Notes to Financial Statements
December 31, 2016 and 2015
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(1)
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Description of the Plan
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The following description of the CA Savings Harvest Plan (the Plan) provides only general information. Participants should refer to the plan document for a more complete description of the Plan’s provisions.
(a)
General
The Plan was originally adopted by CA, Inc. (the Company or the Plan Sponsor) effective January 1, 1981 and is a defined contribution plan. All U.S. employees, U.S. expatriates, and Puerto Rico employees of the Company on U.S. payroll who meet eligibility requirements may participate in the Plan. The plan year end is December 31.
The Plan is subject to the reporting and disclosure requirements, participation and vesting standards, and fiduciary responsibility provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
The Plan is administered by the CA Savings Harvest Plan Committee (the Plan Committee) appointed by the Board of Directors of the Company. The assets of the Plan are maintained and transactions therein are executed by Fidelity Management Trust Company, the trustee of the Plan (the Trustee).
(b)
Eligibility
Employees are eligible to participate in the Plan with respect to pre-tax and after-tax contributions effective on their hire date. Eligibility with respect to employer matching and employer discretionary contributions occurs in the month following completion of one full year of service.
(c)
Contributions
Plan participants may elect to contribute a percentage of their base compensation ranging from 2% to 20%. Each participant may change this election at any time.
To comply with the applicable Internal Revenue Code (IRC) provision, pre-tax contributions elected by any participant may not exceed $18,000 for the calendar years ended December 31, 2016 and 2015. The Plan also allows participants age 50 and over to make an extra “catch-up” contribution on a pre-tax basis for the calendar years ended December 31, 2016 and 2015. Participants may also contribute on an after-tax basis up to the Internal Revenue Service (IRS) limits. The Plan also contains a non-leveraged employee stock ownership plan (ESOP) feature. The ESOP Stock Fund consists of the common stock of the Company.
For eligible participants, the Company makes a matching contribution to the Plan on behalf of each participant equal to 50% of such participant’s contribution up to a maximum of 2.5% of the participant’s eligible compensation (contributions are subject to certain IRC limitations). The matching contributions are allocated in the same manner as participant contributions. The total matching contribution for the plan year ended December 31, 2016 was $13,473,726, of which $1,474,182 was funded from plan forfeitures. The total matching contribution for the plan year ended December 31, 2015 was $13,210,460, of which $885,000 was funded from plan forfeitures.
In addition to its matching contribution, the Company may make a discretionary contribution to the Plan on behalf of eligible participants in an amount that the Compensation and Human Resources Committee of the Company’s Board of Directors may, in its sole discretion, determine. The discretionary contribution for the year ended December 31, 2016 was $23,464,874 which was paid in the form of 735,345 shares of common stock of the Company. The discretionary contribution is allocated to each eligible participant who was an employee of the Company on December 31 of that plan year, generally in the same ratio that the participant’s base compensation for the plan year bears to the base compensation of all eligible participants for such plan year. The discretionary contribution for the year ended December 31, 2016 was allocated directly to the ESOP Stock Fund and funded into each eligible participant’s account on May 26, 2017. Subsequent to this allocation, the participants of the Plan have the right to re-direct these investments into the other investment options available under the Plan. The discretionary contribution for the year ended December 31, 2015 was $24,111,031, which was paid in the form of 752,999 shares of common stock of the Company.
The Company also made a qualified non-elective contribution to the Plan of $853 and $14,064 for the years ended December 31, 2016 and 2015, respectively. To comply with the Voluntary Correction Program (VCP), the Company made employer contributions to the Plan of $335,458 for the year ended December 31, 2016. No such contributions were made for the year ended December 31, 2015.
(d)
Vesting
Participants are immediately vested in their elective contributions and investment earnings (losses) thereon. The matching and discretionary contributions made by the Company and earnings (losses) thereon vest as follows:
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Percent vested
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After years of service
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0%
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Less than 1
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33%
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1
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66%
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2
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100%
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3
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Participants are 100% vested in their matching and discretionary contributions upon the completion of three years of service. In addition, 100% vesting occurs upon death or total disability of a participant, upon attainment of normal retirement age while still an active employee, or upon termination of the Plan.
