Autodesk 2007 Annual Report Download - page 182

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AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14. Financial Instruments
Fair Values of Financial Instruments
Estimated fair values of financial instruments are based on quoted market prices. The carrying
amounts and fair value of Autodesk’s financial instruments are as follows:
January 31, 2007 January 31, 2006
Cost Fair Value Cost Fair Value
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $665.9 $665.9 $287.2 $ 287.2
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . 112.0 112.0 90.3 90.3
Foreign currency option contracts. . . . . . . . . . . . . . . 0.1 0.1 0.2 0.2
Autodesk uses derivative instruments to manage its earnings and cash flow exposures to fluctuations
in foreign currency exchange rates. Under its risk management strategy, Autodesk uses foreign currency
forward and option contracts to manage its exposures of underlying assets, liabilities and other obligations,
which exist as part of the ongoing business operations. These foreign currency instruments have maturities
of less than three months. Autodesk’s general practice is to hedge a majority of its short-term foreign
exchange transaction exposures. Contracts are primarily denominated in euros, Swiss francs, Canadian
dollars, British pounds and Japanese yen. Autodesk does not enter into any foreign exchange derivative
instruments for trading or speculative purposes.
Forwards
Autodesk’s forward contracts, which are not designated as hedging instruments under Statement of
Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,”
(“SFAS 133”), have average maturities of less than three months. The forwards are used to reduce the
exchange rate risk associated primarily with receivables and payables. Forward contracts are marked-to-
market at the end of each reporting period, with gains and losses recognized as other income or expense
to offset the gains or losses resulting from the settlement of the underlying foreign currency denominated
receivables and payables.
The notional amounts of foreign currency contracts were $65.5 million at January 31, 2007 and
$10.4 million at January 31, 2006. While the contract or notional amount is often used to express the volume
of foreign exchange contracts, the amounts potentially subject to credit risk are generally limited to the
amounts, if any, by which the counterparties’ obligations under the agreements exceed the obligations of
Autodesk to the counterparties.
Options
In addition to the forward contracts, Autodesk utilizes foreign currency option collar contracts to
reduce the exchange rate impact on the net revenue of certain anticipated transactions. These option
contracts, which are designated and documented as cash flow hedges and qualify for hedge accounting
treatment under SFAS 133, have maturities of less than three months. For cash flow hedges, derivative gains
and losses included in comprehensive income are reclassified into earnings at the time the forecasted
revenue is recognized or the option expires. The cost of these foreign currency option collars are recorded
as other current assets and other accrued liabilities on the Company’s Consolidated Balance Sheets.
The notional amounts of foreign currency option contracts were $97.3 million at January 31, 2007
and $77.1 million at January 31, 2006, and the critical terms were generally the same as those of the