Financial Instruments

9 Months Ended

Dec. 31, 2011

(3) Financial Instruments

We measure certain financial instruments at fair value on a recurring basis using the following valuation techniques:

(A) Market approach — Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

(B) Income approach — Uses valuation techniques to convert future estimated cash flows to a single present amount based on current market expectations about those future amounts, using present value techniques.

The fair values of our financial instruments were determined using the following input levels and valuation techniques:


	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active				Significant
			Markets for Identical		Significant Other		Unobservable
			Assets		Observable Inputs		Inputs		Valuation
December 31, 2011	Total		(Level 1)		(Level 2)		(Level 3)		Technique
	(In millions)
Assets
Cash equivalents
Money-market funds	$	357.1	$	357.1	$	—	$	—	A
Certificates of deposit		55.5		55.5		—		—	A
Short-term and long-term investments
United States Treasury securities		50.0		50.0		—		—	A
Auction rate securities		25.9		—		—		25.9	B
Mutual funds		18.6		18.6		—		—	A
Foreign currency forward contracts		4.9		—		4.9		—	A

Total	$	512.0	$	481.2	$	4.9	$	25.9

Liabilities
Foreign currency forward contracts	$	2.1	$	—	$	2.1	$	—	A

Total	$	2.1	$	—	$	2.1	$	—

Level 1 classification is applied to any asset or liability that has a readily available quoted market price from an active market where there is significant transparency in the executed/quoted price.

Level 2 classification is applied to assets and liabilities that have evaluated prices where the data inputs to these valuations are observable either directly or indirectly, but do not represent quoted market prices from an active market.

Level 3 classification is applied to assets and liabilities when prices are not derived from existing market data and requires us to develop our own assumptions about how market participants would value the asset or liability.

The following tables summarize the activity in Level 3 financial instruments for the quarters and nine months ended December 31, 2011 and 2010, respectively:


	Quarter Ended								Nine Months Ended
	December 31, 2011								December 31, 2011
	Auction								Auction
	Rate			Put					Rate			Put
	Securities			Option		Total			Securities			Option		Total
	(In millions)
Balance at the beginning of the period	$	25.6		$	—	$	25.6		$	27.2		$	—	$	27.2
Redemption of auction rate securities		(0.1	)		—		(0.1	)		(0.5	)		—		(0.5	)
Change in unrealized gain (loss) included in other comprehensive income		0.4			—		0.4			(0.8	)		—		(0.8	)

Balance at the end of the period	$	25.9		$	—	$	25.9		$	25.9		$	—	$	25.9


	Quarter Ended								Nine Months Ended
	December 31, 2010								December 31, 2010
	Auction								Auction
	Rate			Put					Rate			Put
	Securities			Option		Total			Securities			Option			Total
	(In millions)
Balance at the beginning of the period	$	33.9		$	—	$	33.9		$	60.5		$	1.1		$	61.6
Redemption of auction rate securities		(0.1	)		—		(0.1	)		(27.6	)		—			(27.6	)
Change in unrealized gain (loss) included in interest and other income, net		—			—		—			1.1			(1.1	)		—
Change in unrealized gain included in other comprehensive income		1.6			—		1.6			1.4			—			1.4

Balance at the end of the period	$	35.4		$	—	$	35.4		$	35.4		$	—		$	35.4

Investments

Our cash, cash equivalents and investments were comprised of the following:


	December 31, 2011						March 31, 2011
	Cash and						Cash and
	Cash		Short-term		Long-term		Cash		Short-term		Long-term
	Equivalents		Investments		Investments		Equivalents		Investments		Investments
	(In millions)
Measured at fair value:
Available-for-sale
United States Treasury securities	$	—	$	37.1	$	12.9	$	525.0	$	27.8	$	22.1
Certificates of deposit		55.5		—		—		38.4		—		—
Auction rate securities		—		—		25.9		—		—		27.2
Trading
Mutual funds		—		—		18.6		—		—		18.5

Total debt and equity investments measured at fair value		55.5		37.1		57.4		563.4		27.8		67.8


Cash on hand		906.9		—		—		412.8		—		—
Money-market funds		357.1		—		—		684.7		—		—

Total cash, cash equivalents and investments	$	1,319.5	$	37.1	$	57.4	$	1,660.9	$	27.8	$	67.8

Amounts included in accumulated other comprehensive income from available-for-sale securities (pre-tax):
Unrealized losses*	$	—	$	—	$	3.4	$	—	$	—	$	2.6


*		The unrealized losses on available-for-sale securities at December 31, 2011 and March 31, 2011 relate to the auction rate securities.

