Computer Associates 2005 Annual Report Download - page 126

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Table of Contents
Note 6 — Debt (Continued)
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,
2005, 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.
Other Indebtedness
March 31,
2005 2004
Maximu
m Outstanding
Maximu
m Outstanding
Availabl
e Balance
Availabl
e Balance
(in millions)
Commercial paper $400 $
—
$ 400 $
—
International line of credit 5
—
5
—
Other
—
1
—
5
Commercial Paper
The Company has a $400 million commercial paper (CP) program that provides for the issuance of CP not to exceed 270 days. No
borrowings were outstanding as of March 31, 2005 or 2004. The CP program is currently rated A-3 by Standard & Poor’ s (S&P) and the
outlook is negative. The CP program is currently rated NP (Not-Prime) and F-3 by Moody’ s Investors Service (Moody’ s) and Fitch
Ratings, respectively, and are on stable outlook. Any future issuances of CP will be supported by cash and marketable securities on hand
and undrawn amounts available under the 2004 Revolving Credit Facility.
International Line of Credit
An unsecured and uncommitted multi-currency line of credit is available to meet short-term working capital needs for subsidiaries
operating outside the United States. As of March 31, 2005, this line totaled $5 million, of which less than $1 million was drawn and
approximately $2 million has been pledged in support of a bank guarantee.
Other
As of March 31, 2005 and 2004, the Company had various other debt obligations outstanding, which approximated $1 million and
$5 million, respectively.
In November 2004, Fitch Ratings initiated rating of the Company’ s long-term and short-term debt. This debt is currently rated in the
investment grade rating band.
The Company’ s senior unsecured notes are rated Ba1 and BBB- by Moody’ s and Fitch Ratings, respectively, and are on stable outlook.
The senior unsecured notes are rated BBB- by S&P and the outlook is negative.
The Company conducts an ongoing review of its capital structure and debt obligations as part of its risk management strategy. The fair
value of the Company’ s long-term debt, including the current portion of long-term debt, was $2.831 billion and $2.745 billion at
March 31, 2005 and 2004, respectively. The fair value of long-term debt is based on quoted market prices.
Interest expense for the fiscal years ended March 31, 2005, 2004, and 2003 was $153 million, $136 million, and $193 million,
respectively.
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