Financial Instruments

6 Months Ended

Jul. 31, 2018

Investments, All Other Investments [Abstract]

Financial Instruments

Financial Instruments

The following tables summarize the Company's financial instruments' amortized cost, gross unrealized gains, gross unrealized losses, and fair value by significant investment category as of July 31, 2018 and January 31, 2018:

			July 31, 2018
			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value			Level 1		Level 2			Level 3
Cash equivalents (1):
	Agency bonds		$	5.0	$	—	$	—		$	5.0		$	—	$	5.0		$	—
	Certificates of deposit		11.5		—		—			11.5			—		11.5			—
	Commercial paper		269.5		—		—			269.5			—		269.5			—
	Custody cash deposit		1.7		—		—			1.7			1.7		—			—
	Municipal bonds		5.0		—		—			5.0			—		5.0			—
	Money market funds		122.9		—		—			122.9			122.9		—			—
	Sovereign debt		5.0		—		—			5.0			—		5.0			—
	U.S. government securities		11.5		—		—			11.5			—		11.5			—
Marketable securities:
	Short-term
		Agency bonds	12.5		—		—			12.5			—		12.5			—
		Asset backed securities	12.1		—		—			12.1			—		12.1			—
		Certificates of deposit	7.7		—		—			7.7			—		7.7			—
		Commercial paper	62.7		—		—			62.7			—		62.7			—
		Corporate debt securities	64.9		—		(0.2		)	64.7			—		64.7			—
		Municipal bonds	5.0		—		—			5.0			—		5.0			—
		Sovereign debt	6.5		—		—			6.5			—		6.5			—
		U.S. government securities	41.4		—		(0.2		)	41.2			—		41.2			—
	Short-term trading securities
		Mutual funds	53.9		8.1		—			62.0			62.0		—			—
	Long-term
		Agency bonds	12.5		—		(0.1		)	12.4			—		12.4			—
		Asset backed securities	27.1		—		(0.3		)	26.8			—		26.8			—
		Corporate debt securities	74.0		0.1		(0.5		)	73.6			—		73.6			—
		Municipal bonds	7.7		—		(0.1		)	7.6			—		7.6			—
		U.S. government securities	5.0		—		—			5.0			—		5.0			—
		Sovereign debt	2.7		—		—			2.7			—		2.7			—
Convertible debt securities (2)			7.5		1.4		(2.3		)	6.6			—		—			6.6
Derivative contract assets (3)			1.7		12.8		(1.6		)	12.9			—		12.0			0.9
Derivative contract liabilities (4)			—		—		(6.9		)	(6.9		)	—		(6.9		)	—
		Total	$	837.0	$	22.4	$	(12.2	)	$	847.2		$	186.6	$	653.1		$	7.5

____________________ 

(1) Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets.

(2) Included in “Other assets” in the accompanying Condensed Consolidated Balance Sheets.

(3) Included in “Prepaid expenses and other current assets” or “Other assets” in the accompanying Condensed Consolidated Balance Sheets.

(4) Included in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.

 

			January 31, 2018
			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value			Level 1		Level 2			Level 3
Cash equivalents (1):
	Agency bonds		$	5.0	$	—	$	—		$	5.0		$	5.0	$	—		$	—
	Certificates of deposit		17.4		—		—			17.4			17.4		—			—
	Commercial paper		324.2		—		—			324.2			—		324.2			—
	Corporate debt securities		5.0		—		—			5.0			5.0		—			—
	Custody cash deposit		5.2		—		—			5.2			5.2		—			—
	Money market funds		278.8		—		—			278.8			—		278.8			—
	Municipal bonds		5.0		—		—			5.0			5.0		—			—
	Sovereign debt		2.0		—		—			2.0			—		2.0			—
Marketable securities:
	Short-term
		Asset backed securities	13.1		—		—			13.1			—		13.1			—
		Commercial paper	27.5		—		—			27.5			—		27.5			—
		Corporate debt securities	99.4		—		(0.1		)	99.3			99.3		—			—
		Other (2)	9.2		—		—			9.2			7.7		1.5			—
		U.S. government securities	37.1		—		—			37.1			37.1		—			—
	Short-term trading securities
		Mutual funds	50.1		8.9		—			59.0			59.0		—			—
	Long-term
		Agency bonds	13.7		—		(0.1		)	13.6			13.6		—			—
		Asset backed securities	36.8		—		(0.2		)	36.6			—		36.6			—
		Corporate debt securities	100.2		0.1		(0.4		)	99.9			99.9		—			—
		Municipal bonds	12.7		—		(0.1		)	12.6			12.6		—			—
		Sovereign debt	2.8		—		—			2.8			—		2.8			—
		U.S. government securities	25.5		—		(0.2		)	25.3			25.3		—			—
Convertible debt securities (3)			7.5		0.5		(0.2		)	7.8			—		—			7.8
Derivative contract assets (4)			2.0		7.5		(1.3		)	8.2			—		7.2			1.0
Derivative contract liabilities (5)			—		—		(26.6		)	(26.6		)	—		(26.6		)	—
		Total	$	1,080.2	$	17.0	$	(29.2	)	$	1,068.0		$	392.1	$	667.1		$	8.8

____________________ 

(1) Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets.

