Computer Associates 2004 Annual Report Download - page 64

Acts of terrorism or war may adversely affect our business.
Acts of terrorism, acts of war, and other unforeseen events may cause damage or disruption to our properties, business,
employees, suppliers, distributors, resellers, and customers, which could have an adverse effect on our business, financial
condition, operating results, and cash flow. Such events may also result in an economic slowdown in the United States
or elsewhere, which could adversely affect our business, financial condition, operating results, and cash flow.
Our stock price is subject to significant fluctuations.
Our stock price is subject to significant fluctuations in response to variations in quarterly operating results, the gain
or loss of significant license agreements, changes in earnings estimates by analysts, announcements of technological
innovations or new products by us or our competitors, changes in domestic and international economic and business
conditions, general conditions in the software and computer industries, and other events or factors. In addition, the stock
market in general has experienced extreme price and volume fluctuations that have affected the market price of many
companies in industries that are similar or related to those in which we operate and that have been unrelated to the operating
performance of these companies. These market fluctuations have in the past adversely affected and may continue to
adversely affect the market price of our common stock.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio, debt, and
installment accounts receivable. We have a prescribed methodology whereby we invest our excess cash in debt instruments
of government agencies and high-quality corporate issuers (Standard & Poor’s single “A” rating and higher). To mitigate
risk, many of the securities have a maturity date within one year, and holdings of any one issuer, excluding the U.S.
government, do not exceed 10% of the portfolio. Periodically, the portfolio is reviewed and adjusted if the credit rating
of a security held has deteriorated. We do not utilize derivative financial instruments to mitigate interest rate risk.
We have shifted from a blend of both fixed and floating rate debt instruments to substantially all fixed rate debt
instruments to take advantage of historically low interest rates. As of March 31, 2004, our outstanding debt approximated
$2.3 billion, approximately all of which is in fixed rate obligations. If market rates were to decline, we could be required
to make payments on the fixed rate debt that would exceed those based on current market rates. Each 25 basis point
decrease in interest rates would have an associated annual opportunity cost of approximately $6 million. Each 25 basis
point increase or decrease in interest rates would have an immaterial annual effect on variable rate debt interest based
on the balances of such debt as of March 31, 2004.
Prior to our implementation of the Business Model, we offered financing arrangements with installment payment terms
in connection with our software solution sales. The aggregate amounts due from customers include an imputed interest
element, which can vary with the interest rate environment. Each 25 basis point increase in interest rates would have an
associated annual opportunity cost of approximately $5 million.
Foreign Currency Exchange Risk
We conduct business on a worldwide basis through branches and subsidiaries in 45 countries. We are therefore exposed
to movement in currency exchange rates. As part of our risk management strategy and consistent with prior years, we did
not enter into any foreign exchange derivative transactions. In addition, we manage our level of exposure by denominating
a majority of international sales and payments of related expense in the local currencies of our subsidiaries. A 1% change
in all foreign currencies against the U.S. dollar would have an insignificant effect on our results from operations.
Equity Price Risk
As of March 31, 2004, we have minimal investments in marketable equity securities of publicly traded companies. These
investments were considered available-for-sale with any unrealized gains or temporary losses deferred as a component of
stockholders’ equity. It is not customary for us to make investments in equity securities as part of our investment strategy.
Item 8. Financial Statements and Supplementary Data.
Our Consolidated Financial Statements are listed in the Index to the Consolidated Financial Statements filed as part of
this Annual Report on Form 10-K and are incorporated herein by reference.
The Supplementary Data specified by Item 302 of Regulation S-K as it relates to selected quarterly data is included in
Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Information on the
effects of changing prices is not required.
CA 2004 FORM 10-K | PAGE 36