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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934 for the fiscal year ended January 31, 2000
Transition Report Pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934
Commission File Number: 0-14338
AUTODESK, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2819853
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
111 McInnis Parkway, San Rafael, California 94903
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 507-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting Common Stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on April
3, 2000 as reported on the NASDAQ National Market, was approximately $2.0
billion. Shares of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of April 3, 2000, Registrant had outstanding approximately 62.0 million
shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's Annual Meeting of Stockholders
to be held June 22, 2000 are incorporated by reference in Part III.
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PART I
FORWARD-LOOKING INFORMATION
The forward-looking statements included in this report, which reflect
management's best judgment based on factors currently known, involve risks and
uncertainties. Actual results could differ materially from those anticipated in
the forward-looking statements included herein as a result of a number of
factors, including but not limited to those discussed in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 1. BUSINESS
GENERAL
Autodesk was incorporated in California in April 1982 and was reincorporated in
Delaware in May 1994. Autodesk's two-dimensional, or 2D, and three-dimensional,
or 3D, products are used across industries and in the home for architectural
design, mechanical design, spatial data management and mapping, animation, and
visualization applications. Autodesk's flagship product, AutoCAD(R), is one of
the world's leading computer-aided design, or CAD, tools, with an installed base
of more than 2.5 million units worldwide. Autodesk's software products are sold
worldwide, primarily through a network of resellers and distributors.
In March 1999, Autodesk acquired Discreet Logic Inc. in a business combination
accounted for as a pooling of interests. The Discreet Division develops,
assembles, markets and supports nonlinear digital systems and software for
creating, editing and compositing imagery. The Discreet Division's products are
used extensively in film and video postproduction, games and multimedia,
broadcasters' graphics, programming and on-air event coverage, as well as by
designers and architects for 3D visualization and conceptualization.
During the second quarter of fiscal 2000, Autodesk reorganized its operations
into four business divisions with industry-specific charters: the Design
Solutions Division (consisting primarily of the Mechanical Computer-Aided
Design, or MCAD, and Architecture, Engineering and Construction, or AEC, market
groups and most of the Personal Solutions Group), the Geographic Information
Systems Solutions, or GIS, Division, Autodesk Ventures and the Discreet Division
(consisting of the Kinetix(R) and Discreet businesses). Autodesk's operating
results have been aggregated into two reportable segments: the Discreet Segment
and the Design Solutions Segment, which includes GIS and Autodesk Ventures. The
Design Solutions and GIS divisions have similar production processes, customer
types and distribution methods. Autodesk Ventures' segment information is not
material.
The Design Solutions Segment develops and sells design software products for
professionals, occasional users or consumers who design, draft and diagram. The
end users of the design software products include architects, engineers,
construction firms, designers and drafters. The Discreet Segment derives
revenues from the sale of its products to creative professionals for a variety
of applications, including feature films, television programs, commercials,
music and corporate videos, interactive game production, live broadcasting and
Web design. Both segments primarily distribute their respective products through
authorized resellers and distributors, and, in some cases, they also sell their
products directly to end-users.
PRODUCTS
The principal product offerings from the Design Solutions Segment are described
below:
AutoCAD
AutoCAD software is a general-purpose CAD tool used independently and in
conjunction with other specific applications in fields ranging from construction
and manufacturing to process plant design and mapping. Professionals utilize
AutoCAD for design, modeling, drafting, mapping, rendering and facility
management
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tasks. AutoCAD currently runs on Microsoft Windows 95, Windows 98 and Windows NT
for Intel and Intel-compatible hardware platforms.
AutoCAD 2000 was introduced in April 1999. Built as a platform for efficiently
connecting design teams, AutoCAD 2000 includes enhancements in areas that
influence team and individual productivity, including: 3D visualization and
geometry creation tools, Internet integration and in-place reference file
editing. AutoCAD 2000 also introduced key new design technology including: a new
environment for working with multiple design files, an object property manager,
the AutoCAD Design Center for drag-and-drop access of local and web-based design
content, a new high-performance hardcopy system, and a complete overhaul of the
AutoLISP customization environment. In addition to providing significant new
features, AutoCAD 2000 demonstrated superior reliability, winning the 1999
All-Star Award from Cadalyst Magazine and the 1999 Editors' Choice Award from
Cadence Magazine.
AutoCAD software's open-system architecture allows users to adapt AutoCAD to
unique professional requirements with any of more than 5,000 independently
developed add-on applications. Many of these applications are based on
ObjectARX(TM) technology, utilizing AutoCAD's object-oriented C++-based
application programming interfaces, or APIs. AutoCAD 2000 added extensive
additions and enhancements to the ObjectARX kernel, enabling complete object
access to the core geometry data model and developer access to new AutoCAD 2000
technology and features.
