Computer Associates 2006 Annual Report Download - page 63

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The shareholder litigation settlement expense for fiscal year 2005 of $16 million was a result of the increase in our
stock price since March 31, 2004. The aggregate shareholder litigation settlement expense recorded was
$174 million, including $158 million in fiscal year 2004. Refer to Note 7, “Commitments and Contingencies”,
in the Notes to the Consolidated Financial Statements for additional information.
In September 2004, we reached agreements with the USAO and the SEC in connection with their investigations of
improper recognition of revenue and related reporting practices during the period January 1, 1998 through
September 30, 2000, and the actions of certain former employees to impede the investigations. Under the DPA, we
agreed, among other things, to establish a restitution fund of $225 million to compensate present and former
Company shareholders for losses caused by the misconduct of certain former Company executives. In connection
with the DPA, we recorded a $10 million charge in the fourth quarter of fiscal year 2004 and $218 million in the
second quarter of fiscal year 2005 associated with the establishment of the shareholder restitution fund and related
administrative fees. The first payment of $75 million was made during the third quarter of fiscal year 2005. The
second payment of $75 million was made in the second quarter of fiscal year 2006 and the final payment of
$75 million was made in the fourth quarter of fiscal year 2006. Refer to Note 7, “Commitments and Contingencies”,
in the Notes to the Consolidated Financial Statements for additional information.
Interest Expense, Net
Interest expense, net for fiscal year 2006 decreased $65 million as compared to fiscal year 2005 to $41 million. The
change was primarily due to a decrease in average debt outstanding which resulted in a $39 million decrease in
interest expense, and a decrease in the average interest rate on our outstanding debt, which resulted in a $20 million
decrease in interest expense. The decrease was also due to an increase in our average cash balance and an increase in
interest rates on the cash balance during the fiscal year ended 2006 as compared to the fiscal year ended 2005, which
resulted in an increase in interest income of approximately $6 million. Refer to the “Liquidity and Capital
Resources” section of this MD&A and Note 6, “Debt”, in the Notes to the Consolidated Financial Statements, for
additional information.
Interest expense, net for fiscal year 2005 decreased $11 million as compared to fiscal year 2004 to $106 million. The
decrease was primarily due to an increase in our average cash balance during the fiscal year ended March 31, 2005
as compared to the fiscal year ended March 31, 2004, which resulted in an increase in interest income of
approximately $28 million. The decrease in interest expense was partially reduced by additional interest expense of
$8 million incurred as a result of the issuance of the 2005 Senior Notes and an increase in the weighted average
interest rate, which resulted in a $9 million increase in interest expense.
Operating Margins
Fiscal year 2006 pretax operating income from continuing operations was $121 million as compared to $33 million
in fiscal year 2005. This improvement relates primarily to revenue growth as a result of our acquisitions, and
$234 million in shareholder litigation and government investigation costs in fiscal year 2005 that did not recur in
fiscal year 2006, partially offset by higher restructuring costs and higher selling, general and administrative costs
and commission expenses incurred in fiscal year 2006 compared to fiscal year 2005.
Income Taxes
Our effective tax rate from continuing operations was approximately (29%), 21%, and 23% for fiscal years 2006,
2005, and 2004, respectively. Refer to Note 8, “Income Taxes”, in the Notes to the Consolidated Financial
Statements for additional information.
The income tax benefit recorded for the fiscal year ended March 31, 2006 includes benefits of approximately
$51 million arising from the recognition of certain foreign tax credits, $18 million arising from international stock
based compensation deductions and $66 million arising from foreign export benefits and other international tax rate
benefits. Partially offsetting these benefits was a charge of approximately $46 million related to additional tax
reserves.
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