Computer Associates 1997 Annual Report Download - page 25

Notes to Consolidated Financial Statements
Note 1 — Significant Accounting Policies
Description of Business: Computer Associates International, Inc.
and subsidiaries (the “Company”) designs, develops, markets and
supports a wide range of integrated computer software products.
Principles of Consolidation: Significant intercompany items and
transactions have been eliminated in consolidation. The Company
has various investments which it accounts for under the equity
method of accounting. These investments are not significant
either individually or when considered collectively. The Company’s
net gain or loss for such investments is reflected in selling,
marketing and administrative expense.
Basis of Revenue Recognition: Product license fee revenue is
recognized after both acceptance by the client and delivery of the
product. Maintenance revenue, whether bundled with product
license or priced separately, is recognized ratably over the mainte-
nance period. Accounts receivable resulting from product sales
with extended payment terms are discounted to present value
using the rate which approximates the Company’s cost of funds.
The amounts of the discount credited to operations for the years
ended March 31, 1997, 1996, and 1995 were $271 million,
$215 million, and $161 million, respectively.
Marketable Securities: The Company considers all highly liquid
investments with a maturity of three months or less when pur-
chased to be cash equivalents.
The Company has evaluated its investment policies consistent
with Financial Accounting Standards Board Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities
(“FASB 115”), and determined that all of its investment securities
are to be classified as available-for-sale. Available-for-sale securi-
ties are carried at fair value, with the unrealized gains and losses
reported in Stockholders’ Equity under the caption Equity
Adjustment. The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income. Realized gains
and losses and declines in value judged to be other-than-tempo-
rary on available-for-sale securities are included in interest
income. The cost of securities sold is based on the specific identi-
fication method. Interest and dividends on securities classified as
available-for-sale are included in interest income.
Property and Equipment: Land, buildings, equipment, furniture,
and improvements are stated at cost. Depreciation and amortiza-
tion are provided over the estimated useful lives of the assets by
the straight-line method. Building and improvements are generally
estimated to have 30-40 year lives and the remaining property
and equipment are estimated to have 5-7 year lives.
Intangibles: Excess of costs over net assets acquired is being
amortized by the straight-line method over 20 years. Cost of pur-
chased software and acquired rights to market software products,
and software development costs (costs incurred after develop-
ment of a working model or a detailed program design) are capi-
talized and amortized by the straight-line method over five years
or based on the product’s useful economic life, commencing with
product release. Unamortized capitalized development costs
included in other assets at March 31, 1997 and 1996 were $54
million and $53 million, respectively. Amortization of capitalized
development costs was $17 million, $19 million, and $22 million
for the fiscal years ended March 31, 1997, 1996, and 1995,
respectively.
Net Income per Share: Net income per share of Common Stock is
computed by dividing net income by the weighted average num-
ber of common shares and any dilutive common share equiva-
lents outstanding. Fully diluted net income per share for fiscal
1997, 1996, and 1995 is not materially different from net income
per share. The number of common shares used for computing net
loss per common share in fiscal 1996 does not include any com-
mon share equivalents because the effect would have been
antidilutive.
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, “Earning per Share,” which is required
to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilu-
tive effect of stock plans will be excluded. The impact is expected
to result in an increase in primary earnings for the year ended
March 31, 1997 of $ .04 per share. The impact of Statement 128
in the calculation of fully diluted earnings per share is not expect-
ed to be material.
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