(e) Participant Accounts
A separate account is established and maintained in the name of each participant and reflects the participant’s balance invested therein. Participant account balances include contributions, earnings, losses and if applicable, expenses, allocated to such account. Participant accounts shall be allocated with proportional earnings, losses, and expenses attributable to the respective investment funds invested in such accounts in a manner which bears the same ratio as such earnings, losses and expenses bear to the value of all such accounts within each respective fund.
(f) Investment Options
The assets of the Plan are held in custody by the Trustee. As of December 31, 2016, participants were able to invest in any of the following investment fund options or any combination of these options:
Mutual Funds
American Beacon Small Cap Value Fund Institutional Shares
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invests at least 80% of its assets in equity securities of U.S. companies with market capitalization of $5.0 billion or less at the time of investment.
BMO Small Cap Stock Fund Class I
- invests at least 80% of its assets in growth oriented common stocks of small-sized U.S. companies similar in size, at the time of purchase, to those within the Russell 2000® Growth Index. The Adviser selects stocks of companies with growth characteristics, including companies with above-average earnings growth potential and companies where significant changes are taking place, such as new products, services or methods of distribution, or overall business restructuring.
Dodge & Cox International Stock Fund -
invests primarily in a diversified portfolio of equity securities issued by non-U.S. companies from at least three different countries, which may include emerging market countries. The Fund invests at least 80% of its total assets in equity securities of non-U.S. companies, including common stocks, depositary receipts evidencing ownership of common stocks, preferred stocks, securities convertible into common stocks, and securities that carry the right to buy common stocks.
Dodge and Cox Stock Fund
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Invests at least 80% of its total assets in equity securities, including common stocks, depositary receipts evidencing ownership of common stocks, preferred stocks, securities convertible into common stocks and securities that carry the right to buy common stocks.
Fidelity Contrafund Class K
- invests in securities of domestic and foreign issuers whose value the fund’s manager believes is not fully recognized by the public. The fund may invest in ‘growth’ or ‘value’ stocks, or both.
Fidelity Low Priced Stock Fund Class K
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invests at least 80% of its assets in what the investment manager believes to be low-priced stocks (those priced at or below $35 per share). Invests in securities of domestic and/or foreign issuers and may invest in ‘growth’ or ‘value’ stocks, or both.
Fidelity Puritan Fund Class K
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invests approximately 60% of its assets in stocks and other equity securities and the remainder in bonds and other debt securities.
PIMCO Total Return Fund Institutional
- Fund seeks to achieve its investment objective by investing under normal circumstances at least 65% of its total assets in a diversified portfolio of Fixed Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. "Fixed Income Instruments" include bonds, debt securities and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities. The average portfolio duration of this Fund normally varies within two years (plus or minus) of the portfolio duration of the securities comprising the Barclays U.S. Aggregate Index, as calculated by PIMCO.
Vanguard Extended Market Index Fund Institutional Shares
- employs a passive management strategy and is designed to track the performance of the Standard & Poor’s Completion Index, a broadly diversified index of stocks of small and medium-size U.S. companies.
Vanguard Inflation Protected Securities Fund Institutional Shares
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invests at least 80% of assets in inflation-indexed bonds issued by the U.S. government to seek to provide inflation protection and income consistent with investment in inflation-indexed securities.
Vanguard Total Bond Market Index Fund Institutional Shares
- employs a passive management strategy and is designed to track the performance of the Barclays Capital U.S. Aggregate Float Adjusted Index. It invests at least 80% of assets in bonds held in the index.
Vanguard Total International Stock Fund Institutional Shares
- employs a passive management strategy and is designed to track the performance of the FTSE Global All Cap ex US Index, an index designed to measure equity market performance in developed and emerging markets, excluding the United States.
