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Software Development Costs
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Acquired technology, representing the estimated value of the proprietary technology acquired,
has been recorded as capitalized software development costs. We also capitalize software development costs after we establish
technological feasibility, and amortize those costs over the estimated useful lives of the software beginning on the date when the
software is available for general release. We believe that these capitalized costs will be recoverable from gross profits generated by
these products.
For new products, technological feasibility is established when an operative version of the computer software product is
completed in the same software language as the product to be ultimately marketed, performs all the major functions planned for the
product, and has successfully completed initial customer testing. Technological feasibility for enhancements to an existing product is
established when a detail program design is completed. Costs that are capitalized include direct labor and other direct costs. In 2013,
2012, and 2011, we capitalized $2.0 million, $1.9 million, and $2.4 million, respectively, of software development costs for software
developed for resale.
These costs are amortized on a product-by-product basis using the straight-line method over the product’s estimated useful life,
between three and five years. Amortization is also computed using the ratio that current revenue for the product bears to the total of
current and anticipated future revenue for that product (the revenue curve method). If this revenue curve method results in
amortization greater than the amount computed using the straight-line method, amortization is recorded at that greater amount. Our
policies to determine when to capitalize software development costs and how much to amortize in a given period require us to make
subjective estimates and judgments. If our software products do not achieve the level of market acceptance that we expect and our
future revenue estimates for these products change, the amount of amortization that we record may increase compared to prior periods.
The amortization of capitalized software development costs is recorded as a cost of revenue.
We capitalize all costs related to software developed or obtained for internal use when management commits to funding the
project and the project completes the preliminary project stage. Capitalization of such costs ceases when the project is substantially
complete and ready for its intended use. Capitalized software development costs for internal use are included in Property and
Equipment on the Consolidated Balance Sheets.
In 2013, we recorded an impairment charge of $9.3 million related to our Platforms and Applications reporting unit. In 2012, we
recorded an impairment charge of $12.4 million after determining the capitalized software development costs related to our
Navigation reporting unit were not recoverable based on decreased projected revenues and sales pipeline.
Marketable Securities.
Our marketable securities are classified as available-for-sale. Our primary objectives when investing are
to preserve principal, maintain liquidity, and obtain higher returns than from cash equivalents. Our intent is not specifically to invest
and hold securities with longer term maturities. We have the ability and intent, if necessary, to liquidate any of these investments in
order to meet our operating needs within the next twelve months. The securities are carried at fair market value based on quoted
market price with net unrealized gains and losses in stockholders’ equity as a component of accumulated other comprehensive income.
If we determine that a decline in fair value of the marketable securities is other than temporary, a realized loss would be recognized in
earnings. Gains or losses on securities sold are based on the specific identification method and are recognized in earnings.
Stock Compensation Expense.
We estimate the fair value of our employee stock awards at the date of grant using the Black-
Scholes option pricing model, which requires the use of certain subjective assumptions. The most significant of these assumptions are
our estimates of expected volatility of the market price of our stock and the expected term of the stock award. We have determined
that historical volatility is the best predictor of expected volatility and the expected term of our awards was determined taking into
consideration the vesting period of the award, the contractual term and our historical experience of employee stock option exercise
behavior. We review our valuation assumptions at each grant date and, as a result, we could change our assumptions used to value
employee stock-based awards granted in future periods. In addition, we are required to estimate the expected forfeiture rate and only
recognize expense for those awards expected to vest. If our actual forfeiture rate were materially different from our estimate, the
stock-based compensation expense would be different from what we have recorded in the current period. Our employee stock-based
compensation costs are recognized over the vesting period of the award and are recorded using the straight-line method.
Income Taxes.
We use the asset and liability method of accounting for deferred income taxes. Under this method, deferred tax
assets and liabilities are determined based on temporary differences between financial reporting basis and the tax basis of assets and
liabilities. We also recognize deferred tax assets for tax net operating loss carryforwards. The deferred tax assets and liabilities are
measured using the enacted tax rates and laws expected to be in effect when such amounts are projected to reverse or be utilized. The
realization of total deferred tax assets is contingent upon the generation of future taxable income in the tax jurisdictions in which the
deferred tax assets are located. When appropriate, we recognize a valuation allowance to reduce such deferred tax assets to amounts
more likely than not to be realized. The calculation of deferred tax assets (including valuation allowances) and liabilities requires
management to apply significant judgment related to such factors as the application of complex tax laws and the changes in such laws.
We have also considered our future operating results, which require assumptions such as future market penetration levels, forecasted
revenues and the mix of earnings in the jurisdictions in which we operate, in determining the need for a valuation allowance. Changes
