Computer Associates 2006 Annual Report Download - page 126

Note 1 — Significant Accounting Policies (Continued)
as available-for-sale are included in the “Interest expense, net” line item in the Consolidated Statements of
Operations.
Restricted Cash: The Company’s insurance subsidiary requires a minimum restricted cash balance of $50 million.
In addition, the Company has other restricted cash balances, including cash collateral for letters of credit. The total
amount of restricted cash as of March 31, 2006 and 2005 was $60 million and $67 million, respectively, and is
included in the “Other noncurrent assets” line item on the Consolidated Balance Sheets.
Property and Equipment: Land, buildings, equipment, furniture, and improvements are stated at cost.
Depreciation and amortization are provided over the estimated useful lives of the assets by the straight-line
method. Building and improvements are estimated to have 10- to 40-year lives, and the remaining property and
equipment are estimated to have 5- to 7-year lives. Depreciation expense for the fiscal years ended March 31, 2006,
2005, and 2004 was approximately $83 million, $89 million and $97 million, respectively.
Goodwill: Goodwill represents the excess of the aggregate purchase price over the fair value of the net tangible
and identifiable intangible assets and 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 reviewed for impairment.
During the fourth quarter of fiscal year 2006, the Company performed its annual impairment review of goodwill and
concluded that there was no impairment in the current fiscal year. Similar impairment reviews were performed
during the fourth quarter of fiscal years 2005 and 2004. The Company concluded that there was no impairment to be
recorded in these fiscal years.
The carrying value of goodwill was $5.31 billion and $4.54 billion as of March 31, 2006 and 2005, respectively.
During fiscal year 2006, goodwill increased approximately $764 million due primarily to the acquisitions of
Concord Communications, Inc (Concord), Niku Corporation (Niku), iLumin Software Services, Inc. (iLumin) and
Wily Technology, Inc. (Wily). For the fiscal year ended March 31, 2006, goodwill increased by approximately
$345 million, $226 million, $36 million and $232 million principally as a result of the Company’s acquisitions of
Concord, Niku, iLumin and Wily, respectively. The goodwill balances for Concord and Niku were subsequently
increased (decreased) by approximately $12 million and ($83) million, respectively, in order to adjust balances
based on revisions to the purchase price allocations after the acquisition date. Goodwill was also recorded and
adjusted for smaller acquisitions made this fiscal year of approximately $7 million. Goodwill associated with prior
fiscal year acquisitions was reduced by approximately $3 million. Goodwill was also reduced by $8 million for the
sale of Multigen-Paradigm, Inc.
The carrying value of goodwill was $4.54 billion and $4.37 billion as of March 31, 2005 and 2004, respectively.
During fiscal year 2005, goodwill increased approximately $271 million due primarily to the acquisition of
Netegrity, Inc. and Pest Patrol, Inc. This increase was reduced by approximately $96 million due to adjustments to
net operating losses, adjustments to anticipated future tax benefits, and adjustments to other acquisition reserves
related to the acquisitions of Platinum Technology International, Inc. and Sterling Software, Inc.
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 eight years. In connection with
the acquisition of Concord in June 2005, Niku in July 2005, iLumin in October 2005, and Wily in March 2006 the
Company capitalized approximately $18 million, $23 million, $2 million, and $54 million of purchased software,
respectively. In addition, the Company recorded approximately $38 million of purchase software costs related to
smaller acquisitions during fiscal year 2006.
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 $84 million, $70 million, and $44 million were
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