Computer Associates 2007 Annual Report Download - page 30

Download and view the complete annual report

Please find page 30 of the 2007 Computer Associates annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 144

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144

Certain software we use is from open source code sources which under certain circumstances may lead to unintended
consequences and, therefore, could adversely affect our business, financial condition, operating results and cash flow.
Some of our products 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. 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 so that we are required to take remedial action
that may divert resources away from our development efforts. We believe that the use of such open source code will not have
a significant impact on our operations and that our products will be viable after any remediation efforts. However, there can be
no assurance that future conditions involving such open source code will not have an adverse impact on our business, financial
condition, operating results and cash flow.
Discovery of errors in our software could adversely affect our revenues and earnings and subject us to product liability
claims, which may be costly and time consuming.
The software products we offer are inherently complex. Despite testing and quality control, we cannot be certain that errors
will not be found in current versions, new versions or enhancements of our products after commencement of commercial
shipments. If new or existing customers have difficulty deploying our products or require significant amounts of customer
support, our operating margins could be adversely affected. Moreover, we could face possible claims and higher development
costs if our software contains undetected errors or if we fail to meet our customers’ expectations. Significant technical
challenges also arise with our products because our customers purchase and deploy our products across a variety of
computer platforms and integrate them with a number of third-party software applications and databases. These
combinations increase our risk further because in the event of a system-wide failure, it may be difficult to determine
which product is at fault; thus, we may be harmed by the failure of another supplier’s products. As a result of the foregoing, we
could experience:
•Loss of or delay in revenues and loss of market share;
•Loss of customers, including the inability to do repeat business with existing key customers;
•Damage to our reputation;
•Failure to achieve market acceptance;
•Diversion of development resources;
•Increased service and warranty costs;
•Legal actions by customers against us which could, whether or not successful, increase costs and distract our management;
•Increased insurance costs; and
•Failure to successfully complete service engagements for product installations and implementations.
In addition, a product liability claim, whether or not successful, could be time-consuming and costly and thus could have a
material adverse affect on our business, financial condition, operating results and cash flow.
Our credit ratings have been downgraded and could be downgraded further which would require us to pay additional
interest under our credit agreement and could adversely affect our ability to borrow in the future.
As of May 2007, our senior unsecured notes are rated Ba1, BB+ and BB by Moody’s Investors Service (Moody’s), Fitch Ratings
(Fitch), and Standard and Poor’s (S&P), respectively. The outlook of the ratings is negative for all three agencies.
Moody’s, Fitch, S&P or any other credit rating agency may further downgrade or take other negative action with respect to our
credit ratings in the future. If our credit ratings are further downgraded or other negative action is taken, we would be required
to, among other things, pay additional interest under our credit agreement, if it is utilized. Any downgrades could affect our
ability to obtain additional financing in the future and may affect the terms of any such financing. This could have a material
adverse effect on our business, financial condition, operating results and cash flow.
18