Computer Associates 2006 Annual Report Download - page 79

Download and view the complete annual report

Please find page 79 of the 2006 Computer Associates annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 172

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172

We offer financing arrangements with installment payment terms in connection with our software license
agreements. 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 $9 million.
Foreign Currency Exchange Risk
We conduct business on a worldwide basis through subsidiaries in 46 countries and, as such, a portion of our
revenues, earnings, and net investments in foreign affiliates are 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, the Board of Directors adopted the Risk Management Policy and Procedures (the Policy), which
authorizes us to manage, based on management’s assessment, our risks/exposures to foreign currency exchange
rates through the use of derivative financial instruments (e.g., forward contracts, options, swaps) or other means. We
have not historically used, and do not anticipate using, derivative financial instruments for speculative purposes.
Derivatives are accounted for in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and the
Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (“SFAS No. 133”). For the fiscal year ended March 31, 2006, we entered into derivative contracts with a
total notional value of 280 million euros. Derivatives with a notional value of 80 million euros were entered into
with the intent of mitigating a certain portion of our euro operating exposure and are part of the Company’s on-going
risk management program. Derivatives with a notional value of 200 million euros were entered into during March
2006 with the intent of mitigating a certain portion of the foreign exchange variability associated with the
Company’s repatriation of approximately $584 million from its foreign subsidiaries. Hedge accounting under
SFAS No. 133 was not applied to any of the derivatives entered into during the fiscal year ended March 31, 2006.
The resulting gain of approximately $1 million for the fiscal year ended March 31, 2006 is included in the “Other
(gains) expenses, net” line in the Consolidated Statement of Operations. As of March 31, 2006, there were no
derivative contracts outstanding. In April 2006, the Company entered into similar derivative contracts as those
entered during the quarter ended March 31, 2006 relating to the Company’s operating exposures.
Equity Price Risk
As of March 31, 2006, we had $22 million in investments in marketable equity securities of publicly traded
companies. These securities were considered available-for-sale with any unrealized gains or temporary losses
deferred as a component of stockholders’ equity.
Item 8. Financial Statements and Supplementary Data.
Our Consolidated Financial Statements are listed in the List of Consolidated Financial Statements and Financial
Statement Schedules 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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to
be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to management, including the Company’s Chief Executive Officer and acting Chief Financial
59