(2) Consists of agency bonds, certificates of deposit, sovereign debt, and municipal bonds.

(3) Included in “Other assets” in the accompanying Condensed Consolidated Balance Sheets.

(4) Included in “Prepaid expenses and other current assets,” “Other assets,” or “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.

(5) Included in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.

Autodesk classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable securities with remaining maturities of up to 12 months are classified as short-term and marketable securities with remaining maturities greater than 12 months are classified as long-term. Autodesk may sell certain of its marketable securities prior to their stated maturities for strategic purposes or in anticipation of credit deterioration.

Autodesk applies fair value accounting for certain financial assets and liabilities, which consist of cash equivalents, marketable securities and other financial instruments, that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than quoted prices in active markets for

identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and (Level 3) unobservable inputs for which there is little or no market data, which require Autodesk to develop its own assumptions. When determining fair value, Autodesk uses observable market data and relies on unobservable inputs only when observable market data is not available. Autodesk reviews its leveling classifications for any potential changes on a quarterly basis, in conjunction with our fiscal quarter-end close. As part of this assessment, Autodesk transferred the fair value measurement of $245.2 million between Level 1 to Level 2 and $122.9 million between Level 2 to Level 1 during the six months ended July 31, 2018. It is Autodesk's assessment that the leveling best reflects current market activity when observing the pricing information for these assets.

Autodesk's cash equivalents, marketable securities and financial instruments are primarily classified within Level 1 or Level 2 of the fair value hierarchy. Autodesk values its securities on pricing from pricing vendors, who may use quoted prices in active markets for identical assets (Level 1) or inputs other than quoted prices that are observable either directly or indirectly in determining fair value (Level 2). Autodesk's Level 2 securities are valued primarily using observable inputs other than quoted prices in active markets for identical assets and liabilities. Autodesk's Level 3 securities consist of investments held in convertible debt securities and derivative contracts which are valued using probability weighted discounted cash flow models as some of the inputs to the models are unobservable in the market.

A reconciliation of the change in Autodesk’s Level 3 items for the six months ended July 31, 2018 follows:

	Fair Value Measurements Using Significant Unobservable Inputs
	(Level 3)
		Derivative Contracts			Convertible Debt Securities			Total
Balances, January 31, 2018		$	1.0		$	7.8		$	8.8
Purchases		—			—			—
Loss included in earnings		(0.1		)	—			(0.1		)
Loss included in OCI		—			(1.2		)	(1.2		)
Balances, July 31, 2018		$	0.9		$	6.6		$	7.5

The following table summarizes the estimated fair value of Autodesk's securities classified by the contractual maturity date of the security:

	July 31, 2018
	Cost		Fair Value
Due within 1 year	$	220.3	$	219.0
Due in 1 year through 5 years	124.3		123.4
Due in 5 years through 10 years	3.7		3.7
Due after 10 years	1.0		1.0
Total	$	349.3	$	347.1

As of July 31, 2018, and January 31, 2018, Autodesk had no material securities, individually and in the aggregate, in a continuous unrealized loss position for greater than twelve months.

There was no loss or gain for the sales or redemptions of securities during the six months ended July 31, 2018. Gains and losses resulting from the sale or redemption of securities are recorded in “Interest and other income (expense), net” on the Company's Condensed Consolidated Statements of Operations.

Proceeds from the sale and maturity of marketable securities for the six months ended July 31, 2018 and 2017, were $146.6 million and $531.1 million, respectively.

Non-marketable equity securities

As of July 31, 2018, and January 31, 2018, Autodesk had $113.1 million and $112.3 million, respectively, in direct investments in privately held companies. These non-marketable equity securities investments do not have readily determined

fair value and with the adoption of ASU 2016-01 during the first quarter of fiscal 2019, Autodesk elected to use the measurement alternative to account for the adjustment to these investments in a given quarter. See "Note 2. Recently Issued Accounting Standards" for more details on the adoption.

Under the measurement alternative method, these investments are measured at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer in the current period. To determine if a transaction is for a similar investment, Autodesk considers the rights and obligations between the investments and the extent to which those differences would affect the fair values of those investments with additional consideration for the stage of development of the investee company. The fair value would then be adjusted positively or negatively based on available information such as pricing in recent rounds of financing. During the six months ended July 31, 2018 and cumulative since the adoption of ASU 2016-01 in the first quarter of fiscal 2019, Autodesk recorded $6.2 million as a positive adjustment on certain of its privately held investments, reflected as a gain in "Interest and other income (expense), net" on the Company's Condensed Consolidated Statement of Operations.

