Computer Associates 2006 Annual Report Download - page 44

meet operational targets due to the loss of employees, any of which may impair our ability to achieve anticipated
cost reductions or may otherwise harm our business.
Taxation of extraterritorial income could adversely affect our results.
In August 2001, a World Trade Organization (WTO) dispute panel determined that the tax provisions of the FSC
Repeal and Extraterritorial Income Exclusion Act of 2000 (ETI) constitute an export subsidy prohibited by the
WTO Agreement on Subsidies and Countervailing Measures. The U.S. government appealed the panel’s decision
and lost its appeal. On March 1, 2004, the European Union (EU) began imposing retaliatory tariffs on a specified list
of U.S. — source goods. In order to comply with international trade rules, the American Jobs Creation Act of 2004
(the Act) repealed the current tax treatment for ETI. The Act replaces the ETI provisions with a domestic
manufacturing deduction and includes transition provisions for the ETI phase-out. We are reviewing the provisions
of the Act and the impact on our effective tax rate. The WTO challenged the Act, claiming that the transition relief
and grandfathering provisions of the Act amounted to a continuation of the ETI export subsidy. On February 13,
2006, the Appellate Body of the WTO agreed that the Act violated international free-trade rules. As a result, the EU
announced that by May 14, 2006 it would reinstate retaliatory tariffs that had been previously lifted. In order to
comply with international free-trade rules, The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA)
repealed certain provisions of the Act found to be objectionable by the EU. In response to TIPRA, the EU
announced it would withdraw the retaliatory sanctions that were to have resumed May 16, 2006.
Other potential tax liabilities may adversely affect our results.
We are subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgment is
required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are
many transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit
by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits and
any related litigation could be materially different than that which is reflected in historical income tax provisions
and accruals. Should additional taxes be assessed as a result of an audit or litigation, a material effect on our income
tax provision and net income in the period or periods in which that determination is made could result. In the fourth
quarter of fiscal year 2006, we determined that we did not properly calculate certain tax charges and accordingly
had to adjust such charges. Refer to Item 9A, “Controls and Procedures”, for additional information.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal real estate properties are located in areas necessary to meet sales and operating requirements. All of
the properties are considered to be both suitable and adequate to meet current and anticipated operating
requirements.
As of March 31, 2006, we leased 112 facilities throughout the United States and 146 facilities outside the
United States. Our lease obligations expire on various dates with the longest commitment extending to 2023. We
believe all of our leases will be renewable at our option as they become due.
In the United States, we own an approximately 850,000 square foot corporate headquarters in Islandia, New York,
an approximately 100,000 square foot distribution center in Central Islip, New York, as well as an approximately
15,000 square foot facility in Greensville, South Carolina. We own one facility in Germany totaling approximately
100,000 square feet, two facilities in Italy which total approximately 140,000 square feet, and an approximately
215,000 square foot European headquarters in the United Kingdom.
We periodically review the benefits of owning our properties. On occasion, we enter into sale-leaseback
transactions and use the proceeds to fund strategic actions such as acquisitions, product development, or
stock-repurchases. Depending upon the strategic importance of a particular location and management’s
long-term plans, the duration of the initial lease term in sale-leaseback transactions may vary.
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