On a stand-alone basis, sales of AutoCAD and related upgrades accounted for 37
percent, 43 percent and 52 percent of Autodesk's consolidated net revenues in
fiscal 2000, 1999 and 1998, respectively. During fiscal year 2000, approximately
322,000 new AutoCAD based licenses were added worldwide, compared to 266,000 and
244,000 licenses added during fiscal 1999 and 1998, respectively.
Mechanical Desktop
Mechanical Desktop is the world's leading midpriced 3D design system and is the
only system that integrates 2D design with parametric, feature-based solid and
surface modeling. It extends the power of the AutoCAD design environment by
uniting 2D and 3D design. Core benefits of Mechanical Desktop are 3D,
feature-based solid and surface modeling; AutoCAD integration; and flexible 2D
design, 3D modeling and surfacing.
AutoCAD Architectural Desktop
AutoCAD Architectural Desktop software offers a new level of architectural
design tools built on the speed and power of AutoCAD. Supporting the
architectural design process from conceptual design to design development,
through construction documentation, AutoCAD Architectural Desktop features
industry-specific 2D production drafting functionality as well as integrated and
accessible 3D design options. Users benefit from simplified mass modeling,
intelligent building components, style definitions, and layer management
according to industry standards. AutoCAD Architectural Desktop software's data
continuity throughout the entire design process enables efficiency and
productivity by eliminating the need to recreate design and drafting data.
AutoCAD Map 2000
AutoCAD Map(R) 2000 is the Autodesk solution for precision mapping and
geographic information system analysis in the AutoCAD(R) environment. It
contains the complete AutoCAD 2000 toolset to enhance productivity, plus it
offers specialized functionality for creating, maintaining and producing maps
and geospatial data. AutoCAD Map 2000 integrates a wide variety of data types
and file formats, provides powerful database-linking capabilities and includes
essential GIS analysis tools. Customers can work with large data sets consisting
of multiple maps, and multiple users can access the same map simultaneously
without versioning conflicts. Sophisticated plotting and presentation
capabilities make AutoCAD Map 2000 an effective communication tool.
AutoCAD LT
AutoCAD LT 2000 is a low-cost 2D CAD application intended for CAD managers,
designers and engineers who need a powerful, stand-alone drafting tool, but who
do not require the advanced feature set in AutoCAD. AutoCAD LT 2000 software
contains an extensive 2D drafting toolset as well as 3D lines and polylines with
quick shading and hidden-line removal. Other features include a Start-Up dialog
box and Drawing Set-Up
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wizards to help the user create or open a drawing quickly; real-time pan and
zoom; the AutoCAD Design Center(TM) featuring thousands of industry-standard
symbols; and Integrated Internet Tools to open or save drawings directly to the
Internet. AutoCAD LT operates in the Windows environment with pull-down menus,
customizable toolbar, toolbox, menus and scripts, as well as dialog boxes and
icons. It supports the Windows Clipboard, as well as ActiveX Automation. AutoCAD
LT 2000 is fully compatible with Windows 98 and Windows NT 4.X, and has built-in
Microsoft Office 97 compatibility.
The principal product offerings from the Discreet Segment are discussed below:
3D Studio MAX
3D Studio MAX R3 software, which began shipping in the second quarter of fiscal
2000, is a 3D modeling and animation software package specifically written to
take advantage of advanced features offered by the Windows NT operating system.
With a real-time interface, multiple-processor support and 3D graphics
acceleration capabilities, 3D Studio MAX delivers workstation-class performance
and functionality to personal computers.
The intuitive interface eliminates many of the commonly accepted boundaries
between modeling, rendering and animation, and offers instant feedback; users
can see the results of their actions in real time, as they are applied. Shaded
views with real-time feedback allow users to visualize natural, real-world
environments in which they can directly manipulate objects, regardless of scene
complexity. Because 3D Studio MAX software maintains a data history of geometry
creation and modification, users can return to and change any step, at any time,
without having to redo prior work. 3D Studio MAX is also the only environment
that can run Character Studio(R), a powerful character-animation and skinning
plug-in software product offered by Autodesk.
flame*
flame* is an on-line, resolution-independent, non-linear, uncompressed digital
system. The system is used by creative professionals to create, edit and
composite special visual effects in an on-line, real-time environment. Easily
integrated into a suite environment and possessing the power and features
necessary to serve as the core of a fully digital suite, flame* is designed to
allow the operator to create desired effects with near instantaneous feedback. A
complete flame* system includes the flame* software, a Silicon Graphics, Inc.,
or SGI, Octane workstation, discreet storage and various I/O devices.
inferno*
inferno* is an on-line, non-linear, resolution-independent, uncompressed digital
system providing all the features of flame* with film tools, and increased image
resolution and color control for digital film work. The system also features
tools for grain management, wire and scratch removal and color calibration. A
complete inferno* system includes the inferno* software, an SGI Onyx2
workstation, discreet storage and various I/O devices.
