Computer Associates 2006 Annual Report Download - page 64

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During the fourth quarter of fiscal year 2006, we 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, 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 Internal Revenue Service (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 has identified a material weakness in its internal controls over documenting and
communicating tax planning strategies. See Item 9A, “Controls and Procedures” for additional information.
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, we reduced deferred tax assets and income taxes
payable by approximately $73 million and $159 million as of March 31, 2006 and 2005, respectively. Cash paid for
income taxes in fiscal year 2005 was approximately $12 million, which was lower than the amount we historically
paid for incomes taxes primarily due to the new IRS revenue procedure.
The income tax expense for the fiscal year ended March 31, 2005 includes a charge of $55 million reflecting the
Company’s original estimated cost of repatriating approximately $500 million under the AJCA which was partially
offset by a $26 million tax benefit attributable to a refund claim originally made for additional tax benefits
associated with prior fiscal years. We received a letter from the IRS approving the claim for this refund in September
2004.
Selected Quarterly Information
The information presented in the tables below has been adjusted to reflect the restatement of the Company’s
financial results which is more fully described in the “Explanatory Note — Restatements” immediately preceding
Part I of this Form 10-K and in Note 12, “Restatements”, in the Notes to the Consolidated Financial Statements.
June 30
(1)
Sept. 30
(2)
Dec. 31
(3)
Mar. 31
(4)
Total
(restated) (restated) (restated)
(in millions, except per share amounts)
2006 Quarterly Results
Revenue .................................. $927 $950 $971 $ 948 $3,796
Percent of annual revenue ..................... 24% 25% 26% 25% 100%
Income (loss) from continuing operations .......... $ 97 $ 46 $ 54 $ (41) $ 156
Basic income (loss) from continuing operations per
share ................................... $0.17 $0.08 $0.09 $(0.07) $ 0.27
Diluted income (loss) from continuing operations per
share ................................... $0.16 $0.08 $0.09 $(0.07) $ 0.26
44