Computer Associates 2007 Annual Report Download - page 128

Deferred income taxes reflect the impact of temporary differences between the carrying amounts of assets and liabilities
recognized for financial reporting purposes and the amounts recognized for tax purposes. The tax effects of the temporary
differences are as follows:
(IN MILLIONS) 2007 2006
MARCH 31,
Deferred tax assets:
Modified accrual basis accounting $ 384 $103
Acquisition accruals 10 13
Share-based compensation 118 149
Restitution fund/class action settlement 11
Accrued expenses 71 85
Net operating losses 220 257
Purchased intangibles amortizable for tax purposes 41 52
Depreciation 35 32
Other 52 56
Total deferred tax assets 932 748
Valuation allowances (131) (122)
Total deferred tax assets, net of valuation allowances 801 626
Deferred tax liabilities:
Purchased software (4) 84
Other intangible assets 128 150
Capitalized development costs 90 76
Total deferred tax liabilities 214 310
Net deferred tax asset $ 587 $316
Worldwide net operating losses (NOLs) totaled approximately $653 million and $766 million as of March 31, 2007 and 2006,
respectively. These NOLs expire between 2007 and 2027. In management’s judgment, the total deferred tax assets of
$801 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
$9 million and $20 million in March 31, 2007 and 2006, respectively. The change in the valuation allowance primarily relates
to acquired NOLs and NOLs in foreign jurisdictions that more likely than not in management’s judgment will not be realized.
Additionally, approximately $61 million and $57 million of the valuation allowance as of March 31, 2007 and March 31, 2006,
respectively, 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 as tax matters
could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or
inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. The Company has
established a liability of $245 million related to these matters which is included in the “Federal, state, and foreign income taxes
payable” line on the Consolidated Balance Sheet. 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 income tax provision recorded for the fiscal year ended March 31, 2007 includes benefits of approximately $23 million
primarily arising from the resolution of certain international and U.S. Federal tax liabilities.
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