Computer Associates 2006 Annual Report Download - page 142

Note 6 — Debt (Continued)
additional 25 basis points as of December 26, 2005, since the delay was not cured prior to that date. After the delay
is cured, such additional interest on the 2005 Senior Notes will no longer be payable. As of July 31, 2006, the
Company has not registered the 2005 Senior Notes and has incurred approximately $2 million in penalty fees which
have been recorded in the “Interest expense, net” line item in the Consolidated Statement of Operation for the fiscal
year 2006. The Company used the net proceeds from this issuance to repay debt as described above.
The Company capitalized the transaction fees associated with the 2005 Senior Notes, which totaled approximately
$7 million. These fees are being amortized over the period through maturity of the 2005 Senior Notes in the
“Interest expense, net” line item in the Consolidated Statement of Operations.
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 at a conversion price of $20.04 per share. The initial
conversion rate is 49.9002 common shares per $1,000 principal amount of the 1.625% Notes and is subject to
adjustment under certain circumstances. The Company may redeem the 1.625% Notes only at the maturity date. 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 in 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 and the
entire purchase price was charged to Stockholders’ Equity in December 2002. Under the terms of the
1.625% Notes Call Spread, the Company can elect to receive (i) outstanding shares equivalent to the number
of shares that will be issued if all of the 1.625% Notes are converted into shares (23 million shares) upon payment of
an exercise price of $20.04 per share (aggregate price of $460 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 23 million shares from the aggregate value at the $20.04 exercise price (aggregate price of
$460 million), subject to the upper limit of $30.00 discussed below. The 1.625% Notes Call Spread is
designed to partially mitigate the potential dilution from conversion of the 1.625% Notes, depending upon the
market price of our common stock at such time. The 1.625% Notes Call Spread can be exercised in December 2009
at an exercise price of $20.04 per share. To limit the cost of the 1.625% Notes Call Spread, an upper limit of
$30.00 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 $30.00 at the time of exercise. As of March 31, 2006, the estimated fair value of the
1.625% Notes Call Spread was approximately $120 million, which was based upon independent valuations from
third-party financial institutions.
3% Concord Convertible Notes
In connection with the acquisition of Concord in June 2005, the Company assumed $86 million in 3% convertible
senior notes due 2023. In accordance with the notes’ terms, the Company redeemed (for cash) the notes in full in
July 2005.
Other Indebtedness
Maximum
Available
Outstanding
Balance
Maximum
Available
Outstanding
Balance
2006 2005
March 31,
(in millions)
International line of credit .................. $ 5 $— $ 5 $—
Other ................................. — 1 — 1
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