Computer Associates 2015 Annual Report Download - page 53

Significant judgments and estimates are required in determining the reporting units and assessing the fair value of the
reporting units. These estimates and assumptions are complex and subject to a significant degree of judgment with respect
to certain factors including, but not limited to, 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.
Based on our qualitative impairment analysis performed for fiscal 2015, we determined that it was more likely than not that
there was no impairment of any of our reporting units and that the estimated fair value of each of our reporting units
exceeded the carrying amount of the unit by more than 10% of the carrying amount.
The carrying values of 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 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.
Product Development and Enhancements
GAAP specifies that costs incurred internally in researching and developing a computer software product should be charged
to expense until technological feasibility has been established for the product. Once technological feasibility is established,
all software costs are capitalized until the product is available for general release to customers. Judgment is required in
determining when technological feasibility of a product is established and assumptions are used that reflect our best
estimates and is influenced by our product release strategies and software development methodologies. 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 five years from the date the product
became available for general release to customers. We amortize capitalized software costs using the straight-line method.
We expect that our product offerings and go-to-market strategy will continue to evolve in future periods to include solutions
and product suites that may be delivered either on-premise or via SaaS or cloud platforms. We expect these product
offerings will continue to become available to customers at more frequent intervals than our historical release cycles. We
also expect a more extensive adoption of 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. These factors will result in our commencing capitalization much later in the development life cycle.
Accounting for Share-Based Compensation
We currently maintain several stock-based compensation plans. We use the Black-Scholes option-pricing model to compute
the estimated fair value of certain share-based awards. The Black-Scholes model includes assumptions regarding dividend
yields, expected volatility, expected lives, and risk-free interest rates. These assumptions reflect our best estimates, but these
items involve uncertainties based on market and other conditions outside of our control. As a result, if other assumptions
had been used, stock-based compensation expense could have been materially affected. Furthermore, if different
assumptions are used in future periods, stock-based compensation expense could be materially affected in future years.
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