Computer Associates 2012 Annual Report Download - page 53

respective tax bases, along with net operating losses and tax credit carryforwards. We measure deferred tax assets and liabilities using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. We recognize the effect on deferred tax assets and liabilities of a change in tax rates on income in the period that includes
the enactment date.
We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. We utilize a “more
likely than not” threshold for the recognition and derecognition of tax positions and measure positions accordingly. We reflect
changes in recognition or measurement in a period in which the change in judgment occurs. We record interest and penalties related
to uncertain tax positions in income tax expense.
Goodwill, Capitalized Software Products, and Other Intangible Assets
We adopted the Accounting Standards Update No. 2011-08, Intangibles — Goodwill and Other (Topic 350) — Testing Goodwill for
Impairment (ASU 2011-08) during the fourth quarter of fiscal 2012. The implementation of this accounting guidance did not have a
material impact on our goodwill impairment evaluations.
Goodwill is tested for impairment at least annually in the fourth quarter of our fiscal year. In accordance with ASU 2011-08, we 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, we then apply the two-step impairment test. The two-step impairment test first compares the fair value of our reporting
units, which are the same as our 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 we are not required to perform further testing. If the carrying value of the reporting
unit exceeds its fair value, we determine 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 we record an impairment loss equal to the difference.
Prior to fiscal 2012, we tested for goodwill impairment at the consolidated entity level which was consistent with our single operating
segment. The reorganization in the first quarter of fiscal 2012 of our internal management reporting resulted in a change from a single
operating segment to three operating segments which required the allocation of goodwill among our three operating segments. During
the fourth quarter of fiscal 2012, we completed our allocation of goodwill, tested for goodwill impairment for each of our reporting
units and have concluded that no goodwill impairment exists. Based on our impairment analysis in the fourth quarter of fiscal 2012,
we determined that the fair value of each of our reporting units exceeded the carrying value of the unit by more than 10% of the
carrying value.
We determine the fair value of our reporting units based on a weighting of income and market approaches. Under the income
approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market
approach, we estimate the fair value based on market multiples of revenue or earnings for comparable companies. 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. We make certain judgments and assumptions in allocating
shared costs among reporting units. We base our fair value estimates on assumptions that are consistent with information used by the
business for planning purposes and that we believe 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.
The carrying values of capitalized software products, for purchased software, internally developed software and other intangible
assets are reviewed for recoverability on a quarterly basis. The facts and circumstances considered include an assessment of the net
realizable value for capitalized software products and the recoverability of the cost of other intangible assets from future cash flows to
be derived from the use of the asset. It is not possible for us to predict the likelihood of any possible future impairments or, if such an
impairment were to occur, the magnitude of any impairment.
Intangible assets with finite useful lives are subject to amortization over the expected period of economic benefit to us. We evaluate
whether events or circumstances have occurred that warrant a revision to the remaining useful lives of intangible assets. In cases
where a revision to the remaining amortization period is deemed appropriate, the remaining carrying amounts of the intangible assets
are amortized over the revised remaining useful life.
Accounting for Business Combinations
The allocation of the purchase price for acquisitions requires extensive use of accounting estimates and judgments to allocate the
purchase price to the identifiable tangible and intangible assets acquired, including in-process research and development, and
liabilities assumed based on their respective fair values.
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