Autodesk 2005 Annual Report Download - page 53

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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, but such contracts do not
extend beyond the current quarter. 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, 2005, indicated that a hypothetical
10% appreciation of the U.S. dollar from its value at January 31, 2005 would increase the fair value of our forward
exchange and option contracts by $8.0 million. Conversely, a hypothetical 10% depreciation of the dollar from
its value at January 31, 2005 would decrease the fair value of our forward exchange and option contracts by $6.2
million. These results are similar to the results of the sensitivity analysis performed on our hedging portfolio as
of January 31, 2004, which indicated that a hypothetical 10% appreciation of the U.S. dollar from its value at
January 31, 2004would have increased the fair value of our forward exchange and option contracts by $6.1 million
and a hypothetical 10% depreciation of the dollar from its value at January 31, 2004 would have decreased the
fair value of our forward exchange and option contracts by $4.1 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
At January 31, 2005, we had an investment portfolio of $15.0 million consisting of short term mutual fund
balances which are not subject to interest rate fluctuations. These short-term mutual fund balances consist
primarily of amounts held in a rabbi trust under deferred compensation arrangements. At January 31, 2004, we
had an investment portfolio of fixed income securities, including those classified as security deposits, of $247.3
million. These securities were subject to interest rate fluctuations.
A sensitivity analysis was performed on our investment portfolio as of January 31, 2004. This sensitivity
analysis was 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.
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
bookvalue of these investments was reduced to zero. Write downs of our investments in privately-held businesses
totaled $0.6 million in fiscal 2004 and $3.4 million in fiscal 2003.
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