The following summarizes the underlying contractual maturities of our available-for-sale investments in debt securities at December 31, 2011:


			Fair
	Cost		Value
	(In millions)
Due in one year or less	$	92.6	$	92.6
Due between one and two years		12.9		12.9
Due after ten years		29.3		25.9

Total	$	134.8	$	131.4

At December 31, 2011 and March 31, 2011, we held auction rate securities with a par value of $29.3 million and $29.8 million, respectively, which were classified as available-for-sale. The total estimated fair value of our auction rate securities was $25.9 million and $27.2 million at December 31, 2011 and March 31, 2011, respectively. Our auction rate securities consist entirely of bonds issued by public agencies that are backed by student loans with at least a 97% guarantee by the federal government under the United States Department of Education’s Federal Family Education Loan Program. All of these bonds are currently rated investment grade by Moody’s or Standard and Poor’s. Auctions for these securities began failing in early 2008 and have continued to fail, resulting in our continuing to hold such securities and the issuers paying interest at the maximum contractual rates. We do not believe that any of the underlying issuers of these auction rate securities are presently at risk of default or that the underlying credit quality of the assets backing the auction rate security investments has been impacted by the reduced liquidity of these investments. Due to the illiquidity in the auction rate securities market caused by failed auctions, we estimated the fair value of these securities and the put option discussed below using internally developed models of the expected cash flows of the securities which incorporate assumptions about the expected cash flows of the underlying student loans and estimates of the rate of return required by investors, which includes an adjustment to reflect a lack of liquidity in the market for these securities. Periodically, the issuers of certain of our auction rate securities have redeemed portions of our holdings at par value plus accrued interest. During the quarter and nine months ended December 31, 2011, issuers redeemed available-for-sale holdings of $0.1 million and $0.5 million, respectively. During the quarter and nine months ended December 31, 2010, issuers redeemed available-for-sale holdings of $0.1 million and $11.0 million, respectively, and trading holdings of $5.4 million during the nine months ended December 31, 2010.

In November 2008, we entered into a put agreement with a bank from which we acquired certain auction rate securities. On July 1, 2010, we exercised our right under this agreement to put the remaining securities subject to this agreement, with $11.2 million par value, to the bank. The auction rate securities subject to the put were classified as short-term investments and trading securities and, accordingly, any changes in the fair value of these securities were recognized in earnings. In addition, we elected the option under GAAP to record the put option at fair value. The fair value adjustments to these auction rate securities and the related put option, prior to the exercise of the put on July 1, 2010, resulted in minimal net impact to the condensed consolidated statement of operations for the quarter and nine months ended December 31, 2010.

The unrealized loss on our available-for-sale auction rate securities, which have a fair value of $25.9 million at December 31, 2011, was $3.4 million and was recorded in accumulated other comprehensive income (loss) as we believe the decline in fair value of these auction rate securities is temporary. In making this determination, we primarily considered the financial condition and near-term prospects of the issuers, the probability scheduled cash flows will continue to be made and the likelihood we would be required to sell the investments before recovery of our cost basis. These available-for-sale auction rate securities have been in an unrealized loss position for greater than twelve months. Because of the uncertainty related to the timing of liquidity associated with these auction rate securities, these securities are classified as long-term investments at December 31, 2011 and March 31, 2011.

Derivative Financial Instruments

We operate globally and transact business in various foreign currencies. Our foreign currency exposures relate primarily to certain foreign currency denominated assets and liabilities, primarily non-U.S. dollar denominated accounts receivable, cash and intercompany balances held by U.S. dollar functional currency entities. To minimize the risk from changes in foreign currency exchange rates, we have established a program that utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures. Gains or losses on our foreign currency exposures are offset by gains or losses on the foreign currency forward contracts entered into under this program. These foreign currency forward contracts generally have terms of one month or less and are generally entered into at the prevailing market exchange rate at the end of each month. We do not use forward contracts for speculative purposes. While these foreign currency forward contracts are utilized to hedge foreign currency exposures, they are not formally designated as hedges, and therefore, the changes in the fair values of these derivatives are recognized currently in earnings. We record these foreign currency forward contracts at fair value as either assets or liabilities depending on their net settlement position with each respective counterparty at the balance sheet date.

