Computer Associates 2016 Annual Report Download - page 80

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
generally estimated to have 5 to 39 year lives, and the remaining property and equipment are generally estimated to have 3 to 7
year lives.
Internally Developed Software Products: Internally developed software products, which are included in “Capitalized software and
other intangible assets, net” in the Consolidated Balance Sheets, consist of capitalized 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. Since fiscal year 2014, the Company has
continued to leverage Agile development methodologies, which are characterized by a more dynamic development process with
more frequent revisions to a product release’s features and functions as the software is being developed. As such, the amount to
be capitalized for internally developed software costs was not material to the Company’s consolidated financial statements for
fiscal years 2016 and 2015.
Annual amortization of internally developed software products 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, and such amortization is included in “Amortization of
capitalized software costs” in the Consolidated Statements of Operations. Internally developed 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.
Purchased Software Products: Purchased software products, which is included in “Capitalized software and other intangible
assets, net” in the Consolidated Balance Sheets, consist primarily of 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.
Annual amortization of purchased software products 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. The Company generally amortizes capitalized
software costs using the straight-line method over their remaining economic lives, estimated to be between 2 and 10 years from
the date of acquisition, and such amortization is included in “Amortization of capitalized software costs” in the Consolidated
Statements of Operations. 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, which is included in “Capitalized software and other intangible assets, net” in
the Consolidated Balance Sheets, consist of customer relationships and trademarks/trade names. The Company generally
amortizes all other intangible assets using the straight-line method over their remaining economic lives, estimated to be between
1 and 15 years from the date of acquisition, and such amortization is included in “Depreciation and amortization of other
intangible assets” in the Consolidated Statements of Operations. 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 purchase price over the fair value of net assets acquired in connection with
business combinations accounted for using the purchase method of accounting. Goodwill is not amortized, but instead goodwill
is required to be tested for impairment annually and under certain circumstances. The Company reviews goodwill for
impairment on an annual basis on the first day of the fourth quarter of each fiscal year, and on an interim basis whenever events
or changes in circumstances indicate that the carrying value may not be recoverable, at the reporting unit level. The Company’s
reporting units are the same as its operating segments.
When evaluating goodwill for impairment, based upon the Company’s annual test or due to changes in circumstances described
above, the Company first can opt to perform a qualitative assessment to determine if the fair value of a reporting unit is more
likely than not (i.e., a likelihood of more than 50%) less than the reporting unit’s carrying amount, including goodwill, or it can
directly perform the two-step impairment test. This qualitative assessment includes, among other things, consideration of:
(i) identifying inputs and assumptions that most affect fair value; (ii) identifying relevant events and circumstances that may
have an impact on those inputs and assumptions; (iii) weighing the events and circumstances; and (iv) concluding on the totality
of events and circumstances. If this assessment indicates that the fair value of the reporting unit exceeds the carrying value of
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