Computer Associates 1997 Annual Report Download - page 26

Share and per share amounts have been adjusted to reflect
three-for-two stock splits effective August 21, 1995 and
June 19, 1996.
Statement of Cash Flows: Interest payments for the years ended
March 31, 1997, 1996, and 1995 were $89 million, $76 million,
and $23 million, respectively. Income taxes paid for these fiscal
years were $300 million, $144 million, and $227 million,
respectively.
Translation of Foreign Currencies: In translating financial state-
ments of foreign subsidiaries, all assets and liabilities are translat-
ed using the exchange rate in effect at the balance sheet date.
All revenue, costs and expenses are translated using an average
exchange rate. Net income (loss) includes exchange (losses) gains
of approximately $(7) million in 1997, $1 million in 1996, and $(1)
million in 1995.
Use of Estimates: The preparation of financial statements in con-
formity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Although these estimates are based on management’s
knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
New Accounting Pronouncements: During fiscal 1997, the
Company has adopted the disclosure only provisions of Statement
of Financial Accounting Standards (FAS) No. 123, “Accounting for
Stock-Based Compensation.” In accordance with the provisions of
FAS No. 123, the Company applies APB 25 and related interpreta-
tions in accounting for its stock based plans.
Emerging Issues Task Force No. 96-7, “Accounting for Deferred
Taxes on In-Process Research and Development Activities
Acquired in a Purchase Business Combination,” became effective
on May 23, 1996. As provided therein, deferred taxes will no
longer be provided on the initial differences between the amounts
assigned to in-process research and development costs acquired
in a business purchase combination for financial reporting and tax
purposes, and in-process research and development will be
charged to expense on a gross basis at acquisition. The effect of
this change was to decrease net income by $221 million, or $.58
per share, in fiscal year 1997 as a result of not providing a
deferred tax benefit.
Note 2 — Acquisitions
On November 11, 1996, the Company acquired 98% of the
issued and outstanding shares of Common Stock of Cheyenne
Software, Inc. (“Cheyenne”), and on December 2, 1996 merged
into Cheyenne one of its wholly owned subsidiaries. The aggre-
gate purchase price of approximately $1.2 billion was funded
from drawings under the Company’s $2 billion credit agreements.
Cheyenne was engaged in the design, development, marketing,
and support of storage, management, security and communica-
tions software for desktops and distributed enterprise networks.
The acquisition was accounted for as a purchase. The results of
Cheyenne’s operations have been combined with those of the
Company since the date of acquisition.
The Company recorded a $598 million after-tax charge against
earnings for the write-off of purchased Cheyenne research and
development technology that had not reached the working model
stage and has no alternative future use. Research and develop-
ment charges are generally based upon a discounted cash flow
analysis. Had this charge not been taken during the quarter ended
December 31, 1996, net income and net income per share for
the year ended March 31, 1997 would have been $964 million, or
$2.54 per share.
On August 1, 1995, the Company acquired 98% of the issued
and outstanding shares of common stock of Legent Corporation
(“Legent”), and on November 6, 1995 merged into Legent one of
its wholly owned subsidiaries. The aggregate purchase price of
approximately $1.8 billion was funded from drawings under the
Company’s $2 billion credit agreement dated as of July 24, 1995.
Legent was engaged in the design, development, marketing, and
support of a broad range of computer software products for the
management of information systems used to manage mainframe,
midrange, server, workstation and PC systems deployed through-
out a business enterprise. The acquisition was accounted for as a
purchase. The results of Legent’s operations have been combined
with those of the Company since the date of acquisition.
The Company recorded an $808 million after-tax charge against
earnings for the write-off of purchased Legent research and
development technology that had not reached the working model
stage and has no alternative future use. Had this charge not been
taken, net income for the fiscal year ended March 31, 1996
would have been $752 million, or $1.99 per share.
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