Computer Associates 2007 Annual Report Download - page 129

The income tax benefit recorded for the fiscal year ended March 31, 2006 includes benefits of approximately $51 million
arising from the recognition of certain foreign tax credits, $18 million arising from international stock based compensation
deductions and $66 million arising from foreign export benefits and other international tax rate benefits. Partially offsetting
these benefits was a charge of approximately $46 million related to additional tax liabilities.
During the fourth quarter of fiscal year 2006, the Company repatriated approximately $584 million from foreign subsidiaries.
Total taxes related to the repatriation were approximately $55 million. The repatriation was initially planned in fiscal year 2005
in response to the favorable tax benefits afforded by the American Jobs Creation Act of 2004 (AJCA), which introduced a
special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer (repatriation
provision), provided that certain criteria were met. During fiscal year 2005, we recorded an estimate of this tax charge of
$55 million based on an estimated repatriation amount up to $500 million. In the first quarter of fiscal year 2006, we recorded
a benefit of approximately $36 million reflecting the Department of Treasury and IRS Notice 2005-38 issued on May 10, 2005.
In the fourth quarter of fiscal year 2006, the Company finalized its estimates of tax liabilities and determined that an
adjustment was necessary and, accordingly, recorded an additional tax charge in the amount of $36 million. As a result of this
complex tax matter, the Company identified a material weakness in its internal controls over documenting and
communicating tax planning strategies in fiscal year 2006. No provision has been made for federal income taxes on the
remaining balance of the unremitted earnings of the Company’s foreign subsidiaries since the Company plans to permanently
reinvest all such earnings outside the U.S. Unremitted earnings totaled approximately $838 million and $685 million at
March 31, 2007 and 2006, respectively.
Note 10 — Stock Plans
Share-based incentive awards are provided to employees under the terms of the Company’s equity compensation plans (the
Plans). The Plans are administered by the Compensation and Human Resource Committee of the Board of Directors (the
Committee). Awards under the Plans may include at-the-money stock options, premium-priced stock options, restricted
stock awards (RSAs), restricted stock units (RSUs), performance share units (PSUs), or any combination thereof. The non-
employee members of the Company’s Board of Directors receive deferred stock units under separate director compensation
plans.
RSAs are stock awards issued to employees that are subject to specified restrictions and a risk of forfeiture. The restrictions
typically lapse over a two or three year period.The fair value of the awards is determined and fixed based on the quoted market
value of the Company’s stock on the grant date.
RSUs are stock awards issued to employees that entitle the holder to receive shares of common stock as the awards vest,
typically over a two or three year period.The fair value of the awards is determined and fixed based on the quoted market value
of the Company’s stock on the grant date, except that for RSUs not entitled to dividend equivalents, the quoted market value is
reduced by the present value of dividends expected to be paid on the Company’s stock prior to vesting of the RSUs using a risk
free interest rate.
PSUs are target awards issued under the long-term incentive plan to senior executives where the number of shares ultimately
granted to the employees depends on Company performance measured against specified targets.The Committee determines
the number of shares to grant after either a one-year or three-year performance period as applicable, the “1-year and 3-year
PSUs”, respectively. The fair value of each award is estimated on the date that the performance targets are established based
on the quoted market value of the Company’s stock adjusted for dividends as described above for RSUs, and the Company’s
estimate of the level of achievement of the performance targets, as described below. The Company is required to recalculate
the fair value of issued PSUs each reporting period until they are granted, as defined in SFAS No. 123(R). The adjustment is
based on the quoted market value of the Company’s stock on the reporting period date, adjusted for dividends as described
above for RSUs, and the Company’s estimate of the level of achievement of the performance targets, as described below.
Stock options are awards issued to employees that entitle the holder to purchase shares of the Company’s stock at a fixed
price. Under the 2002 Incentive Plan as amended and restated effective as of April 27, 2007, (the 2002 Plan), as described
below, stock options are granted at an exercise price equal to or greater than the Company’s stock price on the date of grant.
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