Non-marketable equity securities investments are periodically assessed for impairment based on available information such as current cash positions, earnings and cash flow positions, earnings and cash flow forecasts, recent operational performance and any other readily available market data. Autodesk does not intend to sell these investments and it is not more likely than not that Autodesk will be required to sell the investment before recovery of the amortized cost basis. If Autodesk determines that an impairment has occurred, Autodesk writes down the investment to its fair value. During the three and six months ended July 31, 2018, Autodesk recorded $2.8 million and $4.8 million, respectively, in impairments on its privately held investments. Therefore, Autodesk does not consider the remaining investments to be impaired at July 31, 2018. During the three and six months ended July 31, 2017, Autodesk recorded $3.6 million and $4.1 million, respectively, in impairments on its privately held investments.

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 portion of transaction exposures primarily denominated in euros, Japanese yen, Swiss francs, British pounds, Canadian dollars, and Australian dollars. These instruments have maturities between one and twelve months in the future. Autodesk does not enter into derivative instrument transactions for trading or speculative purposes.

The bank counterparties to the derivative contracts potentially 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 ongoing assessment of counterparty risk, the Company will adjust its exposure to various counterparties. Autodesk generally enters into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty.  However, Autodesk does not have any master netting arrangements in place with collateral features.

Foreign currency contracts designated as cash flow hedges

Autodesk uses 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 are designated and documented as cash flow hedges. 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 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 loss” to “Interest and other income (expense), net” in the Company's Condensed Consolidated Financial Statements at that time.

The net notional amounts of these contracts are presented net settled and were $639.3 million at July 31, 2018, and $619.9 million at January 31, 2018. Outstanding contracts are recognized as either assets or liabilities on the balance sheet at fair value. The majority of the net gain of $1.0 million remaining in “Accumulated other comprehensive loss” as of July 31, 2018, is expected to be recognized into earnings within the next twelve months.

Derivatives not designated as hedging instruments

Autodesk uses foreign currency contracts that are not designated as hedging instruments to reduce the exchange rate risk associated primarily with foreign currency denominated receivables and payables. These forward contracts are marked-to-market at the end of each fiscal quarter with gains and losses recognized in “Interest and other income (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 net notional amounts of these foreign currency contracts are presented net settled and were $339.0 million at July 31, 2018, and $329.6 million at January 31, 2018.

In addition to these foreign currency contracts, Autodesk holds derivative instruments issued by privately held companies, which are not designated as hedging instruments. These derivatives consist of certain conversion options on the convertible debt securities held by Autodesk and an option to acquire a privately held company. These derivatives are recorded at fair value as of each balance sheet date and are recorded in “Other assets.” Changes in the fair values of these instruments are recognized in “Interest and other income (expense), net.”

Fair Value of Derivative Instruments

The fair values of derivative instruments in Autodesk’s Condensed Consolidated Balance Sheets were as follows as of July 31, 2018 and January 31, 2018:

	Balance Sheet Location	Fair Value at
		July 31, 2018		January 31, 2018
Derivative Assets
Foreign currency contracts designated as cash flow hedges	Prepaid expenses and other current assets	$	10.4	$	6.2
Derivatives not designated as hedging instruments	Prepaid expenses and other current assets and Other assets	2.5		2.0
Total derivative assets		$	12.9	$	8.2
Derivative Liabilities
Foreign currency contracts designated as cash flow hedges	Other accrued liabilities	$	4.6	$	18.7
Derivatives not designated as hedging instruments	Other accrued liabilities	2.3		7.9
Total derivative liabilities		$	6.9	$	26.6

The effects of derivatives designated as hedging instruments on Autodesk’s Condensed Consolidated Statements of Operations were as follows for the three and six months ended July 31, 2018 and 2017 (amounts presented include any income tax effects):

	Foreign Currency Contracts
	Three Months Ended July 31,						Six Months Ended July 31,
	2018			2017			2018			2017
Amount of gain (loss) recognized in accumulated other comprehensive loss on derivatives (effective portion)	$	6.4		$	(9.3	)	$	13.3		$	(11.4	)
Amount and location of (loss) gain reclassified from accumulated other comprehensive loss into (loss) income (effective portion)
Net revenue	$	(3.5	)	$	2.8		$	(6.0	)	$	4.8
Operating expenses	(1.6		)	(0.5		)	1.7			(3.2		)
Total	$	(5.1	)	$	2.3		$	(4.3	)	$	1.6
Amount and location of gain (loss) recognized in (loss) income on derivatives (ineffective portion and amount excluded from effectiveness testing)
Interest and other income (expense), net	$	0.7		$	0.1		$	0.5		$	(0.1	)

The effects of derivatives not designated as hedging instruments on Autodesk’s Condensed Consolidated Statements of Operations were as follows for the three and six months ended July 31, 2018 and 2017 (amounts presented include any income tax effects):

	Three Months Ended July 31,					Six Months Ended July 31,
	2018		2017			2018		2017
Amount and location of gain (loss) recognized on derivatives in net (loss)
Interest and other income (expense), net	$	1.4	$	(6.5	)	$	6.0	$	(8.3	)