Vanguard Total Stock Market Index Fund Institutional Shares
- employs an indexing investment approach designed to track the performance of the CRSP US Total Market Index, which represents approximately 100% of the investable U.S. stock market and includes large-, mid-, small-, and micro-cap stocks regularly traded on the New York Stock Exchange and Nasdaq.
Vanguard Federal Money Market Fund Investor Shares
- invests primarily in high-quality, short-term money market instruments. The fund generally invests 100% of its assets in government securities and therefore will satisfy the 99.5% requirement for designation as a government money market fund.
Vanguard Institutional Index Fund
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employs a passive management strategy and invests substantially all of its assets in the common stocks that make up the Standard and Poor’s 500 Index.
Managed Separate Accounts
The Plan has direct ownership of the underlying investments for the following managed separate accounts:
Artisan Mid Cap -
invests primarily in growth oriented U.S. companies with at least 80% of its assets in what the investment manager believes to be medium-sized companies.
Artisan Mid Cap Value
- investment team employs a fundamental investment process to construct a diversified portfolio of medium-sized U.S. companies. The team seeks to invest in companies that are undervalued, in solid financial condition and have attractive business economics.
Common Collective Trust Funds
FIAM Index Lifecycle Commingled Pools (2005, 2010, 2015, 2020, 2025,
2030, 2035, 2040, 2045, 2050, 2055, 2060, Income)
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reflect asset allocation commingled pools of the Fidelity Institutional Asset Management Trust Company for Employee Benefit Plans that are managed by Fidelity Institutional Asset Management. They seek to diversify across broad range of asset class, with risk level customized to a participant’s age, becoming more conservative as the investor ages. Each pool is structured to have an allocation of assets consistent with a participant’s expected retirement date. They invest in a diversified portfolio of equity index, fixed income index and / or short term debt products.
Stock
ESOP Stock Fund
- invests solely in the common stock of the Company.
Participants may direct contributions or transfer their current investment balances between funds on a daily basis.
(g)
Withdrawals and Payment of Benefits
The Plan provides for benefit distributions to Plan participants or their beneficiaries upon the participant’s retirement, termination of employment, total disability or death. Any participant may also apply to make in-service withdrawals of all or part of his/her vested account balance subject to specific in-service withdrawal of after-tax contributions, age 59½ withdrawals and hardship withdrawal criteria in the Plan. Benefits paid include dividend payments attributable to common stock of the Company held in the ESOP Stock Fund of $105,045 and $111,003, for the plan years ended December 31, 2016 and 2015, respectively.
(h)
Notes Receivable from Participants
Participants may take a loan from their vested account balance for any reason. The minimum loan amount is $1,000 and the maximum amount that can be borrowed is 50% of a participant’s vested account balance up to $50,000 and reduced by the highest outstanding loan balance of the participant in the 12-month period prior to taking the loan.
If a participant does not repay his/her outstanding loan balance at the time (s)he elects a distribution of his/her vested account balance or if a participant misses any loan payments and does not make up the missed payments in full (including accrued interest) within a 30-day period (notice of which will be provided in writing from the Trustee), the amount of the participant’s outstanding loan will be defaulted and reported to the IRS as a taxable distribution. A 10% early distribution penalty may also apply.
Upon the death, retirement or termination of employment of the participant, the Plan may deduct the total unpaid loan balance or any portion thereof from any payment or distribution to which the participant or the participant’s beneficiaries may be entitled. A participant may continue to repay his/her loan following a termination of his/her employment. Currently, interest rates on plan loans are fixed based on the prevailing market rate (prime rate plus 1%) when the application for the loan is submitted. The interest rates on plan loans originated during the year were 4.50% and 4.25% for plan years ended December 31, 2016 and 2015, respectively. Generally, loans are repaid in equal semimonthly installments through payroll deductions and extend from periods of one to five years. However, certain loans for purchases of principal residences have terms in excess of five years. Certain loans were also transferred to the Plan from other plans. Loans outstanding bear interest rates that range from 4.25% to 10.50%, for the years ended December 31, 2016 and 2015 respectively, maturing through 2026 for the year ended December 31, 2016 and 2025 for the year ended December 31, 2015. Participant loan fees, which are included in administrative expenses on the accompanying statements of changes in net assets available for benefits, are borne by the participant and amounted to $29,566 and $32,915 for the plan years ended December 31, 2016 and 2015, respectively.
