AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In accordance with Statement of Position 98 1, Accounting for Costs of Computer Software Developed or Obtained for
Internal Use ("SOP 98 1"), certain costs related to the development or purchase of internal use software are capitalized and
amortized over the estimated useful life of the software. During fiscal years 2003, 2002 and 2001, we capitalized
approximately $44.0 million, $15.8 million and $7.7 million, respectively, in software costs under SOP 98 1, which are being
amortized over expected useful lives, which range from three to five years. These capitalized amounts include internal costs of
approximately $19.9 million, $12.1 million and $1.3 million and external costs of approximately $24.1 million, $3.7 million
and $6.4 million for fiscal years 2003, 2002 and 2001, respectively. These costs were incurred in the development of our
proprietary software used in connection with our long term client relationships.
In June 2001, the Financial Accounting Standards Board (the FASB ) issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 addresses the accounting and reporting of acquired
goodwill and other intangible assets. SFAS 142 discontinues amortization of acquired goodwill and instead requires annual
impairment testing of acquired goodwill. Intangible assets are amortized over their useful economic life and tested for
impairment in accordance with Statement of Financial Accounting Standards No. 144 Accounting for the Impairment or
Disposal of Long Lived Assets."
We adopted SFAS 142 effective July 1, 2001. SFAS 142 has had a significant positive impact on our financial results based
on the historical amortization of goodwill. During fiscal year 2001, we had after tax goodwill amortization expense of
approximately $20.7 million. There is no goodwill amortization expense for fiscal years 2003 and 2002 in accordance with
Due to the fact that we are primarily a services company, our business acquisitions typically result in significant amounts of
goodwill and other intangible assets, which affect the amount of future period amortization expense and possible expense we
could incur as a result of an impairment. The determination of the value of goodwill and other intangibles requires us to make
estimates and assumptions about future business trends and growth. If an event occurs that could cause us to revise our
estimate and assumptions used in analyzing the value of our goodwill or other intangibles, such revision could result in an
impairment charge that could have a material impact on our financial results.
Other intangible assets
Other intangible assets consist primarily of acquired customer related intangibles and contract and migration costs related to
new business activity, both of which are recorded at cost and amortized using the straight line method over the contract terms.
Acquired customer related intangibles, customer contract costs and other intangibles are amortized over a weighted average
term of approximately 8 years. For the CyperRep acquisition in fiscal year 2003 and the IMS, Andersen, and AFSA
acquisitions in fiscal year 2002 (as described in Note 2), we obtained a third party valuation of the intangible assets. The
determination of the value of other intangibles requires us to make estimates and assumptions about future business trends and
growth. If an event occurs which would cause us to revise our estimates and assumptions used in analyzing the value of our
other intangibles, such revision could result in an impairment charge that could have a material impact on our financial results.
Other assets primarily consist of long term deposits, deferred debt issuance costs and long term investments accounted for using
the cost method. The deferred debt issuance costs are being amortized using the straight line method over the life of the related
debt, which approximates the effective interest method. It is our policy to periodically review the net realizable value of our long
term investments through an assessment of the recoverability of the carrying amount of each investment. Each investment is
reviewed to determine if events or changes in circumstances have occurred which indicate that the recoverability of the carrying
amount may be uncertain. In the event that an investment is found to be carried at an amount in excess of its recoverable amount,
the asset is adjusted for impairment to a level commensurate with the recoverable amount of the underlying asset.