Computer Associates 2013 Annual Report Download - page 83

including discounted cash flow models, quoted market values and third-party independent appraisals, as considered
necessary.
Property and Equipment: Property and equipment are stated at cost. Depreciation and amortization expense is calculated
based on the estimated useful lives of the assets, and is recognized by using the straight-line method. Building and
improvements are estimated to have 5 to 40 year lives, and the remaining property and equipment are estimated to have 3
to 7 year lives.
Capitalized Development Costs: Capitalized development costs in the accompanying Consolidated Balance Sheets include
costs associated with the development of computer software to be sold, leased or otherwise marketed. Software
development costs associated with new products and significant enhancements to existing software products are expensed as
incurred until technological feasibility, as defined in FASB ASC Topic 985-20, has been established. Costs incurred
thereafter are capitalized until the product is made generally available. The stage during the Company’s development
process for a new product or new release at which technological feasibility requirements are established affects the amount
of costs capitalized.
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 5 years from the date
the product became available for general release to customers. The Company generally recognizes amortization expense for
capitalized software costs using the straight-line method.
Purchased Software Products: Purchased software products primarily include the cost of software technology acquired in
business combinations. The cost of such products is equal to the fair value of the acquired software technology at the
acquisition date. The Company records straight-line amortization of purchased software costs over their remaining economic
lives, estimated to be between 3 and 10 years from the date of acquisition. Purchased software products are reviewed for
impairment quarterly and whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable.
Other Intangible Assets: Other intangible assets include customer relationships and trademarks/trade names. The Company
amortizes all other intangible assets over their remaining economic lives, estimated to be between 2 and 12 years from the
date of acquisition. Other intangible assets subject to amortization are reviewed for impairment quarterly and whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Goodwill: Goodwill represents the excess of the aggregate purchase price over the fair value of the net tangible and
intangible assets, including in-process research and development, acquired by the Company in a purchase business
combination. Goodwill is not amortized into results of operations but instead is evaluated for impairment.
Goodwill is tested for impairment at least annually in the fourth quarter of each fiscal year. In accordance with Accounting
Standards Update (ASU) No. 2011-08, Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment, the
Company may first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is
less than its carrying amount, and, if so, the Company then applies the two-step impairment test. The two-step impairment
test first compares the fair value of the Company’s reporting units, which are the same as its operating segments, to their
carrying (i.e., book) value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and the
Company is not required to perform further testing. If the carrying value of the reporting unit exceeds its fair value, the
Company determines the implied fair value of the reporting unit’s goodwill and if the carrying value of the reporting unit’s
goodwill exceeds its implied fair value, then the Company records an impairment loss equal to the difference.
The Company determines the fair value of its reporting units based on use of income and market approaches. Under the
income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future
cash flows. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. These
estimates and assumptions include the revenue growth rates and operating profit margins that are used to project future
cash flows, discount rates, future economic and market conditions and determination of appropriate market comparables.
The Company makes certain judgments and assumptions in allocating shared costs among operating segments. The
Company bases its fair value estimates on assumptions that are consistent with information used by the business for
planning purposes and that it believes to be reasonable, however, actual future results may differ from those estimates.
Changes in judgments on any of these factors could materially affect the value of the reporting unit.
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