Computer Associates 2015 Annual Report Download - page 73

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) software usage fees and product sales that include subscription agreements and also generally include
maintenance; (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 elements (i.e., maintenance or professional services) for which vendor specific objective evidence
(VSOE) has not been established. Revenue for these arrangements is recognized ratably over the term of the subscription
or maintenance term.
Professional Services: 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 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 hourly 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 consists primarily of revenue from the sale of perpetual software
licenses that do not include the right to unspecified software products (i.e., a subscription agreement) sold on a stand-alone
basis or in a bundled arrangement where VSOE exists for all undelivered elements, and revenue from Software-as-a-Service.
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 software 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 professional services arrangement that is linked to a subscription-based software
license, 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 policy, the amount of sales commissions
expense attributable to the license agreements signed in the period is 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, restricted share awards (RSAs) and restricted share units (RSUs) 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, 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 Compensation Committee), which has
discretion to reduce any award for any reason. The value of the PSU awards is remeasured each reporting period until the
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