PRODUCT DEVELOPMENT AND ENHANCEMENT
The majority of Autodesk's basic research and product development has been
performed in the U.S., while translation and localization of foreign-market
versions, as well as some product development, are performed by development
teams or contractors in the local markets. Autodesk's product-related functions
in Europe, including software development, localization, quality assurance and
technical publications, are centralized in Neuchatel, Switzerland. Production in
Europe is centralized in Ireland, and production in Asia Pacific primarily takes
place in Singapore.
Autodesk intends to continue recruiting and hiring experienced software
developers and to consider the licensing and acquisition of complementary
software technologies and businesses. In addition, Autodesk will continue to
actively collaborate with and support independent software developers who offer
products that enhance and complement AutoCAD software and other products offered
by Autodesk.
The technology industry is characterized by rapid technological change in
computer hardware, operating systems and software, as well as changes in
customer requirements and preferences. To keep pace with these changes, Autodesk
maintains an aggressive program of new product development. Autodesk dedicates
considerable
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resources to research and development to further enhance its existing products
and to create new products and technologies.
The software products offered by Autodesk are internally complex and, despite
extensive testing and quality control, may contain errors or defects. Defects or
errors may occur in future releases of AutoCAD or other products. These defects
or errors could result in corrective releases to Autodesk's products, damage to
Autodesk's reputation, loss of revenues, an increase in product returns, or lack
of market acceptance of its products, any of which could harm Autodesk's
business.
Autodesk believes that its future results will depend largely upon its ability
to offer products that compete favorably in terms of reliability, performance,
ease of use, range of useful features and other factors. Delays or difficulties
in product development and enhancement may result in the delay or cancellation
of planned development projects, and could harm Autodesk's business. Further,
increased competition in the market for design, drafting, mapping or multimedia
software products could also have a negative impact on Autodesk's business.
From time to time Autodesk or others may announce products, features or
technologies which have the potential to shorten the life cycle of or replace
its then existing products. Such announcements could cause customers to defer
the decision to buy or determine not to buy its products or cause its resellers
or distributors to seek to return products, any of which could harm Autodesk's
business and consolidated results of operations. In addition, product
announcements by SGI and others in the past have caused customers to defer their
decision to buy or determine not to buy Autodesk's products. Moreover, products
or technologies developed by others may render Autodesk's products or technology
noncompetitive or obsolete.
Some of Autodesk's product development activities are performed by independent
firms and contractors, while other technologies are licensed from third parties.
Autodesk generally either owns or licenses the software developed by third
parties. Because talented development personnel are in high demand, independent
developers, including those who currently develop products for Autodesk, may not
be able to provide development support in the future. Similarly, Autodesk may
not be able to obtain and renew existing license agreements on favorable terms,
or at all, which could harm Autodesk's business.
Autodesk's business strategy has historically depended in large part on its
relationships with third-party developers, who provide products that expand the
functionality of Autodesk's design software. Some developers may elect to
support other products or otherwise experience disruption in product development
and delivery cycles. This disruption in particular markets could negatively
impact these third-party developers and end users, which could harm Autodesk's
business.
MARKETING AND SALES
Autodesk's customer-related operations are divided into three geographic
regions, the Americas, Europe and Asia Pacific, and are supported by a global
marketing and sales organization, WWFO (worldwide field operations). This
organization develops and manages overall marketing and sales programs and works
closely with a network of domestic and foreign offices. Autodesk sells its
software products primarily through distributors and value-added resellers, or
VARs, who distribute Autodesk's products to end users in more than 150
countries. VARs, including both independent owners and computer store
franchisees, are supported by Autodesk and its subsidiaries through technical
training and periodic publications.
In addition, Autodesk works directly with reseller and distributor sales
organizations, computer manufacturers, other software developers and peripheral
manufacturers through cooperative advertising, promotions and trade-show
presentations. Autodesk employs mass-marketing techniques such as webcasts,
seminars, telemarketing, direct mailings and advertising in business and trade
journals. Autodesk has a worldwide user group organization dedicated to the
exchange of information related to the use of Autodesk's products.
5
Domestically, Autodesk distributes its products primarily through its authorized
reseller network. Other domestic sales are made principally to large
corporations, governmental agencies, educational institutions and, for some low-
end design products, to end-users. The majority of Autodesk's international
sales are made to resellers and distributors, which are supported by Autodesk's
foreign subsidiaries and international sales organizations. Some international
sales result from direct exports from the United States. Fluctuations in foreign
exchange rates, specifically the stronger value of the dollar, relative to
certain international currencies, could have a negative impact on foreign
revenues. These foreign currency fluctuations, as well as any slowdowns in any
of Autodesk's geographical markets, could harm Autodesk's business and adversely
impact future results of operations.