(i)
Administrative Expenses
Administrative expenses consist of participant fees, including loan fees, and costs of recordkeeping and administration. Trustee fees and other administrative and recordkeeping expenses charged to the Plan by Fidelity Investments Institutional Operations Company (FIIOC) are initially paid by the ERISA Account (see note 1(k)) on a quarterly basis. This process is automatic, therefore each quarterly invoice reflects a total amount due and a balance due after the ERISA Account credit has been applied. The balance of the quarterly invoice is then paid out of the Plan’s forfeiture account. If at any time the amount available in the forfeiture account does not cover the remaining fees, the Company or the Plan would then be responsible for payment.
(j)
Forfeited Accounts
When participants leave the Company, the unvested portion of their Employer Contribution Account (matching and discretionary) is forfeited as of the earlier of the date they receive a distribution of their vested account or the date they have five consecutive one year breaks-in-service. At December 31, 2016 and 2015, forfeited non-vested accounts totaled $9,111 and $10,794, respectively, and were available to fund future employer contributions and to pay administrative expenses of the Plan as noted above.
(k)
ERISA Account
The Trustee and the Plan maintain a revenue sharing arrangement whereby a portion of the revenue earned by the Trustee from certain funds is passed through to the Plan for payment of permitted plan expenses or to be allocated to participants on a pro-rata basis. In order for the Plan to receive credits as a result of this revenue sharing arrangement, and to use this credit to pay plan expenses, the Company created the ERISA Account under the Plan. The ERISA Account is a separate account within the Plan, similar in design to forfeiture accounts, and is used to record keep the redistribution of plan-generated fund revenue and expenses that exceed the costs associated with plan administration. All assets in this account are invested in the FIAM Index Lifecycle Commingled Pool.
When the plan investments pay out revenue-sharing above the current quarter’s plan administration fees, the amount exceeding the current quarter’s fee is deposited in the ERISA Account, and is available for payment of future plan expenses. The ERISA Account balance was $76,883 and $113,046 at December 31, 2016 and 2015, respectively. There is also a credit of $184,388 and $195,604 due to the ERISA Account as of December 31, 2016 and 2015, respectively, which has been reflected in the receivables within the Statements of Net Assets Available for Benefits.
(l)
Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of a termination of the Plan, participants will become 100% vested in their accounts.
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(2)
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Summary of Significant Accounting Policies
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The accompanying financial statements of the Plan have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The more significant accounting policies followed by the Plan are as follows:
(a)
Basis of Presentation
The accompanying financial statements have been prepared on the accrual basis of accounting.
(b)
Investments Valuation and Income Recognition
Investments are reported at fair value. Investments in mutual funds, managed separate accounts and the ESOP Stock Fund are stated at fair value based upon quoted prices in published sources. Common collective trusts are stated at fair value based on the Net Asset Value (NAV) of the pooled investments. They are valued independently by the investment managers; however, the daily prices are not published in public sources similar to mutual funds. Purchases and sales of securities are recorded on a trade-date basis. Dividend income is recorded on the ex-dividend date and interest is recorded when earned. Net appreciation (depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
(c)
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Fair value of notes receivable approximates their cost. Delinquent participant notes are reclassified as distributions based upon the terms of the plan document.
(d)
Payments of Benefits
Benefits to participants or their beneficiaries are recorded when paid.
