Computer Associates 2013 Annual Report Download - page 61

Fair Value of Financial Instruments
The measurement of fair value for our financial instruments is based on the authoritative guidance which establishes a fair
value hierarchy that is based on three levels of inputs and requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. See Note 10, ‘‘Fair Value Measurements,’’ for
additional information.
We are exposed to financial market risks arising from changes in interest rates and foreign exchange rates. Changes in
interest rates could affect our monetary assets and liabilities, and foreign exchange rate changes could affect our foreign
currency denominated monetary assets and liabilities and forecasted transactions. We enter into derivative contracts with the
intent of mitigating a portion of these risks. See Note 9, ‘‘Derivatives,’’ for additional information.
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 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. Any revisions could
have a material effect on our results of operations. Refer to Note 11, ‘‘Commitments and Contingencies,’’ in the Notes to
the Consolidated Financial Statements for a description of our material legal proceedings.
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 and debt. We
have a prescribed methodology whereby we invest our excess cash in investments that are composed of money market funds,
debt instruments of government agencies and investment grade corporate issuers (Standard and Poor’s single ‘‘BBB+’’
rating and higher).
At March 31, 2013, our outstanding debt was $1,290 million, all of which was in fixed rate obligations. Refer to Note 8,
‘‘Debt,’’ in the Notes to the Consolidated Financial Statements for additional information.
At March 31, 2013, we had interest rate swaps with a total notional value of $500 million that swap a total of $500 million
of our 6.125% Senior Notes due December 2014 into floating interest rate debt through December 1, 2014. These swaps are
designated as fair value hedges and are being accounted for in accordance with the shortcut method of FASB
ASC Topic 815. Under the terms of the swaps, we will pay quarterly interest at an average rate of 2.88%, plus the three-
month LIBOR rate, and will receive payment at 5.625%. The LIBOR-based rate is set quarterly three months prior to date
of the interest payment.
At March 31, 2013, the fair value of these derivatives was an asset of $19 million, of which $11 million is included in ‘‘Other
current assets’’ and $8 million is included in ‘‘Other noncurrent assets, net’’ in our Consolidated Balance Sheet. At
March 31, 2012, the fair value of these derivatives was an asset of $27 million, of which $11 million is included in ‘‘Other
current assets’’ and $16 million is included in ‘‘Other noncurrent assets, net’’ in our Consolidated Balance Sheet.
Each 25 basis point increase or decrease in interest rates would have a $1 million impact on the annual interest expense
related to our interest rates swaps corresponding to the 6.125% Notes.
Foreign Currency Exchange Risk
We conduct business on a worldwide basis through subsidiaries in 47 foreign countries and, as such, a portion of our
revenues, earnings and net investments in foreign affiliates is exposed to changes in foreign exchange rates. We seek to
manage our foreign exchange risk in part through operational means, including managing expected local currency revenues
in relation to local currency costs and local currency assets in relation to local currency liabilities. In October 2005, our
Board of Directors adopted our Risk Management Policy and Procedures, which authorize us to manage, based on
management’s assessment, our risks and exposures to foreign currency exchange rates through the use of derivative financial
instruments (e.g., forward contracts, options and swaps) or other means. We only use derivative financial instruments in the
context of hedging and do not use them for speculative purposes.
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