Autodesk's ability to effectively distribute its products depends in part upon
the financial and business condition of its VAR network. Although Autodesk is
not currently experiencing any material problems with its VAR network, computer
software resellers and distributors are typically not highly capitalized, have
tended to experience difficulties during times of economic contraction and
during periods of technology-market price pressure, and may do so in the future.
While no single customer accounted for more than 10 percent of Autodesk's
consolidated revenues in any of fiscal years 2000, 1999 or 1998, the loss of, or
a significant reduction in, business with any one of Autodesk's major
international distributors or large U.S. resellers could harm Autodesk's
business.
Autodesk intends to continue to make its products available in foreign languages
and expects that foreign sales will continue to contribute a significant portion
of its consolidated revenues.
CUSTOMER AND RESELLER SUPPORT
Autodesk provides technical support and training to customers through a
leveraged model, augmented by programs designed to address specific direct
needs. We expect that end users rely primarily on their resellers and
distributors for technical support. Autodesk support the resellers and
distributors through technical product training, sales training classes and
direct telephone support. Support content is also available on the Product
Support portion of the Autodesk Internet site. There are also a number of user
group forums in which customers are able to share information.
While Autodesk expects the sales channel to provide the majority of technical
support to its customers, it has developed programs to deliver direct support to
certain customers. The Premier Support program enables large customers to
purchase an annual support contract, which provides unlimited support for
designated callers. In addition, Autodesk provides per-incident direct phone
support to end users under the Safety Net Program. This is a fee-based program
that allows customers to contact Autodesk directly.
Customer technical training is also leveraged through the authorized Autodesk
Training Center, or ATC(R), program; there are more than 700 independent ATC's
throughout the world. These accredited training centers offer in-depth education
and training in computer-aided design skills on Autodesk products, as well as on
related, independently developed software. Autodesk offers training sessions to
its sales and training channels to maintain a professional level of technical
expertise. Learning Assistance programs, which provide lessons related to design
projects through an interactive multimedia tool, are provided with select
products.
DEVELOPER PROGRAMS
One of Autodesk's key strategies is to maintain an open-architecture design of
its software products to facilitate third-party development of complementary
products and industry-specific software solutions. This approach enables
customers and third parties to customize Autodesk's products for a wide variety
of highly specific uses. Autodesk offers several programs that provide
marketing, sales, technical support and programming tools to developers who
develop add-on applications for Autodesk products.
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To support the growth of third-party developers, whose applications extend and
enhance the functionality of Autodesk's products worldwide, Autodesk operates
the Autodesk Developer Network program, or ADN. The ADN is a business network
comprised of qualified independent application developers and customers. This
program provides sales, marketing and programming support, technical training
and consulting. Autodesk believes that the availability and use of third party
add-on products enhance sales opportunities for Autodesk's core products.
Under the Autodesk Developer Channel, Autodesk offers two programs to
third-party developers for the license of Autodesk software and technology. The
Unique Application Reseller program, or UAR, permits selected software developer
partners to sell and support Autodesk software when bundled with specifically
defined vertical applications. The Original Equipment Manufacturer program, or
OEM, provides the technology for qualified developers to create and deliver
suites of scaleable products that focus on solving customer needs in specialized
markets.
BACKLOG
Autodesk typically ships products within one to two weeks after receipt of an
order, which is common in the computer software industry. Accordingly, Autodesk
does not maintain significant backlog, and backlog as of any particular date
gives no indication of actual sales for any succeeding period.
COMPETITION
The software industry has limited barriers to entry, and the availability of
desktop computers with continually expanding capabilities at progressively lower
prices contributes to the ease of market entry. Because of these and other
factors, competitive conditions in the industry are likely to intensify in the
future. Increased competition could result in price reductions, reduced revenues
and profit margins, and loss of market share. The design software market in
particular is characterized by vigorous competition in each of the markets in
which Autodesk competes, both by entry of competitors with innovative
technologies and by consolidation of companies with complementary products and
technologies. Some of Autodesk's competitors have significantly greater
financial, technical, sales and marketing, and other resources than Autodesk.
Autodesk believes that the principal factors affecting competition in its
markets are product reliability, performance, ease of use, range of useful
features, continuing product enhancements, reputation, price and training. In
addition, the availability of third-party application software is a competitive
factor within the CAD market. Autodesk believes that it competes favorably in
these areas and that its competitive position will depend, in part, upon its
continued ability to enhance existing products and to develop and market new
products.
In April 1998, Autodesk received notice that the Federal Trade Commission, or
FTC, had undertaken a nonpublic investigation to determine whether Autodesk
or others have engaged in or are engaging in unfair methods of competition. In
March 2000, the FTC notified Autodesk that the FTC had determined to conclude
its investigation without taking any action.
