Computer Associates 2009 Annual Report Download - page 54

2008, as anticipated future revenue is projected to increase for several years considering that we are continuously
integrating current software technology into new software products.
Accounting for Stock-Based Compensation
We currently maintain several stock-based compensation plans. We use the Black-Scholes option-pricing model to
compute the estimated fair value of certain stock-based awards. The Black-Scholes model includes assumptions
regarding dividend yields, expected volatility, expected lives, and risk-free interest rates. These assumptions reflect our
best estimates, but these items involve uncertainties based on market and other conditions outside of our control. As a
result, if other assumptions had been used, stock-based compensation expense could have been materially affected.
Furthermore, if different assumptions are used in future periods, stock-based compensation expense could be materially
affected in future years.
As described in Note 10, “Stock Plans,” in the Notes to the Consolidated Financial Statements, performance share units
(PSUs) are awards under the long-term incentive programs for senior executives where the number of shares or
restricted shares, as applicable, ultimately received by the employee depends on Company performance measured
against specified targets and will be determined after a three-year or one-year period as applicable. The fair value of
each award is estimated on the date that the performance targets are established based on the fair value of our stock
and our estimate of the level of achievement of our performance targets. We are required to recalculate the fair value of
issued PSUs each reporting period until the underlying shares are granted. The adjustment is based on the quoted
market price of our stock on the reporting period date. Each quarter, we compare the actual performance we expect to
achieve with the performance targets.
Legal Contingencies
We are currently involved in various legal proceedings and claims. Periodically, we review the status of each significant
matter and assess our potential financial exposure. If the potential loss from any legal proceeding or claim is considered
probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment
is required in both the determination of the probability of a loss and the determination as to whether the amount of loss
is reasonably estimable. Due to the uncertainties related to these matters, the decision to record an accrual and the
amount of accruals recorded are based only on the best information available at the time. As additional information
becomes available, we reassess the potential liability related to our pending litigation and claims, and may revise our
estimates. Such revisions could have a material impact on our results of operations and financial condition. Refer to
Note 8, “Commitments and Contingencies,” in the Notes to the Consolidated Financial Statements for a description of
our material legal proceedings.
New Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board (FASB) issued Financial Staff Position (FSP) No. APB 14-1,
“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).”
FSP No. APB 14-1 requires the issuer of convertible debt instruments with cash settlement features to account
separately for the liability and equity components of the instrument. The debt will be recognized at the present value of
its cash flows discounted using the issuer’s nonconvertible debt borrowing rate at the time of issuance. The equity
component will be recognized as the difference between the proceeds from the issuance of the convertible debt
instrument and the fair value of the liability. FSP No. APB 14-1 will also require an accretion of the resulting debt
discount over the expected life of the debt. The proposed transition guidance requires retrospective application to all
periods presented, and does not grandfather existing instruments. FSP No. APB 14-1 is effective for fiscal years
beginning after December 15, 2008. We plan to adopt FSP No. APB 14-1 on April 1, 2009.
Upon adoption of FSP No. APB 14-1, we will be required to revise prior period financial statements. Total stockholders’
equity will increase by $11 million as of March 31, 2009. Our reported net income will decrease by $15 million,
$14 million and $13 million for fiscal 2009, 2008 and 2007, respectively. Our basic net income per share will decrease
by $0.03, $0.02 and $0.02 for fiscal 2009, 2008 and 2007, respectively. Our diluted net income per share will decrease
by $0.02 for fiscal 2007. Fiscal 2009 and 2008 diluted net income per share would not be affected.
In June 2008, the FASB issued Emerging Issues Task Force (EITF) 03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities.” FSP EITF No. 03-6-1 clarifies that unvested share-based
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