change in
the future if underlying assumptions or factors change.
We consider the following significant accounting policies to be critical because of their complexity and the high degree of
judgment involved in implementing them.
Revenue Recognition
We generate revenue from the following primary sources: (1) licensing software products, including SaaS license agreements;
(2) providing customer technical support (referred to as maintenance); and (3) providing professional services, such as
product implementation, consulting, customer education and customer training.
Software license agreements under our subscription model include the right to receive and use unspecified future software
products for no additional fee during the term of the agreement. We are required under generally accepted accounting
principles (GAAP) to 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 as described below. 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 using the bell-shaped curve method 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 services 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. In the case of a professional services arrangement that is linked to a subscription-based software
license arrangement, revenue is recognized as ‘‘Professional services’’ for its respective portion, 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.’’
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