TeleNav 2015 Annual Report Download - page 56

Table of Contents
Software development costs . We account for the costs of computer software we develop for internal use by capitalizing qualifying costs,
which are incurred during the application development stage, and amortizing those costs over the application’s estimated useful life, which
generally ranges from 18 months to 24 months depending on the type of application. Costs incurred and capitalized during the application
development stage generally include the costs of software configuration, coding, installation and testing. Such costs primarily include payroll
and payroll related expenses for employees directly involved in the application development, as well as third party developer fees. We expense
preliminary evaluation costs as they are incurred before the application development stage, as well as post development implementation and
operation costs, such as training, maintenance and minor upgrades. We begin amortizing capitalized costs when a project is ready for its intended
use, and we periodically reassess the estimated useful life of a project considering the effects of obsolescence, technology, competition and other
economic factors which may result in a shorter remaining life.
We capitalized none, none and $0.9 million of software development costs during fiscal 2015 , 2014 and 2013 , respectively. Amortization
expense related to these costs, which was recorded in cost of revenue, totaled $0.1 million, $1.0 million and $2.1 million for fiscal 2015 , 2014
and 2013 , respectively.
We account for the costs of computer software we develop for customers requiring significant modification or customization by deferring
qualifying costs under the completed contract method. All such development costs incurred are deferred until the related revenue is recognized.
We deferred $0.8 million, $0.9 million and $1.3 million of software development costs during fiscal 2015 , 2014 and 2013 ,
respectively. Development costs expensed to cost of revenue totaled $1.2 million, $0.9 million and $4.9 million for fiscal 2015 , 2014 and 2013
,
respectively.
Impairment of long-lived assets . We evaluate long-
lived assets held and used for impairment whenever events or changes in circumstances
indicate that their net book value may not be recoverable. We continually evaluate whether events and circumstances have occurred that indicate
the balance of our property and equipment, long-term investments and intangible assets with definite lives may not be recoverable. Our
evaluation is significantly impacted by our estimates and assumptions of future revenue, costs, and expenses and other factors. If an event occurs
that would cause us to revise our estimates and assumptions used in analyzing the value of our property and equipment, that revision could result
in a non-cash impairment charge that could have a material impact on our financial results. When these factors and circumstances exist, we
compare the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against
their respective carrying amounts. We base the impairment, if any, on the excess of the carrying amount over the fair value, based on market
value when available, or discounted expected cash flows of those assets, and record it in the period in which we make the determination. During
fiscal 2013, we recorded a loss of $0.4 million in connection with impairment in the carrying value of capitalized software.
Goodwill . Goodwill represents the excess of the aggregate purchase price paid over the fair value of the net assets acquired. Goodwill is
not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. These tests are based on our operating segment and reporting unit structure. We first assess qualitative factors to determine
whether it is necessary to perform the two-step quantitative goodwill impairment test. We are not required to calculate the fair value of our
reporting units unless we determine, based on a qualitative assessment, that it is more likely than not that the fair value is less than our carrying
amount. If we determine it is more likely than not that the fair value of the reporting unit is less than its carrying value, we perform a two-step
quantitative goodwill impairment test. The first step of the impairment test involves comparing the fair value of the reporting unit to its net book
value, including goodwill. If the net book value exceeds its fair value, then we would perform the second step of the goodwill impairment test to
determine the amount of the impairment loss, if any. In assessing the fair value of our reporting units, we make assumptions regarding our
estimated future cash flows, long-term growth rates, timing over which the cash flows will occur and, amongst other factors, the weighted
average cost of capital. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment
of assets and liabilities to reporting units and determination of the fair value of each reporting unit.
We tested goodwill for impairment on April 1, 2015 at the reporting unit level using a combination of a discounted cash flow analysis and
market multiples based upon historical and projected financial information. The fair value of our automotive and advertising reporting units was
estimated using the discounted cash flow approach. The fair value of our mobile navigation reporting unit was estimated using a combined
discounted cash flow and market multiple approach with equal weighting given to the two approaches. The market multiple approach utilized
revenue multiples from guideline public companies operating in similar industries. The revenue multiples were applied to the projected financial
information of the mobile navigation reporting unit to determine its fair value. We applied our best judgment when assessing the reasonableness
of the financial projections used to determine the fair value of each reporting unit. Based on the results of our annual goodwill impairment test as
of April 1, 2015, the estimated fair value of our mobile navigation business exceeded its carrying value by 22%.
The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions and
other factors. If our estimates or related assumptions change in the future, or if our net book value were
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