INTELLECTUAL PROPERTY AND LICENSES
Autodesk protects its intellectual property through copyright, trade secret,
patent and trademark laws. For substantially all AutoCAD sales outside of North
America, Autodesk uses software protection locks to inhibit unauthorized
copying. Nonetheless, Autodesk's intellectual property rights may not be
successfully asserted in the future or may be invalidated, circumvented or
challenged. In addition, the laws of certain foreign countries where Autodesk's
products are distributed do not protect Autodesk's intellectual property rights
to the same extent as U.S. laws. The inability of Autodesk to protect its
proprietary information could harm Autodesk's business.
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From time to time, Autodesk receives claims alleging infringement of a third
party's intellectual property rights, including patents. Any disputes involving
Autodesk's intellectual property rights or those of another party could lead to
costly litigation, which could harm Autodesk's business.
Autodesk retains ownership of software it develops. All software is licensed to
users and provided in object code pursuant to either shrink-wrap, embedded or
on-line licenses, or executed license agreements. These agreements contain
restrictions on duplication, disclosure and transfer.
Autodesk believes that because of the limitations of laws protecting its
intellectual property and the rapid, ongoing technological changes in both the
computer hardware and software industries, it must rely principally upon
software engineering and marketing skills to maintain and enhance its
competitive market position.
Autodesk has an in-house antipiracy program focused on pursuing companies and
individuals who illegally duplicate, sell or install Autodesk's software
products. Software piracy is in some cases a felony under U.S. federal law,
which allows copyright and patent holders to protect and enforce their rights as
owners of intellectual property. In addition, Autodesk is a member and
co-founder of the Business Software Alliance, an organization comprised of
member software companies whose purpose is to advance favorable public policy
for the technology industry and promote the importance of honoring software
copyrights.
PRODUCTION AND SUPPLIERS
Production of Autodesk's software products involves duplication of the software
media and the printing of user manuals. The purchase of media and the transfer
of the software programs onto media for distribution to customers are performed
by Autodesk and by licensed subcontractors. Media for Autodesk's products
include CD-ROMs and disks, which are available from multiple sources. User
manuals for Autodesk's products and packaging materials are produced to Autodesk
specifications by outside sources. Domestic production is performed in leased
facilities operated by Autodesk. Some product assembly is also performed by
independent third-party contractors. International production is performed by
independent third-party contractors in Ireland and Singapore. To date, Autodesk
has not experienced any material difficulties or delays in the production of its
software and documentation.
The Discreet Division has historically relied on third-party vendors to
manufacture and supply all of the hardware components used in its systems.
Manufacturing consists of assembly (including disk array assembly), testing, and
value added systems integration.
The Discreet Division's flame*, effect*, inferno*, fire*, smoke* and frost*
software currently run on workstations manufactured by SGI. There are
significant risks associated with this reliance on SGI and the Discreet Division
may be impacted by the timing of the development and release of products by SGI.
In addition, there may be unforeseen difficulties associated with adapting the
Discreet Division's products to future SGI products. Moreover, although Autodesk
has no reason to believe that the Discreet Division will be unable to obtain
sufficient quantities of SGI workstations on a timely basis, the Discreet
Division may not continue to be able to procure such workstations in sufficient
quantities on a timely basis.
The Discreet Division is also dependent on SGI as the sole source for video I/O
cards used in the systems. The Discreet Division generally purchases sole source
or other components pursuant to purchase orders placed from time to time in the
ordinary course of business and has no written agreements or guaranteed supply
arrangements with its sole source suppliers.
EMPLOYEES
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As of January 31, 2000, Autodesk had 3,024 full-time employees. Autodesk's
future success is dependant in part on the ability to attract, retain and
motivate highly qualified technical and management personnel, for whom
competition is intense.
ITEM 2. PROPERTIES
Autodesk's executive offices and the principal offices for product development,
domestic marketing and sales, and production are located in leased office space
in northern California. Autodesk also leases office space in various locations
throughout the U.S. for local sales, development and technical support
personnel. Autodesk's foreign subsidiaries lease office space for their
operations.
Autodesk believes that its existing facilities and offices are adequate to meet
its requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Autodesk is a party to various legal proceedings arising from the normal course
of business activities. In management's opinion, resolution of these matters is
not expected to have a material adverse impact on Autodesk's consolidated
results of operations or its financial position. However, depending on the
amount and timing, an unfavorable resolution of a matter could materially affect
Autodesk's future results of operations or cash flows in a particular period.
In March 2000, a purported class action lawsuit was filed against Autodesk and
some of its officers, alleging violations of the Securities Exchange Act of
1934. The plaintiffs seek to act on behalf of purchasers of Autodesk common
stock during the period between September 14, 1998 and May 4, 1999. Autodesk
believes that it has meritorious defenses to the complaint and intends to
vigorously defend the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 2000.
