Computer Associates 2007 Annual Report Download - page 68

technological feasibility, the reported product development and enhancement expense could have been impacted. Annual
amortization of capitalized software costs is the greater of the amount computed using the ratio that current gross revenues
for a product bear to the total of current and anticipated future gross revenues for that product or the straight-line method over
the remaining estimated economic life of the software product, generally estimated to be five years from the date the product
became available for general release to customers. The Company amortized capitalized software costs using the straight-line
method in fiscal year 2006 and fiscal year 2007, as anticipated future revenue is projected to increase for several years
considering the Company is continuously integrating current software technology into new software products.
Accounting for Stock-Based Compensation
We currently maintain 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 impacted. Furthermore, if different assumptions are
used in future periods, stock-based compensation expense could be materially impacted 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 plan 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 they 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 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, accruals 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 July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in the financial
statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 provides guidance relative to
the recognition, derecognition and measurement of taxes related to tax positions taken for financial statement purposes. The
standard also required expanded disclosures. FIN 48 is effective for fiscal years beginning after December 15, 2006 and will be
implemented in our first quarter of fiscal year 2008. We are currently evaluating the impact of this standard but we do not
believe there will be any material impact on our Consolidated Statements of Operations or Consolidated Statements of Cash
Flows from the implementation of this standard.
In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements”.
SFAS No. 157 defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting
principles (GAAP) and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years. We are currently evaluating the impact of
this standard on our Consolidated Financial Statements.
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