The fair value of our outstanding foreign currency forward contracts that closed in a gain position at December 31, 2011 and March 31, 2011 was $4.9 million and $5.8 million, respectively, and was recorded within other current assets in our condensed consolidated balance sheets. The fair value of our outstanding foreign currency forward contracts that closed in a loss position at December 31, 2011 and March 31, 2011 was $2.1 million and $3.3 million, respectively, and was recorded within accrued liabilities in our condensed consolidated balance sheets. The notional amounts at contract exchange rates of our foreign currency forward contracts outstanding were:


	Notional Amount
	December 31,		March 31,
	2011		2011
	(In millions)

Foreign Currency Forward Contracts (receive United States dollar/pay foreign currency)

Euro	$	186.0	$	158.5
British pound		33.6		5.0
Australian dollar		19.9		13.9
Chinese yuan renminbi		11.1		7.6
Swedish krona		6.5		2.4
Norwegian krone		5.5		2.0
Swiss franc		5.4		1.5
Brazilian real		5.3		5.6
New Zealand dollar		5.2		2.9
Danish krone		4.3		3.0
Singapore dollar		3.0		0.6
South Korean won		2.8		4.6
Canadian dollar		—		4.2
Other		3.8		1.2

Total	$	292.4	$	213.0


Foreign Currency Forward Contracts (pay United States dollar/receive foreign currency)

Israeli shekel	$	138.0	$	151.6
Indian rupee		13.3		9.1
Canadian dollar		4.7		—
Mexican peso		—		9.3
Other		0.6		2.2

Total	$	156.6	$	172.2

Our use of foreign currency forward exchange contracts is intended to principally offset gains and losses associated with foreign currency exposures. Therefore, the notional amounts and currencies underlying our foreign currency forward contracts will fluctuate period to period as they are principally dependent on the balances and currency denomination of monetary assets and liabilities maintained by our global entities. The effect of the foreign currency forward contracts for the quarter and nine months ended December 31, 2011, was a loss of $1.7 million and $7.6 million, respectively, which, after including gains and losses on our foreign currency exposures, resulted in net losses of $0.6 million and $2.5 million, respectively, recorded in interest and other income, net. The effect of the foreign currency forward contracts for the quarter and nine months ended December 31, 2010, was a gain of $4.7 million and $11.0 million, respectively, which, after including gains and losses on our foreign currency exposures, resulted in a net gain of $0.6 million and a net loss of $2.0 million, respectively, recorded in interest and other income, net.

We are exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments, but we do not expect any counterparties to fail to meet their obligations given their high credit ratings. In addition, we diversify this risk across several counterparties and utilize netting agreements to mitigate the counterparty credit risk.

Trade Finance Receivables

A substantial portion of our trade finance receivables are transferred to financial institutions on a non-recourse basis. We utilize wholly-owned finance subsidiaries in these finance receivables transfers. These entities are consolidated into our financial position and results of operations. We account for such transfers as sales in accordance with applicable accounting rules pertaining to the transfer of financial assets and the sale of future revenue when we have surrendered control of such receivables (including determining that such assets have been isolated beyond our reach and the reach of our creditors) and when we do not have significant continuing involvement in the generation of cash flows due the financial institutions. During the quarter and nine months ended December 31, 2011, we transferred $49.0 million and $208.0 million, respectively, of such receivables through these programs. During the quarter and nine months ended December 31, 2010, we transferred $43.4 million and $172.3 million, respectively, of such receivables through these programs. Finance receivables are typically transferred within several months after origination and the outstanding principal balance at the time of transfer typically approximates fair value.

For those finance receivables not transferred, we evaluate the credit risk of finance receivables in our portfolio based on regional characteristics specific to the risk climate in each of our geographic operations as well as based on internal credit quality indicators for individual receivables. We evaluate the credit risk of finance receivables using an internal credit rating system based on whether an individual receivable meets specific internal criteria including counterparty credit rating and receivable maturity date and assign an internal credit rating of 1, 2 or 3, with a credit rating of 1 representing the best credit quality.

For all regions and credit categories, a finance receivable will be specifically reserved once deemed uncollectible. As of December 31, 2011, we held $129.9 million of finance receivables, net of $0.3 million of specific receivables which have been fully reserved.

At December 31, 2011, our finance receivables balance, net of allowance, by region and by class of internal credit rating is as follows:


	North America		EMEA		Asia Pacific		Latin America		Total
	(In millions)
Class 1	$	56.0	$	18.6	$	10.0	$	—	$	84.6
Class 2		18.1		19.1		4.9		1.2		43.3
Class 3		0.1		0.3		0.7		0.9		2.0

Balance at the end of the period	$	74.2	$	38.0	$	15.6	$	2.1	$	129.9

Other Financial Instruments

The fair value of our senior unsecured notes due 2018 at December 31, 2011 and March 31, 2011, based on market prices, was $353.0 million and $348.9 million, respectively, compared to the carrying value of $298.9 million and $298.7 million, respectively.

The carrying values of all other financial instruments, consisting primarily of trade and finance receivables, accounts payable and other borrowings, approximate their respective fair values.