Computer Associates 2010 Annual Report Download - page 51

until the underlying shares are granted. The adjustment is based on the quoted market price of our stock on the reporting
period date. Each quarter, we compare the actual performance we expect to achieve with the performance targets.
Legal contingencies
We are currently involved in various legal proceedings and claims. Periodically, we review the status of each significant matter
and assess our potential financial exposure. If the potential loss from any legal proceeding or claim is considered probable
and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in
both the determination of the probability of a loss and the determination as to whether the amount of loss is reasonably
estimable. Due to the uncertainties related to these matters, the decision to record an accrual and the amount of accruals
recorded are based only on the best information available at the time. As additional information becomes available, we
reassess the potential liability related to our pending litigation and claims, and may revise our estimates. Such revisions could
have a material effect on our results of operations. Refer to Note 9, “Commitments and Contingencies,” in the Notes to the
Consolidated Financial Statements for a description of our material legal proceedings.
New accounting pronouncements
In September 2009, the Financial Accounting Standards Board (FASB) ratified Accounting Standards Codification (ASC)
Accounting Standards Update (ASU) 2009-13 (previously Emerging Issues Task Force (EITF) Issue No. 08-1, Revenue
Arrangements with Multiple Deliverables). ASU 2009-13 superseded EITF No. 00-21, “Revenue Arrangements with Multiple
Deliverables,” and addresses criteria for separating the consideration in certain multiple-element arrangements. ASU 2009-13
will require companies to allocate the overall consideration to each deliverable by using a best estimate of the selling price of
individual deliverables in the arrangement in the absence of VSOE or other third-party evidence of the selling price. ASU
2009-13 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning
on or after June 15, 2010 and early adoption will be permitted. The adoption of ASU 2009-13 will not have a material effect
on our consolidated results of operations or financial condition.
In September 2009, the FASB ratified ASC ASU 2009-14 (previously EITF No. 09-3, Certain Revenue Arrangements That
Include Software Elements). ASU 2009-14 modifies the scope of software revenue recognition to exclude (a) non-software
components of tangible products and (b) software components of tangible products that are sold, licensed, or leased with
tangible products when the software components and non-software components of the tangible product function together to
deliver the tangible product’s essential functionality. ASU 2009-14 has an effective date that is consistent with ASU 2009-13.
The adoption of ASU 2009-14 will not have a material effect on our consolidated results of operations or financial condition.
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 liquid investments
that are composed of money market funds and debt instruments of government agencies and high-quality corporate issuers
(S&P single “A” rating and higher). To mitigate risk, all of the securities have a maturity date within one year, and holdings of
any one issuer do not exceed 10% of the portfolio.
As of March 31, 2010, our outstanding debt was $1,545 million, all of which was in fixed rate obligations except for our
2008 Revolving Credit Facility which had a $250 million balance as of March 31, 2010 (Refer to Note 8, “Debt,” in the Notes
to the Consolidated Financial Statements for additional information).
During fiscal year 2009, we entered into interest rate swaps with a total notional value of $250 million to hedge the variable
interest rate payments relating to the 2008 Revolving Credit Facility. These derivatives are designated as cash flow hedges.
Under the terms of the interest rate swaps, we will pay interest at an annualized rate of 2.70% and 2.95% and receive
interest payment at the one month LIBOR rate.
During fiscal 2010, we entered into three interest rate swap transactions to swap a total of $300 million of our
6.125% Senior Notes (the 6.125% Notes) due December 2014 into floating interest rate debt through December 1, 2014.
Under the terms of the swaps, we will pay quarterly interest at a rate of 2.915%, 2.779% and 2.999% on the first, second
and third swap, respectively, plus the three month LIBOR rate, and will receive payment at 5.625%. The LIBOR base rate is set
quarterly three months prior to date of the interest payment. The change in the fair value of the interest rate swaps from
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