Term Receivables and Trade Accounts Receivable

12 Months Ended

Jan. 31, 2012

Term Receivables and Trade Accounts Receivable

6. Term Receivables and Trade Accounts Receivable

We have long-term installment receivables that are attributable to multi-year, multi-element term license sales agreements. We include balances under term agreements that are due within one year in trade accounts receivable, net and balances that are due more than one year from the balance sheet date in term receivables, long-term. We discount the total product portion of the agreements to reflect the interest component of the transaction. We amortize the interest component of the transaction, using the effective interest method, to system and software revenues over the period in which payments are made and balances are outstanding. We determine the discount rate at the outset of the arrangement based upon the current credit rating of the customer. We reset the discount rate periodically considering changes in prevailing interest rates but do not adjust previously discounted balances.

Term receivable and trade accounts receivable balances were as follows:

As of January 31,	2012		2011
Trade accounts receivable	$	133,494	$	153,733
Term receivables, short-term	$	221,430	$	193,342
Term receivables, long-term	$	220,355	$	167,425

Trade accounts receivable include billed amounts whereas term receivables, short-term is comprised of unbilled amounts. Term receivables, short term represent the portion of long-term installment agreements that are due within one year. Billings for term agreements typically occur 30 days prior to the contractual due date, in accordance with individual contract installment terms. Term receivables, long-term represent unbilled amounts which are scheduled to be collected beyond one year.

We perform a credit risk assessment of all customers using the Standard & Poor’s (S&P) credit rating as our primary credit-quality indicator. The S&P credit ratings are based on the most recent S&P score available. For customers that do not have an S&P credit rating, we base our credit risk assessment on an internal credit assessment which is based on selected short-term financial ratios. Our internal credit assessment is based upon results provided in the customers’ most recent financial statements.

The credit risk assessment for our long-term receivables was as follows:

As of January 31,	2012		2011
S&P credit rating:
AAA+ through BBB-	$	130,545	$	84,685
BB+ and lower		15,161		19,473
		145,706		104,158
Internal credit assessment		74,649		63,267
Total long-term term receivables	$	220,355	$	167,425

We maintain allowances for doubtful accounts on trade accounts receivable and term receivables, long-term for estimated losses resulting from the inability of our customers to make required payments. We regularly evaluate the collectibility of our trade accounts receivable based on a combination of factors. When we become aware of a specific customer’s inability to meet its financial obligations, such as in the case of bankruptcy or deterioration in the customer’s operating results, financial position, or credit rating, we record a specific reserve for bad debt to reduce the related receivable to the amount believed to be collectible. We also record unspecified reserves for bad debt for all other customers based on a variety of factors including length of time the receivables are past due, the financial health of the customers, the current business environment, and historical experience. Current economic conditions we have considered include forecasted spending in the semiconductor industry, consumer spending for electronics, integrated circuit research and development spending, and volatility in gross domestic product. If these factors change or circumstances related to specific customers change, we adjust the estimates of the recoverability of receivables resulting in either additional selling expense or a reduction in selling expense in the period such determination is made.

The following shows the change in allowance for doubtful accounts for the years ended January 31, 2012, 2011, and 2010:

Allowance for doubtful accounts	Beginning balance		Charged to expense			Other changes(1)			Ending balance
Year ended January 31, 2012	$	3,941	$	688		$	(197	)	$	4,432
Year ended January 31, 2011	$	3,607	$	369		$	(35	)	$	3,941
Year ended January 31, 2010	$	5,515	$	(15	)	$	(1,893	)	$	3,607

⁽¹⁾  Specific account write-offs and foreign exchange.