SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In June 2007, the FASB ratified the consensus in EITF Issue No. 07-3 Accounting for Nonrefundable
Payments for Goods and Services to be Used in Future Research and Development Activities (EITF 07-04),
requiring that nonrefundable advance payments for future research and development activities be deferred and
capitalized. Such amounts should be expenses as the related goods are delivered or the related services performed.
The statement is effective for fiscal years beginning after December 15, 2007. Management anticipates that the
adoption of EITF Issue No. 07-3 will not have a material impact on the Company’s financial statements.
In June 2007, the FASB ratified Issue No. 06-11 Accounting for Income Tax Benefits of Dividends on ShareBased Payment Awards (EITF 06-11), which requires entities to record tax benefits on dividends or dividend
equivalents that are charged to retained earnings for certain share-based awards to additional paid-in capital.
In a share-based payment arrangement, employees may receive dividends or dividend equivalents on awards
of nonvested equity shares, nonvested equity share units during the vesting period, and share options until
the exercise date. Generally, the payment of such dividends can be treated as deductible compensation for tax
purposes. The amount of tax benefits recognized in additional paid-in capital should be included in the pool of
excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11 is effective for
fiscal years beginning after December 15, 2007, and interim periods within those years. Management anticipates
that the adoption of EITF Issue No. 06-11 will not have a material impact on the Company’s financial statements.
Impact of Recently Adopted Accounting Pronouncements
Sabbatical Leave
Effective February 1, 2007, the Company adopted the provisions of the FASB Emerging Issues Task Force
(“EITF”) No. 06-2, Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement
No. 43 (“EITF 06-2”) included in SeaChange’s Form 10-Q/A filed on October 22, 2007 for the quarter ended
April 30, 2007. Prior to the issuance of EITF 06-2 the Company accrued for its obligation under its sabbatical
program when an employee had achieved the requisite service time. EITF 06-2 requires companies to accrue the
cost of such compensated absences over the requisite service period. The Task Force allows the use of one of two
specified methodologies for adopting the change in accounting principle: i) a cumulative-effect adjustment to
retained earnings at the beginning of the year of adoption; or ii) retrospective application to all prior periods.
The Company elected to use the cumulative-effect adjustment to the beginning balance of retained earnings
resulting in an additional liability of $769,000 and a corresponding increase in the accumulated deficit of $769,000.
The impact of this adoption and related restatement does not include any net tax effects as the Company’s deferred
tax assets are fully reserved against due to the uncertainties related to the Company’s ability to generate sufficient
pre-tax income for fiscal 2008 and the inability to carry back fiscal 2008 tax losses to prior years because the
Company exhausted its US tax benefit carry back potential in fiscal 2007 (see Note 10). Under this transition
method, periods prior to February 1, 2007 have not been restated. Accrued expenses and other long-term liabilities
for the first three quarters of fiscal 2008 include vested and unvested accrued sabbatical expense for all employees
who are eligible for sabbatical leave.
During November 2007, the Company reviewed its employee benefit programs, including the sabbatical leave
benefit, and effectively replaced the sabbatical leave benefit with a new expanded vacation policy for United States
benefit eligible employees. Employees eligible for sabbatical leave prior to November 16, 2007 (“grandfathered”)
are required to use the balance of their available time by July 31, 2009. In the fourth quarter of fiscal 2008, the
Company has prospectively applied the changes of its sabbatical leave benefit for those employees that have
unvested sabbatical balances accumulating under EITF 06-2. This prospective change resulted in a $729,000
reduction in accrued expenses and other long-term liabilities and a corresponding decrease in the Company’s
employees’ benefits expense accounts.
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