(e)
Risks and Uncertainties
Participants within the Plan may invest in various types of investment securities. Investment securities are exposed to various risks, such as interest rate, market, and/or credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits. At December 31, 2016 and 2015, approximately 12.58% and 12.14% respectively, of the Plan’s net assets were invested in the common stock of the Company. The underlying value of the common stock of the Company is entirely dependent upon the market’s evaluation of the performance of the Company.
(f)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates and assumptions.
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(3)
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Fair Value Measurements:
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The following table sets forth the Plan’s investments at fair value measured on a recurring basis as of December 31, 2016 and 2015. All Plan's investments are classified as Level 1 within the fair value hierarchy.
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December 31, 2016
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December 31, 2015
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Mutual funds
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Large cap
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$
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470,177,164
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$
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447,947,194
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Mid cap
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54,433,746
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53,311,232
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Small cap
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50,321,741
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48,271,897
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Balanced
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73,159,015
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81,714,464
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Fixed income
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105,158,804
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98,790,754
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Money market
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151,796,505
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141,900,760
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International
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75,603,122
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76,275,277
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Total mutual funds
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980,650,097
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948,211,578
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Common collective trusts
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240,349,077
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208,655,087
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Managed separate accounts
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Cash and cash equivalents
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5,165,255
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5,858,652
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Common stock
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86,542,420
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96,706,779
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Total managed separate accounts
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91,707,675
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102,565,431
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ESOP stock fund
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194,510,073
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179,729,672
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Total investments, at fair value
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$
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1,507,216,922
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$
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1,439,161,768
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Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants. Classification of assets and liabilities should be based on the following fair value hierarchy:
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•
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Level 1:
Quoted or published prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities.
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•
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Level 2:
Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and
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•
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Level 3:
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
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The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value:
Common Stocks:
Valued at the closing price reported on the active market on which the individual securities are traded.
Mutual Funds:
Valued at quoted prices reported on the active market on which the securities are traded.
Managed Separate Accounts:
Valued at the closing price of the underlying common stocks.
Common Collective Trusts:
Valued at the NAV of shares held by the Plan at year end. There are no restrictions as to the redemption of these common collective trusts nor does the Plan have any contractual obligations to further invest in any of the individual common collective trusts.
There have been no changes in the valuation methods used at December 31, 2016 and 2015 and there were no transfers between levels for the year ended December 31, 2016. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
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(4)
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Related-Party Transactions
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Certain plan investments are shares of mutual funds managed by Fidelity Management & Research Company (FMR), an affiliate of Fidelity Management Trust Company (FMTC) and FIIOC. Certain other plan investments are units of common collective trusts managed by Fidelity Institutional Asset Management Trust Company (FIAMTC), a wholly owned subsidiary of FMR. Investment management fees and costs of administering the mutual funds and collective trusts are paid to FMR from the mutual funds and to FIAMTC from the collective trusts and are reflected in the net appreciation/depreciation of the mutual funds and collective trusts. Since FMTC is the Trustee, these transactions qualify as party-in-interest transactions. Fees paid by the Plan to FMTC and FIIOC were $727,020 and $674,568 for the plan years ended December 31, 2016 and 2015, respectively, and include participant fees and recordkeeping and administrative costs.
Of the $727,020 paid to FMTC and FIIOC for the year ended December 31, 2016, $75,121 was paid from participant accounts and $651,899 was paid from the ERISA Account (see note 1(k) for a description of the ERISA Account). Of the $674,568 paid to FMTC and FIIOC for the year ended December 31, 2015, $77,556 was paid from participant accounts and $597,012 was paid from the ERISA Account (see note 1(k) for a description of the ERISA Account). The Plan also holds shares of common stock of the Plan Sponsor, a party-in-interest with respect to the Plan. All transactions with the Trustee and the Plan Sponsor are covered by an exemption from the “prohibited transaction” provisions of ERISA and the IRC. As of December 31, 2016, and 2015, the Plan held 6,117,718 and 6,288,263 shares of CA common stock valued at $194,510,073 and $179,729,672, respectively, which includes unsettled stock trades at the end of the year and cash held for paying dividends. During the Plan year ended December 31, 2016, and 2015, CA paid dividends of $6,219,051 and $6,189,625, respectively related to CA common stock investments held by the Plan.
