Note 3. Financial Assets and Liabilities

Cash, Cash Equivalents and Investments. Short-term investments include money market funds and municipal securities and are classified as available-for-sale securities. Cash, cash equivalents and investments are detailed as follows:


	Cost		Gross Unrealized Gains		Gross Unrealized Losses Less Than 12 Months			Gross Unrealized Losses 12 Months or Longer		Estimated Fair Value(1)
	(in thousands)
Balance at January 31, 2012
Classified as current assets:
Non-interest bearing cash (U.S. and International)	$	164,802	$	—	$	—		$	—	$	164,802
Money market funds (U.S.)		27,662		—		—			—		27,662
Cash deposits and money market funds (International)		618,875							—		618,875
Municipal securities		131,855		330		(35	)		—		132,150

		943,194		330		(35	)		—		943,489

Classified as non-current assets:
Strategic investments		3,982		—		—			—		3,982

Total	$	947,176	$	330	$	(35	)	$	—	$	947,471


	Cost		Gross Unrealized Gains		Gross Unrealized Losses Less Than 12 Months			Gross Unrealized Losses 12 Months or Longer		Estimated Fair Value(1)
	(in thousands)
Balance at October 31, 2011
Classified as current assets:
Non-interest bearing cash (U.S. and International)	$	149,998	$	—	$	—		$	—	$	149,998
Money market funds (U.S.)		55,267		—		—			—		55,267
Cash deposits and money market funds (International)		649,812		—		—			—		649,812
Municipal securities		148,850		296		(149	)		—		148,997

		1,003,927		296		(149	)		—		1,004,074

Classified as non-current assets:
Strategic investments		3,982		—		—			—		3,982

Total	$	1,007,909	$	296	$	(149	)	$	—	$	1,008,056

(1)	See Note 4 for further discussion of fair values.

As of January 31, 2012, the stated maturities of the Company's short-term investments are:


	Fair Value
	(in thousands)
Due in 1 year or less	$	83,365
Due in 1–5 years		22,332
Due in 6–10 years		11,602
Due after 10 years		14,851

Total	$	132,150

Actual maturities may differ from the stated maturities because borrowers may have the right to call or prepay certain obligations. These investments are classified as available-for-sale and are recorded on the balance sheet at fair market value with unrealized gains or losses, net of tax, reported as a component of accumulated other comprehensive income (loss), or OCI. The cost of securities sold is based on the specific identification method, and realized gains and losses are included in other income (expense), net. Realized gains and losses on sales of short-term investments have not been material in any period presented.

Derivatives. In accordance with ASC 815, Derivatives and Hedging, the Company recognizes derivative instruments as either assets or liabilities in the unaudited condensed consolidated financial statements at fair value and provides qualitative and quantitative disclosures about such derivatives. The Company operates internationally and is exposed to potentially adverse movements in foreign currency exchange rates. The Company enters into hedges in the form of foreign currency forward contracts to reduce its exposure to foreign currency rate changes on non-functional currency denominated forecasted transactions and balance sheet positions including: (1) certain assets and liabilities, (2) shipments forecasted to occur within approximately one month, (3) future billings and revenue on previously shipped orders, and (4) certain future intercompany invoices denominated in foreign currencies.

The duration of forward contracts ranges from one month to 21 months, the majority of which are short term. The Company does not use foreign currency forward contracts for speculative or trading purposes. The Company enters into foreign exchange forward contracts with high credit quality financial institutions that are rated 'A' or above and to date has not experienced nonperformance by counterparties. Further, the Company anticipates continued performance by all counterparties to such agreements.

The assets or liabilities associated with the forward contracts are recorded at fair value in other current assets or other current liabilities in the unaudited condensed consolidated balance sheet. The accounting for gains and losses resulting from changes in fair value depends on the use of the foreign currency forward contract and whether it is designated and qualifies for hedge accounting.

