Computer Associates 2012 Annual Report Download - page 55

and claims, and may revise our estimates. Any revisions could have a material effect on our results of operations. Refer to Note 12,
“Commitments and Contingencies,” in the Notes to the Consolidated Financial Statements for a description of our material legal
proceedings.
New Accounting Pronouncements
Presentation of Comprehensive Income: In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive
Income (Topic 220) — Presentation of Comprehensive Income (ASU 2011-05), to require an entity to present the total of
comprehensive income, the components of net income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to
present the components of other comprehensive income as part of the statement of equity. ASU 2011-05 is effective for interim and
annual periods beginning on or after December 15, 2011.
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, 2012, our outstanding debt was $1,301 million, all of which was in fixed rate obligations. Refer to Note 9, “Debt,” in
the Notes to the Consolidated Financial Statements for additional information.
At March 31, 2012, 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, 2012, the fair value of these derivatives was an asset of approximately $27 million, of which approximately $11 million
is included in “Other current assets” and approximately $16 million is included in “Other noncurrent assets, net” in our Consolidated
Balance Sheet. At March 31, 2011, the fair value of these derivatives was an asset of approximately $15 million, of which
approximately $11 million is included in “Other current assets” and approximately $4 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 corresponding effect on the annual interest expense related to
our interest rates swaps that relate to the 6.125% Notes of approximately $1 million at March 31, 2012.
During fiscal 2009, we entered into interest rate swaps with a total notional value of $250 million to hedge a portion of our variable
interest rate payments on the revolving credit facility. These derivatives were designated as cash flow hedges and matured in October
2010. During fiscal 2011, under the terms of the interest rate swaps, we paid interest at an average annualized rate of 2.83% and
received interest payment at the one-month LIBOR rate.
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.
During fiscal 2012 and 2011, we did not designate our foreign exchange derivatives as hedges. Accordingly, all foreign exchange
derivatives are recorded in our Consolidated Balance Sheets at fair value and unrealized or realized changes in fair value from these
contracts are recorded as “Other expenses, net” in our Consolidated Statements of Operations.
Refer to Note 10, “Derivatives” for additional information regarding our derivative activities.
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