August 10, 2018

Over what period do you amortize your internally generated software development costs? What’s the logic behind choosing this period? Same two questions for acquired intangibles?

We amortize internally developed software over a 3-year period, although we may occasionally use 5 or 7 years. We set the time period based on assumptions regarding the expected useful life of the application or any enhancements to the application. Given the rate of change in technology, we tend to apply the more conservative shorter life. The instances in which we use 5 or 7 years are for platforms or systems for which we believe the rate of change to be decidedly slower.

We believe that, in general, the window of useful lives is greater for acquired intangible assets due to the nature of the assets involved. These are evaluated on a case by case basis for every deal. For acquired software, we tend to use the same rationale as for internally developed software, but sometimes assign a shorter life if the technology is mature and we believe there will be a future need for upgrades. We tend to assign 7 to 9 years for data because we can use it for long periods of time in applications such as trend analysis or other forms of high-value analytics. Customer relationships tend to be in the 10 to 20-year range. This generally is based upon an analysis of the acquired company’s contracts and customer retention rates. A company with renewal rates of 95%+ will often support a 15 to 20-year life, while the companies with less than 95% will be generally be between 10 to 15 years.

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