Computer Associates 2015 Annual Report Download - page 76

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 the net assets assigned to that unit, goodwill is not considered impaired
and the Company is not required to perform further testing. However, if the fair value of a reporting unit is more likely
than not to be less than its carrying amount, the two-step impairment test will be performed.
When performing the two-step impairment test, the Company first determines the estimated fair value of its reporting units
based on use of the income and market approaches. Under the income approach, the Company calculates the estimated fair
value of a reporting unit based on the present value of estimated future cash flows. If the carrying value of the reporting
unit exceeds the estimated fair value, the Company then calculates the implied fair value of goodwill for the reporting unit
and compares it to the carrying amount of goodwill for the reporting unit. If the carrying amount of goodwill exceeds the
implied fair value, an impairment charge is recorded to its statement of operations to reduce the carrying value to implied
value.
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. The Company makes certain judgments and assumptions in allocating shared costs among reporting units. 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.
See Note 6, ‘‘Long-Lived Assets,’’ for additional information.
(n) Restricted Cash: The total amount of restricted cash at March 31, 2015 and 2014 was approximately $1 million and
$2 million, respectively, and is included in ‘‘Other noncurrent assets, net’’ in the Consolidated Balance Sheets. During the
fourth quarter of fiscal year 2014, the Company was granted approval to reduce the minimum restricted cash balance of its
insurance subsidiary from $50 million to $250,000. As result, the Company reclassified approximately $50 million from
‘‘Other noncurrent assets, net’’ to ‘‘Cash and cash equivalents’’ in the Consolidated Balance Sheet at March 31, 2014. The
reduction in the restricted cash balance was a source of investing cash inflows in the Consolidated Statement of Cash Flows
for the year ended March 31, 2014. In addition to this restricted cash balance, the Company has other restricted cash
balances, including cash collateral for letters of credit.
(o) 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 15, ‘‘Income Taxes,’’ for
additional information.
(p) 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 liability section of the Company’s Consolidated Balance Sheets.
Deferred revenue (billed or collected) excludes unbilled contractual commitments executed under license and maintenance
agreements that will be billed in future periods. See Note 7, ‘‘Deferred Revenue,’’ for additional information.
(q) Advertising: Advertising costs are expensed as incurred. Advertising expense was approximately $39 million, $38 million
and $10 million for fiscal years 2015, 2014 and 2013, respectively.
(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,
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