Computer Associates 2012 Annual Report Download - page 77

Goodwill is tested for impairment at least annually in the fourth quarter of each fiscal year. In accordance with ASU 2011-08, the
Company first performs 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 a weighting 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.
Under the market approach, the Company estimates 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. 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.
During the fourth quarter of fiscal year 2012, the Company completed its allocation of goodwill, tested for goodwill impairment for
each of its reporting units and concluded that no goodwill impairment exists. See Note 18, “Segment and Geographic Information,”
for the Company’s allocation of goodwill by operating segment.
See Note 7, “Long-Lived Assets,” for additional information.
(o) 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 at each
of March 31, 2012 and 2011 was approximately $56 million and is included in “Other noncurrent assets, net” in the Consolidated
Balance Sheets.
(p) Income Taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured 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. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income
in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Changes
in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and
penalties related to uncertain tax positions in income tax expense. See Note 16, “Income Taxes,” for additional information.
(q) Deferred Revenue (Billed or Collected): The Company accounts for unearned revenue on billed amounts due from customers on
a gross basis. Unearned revenue on billed installments (collected or uncollected) is reported as deferred revenue in the liabilities
section of the Consolidated Balance Sheets.
Deferred revenue (billed or collected) excludes contractual commitments executed under license and maintenance agreements that
will be billed in future periods. See Note 8, “Deferred Revenue,” for additional information.
(r) Litigation: The Company records a provision with respect to a claim, suit, investigation or proceeding when it is probable that a
liability has been incurred and the amount of the loss can be reasonably estimated. Claims and proceedings are reviewed at least
quarterly and provisions are taken or adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other
information pertinent to a particular matter. See Note 12, “Commitments and Contingencies,” for additional information.
(s) Reclassifications: Certain prior year balances have been reclassified to conform to the current period’s presentation.
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