Computer Associates 2005 Annual Report Download - page 134

Table of Contents
Note 8 — Income Taxes (Continued)
March 31,
2005 2004
(restated) (restated)
(in millions)
Deferred tax assets:
Modified accrual basis accounting $ 141 $ (12)
Acquisition accruals 12 16
Share-based compensation 59 90
Restitution fund/class action settlement 51 32
Accrued expenses 15 32
Net operating losses 139 69
Valuation allowance (94) (60)
Purchased intangibles amortizable for tax purposes 56
—
Total deferred tax assets $ 379 $ 167
Deferred tax liabilities:
Purchased software $ 174 $ 275
Other intangible assets 87 74
Capitalized development costs 60 51
Foreign unremitted earnings to be repatriated 55
—
Other(1) 29 4
Total deferred tax liabilities $ 405 $ 404
Net deferred tax asset (liability) $ (26) $ (237)
(1) Primarily represents
deferred tax
liabilities and assets
in foreign tax
j
urisdictions, which
in accordance with
paragraphs 41 and
42 of SFAS
No. 109,
“Accounting for
Income Taxes,” can
b
e offset against the
respective deferred
tax assets and
liabilities in each
j
urisdiction.
Worldwide net operating losses (NOLs) totaled approximately $427 million and $220 million as of March 31, 2005 and 2004,
respectively. These NOLs expire between 2006 and 2016. In management’ s judgment, the total deferred tax assets of $379 million for
certain acquisition liabilities, NOLs, and other deferred tax assets, will more likely than not be realized as reductions of future taxable
income or by utilizing available tax planning strategies. The valuation allowance increased $34 million and $22 million in March 31,
2005 and 2004, respectively. The change in the valuation allowance primarily relates to deferred tax assets, specifically NOLs in foreign
jurisdictions that more likely than not in management’ s judgment will not be realized. Additionally, approximately $28 million of the
valuation allowance is attributable to acquired NOLs which are subject to annual limitations under IRS Code Section 382. The valuation
allowance related to the acquired NOLs, if realized, will first reduce any remaining goodwill and then any remaining other non-current
intangible assets.
The Company is subject to tax in many jurisdictions and a certain degree of estimation is required in recording assets and liabilities
related to income taxes. Management believes that adequate provision has been made for any adjustments that may result from tax
examinations. The outcome of tax examinations, however, cannot be predicted with certainty. Should any issues addressed in the
Company’ s tax audits be resolved in a manner not consistent with management’ s expectations, the Company could be required to adjust
its provision for income tax in the period such resolution occurs. The IRS has recently completed and closed its audit of the Company for
the three year period ending March 31, 2000. There was no material impact on the Company’ s financial statements as a result of the
completion of this audit.
In October 2004, the American Jobs Creation Act of 2004 was signed into law. This Act introduces 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