Executive Officers of the Registrant
The following sets forth certain information as of January 31, 2000 regarding
the executive officers of Autodesk:
Name Age Position
----- --- --------
Carol A. Bartz............ 51 Chairman, President and Chief Executive Officer
Joseph H. Astroth, Ph.D.. 44 Executive Vice President, GIS Solutions Division
Steve Cakebread........... 48 Senior Vice President and Chief Financial Officer
Dominic J. Gallello....... 44 Executive Vice President, Design Solutions Division
Stephen McMahon........... 58 Senior Vice President, Human Resources and Facilities
John Sanders.............. 47 Vice President, Internet
Marcia K. Sterling........ 56 Senior Vice President, Business Development, General Counsel, and Secretary
Godfrey R. Sullivan....... 46 Executive Vice President, Discreet Division
Michael E. Sutton......... 54 Executive Vice President, Worldwide Field Organization
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Carol A. Bartz joined Autodesk in April 1992 and serves as President, Chief
Executive Officer and Chairman of the Board. Ms. Bartz is a director of Network
Appliance, Inc., BEA Systems, Inc., Cadence Design Systems, Inc., Cisco Systems,
Inc., and VA Linux.
Dr. Joseph H. Astroth joined Autodesk in January 1996 and serves as
Executive Vice President, GIS Solutions Division. From September 1989 through
December 1995, Dr. Astroth held various positions with Graphic Data Systems
Corporation including Director, Environmental Market Group, from January 1993 to
June 1994, and Vice President of Product Management, Engineering, from June 1994
to December 1995.
Steve Cakebread joined Autodesk in April 1997 and serves as Senior Vice
President and Chief Financial Officer. From April 1993 through March 1997 he
served as Vice President, Finance World Trade Corporation at Silicon Graphics.
Mr. Cakebread held various finance and general management positions at
Hewlett-Packard from January 1972 through March 1993.
Dominic J. Gallello is currently the Executive Vice President of the Design
Solutions Division. Previously, he was the Vice President of the MCAD Market
Group. Mr. Gallello served as Vice President, Asia Pacific, from the time he
joined Autodesk in October 1992 until July 1996.
Stephen McMahon joined Autodesk in July 1992 and serves as Senior Vice
President, Human Resources and Facilities. From July 1987 to July 1992, Mr.
McMahon served as Senior Director, Human Resources, for Apple Computer, Inc.
John Sanders was named Vice President, Internet, in October 1999. From
March 1996 to October 1999 he served as Vice President of Worldwide Support &
Services. Prior to joining Autodesk, Mr. Sanders spent 12 years at Apple
Computer in a number of sales, support and marketing positions.
Marcia K. Sterling joined Autodesk in October 1995 and serves as Senior
Vice President, Business Development, General Counsel, and Secretary. From
September 1982 to October 1995, she practiced corporate and securities law at
Wilson Sonsini Goodrich & Rosati, where she was a member.
Godfrey R. Sullivan is currently Executive Vice President of the Discreet
Division. Previously, he was Vice President of the Personal Solutions Group. Mr.
Sullivan served as Vice President, the Americas, since joining Autodesk in
October 1992 and as Acting Vice President, AEC/FM Market Group, from February
1995 to September 1995.
Michael E. Sutton currently serves as Executive Vice President, Worldwide
Field Organization. Previously, Mr. Sutton served as Vice President,
Europe/Middle East/Africa from June 1993 through September 1998.
There is no family relationship among any of the directors or executive
officers of Autodesk.
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Autodesk's common stock is traded on the Nasdaq National Market under the symbol
ADSK. The following table lists the high and low sales prices for each quarter
in the last two fiscal years:
Fiscal 2000 High Low
First Quarter $43 7/8 $24 15/16
Second Quarter $30 3/16 $23 9/16
Third Quarter $26 5/8 $17 1/8
Fourth Quarter $33 15/16 $18
Fiscal 1999 High Low
First Quarter $49-7/8 $39
Second Quarter $48-7/8 $31 1/8
Third Quarter $35 $23
Fourth Quarter $48-1/2 $29
Dividends
Autodesk paid quarterly dividends of $0.06 per share in fiscal 2000 and 1999 to
Autodesk shareholders. Autodesk intends to continue paying regular cash
dividends on a quarterly basis.
Sale of Securities
On March 16,1999, Autodesk sold 3.0 million shares of Autodesk common stock at
$41 per share for net proceeds of $117.5 million.
