Computer Associates 2006 Annual Report Download - page 128

Note 1 — Significant Accounting Policies (Continued)
Based on the identified intangible assets recorded through March 31, 2006, the annual amortization expense over
the next five fiscal years is expected to be as follows:
2007 2008 2009 2010 2011
Year Ended March 31,
(in millions)
Capitalized software:
Purchased .................................... $296 $ 52 $ 41 $ 29 $18
Internally developed ............................ 53 47 39 32 20
Other identified intangible assets subject to amortization . . . 50 50 50 50 50
Total .......................................... $399 $149 $130 $111 $88
Accounting for Long-Lived Assets: The carrying values of purchased software products, other intangible assets,
and other long-lived assets, including investments, are reviewed on a regular basis for the existence of facts or
circumstances, both internally and externally, that may suggest impairment. If an impairment is deemed to exist,
any related impairment loss is calculated based on net realizable value for capitalized software and fair value for all
other intangibles.
Accounting for Stock-Based Compensation: Effective April 1, 2005, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment”
(SFAS No. 123(R)), which establishes accounting for stock-based awards exchanged for employee services.
Under the provisions of SFAS No. 123(R), stock-based compensation cost is measured at the grant date, based on
the calculated fair value of the award, and is recognized as an expense over the employee requisite service period
(generally the vesting period of the equity grant).
Sales Commissions: Sales commissions are recognized in the period earned by employees, which is typically
upon the signing of the contract. The Company accrues for sales commissions based on, among other things,
estimates of how the sales personnel will perform against specified annual sales quotas. These estimates involve
assumptions regarding the Company’s projected new product sales and billings. All of these assumptions reflect the
Company’s best estimates, but these items involve uncertainties, and as a result, if other assumptions had been used
in the period, sales commission expense could have been impacted for that period. Under the Company’s current
sales compensation model, during periods of high growth and sales of new products relative to revenue in that
period, the amount of sales commission expense attributable to the license agreement would be recognized fully in
the year and could negatively impact income and earnings per share in that period.
Derivative Financial Instruments: Derivatives are accounted for in accordance with Statement of Financial
Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”).
For the fiscal year ended March 31, 2006, the Company entered into derivative contracts with a total notional value
of 280 million euros. Derivatives with a notional value of 80 million euros were entered into with the intent of
mitigating a certain portion of the Company’s euro operating exposure and are part of the Company’s on-going risk
management program. Derivatives with a notional value of 200 million euros were entered into during March 2006
with the intent of mitigating a certain portion of the foreign exchange variability associated with the Company’s
repatriation of approximately $584 million from its foreign subsidiaries. Hedge accounting under SFAS No. 133
was not applied to any of the derivatives entered into during the fiscal year ended March 31, 2006. The resulting gain
of approximately $1 million for the fiscal year ending March 31, 2006 is included in the “Other (gains) losses, net”
line in the Consolidated Statement of Operations. As of March 31, 2006, there were no derivative contracts
outstanding.
Comprehensive Income (Loss): Comprehensive income (loss) includes net income (loss), foreign currency
translation adjustments and unrealized gains (losses) on the Company’s available-for-sale securities. As of
March 31, 2006 and 2005, the accumulated comprehensive income (loss) included foreign currency translation
losses of $136 million and $75 million, respectively. Accumulated comprehensive loss also includes an unrealized
gain on equity securities, net of tax, of $2 million for the fiscal year ended March 31, 2006 and an unrealized loss on
equity securities, net of tax, of less than $1 million for the fiscal year ended March 31, 2005. The components of
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