Computer Associates 2004 Annual Report Download - page 80

Prior to the adoption of SFAS No. 142, the Company amortized goodwill over its estimated useful life, which ranged from
10 to 20 years, depending on the nature of the business acquired. The Company recorded amortization of goodwill for
the fiscal year ended March 31, 2002, of $445 million.
Upon adoption of SFAS No. 142, assembled workforce no longer met the definition of an identifiable intangible asset.
As a result, the net balance of $79 million as of March 31, 2002, was reclassified from intangible assets to goodwill.
The Company recorded amortization of assembled workforce of $13 million for the fiscal year ended March 31, 2002.
Additionally, a related deferred tax liability of $35 million was reclassified from deferred taxes to goodwill as of March 31, 2003.
The carrying value of goodwill was $4.366 billion and $4.400 billion as of March 31, 2004 and 2003, respectively. During
fiscal year 2004, goodwill decreased approximately $34 million, due primarily to adjustments in acquisition reserves and
reclassification of deferred taxes related to the acquisitions of PLATINUM technology International, inc. (PLATINUM) and
Sterling Software, Inc. (Sterling). This was partially offset by the addition of approximately $6 million in goodwill related
to the Company’s acquisition of Miramar Systems. A reconciliation of previously reported net loss and loss per share to
the amounts adjusted for the exclusion of goodwill and assembled workforce amortization is as follows:
Year Ended March 31,
2004 2003 2002
(in millions, except per share amounts)
Reported loss from continuing operations, net of taxes ................................................................ $ (36) $ (270) $(1,096)
Goodwill amortization ...................................................................................................................... — — 445
Assembled workforce amortization, net of taxes ............................................................................ — — 13
Adjusted loss from continuing operations, net of taxes .................................................................. $ (36) $ (270) $ (638)
Reported basic and diluted loss per share from continuing operations .......................................... $(0.06) $(0.47) $ (1.90)
Goodwill amortization per share ...................................................................................................... — — 0.77
Assembled workforce amortization per share ................................................................................ — — 0.02
Adjusted basic and diluted loss per share from continuing operations .......................................... $(0.06) $(0.47) $ (1.11)
Capitalized Software Costs and Other Identified Intangible Assets: Capitalized software costs include the fair value of
rights to market software products acquired in purchase business combinations (Purchased Software Products). In allocating
the purchase price to the assets acquired in a purchase business combination, the Company allocates a portion of the
purchase price equal to the fair value at the acquisition date of the rights to market the software products of the acquired
company. The purchase price of Purchased Software Products is capitalized and amortized over the estimated useful life
of such products over a period not exceeding seven years. The Company recorded amortization of Purchased Software
Products for the fiscal years ended March 31, 2004, 2003, and 2002, of $423 million, $430 million, and $446 million,
respectively, which were included in the “Amortization of capitalized software costs” line item on the Consolidated
Statements of Operations.
In accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed,” internally generated software development costs associated with new products and significant enhancements
to existing software products are expensed as incurred until technological feasibility has been established. Internally
generated software development costs of $44 million, $40 million, and $53 million were capitalized during fiscal years
2004, 2003, and 2002, respectively. The Company recorded amortization of $40 million, $35 million, and $32 million
for the fiscal years ended March 31, 2004, 2003, and 2002, respectively, which was included in the “Amortization of
capitalized software costs” line item on the Consolidated Statements of Operations. Unamortized, internally generated
software development costs included in the “Other noncurrent assets” line item on the Consolidated Balance Sheets
totaled $135 million at both March 31, 2004 and 2003. In fiscal year 2004, the Company recorded an impairment charge
of $4 million related to internally developed capitalized software assets. This amount was included in the “Other
gains/expenses, net” line item on the Consolidated Statements of Operations.
Annual amortization of capitalized software costs is the greater of the amount computed using (i) the ratio that current
gross revenue for a software product bears to the total of current and anticipated future revenue for that software product
or (ii) the straight-line method over the remaining estimated economic life of the software product, generally estimated
to be five years. The Company amortized capitalized software costs using the straight-line method in fiscal years 2004,
2003, and 2002, as anticipated future revenue is projected to increase for several years considering the Company is
continuously integrating current software technology into new software products.
CA 2004 FORM 10-K | PAGE 52
Note 1 — Significant Accounting Policies (Continued)