Stockholders
As of January 31, 2000 the approximate number of common stockholders of record
was 1,192.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share
data, percentages, and employees) Fiscal year ended January 31,
2000 1999 1998 1997 1996
------------ ----------- ----------- --------- ------------
For the Fiscal Year
Net revenues $ 820,182 $ 871,879 $ 768,684 $ 598,617 $ 618,164
Income from operations/1/ 763 142,087 94,994 65,296 84,113
Net income/1/ 9,808 97,132 56,215 42,247 43,647
At Year End
Total assets 907,326 823,260 699,901 595,610 598,077
Long-term liabilities 5,635 6,819 33,293 34,661 32,748
Common stock data
Basic net income per share $ 0.16 $ 1.72 $ 1.00 $ 0.77 $ 0.78
Diluted net income per share 0.16 1.64 0.94 0.74 0.74
Dividends paid per share 0.24 0.20 0.20 0.20 0.20
/1/ Fiscal 2000 results were impacted by non-recurring charges primarily related
to acquisitions and a work force reduction.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contains trend analyses and other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements, trend
analyses, and other information contained herein relative to markets for
Autodesk's products and trends in revenues, as well as other statements
including such words as "anticipate," "believe," "plan," "estimate," "expect,"
"goal," and "intend" and other similar expressions, constitute forward-looking
statements. These forward-looking statements are subject to business and
economic risks, and Autodesk's actual results could differ materially from those
set forth in the forward-looking statements as a result of the factors set forth
elsewhere herein, including "Risk Factors Which May Impact Future Operating
Results."
Business Combination and Basis of Presentation
In March 1999, Autodesk acquired Discreet in a business combination accounted
for as a pooling of interests. Accordingly, all prior period consolidated
financial statements presented have been restated to include the combined
results of operations of Discreet as though it had always been a part of
Autodesk. The transaction resulted in the issuance of an aggregate of
approximately 10 million shares of Autodesk common stock in exchange for
Discreet's outstanding common stock.
Prior to the acquisition, Discreet's fiscal year ended on June 30. As a result
of differing year-ends, Autodesk's consolidated statements of operations for the
fiscal years ended January 31, 1999 and 1998 were combined with Discreet's
financial statements for the twelve months ended December 31, 1998, and the
fiscal year ended June 30, 1998, respectively. As such, Discreet's operating
results for the period from January 1, 1998 to June 30, 1998 are duplicated in
the consolidated statement of operations for the fiscal years ended January 31,
1999 and 1998. Discreet's revenues, net income, basic net income per share and
diluted net income per share were $75.9 million, $9.1 million, $0.16 and $0.15,
respectively, for the period January 1, 1998 through June 30, 1998.
In addition, Discreet's January 1999 results have been excluded from the
consolidated statement of operations as a result of changing Discreet's year-end
to January 31. In January 1999, Discreet recognized net revenues of $3.8 million
and incurred a net loss of $5.0 million.
Results of Operations
Net Revenues. Autodesk's fiscal 2000 net revenues of $820.2 million decreased
from $871.9 million in fiscal 1999. Increases in Asia Pacific's net revenues of
32 percent were more than offset by decreases of 15 percent and 10 percent in
net revenues in the Americas and Europe, respectively. The overall decrease in
net revenues was primarily due to a decline in the sales of AutoCAD and AutoCAD
LT. On a stand-alone basis, sales of AutoCAD and related upgrades accounted for
37 percent and 45 percent of Autodesk's consolidated net revenues in fiscal 2000
and 1999, respectively.
The value of the U.S. dollar, relative to international currencies, did not have
a significant impact on net revenues in fiscal 2000 compared to the same period
in the prior fiscal year. International sales, including exports from the U.S.,
accounted for 65 percent of Autodesk's fiscal 2000 revenues compared to 59
percent in the prior fiscal year.
Autodesk's net revenues increased from $768.7 million in fiscal 1998 to $871.9
million in fiscal 1999. Revenues in the Americas and Europe increased 14 percent
and 28 percent, respectively, from fiscal 1998, while net revenues in Asia
Pacific decreased slightly for the same period. The increased revenues resulted
primarily from increased license revenues from new and upgrade product offerings
from Autodesk's market groups. On a stand-alone basis, sales of AutoCAD and
related upgrades accounted for 45 percent and 52 percent of Autodesk's
consolidated net revenues in fiscal 1999 and 1998, respectively. The value of
the U.S. dollar, relative to international currencies, did not have a
significant impact on net revenues in fiscal 1999 as compared to fiscal 1998.
12
Autodesk derives a substantial portion of its revenues from sales of AutoCAD
software, AutoCAD upgrades and vertical products that are interoperable with
AutoCAD, and expects this trend to continue. As such, any factor adversely
affecting sales of AutoCAD and AutoCAD upgrades, including such factors as
product life cycle, market acceptance, product performance and reliability,
reputation, price, competition and the availability of third-party applications,
could harm Autodesk's business and consolidated results of operations.
Additionally, slowdowns in any of Autodesk's geographical markets could also
harm Autodesk's business and consolidated results of operations.
Product returns, consisting principally of stock rotation, are recorded as a
reduction of revenues and represented 5 percent, 4 percent and 6 percent of
consolidated net revenues for fiscal 2000, 1999 and 1998, respectively.
