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Table of Contents
Note 8 — Income Taxes (Continued)
In the second quarter of fiscal year 2005, the Company recorded a foreign export benefit refund of approximately $26 million associated
with prior fiscal years. We received a letter from the IRS approving the claim for this refund in September 2004.
In May 2004, the IRS issued Revenue Procedure 2004-34, “Changes in Accounting Periods and In Methods of Accounting,” which
grants taxpayers a twelve month deferral for cash received from customers to the extent such receipts were not recognized in revenue for
financial statement purposes. Therefore, taxes associated with cash collected from U.S. customers in advance of the ratable recognition
of revenue for certain licenses are deferred for up to one year. As a result of implementing this Revenue Procedure, the Company
reduced deferred tax assets and income taxes payable by approximately $159 million and $196 million as of March 31, 2005 and 2004,
respectively. Cash paid for income taxes in fiscal year 2005 was approximately $12 million, which was lower than the amount the
Company historically pays for incomes taxes primarily due to the new IRS Revenue Procedure.
Note 9 — Stock Plans
Effective April 1, 2005, the Company adopted, on a modified retrospective basis, the provisions of SFAS No. 123(R), which establishes
accounting for stock-based awards exchanged for employee services. Under the provisions of SFAS No. 123(R), stock-based
compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the
employee requisite service period (generally the vesting period of the equity grant). The application of the modified retrospective basis
of SFAS No. 123(R) provides that the financial statements of prior periods are adjusted to reflect the fair value method of expensing
stock-based compensation for all awards granted beginning in fiscal 1996, which is consistent with the pro forma disclosures previously
required for those periods by SFAS No. 123, as amended.
The Company previously applied Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,”
and related interpretations for share-based awards granted prior to April 1, 2003 and SFAS No. 123, “Accounting for Stock-Based
Compensation,” for share-based awards granted after April 1, 2003. The Company’ s previous adoption of SFAS No. 123 provided for
the prospective application of accounting for stock-based awards which only gave effect to new awards and to those modified or settled
beginning in fiscal year 2004.
In accordance with SFAS No. 123(R), the Company is required to base initial compensation cost on the estimated number of awards for
which the requisite service is expected to be rendered. Historically, and as permitted under SFAS No. 123, the Company chose to record
reductions in compensation expense in the periods the awards were forfeited. In addition, as a result of the Company’ s adoption of SFAS
No. 123(R), an additional deferred tax asset of $51 million was recorded at March 31, 2005.
The following tables detail the modified retrospective application impact of SFAS No. 123(R) on previously reported results:
Year Ended March 31,
2005 2004 2003
Previously Previously Previously
Reported (1) Restated (2) Reported (1) Restated (2) Reported (1) Restated (2)
(in millions)
Cost of professional services $227 $229 $220 $224 $237 $242
Selling, general, and
administrative 1,323 1,346 1,247 1,300 1,307 1,384
Product development and
enhancements 690 704 662 693 644 688
Total expenses before interest
and taxes 3,413 3,452 3,213 3,301 3,210 3,336
Income (loss) from continuing
operations before interest and
taxes 147 108 107 19 (153) (279)
Income (loss) from continuing
operations before taxes 41 2 (10) (98) (322) (448)
Tax expense (benefit) 9 4 (1) (17) (81) (108)
Income (loss) from continuing
operations 32 (2) (9) (81) (241) (340)
Net income (loss) 30 (4) 52 (20) (238) (337)
Basic earnings (loss) per share $ 0.05 $ (0.01) $ 0.09 $ (0.03) $ (0.41) $ (0.59)
Diluted earnings (loss) per
share 0.05 (0.01) 0.09 (0.03) (0.41) (0.59)
N
et cash provided by operating
activities $ 1,529 $1,527 $1,280 $1,279 $1,310 $ 1,310
N
et cash provided by (used in)
financing activities 200 202 (852) (851) (908) (908)
(1) As previously
reported in the
Company’ s Form