Goodwill and Long-Lived Assets. We make estimates, assumptions, and judgments
when valuing goodwill and other intangible assets in connection with the initial
purchase price allocation of an acquired entity, as well as when evaluating the
recoverability of our goodwill and other intangible assets on an ongoing basis.
These estimates are based upon a number of factors, including historical
experience, market conditions, and information obtained from the management of
acquired companies. Critical estimates in valuing certain intangible assets
include, but are not limited to, historical and projected customer retention
rates, anticipated growth in revenue from the acquired customers and acquired
technology, and the expected use of the acquired assets. These factors are also
considered in determining the useful life of acquired intangible assets. The
amounts and useful lives assigned to identified intangible assets impacts the
amount and timing of future amortization expense.
The value of our goodwill and intangible assets could be impacted by future adverse changes such as, but not limited to: a substantial decline in our market capitalization; an adverse action or assessment by a regulator; and unanticipated competition.
We evaluate and test the recoverability of our goodwill for impairment at least annually during the fourth quarter or more often if and when circumstances indicate that goodwill may not be recoverable. Each period we evaluate the estimated remaining useful life of our intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. We evaluate long-lived assets, such as property and equipment, and purchased intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Such events or changes in circumstances include, but are not limited to, a significant decrease in the fair value of the underlying asset, a significant decrease in the benefits realized from the acquired assets, difficulty and delays in integrating the business or a significant change in the operations of the acquired assets or use of an asset. A long-lived asset is considered impaired if its carrying amount exceeds the estimated future undiscounted cash flows the asset is expected to generate. If a long-lived asset is considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the asset exceeds the fair value of the asset or asset group. 39
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Business Combinations. Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed and pre-acquisition contingencies. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date.
Examples of critical estimates in valuing certain of the intangible assets and goodwill we have acquired include but are not limited to:
• future expected cash flows from subscription and support contracts,
professional services contracts, other customer contracts and acquired
developed technologies and patents;