Computer Associates 2006 Annual Report Download - page 78

effective for nonmonetary asset exchanges beginning in the Company’s second quarter of fiscal year 2006. The
adoption of SFAS No. 153 did not have a material effect on our consolidated financial position, results of operations
or cash flows.
In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47), “Accounting for Conditional Asset
Retirement Obligations.” FIN 47 clarifies the term “conditional asset retirement obligation,” as that term is used in
FASB No. 143, “Accounting for Asset Retirement Obligations.” FIN 47 also clarifies when an entity has sufficient
information to reasonably estimate the fair value of an asset retirement obligation. The Company was required to
apply the provisions of FIN 47 in fiscal year 2006. The adoption of FIN 47 did not have a material effect on our
consolidated financial position, results of operations or cash flows.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” or SFAS No. 154, a
replacement of APB Opinion No. 20, “Accounting Changes,” and SFAS Statement 3, “Reporting Accounting
Changes in Interim Financial Statements”. SFAS No. 154 changes the requirements for the accounting for and
reporting of a change in accounting principle. Previously, most voluntary changes in accounting principle required
recognition via a cumulative effect adjustment within net income in the period of the change. SFAS No. 154 requires
retrospective application to prior periods’ financial statements, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes
made in fiscal years beginning after December 15, 2005, however, the Statement does not change the transition
provisions of any existing accounting pronouncements. The adoption of SFAS No. 154 did not have a material effect
on our consolidated financial position, results of operations or cash flows.
In November 2005, the FASB issued Staff Position 115-1 “The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments”, or FSP 115-1, that addresses the determination as to when an investment is
considered impaired, whether that impairment is other than temporary and the measurement of an impairment loss.
FSP 115-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary
impairment and requires certain disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. The guidance in FSP 115-1 amends SFAS No. 115, “Accounting for
Certain Investments in Debt and Equity Securities”, and APB Opinion No. 18, “The Equity Method of
Accounting for Investments in Common Stock”. The final FSP nullifies certain requirements of EITF Issue
No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”, and
supersedes EITF Topic No. D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a
Security Whose Cost Exceeds Fair Value”. The guidance in FSP 115-1 is effective for reporting periods beginning
after December 15, 2005. The adoption of FSP 115-1 did not have a material effect on our consolidated financial
position, results of operations or cash flows.
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 comprised of money market funds and 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.
As of March 31, 2006, our outstanding debt approximated $1.81 billion, most of which was 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 $5 million. Each 25 basis point increase or decrease in interest rates would have
no material annual effect on variable rate debt interest based on the balances of such debt as of March 31, 2006.
As of March 31, 2006, we did not utilize derivative financial instruments to mitigate the above mentioned interest
rate risks.
58