Autodesk 2004 Annual Report Download - page 48

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign currency exchange risk
Our revenues, earnings and cash flows are subject to fluctuations due to changes in foreign currency
exchange rates. Our risk management strategy utilizes foreign currency forward and option contracts to
manage our foreign currency exposures that exist as part of our ongoing business operations. Contracts are
primarily denominated in euro, Swiss Franc, Canadian dollar, British pounds and Japanese yen. We do not
enter into any foreign exchange derivative instruments for trading or speculative purposes.
A sensitivity analysis, performed on our hedging portfolio as of January 31, 2004, indicated that a
hypothetical 10% appreciation of the U.S. dollar from its value at January 31, 2004 would increase the
fair value of our forward exchange and option contracts by $6.1 million. Conversely, a hypothetical 10%
depreciation of the dollar from its value at January 31, 2004 would decrease the fair value of our forward
exchange and option contracts by $4.1 million. These results are consistent with the sensitivity analysis
performed on our hedging portfolio as of January 31, 2003, which indicated that a hypothetical 10%
appreciation of the U.S. dollar from its value at January 31, 2003 would have increased the fair value of our
forward exchange and option contracts by $6.6 million and a hypothetical 10% depreciation of the dollar
from its value at January 31, 2003 would have decreased the fair value of our forward exchange and
option contracts by $4.4 million. We do not anticipate any material adverse impact to our consolidated
financial position, results of operations or cash flows as a result of these foreign currency forward and
option contracts.
Interest rate sensitivity
We had an investment portfolio of fixed income securities, including those classified as security
deposits, of $247.3 million at January 31, 2004 and $224.7 million at January 31, 2003. These securities are
subject to interest rate fluctuations and will decrease in market value if interest rates increase.
A sensitivity analysis was performed on our investment portfolio as of January 31, 2004. This sensitivity
analysis is based on a modeling technique that measures the hypothetical market value changes that
would result from a parallel shift in the yield curve of plus 50, plus 100 or plus 150 basis points occurring in
either six months or 12 months. For the six-month time horizon the market value changes for a 50, 100, or
150 basis point increase were reductions of $1.6 million, $3.1 million and $4.6 million, respectively. For the
12-month time horizon the market value changes for a 50, 100 or 150 basis point increase were reductions
of $1.3 million, $2.7 million and $4.0 million, respectively.
The same sensitivity analysis was performed on our investment portfolio as of January 31, 2003. For
the six-month time horizon the market value changes for a 50, 100, or 150 basis point increase were
reductions of $1.7 million, $3.3 million and $4.9 million, respectively. For the 12-month time horizon the
market value changes for a 50, 100 or 150 basis point increase were reductions of $1.4 million, $2.8 million
and $4.1 million, respectively.
We do not use derivative financial instruments in our investment portfolio to manage interest rate risk.
We place our investments in instruments that meet high credit quality standards, as specified in our
investment policy guidelines, which limits the amount of credit exposure to any one issue, issuer or type
of instrument.
Investments in privately-held businesses
We have an investment portfolio that includes minority equity investments in several privately-held
technology companies, many of which are in the development stage. We account for these minority equity
investments using the cost method of accounting because our ownership interests are less than 20% and
we do not have the ability to exert significant influence on the investees. At January 31, 2004, the remaining
net book value of these investments was reduced to zero. Write downs of our investments in privately-held
businesses totaled $0.6 million in fiscal 2004, $3.4 million in fiscal 2003 and $2.9 million in fiscal 2002.
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