Computer Associates 2008 Annual Report Download - page 108

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) 2008 2007
MARCH 31,
Deferred tax assets:
Modified accrual basis accounting $ 428 $ 336
Acquisition accruals 610
Share-based compensation 102 118
Restitution fund/class action settlement —1
Accrued expenses 48 61
Net operating losses 206 220
Purchased intangibles amortizable for tax purposes 28 41
Depreciation 26 35
Deductible state tax and interest benefits 42 —
Purchased software 18 4
Other 42 52
Total deferred tax assets 946 878
Valuation allowances (118) (131)
Total deferred tax assets, net of valuation allowances 828 747
Deferred tax liabilities:
Other intangible assets 105 128
Capitalized development costs 113 90
Total deferred tax liabilities 218 218
Net deferred tax asset $ 610 $ 529
In management’s judgment, it is more likely than not that the total deferred tax assets, net of valuation allowances, of
approximately $828 million will be realized as reductions to future taxable income or by utilizing available tax planning
strategies. Worldwide net operating loss carryforwards (NOLs) totaled approximately $697 million and $653 million as
of March 31, 2008 and 2007, respectively. These NOLs expire between 2009 and 2028.
The valuation allowance decreased approximately $13 million and increased approximately $9 million in March 31, 2008
and 2007, respectively. The change in the valuation allowance primarily relates to the amount of NOLs in foreign
jurisdictions which, in management’s judgment, are more likely than not to be realized. Additionally, approximately
$61 million of the valuation allowance as of March 31, 2008 and as of March 31, 2007 is attributable to acquired NOLs
which are subject to annual limitations under Internal Revenue Code Section 382. The valuation allowance related to the
acquired NOLs, if realized, will first reduce acquired goodwill and then will reduce any remaining acquired other non-
current intangible assets.
On April 1, 2007, the Company adopted FIN 48, which sets forth a comprehensive model for financial statement
recognition, measurement, presentation and disclosure of “uncertain tax positions” taken or expected to be taken on
income tax returns. For further information, see Note 1, “Significant Accounting Policies.” Upon such adoption, the
liability for income taxes associated with uncertain tax positions was approximately $303 million and the deferred tax
assets arising from such uncertain tax positions (from interest and state income tax deductions) were approximately
$48 million. If the unrecognized tax benefits associated with these positions are ultimately recognized, they would
primarily affect the Company’s effective tax rate.
As a result of the Company adopting FIN 48, there was an increase to retained earnings of approximately $11 million
and a corresponding decrease to tax liabilities. In addition, the Company reclassified approximately $253 million of
income tax liabilities from current to non-current liabilities because the cash payment of such liabilities was not
anticipated to occur within one year of the balance sheet date. All non-current income tax liabilities are recorded in the
“Federal, state and foreign income taxes payable — noncurrent” line in the Consolidated Balance Sheets. Interest related
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