Computer Associates 2008 Annual Report Download - page 57

remaining period of amortization is deemed appropriate, the remaining carrying amounts of the intangible assets are
amortized over the revised remaining useful life.
During the first quarter of fiscal 2008 we determined that an impairment charge of $0.5 million relating to certain
identifiable intangible assets that were acquired in conjunction with a prior year acquisition and were not subject to
amortization should be recorded. For fiscal 2008, the impairment charge was reported in the “Restructuring and other”
line item in the Consolidated Statements of Operations. The balance of assets with indefinite lives as of both March 31,
2008 and 2007 was $14 million.
Accounting for Business Combinations
The allocation of the purchase price for acquisitions requires extensive use of accounting estimates and judgments to
allocate the purchase price to the identifiable tangible and intangible assets acquired, including in-process research and
development, and liabilities assumed based on their respective fair values.
Product Development and Enhancements
We account for product development and enhancements in accordance with SFAS No. 86, “Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed” (SFAS No. 86). SFAS No. 86 specifies that costs incurred
internally in researching and developing a computer software product should be charged to expense until technological
feasibility has been established for the product. Once technological feasibility is established, all software costs are
capitalized until the product is available for general release to customers. Judgment is required in determining when
technological feasibility of a product is established and assumptions are used that reflect our best estimates. If other
assumptions had been used in the current period to estimate technological feasibility, the reported product development
and enhancement expense could have been affected. 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 2008
and fiscal 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 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
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