Computer Associates 2005 Annual Report Download - page 77

Table of Contents
Discovery of errors in our software could adversely affect our revenues and earnings and subject us to product liability claims, which
may be costly and time consuming.
The software products we offer are inherently complex. Despite testing and quality control, we cannot be certain that errors will not be
found in current versions, new versions, or enhancements of our products after commencement of commercial shipments. If new or
existing customers have difficulty deploying our products or require significant amounts of customer support, our operating margins
could be adversely affected. Moreover, we could face possible claims and higher development costs if our software contains undetected
errors or if we fail to meet our customers’ expectations. Significant technical challenges also arise with our products because our
customers purchase and deploy our products across a variety of computer platforms and integrate them with a number of third-party
software applications and databases. These combinations increase our risk further because in the event of a system-wide failure, it may
be difficult to determine which product is at fault; thus, we may be harmed by the failure of another supplier’ s products. As a result of the
foregoing, we could experience:
• Loss of or delay in revenues and loss of market share;
• Loss of customers, including the inability to do repeat business with existing key customers;
• Damage to our reputation;
• Failure to achieve market acceptance;
• Diversion of development resources;
• Increased service and warranty costs;
• Legal actions by customers against us which could, whether or not successful, increase costs and distract our management;
• Increased insurance costs; and
• Failure to successfully complete service engagements for product installations and implementations.
In addition, a product liability claim, whether or not successful, could be time-consuming and costly and thus could have a material
adverse affect on our business, results of operations or financial positions.
Our credit ratings have been downgraded and could be downgraded further which would require us to pay additional interest under our
credit agreement and could adversely affect our ability to borrow.
Our credit ratings from Moody’ s Investor Service and Standard & Poor’ s were downgraded in 2003. In March 2004, Moody’ s again
lowered our senior unsecured debt rating to Ba1, which is below investment grade, and our short-term rating for commercial paper to
Not-Prime. In April 2004, S&P lowered our senior unsecured debt rating to BBB- and our short-term rating for commercial paper to A-3.
S&P has placed us on negative outlook. In November 2004, Fitch Ratings initiated rating of our long-term and short-term debt and rated
our senior unsecured notes BBB-.
Moody’ s, S&P, or any other credit rating agency may further downgrade or take other negative action with respect to our credit ratings
in the future. If our credit ratings are further downgraded or other negative action is taken, we would be required to, among other things,
pay additional interest under our credit agreements. Any downgrades could affect our ability to obtain additional financing in the future
and may affect the terms of any such financing. This could have a material adverse effect on our business, financial condition, operating
results, and cash flow.
We have a significant amount of debt and failure to generate sufficient cash as our debt becomes due or to renew credit lines prior to
their expiration may adversely affect our business, financial condition, operating results, and cash flow.
As of March 31, 2005, we had approximately $2.6 billion of debt outstanding, consisting of unsecured fixed-rate senior note obligations,
convertible senior notes, and unsecured multicurrency credit facilities. Refer to Item 7 “Management’ s Discussion and Analysis of
Financial Condition and Results of Operations — Contractual Obligations and Commitments” for the payment schedule of our
long-term debt obligations, inclusive of interest. We expect that existing cash, cash equivalents, marketable securities, cash provided
from operations, and our bank credit facilities will be sufficient to meet ongoing cash requirements. However, failure to generate
sufficient cash as our debt becomes due or to renew credit lines prior to their expiration may adversely affect our business, financial
condition, operating results, and cash flow.
Failure to protect our intellectual property rights would weaken our competitive position.
Our future success is highly dependent upon our proprietary technology, including our software. Failure to protect such technology
could lead to our loss of valuable assets and competitive advantage. We protect our proprietary information through the use of patent,
copyright, trademark, trade secret laws, confidentiality procedures, and contractual provisions. Notwithstanding our efforts to protect
our proprietary rights, policing unauthorized use or copying of our proprietary information is difficult. Unauthorized use or copying
occurs from time to time and litigation to enforce intellectual property rights could result in significant costs and diversion of resources.
Moreover, the laws of some foreign jurisdictions do not afford the same degree of protection to our proprietary rights as do the laws of
the United States. For
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