Computer Associates 2007 Annual Report Download - page 115

due and paid in April 2003, $825 million at 6.375% due and paid in April 2005, and $350 million at 6.5% due April 15, 2008.
As of March 31, 2007, $350 million of the 6.5% Senior Notes remained outstanding.
Fiscal Year 2005 Senior Notes
In November 2004, the Company issued an aggregate of $1 billion of unsecured Senior Notes (2005 Senior Notes) in a
transaction pursuant to Rule 144A. The Company issued $500 million of 4.75%, 5-year notes due December 2009 and
$500 million of 5.625%, 10-year notes due December 2014.The Company used the net proceeds from this issuance to repay
debt. The Company has the option to redeem the 2005 Senior Notes at any time, at redemption prices equal to the greater of
(i) 100% of the aggregate principal amount of the notes of such series being redeemed and (ii) the present value of the
principal and interest payable over the life of the 2005 Senior Notes, discounted at a rate equal to 15 basis points and 20 basis
points for the 5-year notes and 10-year notes, respectively, over a comparable U.S. Treasury bond yield. The maturity of the
2005 Senior Notes may be accelerated by the holders upon certain events of default, including failure to make payments when
due and failure to comply with covenants in the 2005 Senior Notes.The 5-year notes were issued at a price equal to 99.861%
of the principal amount and the 10-year notes at a price equal to 99.505% of the principal amount for resale under Rule 144A
and Regulation S. The Company also agreed for the benefit of the holders to register the 2005 Senior Notes under the
Securities Act of 1933 pursuant to a registered exchange offer so that the 2005 Senior Notes could be sold in the public
market. Because the Company did not meet certain deadlines for completion of the exchange offer, the interest rate on the
2005 Senior Notes increased by 25 basis points as of September 27, 2005 and increased by an additional 25 basis points as of
December 26, 2005 since the delay was not cured prior to that date. The additional 50 basis points ceased to accrue as of
November 18, 2006, when the 2005 Senior Notes could be sold under Rule 144, without registration, to the public by holders
who are not affiliated with the Company.
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 and rank
equally with all existing senior unsecured indebtedness. Concurrent with the issuance of the 1.625% Notes, we entered into
call spread repurchase option transactions (1.625% Notes Call Spread) to partially mitigate potential dilution from conversion
of the 1.625% Notes. The option purchase price of the 1.625% Notes 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
the Company’s 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, 2007, the estimated fair value of the 1.625% Notes Call Spread was approximately $122 million,
which was based upon independent valuations from third-party financial institutions.
3% Concord Convertible Notes
In connection with our acquisition of Concord in June 2005, we assumed $86 million in 3% convertible senior notes due 2023.
In accordance with the notes’ terms, we redeemed (for cash) the notes in full in July 2005.
103