Computer Associates 2016 Annual Report Download - page 29

Certain software we use is from open source code sources, which, under certain circumstances, may lead to
unintended consequences and, therefore, could materially adversely affect our business, financial condition,
operating results and cash flow.
Some of our products, both organically developed and acquired, contain software from open source code sources. The use of
such open source code may subject us to certain conditions, including the obligation to offer our products that use open source
code for no cost or to make the proprietary source code of those products publicly available. Further, although some open
source vendors provide warranty and support agreements in conjunction with the use of their open source software, it is
common for many open source software authors to make their open source software available “as-is” with no warranty,
indemnity or support. We monitor our use of such open source code to avoid subjecting our products to conditions we do not
intend. However, the use of such open source code may ultimately subject some of our products to unintended conditions, which
could require us to take remedial action that may divert resources away from our development efforts and, therefore, could
materially adversely affect our business, financial condition, operating results and cash flow.
Third parties could claim that our products infringe or contribute to the infringement of their intellectual
property rights or that we owe royalty payments to them, which could result in significant litigation expense or
settlement with unfavorable terms, which could materially adversely affect our business, financial condition,
operating results and cash flow.
From time to time, third parties have claimed and may claim that our products, both organically developed and acquired,
infringe various forms of their intellectual property or that we owe royalty payments to them. Investigation of these claims can
be expensive and could affect development, marketing or shipment of our products. As the number of software patents issued
increases, it is likely that additional claims will be asserted. Defending against such claims is time consuming and could result in
significant litigation expense, adverse judgments or settlement on unfavorable terms, which could materially adversely affect our
business, financial condition, operating results and cash flow.
The number, terms and duration of our license agreements, as well as the timing of orders from our customers and
channel partners, may cause fluctuations in some of our key financial metrics, which may affect our quarterly
financial results.
Historically, a substantial portion of our license agreements are executed in the last month of a quarter and the number of
contracts executed during a given quarter can vary substantially. In addition, it is characteristic of our industry when dealing
with enterprise customers to experience long sales cycles, which for us is driven in part by the varying terms and conditions of
our software contracts. These factors can make it difficult for us to predict sales and cash flow on a quarterly basis. Any failure
or delay in executing new or renewed license agreements in a given quarter could cause declines in some of our key financial
metrics (e.g., revenue or cash flow), and, accordingly, increases the risk of unanticipated variations in our quarterly results,
financial condition, operating results and cash flow.
We may encounter events or circumstances that would require us to record an impairment charge relating to our
goodwill or capitalized software and other intangible assets balances.
Under U.S. generally accepted accounting principles, we are required to evaluate our capitalized software and other intangible
assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. We test
goodwill for impairment at least annually, and more frequently if impairment indicators are present. In future periods, we may
be subject to factors that may constitute a change in circumstances, indicating that the carrying value of our goodwill exceeds
fair value or our capitalized software and other intangible assets may not be recoverable. These changes may consist of, but are
not limited to, declines in our stock price and market capitalization, reduced future cash flow estimates, and slower growth rates
in our industry. Any of these factors, or others, could require us to record a significant non-cash impairment charge in our
financial statements during a period. Acquisitions can result in additional goodwill or capitalized software and other intangible
assets balances subject to impairment risk. If we determine that a significant impairment of our goodwill or our capitalized
software and other intangible assets has occurred in any of our operating segments, this could materially adversely affect our
business, financial condition and operating results.
Potential tax liabilities may materially adversely affect our results.
We are subject to income taxes in the United States and in numerous foreign jurisdictions. Significant judgment is required in
determining our worldwide provision for income taxes. In the ordinary course of our business, we engage in many transactions
and calculations where the ultimate tax determination is uncertain.
We are regularly under audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination
of tax audits and any related litigation could be materially different from that which is reflected in our income tax provisions and
accruals. Additional tax assessments resulting from audit, litigation or changes in tax laws may result in increased tax provisions
or payments or possibly criminal claims, penalties or fines which could materially adversely affect our business, financial
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