Autodesk 2011 Annual Report Download - page 124

AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Foreign Currency Translation
The assets and liabilities of Autodesk’s foreign subsidiaries are translated from their respective functional
currencies into U.S. dollars at the rates in effect at the balance sheet date, and revenue and expense amounts are
translated at weighted average rates during the period. Foreign currency translation adjustments are recorded as
other comprehensive income (loss).
Gains and losses realized from foreign currency transactions, those transactions denominated in currencies
other than the foreign subsidiary’s functional currency, are included in interest and other income, net.
Derivative Financial Instruments
Under its risk management strategy, Autodesk uses derivative instruments to manage its short-term
exposures to fluctuations in foreign currency exchange rates which exist as part of ongoing business operations.
Autodesk’s general practice is to hedge a majority of transaction exposures denominated in euros, Japanese yen,
Swiss francs, British pounds and Canadian dollars. These instruments have maturities between one to 12 months
in the future. Autodesk does not enter into any derivative instruments for trading or speculative purposes.
Autodesk utilizes foreign currency contracts to reduce the exchange rate impact on a portion of the net
revenue or operating expense of certain anticipated transactions. These contracts, which are designated and
documented as cash flow hedges, qualify for hedge accounting treatment. The effectiveness of the cash flow
hedge contracts is assessed quarterly using regression analysis as well as other timing and probability criteria. To
receive cash flow hedge accounting treatment, all hedging relationships are formally documented at the inception
of the hedge and the hedges are expected to be highly effective in offsetting changes to future cash flows on
hedged transactions. The gross gains and losses on these hedges are included in “Accumulated other
comprehensive income (loss)” and are reclassified into earnings at the time the forecasted revenue or expense is
recognized. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will
not occur, Autodesk reclassifies the gain or loss on the related cash flow hedge from “Accumulated other
comprehensive income (loss)” to “Interest and other income, net” in the Company’s Consolidated Financial
Statements at that time.
In addition to the cash flow hedges described above, contracts which are not designated as hedging
instruments are marked-to-market at the end of each fiscal quarter, with gains and losses recognized as other
income or expense, net. These derivative instruments do not subject the Company to material balance sheet risk
due to exchange rate movements because gains and losses on these derivative instruments are intended to offset
the gains or losses resulting from the settlement of the underlying foreign currency denominated receivables and
payables.
The bank counterparties in all contracts expose Autodesk to credit-related losses in the event of their
nonperformance. However, to mitigate that risk, Autodesk only contracts with counterparties who meet the
Company’s minimum requirements under its counterparty risk assessment process. Autodesk monitors ratings,
credit spreads and potential downgrades on at least a quarterly basis. Based on Autodesk’s on-going assessment
of counterparty risk, the Company will adjust its exposure to various counterparties.
Cash and Cash Equivalents
Autodesk considers all highly liquid investments with insignificant interest rate risk and remaining
maturities of three months or less at the date of purchase to be cash equivalents. Cash equivalents are recorded at
cost, which approximates fair value.
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