Computer Associates 2000 Annual Report Download - page 19

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Note 8 — Income Taxes
The amounts of income before income taxes attributable to domestic and foreign operations are as follows:
Year Ended March 31,
2000 1999 1998
(in millions)
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,452 $ 748 $1,611
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 262 263
$1,590 $1,010 $1,874
The provision for income taxes consists of the following: Year Ended March 31,
2000 1999 1998
(in millions)
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $401 $171 $446
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 17 44
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 89 74
482 277 564
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381 106 119
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 412
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5(3) 10
412 107 141
Total:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 782 277 565
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 21 56
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 86 84
$894 $384 $705
The provision for income taxes is reconciled to the tax provision computed at the federal statutory rate as follows:
Year Ended March 31,
2000 1999 1998
(in millions)
Tax expense at U.S. federal statutory rate . . . . . . . . . . . . . . . . . . . . $556 $353 $656
Increase (reduction) in tax expense resulting from:
Purchased research and development . . . . . . . . . . . . . . . . . . . . . . 278 ––
Non-deductible amortization of excess cost over
net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 23 21
Effect of international operations, including foreign
sales corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (72) (29) (42)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 23 34
State taxes, net of federal tax benefit . . . . . . . . . . . . . . . . . . . . . . 33 14 36
$894 $384 $705
At March 31, 2000 and 1999, the Company had various
other fixed rate debt obligations outstanding. These obliga-
tions carried annual interest rates ranging from 6% to 71
/2%
and approximated $35 and $52 million, respectively.
The Company conducts an ongoing review of its capital struc-
ture and debt obligations as part of its risk management
strategy. To date, the Company has not entered into any form
of derivative transactions related to its debt instruments. At
March 31, 2000, the fair value of the Company’s debt was
approximately $100 million less than its carrying value.
The maturities of outstanding debt for the next five fiscal
years are as follows: 2001— $919 million; 2002— $331
million; 2003— $2,310 million; 2004— $640 million; and
2005— $826 million.
Interest expense for the years ended March 31, 2000, 1999,
and 1998 was $352 million, $154 million, and $147 million,
respectively.
Note 7 — Commitments and Contingencies
The Company leases real estate and certain data processing
and other equipment with lease terms expiring through 2023.
The leases are operating leases and generally provide for
renewal options and additional rentals based on escalations
in operating expenses and real estate taxes. The Company
has no material capital leases. The Company has completed
construction of a facility in the United Kingdom with all costs
paid as of March 31, 2000.
Rental expense under operating leases for the years ended
March 31, 2000, 1999, and 1998, was $205 million, $135
million, and $140 million, respectively. Future minimum lease
payments are: 2001— $181 million; 2002— $148 million;
2003— $116 million; 2004— $87 million; 2005— $74 million;
and thereafter— $242 million.
The Company and certain of its officers are defendants in a
number of shareholder class action lawsuits alleging that a
class consisting of all persons who purchased the Company’s
stock during the period January 20, 1998 until July 22, 1998
were harmed by misleading statements, representations, and
omissions regarding the Company’s future financial perform-
ance. These cases have been consolidated into a single
action (the “Shareholder Action”) in the United States District
Court for the Eastern District of New York (“New York Federal
Court”). The New York Federal Court has denied the defen-
dants’ motion to dismiss the Shareholder Action, and the par-
ties currently are engaged in discovery. Although the ultimate
outcome and liability, if any, cannot be determined, manage-
ment, after consultation and review with counsel, believes
that the facts in the Shareholder Action do not support the
plaintiffs’ claims and that the Company and its officers and
directors have meritorious defenses.
In addition, three derivative actions alleging misleading
statements and omissions similar to those alleged in the
Shareholder Action were brought in the New York Federal
Court on behalf of the Company against a majority of the
Company’s directors. An additional derivative action on behalf
of the Company, alleging that the Company issued 14.25 mil-
lion more shares than were authorized under the 1995 Key
Employee Stock Ownership Plan (the “1995 Plan”), also was
filed in the New York Federal Court. These derivative actions
have been consolidated into a single action (the “Derivative
Action”) in the New York Federal Court. The Derivative Action
has been stayed. Lastly, a derivative action on behalf of the
Company was filed in the Chancery Court in Delaware (the
“Delaware Action”) alleging that 9.5 million more shares were
issued to the three 1995 Plan participants than were author-
ized under the 1995 Plan. The Company and its directors who
are parties to the Derivative Action and the Delaware Action
have announced that an agreement has been reached to
settle the Delaware Action and the Derivative Action. Under
the terms of the proposed settlement, which is subject to the
approval of the Delaware Court of Chancery and dismissal of
related claims by the New York Federal Court, the 1995 Plan
participants will return 4.5 million shares of Computer
Associates stock to the Company, at which time the Company
will record a non-cash gain.
The Company, various subsidiaries and certain current and
former officers have been named as defendants in various
claims and lawsuits arising in the normal course of business.
The Company believes that the facts do not support the plain-
tiffs’ claims and intends to vigorously contest each of them.
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