On January 19, 2015, the Company submitted an Application for Determination of an Employee Benefit Plan and an Application for Determination of Employee Stock Ownership Plan (Forms 5300 and 5309, respectively) for the Plan which was amended and restated effective January 1, 2015. On August 12, 2015, the IRS issued a favorable determination letter indicating that the Plan remains qualified under the applicable sections of the IRC. Although the Plan has been amended since receiving the determination letter, the Plan administrator believes that the Plan is currently designed, and being operated, in compliance with the applicable requirements of the IRC and therefore, believes that the Plan was qualified, and the related trust is tax-exempt.
On January 19, 2015, the Company filed a Voluntary Correction Program (VCP) application, in accordance with the IRS’s Voluntary Correction Program under the Employee Plans Compliance Resolution System (EPCRS), concerning certain plan operational failures. On June 22, 2015, the Plan received a compliance statement from the IRS which is the agreement resulting from this VCP application, indicating that the IRS agreed that the corrective methods and the revised administrative procedures were acceptable. The compliance statement required the completion of all corrections within 150 days of the date of the compliance statement. Certain corrections described in the compliance statement were not completed within this period. The Company filed another VCP application with the IRS on July 13, 2016 identifying the corrections that had not been completed within the 150-day period and covering certain other plan operational failures. The IRS issued a compliance statement on February 15, 2017 indicating that the IRS agrees with the correction methods and the revised administrative procedures are acceptable. The Company has substantially completed the required corrective actions and thus, expects to be in compliance, as required, within 150 days of the February 15, 2017 compliance statement date.
The Plan has received a determination letter from the Commonwealth of Puerto Rico’s Department of Treasury (the “Puerto Rico Department of Treasury”) dated January 25, 2011, stating that the Plan is qualified under Section 1165(a) of the Puerto Rico Internal Revenue Code of 1994, as amended, and that the trust established under the Plan will be entitled to exemption from Puerto Rico income taxes. In December 2013, a request for an administrative determination was filed with the Puerto Rico Department of Treasury to confirm that the Plan remains qualified under the applicable sections of the Puerto Rico Internal Revenue Code for a New Puerto Rico of 2011, as amended (the “PRIRC”), pursuant to PRIRC Sections 1081.01(a) and (d). On July 1, 2015, the Plan received a letter from the Puerto Rico Department of Treasury indicating that it has no objection to the amendments made in respect of the Plan since the purpose of the amendments is to comply with the requirements of Puerto Rico Internal Revenue Code of 2011. The Puerto Rico Department of Treasury indicated that such amendments will not affect the ruling issued on the Plan on January 25, 2011. On July 11, 2016, the Company submitted an administrative determination request with the Puerto Rico Department of Treasury that the Plan, as amended and restated effective as of January 1, 2015, continues to meet the retirement plan qualification requirements of Section 1081.01(a) and (d) of the PRIRC. The Puerto Rico Department of Treasury issued a letter on March 24, 2017 indicating that the Plan meets such qualification requirements and that the related trust will be entitled to exemption from local income taxes.
GAAP requires plan management to evaluate tax positions taken by the Plan and recognize (or derecognize) a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS or, with respect to the Puerto Rico participants in the Plan, the Puerto Rico Department of Treasury. The Plan Sponsor has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2016, there are no uncertain positions taken or expected to be taken that would require recognition (or derecognition) of a liability (or asset) or disclosure in the financial statements. The Plan is subject to audits by the IRS and the Puerto Rico Department of Treasury. As of December 31, 2016, there were no audits or investigations by the IRS or the Puerto Rico Department of Treasury of the Plan.
The Plan has evaluated subsequent events through the date the financial statements were issued and no additional disclosures are required.