Cash Flow Hedging Activities

Certain foreign exchange forward contracts are designated and qualify as cash flow hedges. These contracts have durations of 21 months or less. Certain forward contracts are rolled over periodically to capture the full length of exposure to the Company's foreign currency risk, which can be up to three years. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on the hedged transactions. The effective portion of gains or losses resulting from changes in fair value of these hedges is initially reported, net of tax, as a component of accumulated other comprehensive income (loss), in stockholders' equity and reclassified into revenue or operating expenses, as appropriate, at the time the hedged transactions affect earnings. We expect most of the hedge balance in OCI to be reclassified to the statements of operations within the next twelve months.

Hedging effectiveness is evaluated monthly using spot rates, with any gain or loss caused by hedging ineffectiveness recorded in other income (expense), net. The premium/discount component of the forward contracts is recorded to other income (expense), net, and is not included in evaluating hedging effectiveness.

Non-designated Hedging Activities

The Company's foreign exchange forward contracts that are used to hedge non-functional currency denominated balance sheet assets and liabilities are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the underlying assets and liabilities, which are also recorded in other income (expense), net. The duration of the forward contracts for hedging the Company's balance sheet exposure is approximately one month.

The Company also has certain foreign exchange forward contracts for hedging certain international revenues and expenses that are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the foreign currency in operating income. The duration of these forward contracts is usually less than one year. The overall goal of the Company's hedging program is to minimize the impact of currency fluctuations on its net income over its fiscal year.

The effects on the changes in the fair values of non-designated forward contracts for the first quarter of fiscal years 2012 and 2011 are summarized as follows:


	Three Months ended January 31,
	2012			2011
	(in thousands)
Gain (loss) recorded in other income (expense), net	$	(199	)	$	2,168

Foreign currency forward contracts outstanding are as follows:


	As of January 31, 2012			As of October 31, 2011
	(in thousands)
Total gross notional amount	$	533,485		$	599,844
Net fair value	$	(15,112	)	$	(14,695	)

The notional amounts for derivative instruments provide one measure of the transaction volume outstanding as of January 31, 2012 and October 31, 2011, respectively, and do not represent the amount of the Company's exposure to market gain or loss. The Company's exposure to market gain or loss will vary over time as a function of currency exchange rates. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

The following represents the unaudited condensed consolidated balance sheet location and amount of derivative instrument fair values segregated between designated and non-designated hedge instruments:


	Fair Values of derivative instruments designated as hedging instruments		Fair Values of derivative instruments not designated as hedging instruments
	(in thousands)
As of January 31, 2012
Other current assets	$	1,202	$	180
Other current liabilities	$	16,433	$	61

As of October 31, 2011
Other current assets	$	2,161	$	—
Other current liabilities	$	16,827	$	29

The following table represents the unaudited condensed consolidated statement of operations location and amount of gains and losses on derivative instrument fair values for designated hedge instruments, net of tax:


	Location of gain (loss) recognized in OCI on derivatives	Amount of gain (loss) recognized in OCI on derivatives (effective portion)			Location of gain (loss) reclassified from OCI	Amount of gain (loss) reclassified from OCI (effective portion)
	(in thousands)
Three months ended January 31, 2012
Foreign exchange contracts	Revenue	$	416		Revenue	$	(1,610	)
Foreign exchange contracts	Operating expenses		(5,100	)	Operating expenses		(1,843	)

Total		$	(4,684	)		$	(3,453	)

Three months ended January 31, 2011
Foreign exchange contracts	Revenue	$	1,361		Revenue	$	(2,926	)
Foreign exchange contracts	Operating expenses		(502	)	Operating expenses		(732	)

Total		$	859			$	(3,658	)

The following table represents the ineffective portions and portions excluded from effectiveness testing of the hedge gains (losses) for derivative instruments designated as hedging instruments, which are recorded in other income (expense), net:


	Amount of gain (loss) recognized in income statement on derivatives (ineffective portion)(1)			Amount of gain (loss) recognized in income statement on derivatives (excluded from effectiveness testing)(2)
	(in thousands)
For the three months ended January 31, 2012
Foreign exchange contracts	$	76		$	401
For the three months ended January 31, 2011
Foreign exchange contracts	$	(40	)	$	(284	)

(1)	The ineffective portion includes forecast inaccuracies.

(2)	The portion excluded from effectiveness includes the discount earned or premium paid for the contracts.