Computer Associates 2004 Annual Report Download - page 89

Senior Note Obligations
As of March 31, 2004 and 2003, the Company had the following unsecured, fixed-rate interest, senior note obligations
outstanding:
March 31,
2004 2003
(in millions)
6.770% Senior Notes due April 2003 ...................................................................................................................... $ — $ 64
6.250% Senior Notes due April 2003 ...................................................................................................................... — 412
6.375% Senior Notes due April 2005 ...................................................................................................................... 825 825
5.000% Convertible Senior Notes due March 2007 ................................................................................................ 660 660
6.500% Senior Notes due April 2008 ...................................................................................................................... 350 350
1.625% Convertible Senior Notes due December 2009.......................................................................................... 460 460
Fiscal Year 1997 Senior Notes
In fiscal year 1997, $320 million of unsecured 6.77% Senior Notes were issued in a private transaction pursuant to an
exemption from registration under the Securities Act of 1933. As of March 31, 2003, $64 million was outstanding under
the 6.77% Senior Notes. The balance of the 6.77% Senior Notes was fully repaid in April 2003.
Fiscal Year 1999 Senior Notes
In fiscal year 1999, the Company issued $1.750 billion of unsecured Senior Notes in a transaction pursuant to Rule 144A
under the Securities Act of 1933 (Rule 144A). Amounts borrowed, rates, and maturities for each issue were $575 million
at 6.25% due April 15, 2003, $825 million at 6.375% due April 15, 2005, and $350 million at 6.5% due April 15, 2008.
During the first quarter of fiscal year 2004, the Company repaid the $412 million remaining balance of the 6.25% Senior
Notes. As of March 31, 2004, $825 million and $350 million of the 6.375% and 6.5% Senior Notes, respectively,
remained outstanding.
5% Convertible Senior Notes
In fiscal year 2002, the Company issued $660 million of unsecured 5% Convertible Senior Notes, due March 15, 2007
(5% Notes), in a transaction pursuant to Rule 144A. The 5% Notes are senior unsecured indebtedness and rank equally
with all existing senior unsecured indebtedness. The Notes may not be redeemed by the Company during the first three
years that they are outstanding and may be called thereafter until maturity at the Company’s option at declining premiums
to par. The Company capitalized the initial transaction fees associated with the 5% Notes, which totaled approximately
$16 million. These fees are being amortized over the period through maturity of the 5% Notes in the “Interest expense,
net” line item on the Consolidated Statements of Operations.
Concurrent with the issuance of the 5% Notes, the Company entered into a call spread repurchase option transaction
(5% Notes Call Spread). The option purchase price of the Call Spread was $95 million. The entire purchase price of $95 million
has been charged to Stockholders’ Equity. Under the terms of the 5% Notes Call Spread, the Company has the option to
receive (i) outstanding shares equivalent to the number of shares that will be issued if all of the 5% Notes are converted
into shares (27.116 million shares) upon payment of an exercise price of $24.83 per share (aggregate of $673.2 million);
or (ii) a net cash settlement, net share settlement or a combination, whereby the Company will receive cash or shares equal
to the increase in the market value of the 27.116 million shares from the aggregate value at the $24.83 exercise price (aggregate
of $673.2 million), subject to the upper limit of $36.60 discussed below. The 5% Notes Call Spread is designed to partially
mitigate the potential dilution from conversion of the 5% Notes, depending upon the market price of the Company’s common
stock at such time. The 5% Notes Call Spread can be exercised in March 2005 at an exercise price of $24.83 per share.
To limit the cost of the 5% Notes Call Spread, an upper limit of $36.60 per share has been set, such that if the price
of the common stock is above that limit at the time of exercise, the number of shares eligible to be purchased will be
proportionately reduced based on the amount by which the common share price exceeds $36.60 at the time of exercise.
The Company’s first opportunity to call the 5% Notes will be in March 2005, at which time the Company will also have
the right to exercise options to purchase outstanding shares or settle in cash under the 5% Notes Call Spread.
1.625% Convertible Senior Notes
In fiscal year 2003, the Company issued $460 million of unsecured 1.625% Convertible Senior Notes (1.625% Notes),
due December 15, 2009, in a transaction pursuant to Rule 144A. The 1.625% Notes are senior unsecured indebtedness,
rank equally with all existing senior unsecured indebtedness, and are convertible into shares of the Company’s common
stock. The Company may redeem the 1.625% Notes only at the maturity date of December 15, 2009. We capitalized the
initial transaction fees associated with the 1.625% Notes, which totaled approximately $12 million. These fees are being
amortized over the period through maturity of the 1.625% Notes in the “Interest expense, net” line item on the
Consolidated Statements of Operations.
Concurrent with the issuance of the 1.625% Notes, the Company entered into call spread repurchase option transactions
(1.625% Notes Call Spread). The option purchase price of the Call Spread was $73 million. The entire purchase price of
$73 million has been charged to Stockholders’ Equity. Under the terms of the 1.625% Notes Call Spread, the Company
CA 2004 FORM 10-K | PAGE 61
Note 6 — Debt (Continued)