Computer Associates 2005 Annual Report Download - page 59

Table of Contents
the shareholder litigation settlement was established on August 22, 2003. The chart below summarizes the NYSE closing price of our
common stock and the estimated value of the shareholder litigation settlement since the initial estimate was established.
Shareholder
NYSE
Closing
Litigation
Settlement
Stock Price Estimated Value
(in millions)
December 14, 2004 $31.03 $174
September 30, 2004 26.30 156
June 30, 2004 28.06 163
March 31, 2004 26.86 158
December 31, 2003 27.34 158
September 30, 2003 26.11 150
August 22, 2003 25.00 144
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” of 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 will be
made in the second quarter of fiscal year 2006 and the final payment of $75 million will be made in the fourth quarter of fiscal year 2006.
Refer to Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements for additional information.
Interest Expense, Net
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. Refer to the “Liquidity and
Capital Resources” section of this MD&A and Note 6, “Debt” of the Consolidated Financial Statements and for additional information.
Interest expense, net for fiscal year 2004 decreased $52 million as compared to fiscal year 2003 to $117 million. The decrease was
primarily due to a reduction in average debt outstanding, which resulted in a $46 million decrease in interest expense; a reduction in the
weighted average interest rate, which resulted in a $9 million decrease in interest expense; and accelerated amortization of financing fees
in the third quarter of fiscal year 2003. This decrease was partially offset by a $3 million gain related to the early retirement of a portion
of outstanding debt in fiscal year 2003.
Operating Margins
For fiscal year 2005, our pretax income from continuing operations was $2 million as compared to a pretax loss from continuing
operations of $98 million in fiscal year 2004. The improvement in operating margins was primarily related to an increase in revenue and
an improvement in cost controls, partially offset by the shareholder litigation and government investigation settlement expense of
$234 million recorded in fiscal year 2005.
Income Taxes
Our effective tax rate from continuing operations was approximately 200%, 17%, and 24% for fiscal years 2005, 2004, and 2003,
respectively. Refer to Note 8, “Income Taxes” of the Consolidated Financial Statements for additional information.
The income tax expense for the fiscal year ended March 31, 2005 includes a charge of $55 million or $0.09 per share reflecting the
estimated cost of repatriating approximately $500 million under the American Jobs Creation Act of 2004. We received a benefit of
approximately $35 million or $0.06 per share in the quarter ending June 30, 2005 reflecting the Department of Treasury and Internal
Revenue Service (IRS) Notice 2005-38 issued on May 10, 2005
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