Management anticipates that the level of product returns in future periods will
continue to be impacted by the timing of new product releases, as well as the
quality and market acceptance of new products.
Cost of Revenues. Cost of revenues includes the purchase of disks and compact
disks, cost of hardware sold (mainly workstations manufactured by Silicon
Graphics, Inc.), cost of service contracts, costs associated with transferring
Autodesk's software to electronic media, printing of user manuals and packaging
materials, freight, royalties, amortization of purchased technology and
capitalized software, and, in certain foreign markets, software protection
locks.
Cost of revenues increased from 15 percent of net revenues in fiscal 1999 to 18
percent in fiscal 2000. This increase was primarily due to (1) increases in
royalties; (2) amortization of capitalized software for AutoCAD 2000, which was
introduced in fiscal 2000; and (3) the April 1999 acquisition of VISION*
Solutions ("VISION"), which has relatively higher cost of revenues as a
percentage of net revenues than other products.
Cost of revenues as a percentage of net revenues decreased to 15 percent in
fiscal 1999 from 17 percent in fiscal 1998. The decrease was primarily due to
lower royalties for licensed technology, a larger proportion of software as
opposed to hardware sales, and the geographic distribution of sales, partially
offset by an increase in the amortization of purchased technologies and
capitalized software.
In the future, cost of revenues as a percentage of net revenues may be impacted
by the mix of product sales, software amortization costs, royalty rates for
licensed technology and the geographic distribution of sales.
Marketing and Sales. Marketing and sales expenses include salaries, sales
commissions, travel, and facility costs for Autodesk's marketing, sales, dealer
training and support personnel. These expenses also include programs aimed at
increasing revenues, such as advertising, trade shows and expositions, as well
as various sales and promotional programs designed for specific sales channels
and end users.
Marketing and sales expenses increased from 34 percent of net revenues in fiscal
1999 to 38 percent in fiscal 2000. The increase in spending was largely due to
(1) increased advertising and promotional costs associated with the launch of
several new and enhanced products introduced during fiscal 2000; (2) higher
employee costs; and (3) incremental costs due to the acquisition of VISION.
Marketing and sales as a percentage of net revenues decreased slightly from 35
percent in fiscal 1998 to 34 percent in fiscal 1999. In fiscal 1998, marketing
and sales expenses included costs related to the launch of AutoCAD Release 14
and other new and enhanced products.
Autodesk expects to continue to invest in marketing and sales of its products,
to develop market opportunities and to promote Autodesk's competitive position.
Accordingly, Autodesk expects marketing and sales expenses to continue to be
significant, both in absolute dollars and as a percentage of net revenues.
Research and Development. Research and development expenses consist primarily of
salaries and benefits for software engineers, contract development fees,
expenses associated with product translations and costs of computer equipment
used in software development. Research and development costs increased from
$157.1 million in fiscal 1999 to $164.0 million in fiscal 2000. The increase was
primarily due to higher employee-related costs; higher costs related primarily
to the Design 2000 family of products; increased costs associated with product
translations; and incremental costs due to the acquisition of VISION.
13
Research and development costs increased from $136.8 million in fiscal 1998 to
$157.1 million in fiscal 1999. The increase was primarily due to higher
employee-related costs and incremental costs due to the acquisition of Genius
CAD Software GmbH ("Genius") in May 1998.
Autodesk anticipates that research and development spending will increase in
fiscal 2001 as a result of product development efforts by Autodesk's market
groups and incremental personnel costs.
General and Administrative. General and administrative expenses include
Autodesk's information systems, finance, human resources, legal and other
administrative operations. As a percentage of net revenues, general and
administrative expenses were 16 percent, 13 percent and 11 percent in fiscal
2000, 1999 and 1998, respectively. The increases between years were primarily
due to higher (1) employee-related expenses, (2) costs incurred to ensure that
Autodesk's infrastructure was year 2000 compliant, (3) consulting fees related
to enhancing the information systems infrastructure, and (4) incremental costs
related to acquisitions. Autodesk currently expects that in the coming year
general and administrative expenses, as a percentage of net revenues, will
remain relatively the same as in fiscal 2000.
Amortization of Goodwill and Purchased Intangibles. Amortization of goodwill and
purchased intangibles increased from $28.7 million in fiscal 1999 to $30.6
million in fiscal 2000, primarily as a result of increased amortization expense
arising from the April 1999 acquisition of VISION. Amortization of goodwill and
purchased intangibles increased from $22.0 million in fiscal 1998 to $28.7
million in fiscal 1999, primarily as a result of the increased amortization
expense arising from the May 1998 acquisition of Genius and other acquisitions
that occurred during the middle of fiscal 1998. See "Business Combinations"
below for additional discussion.
Nonrecurring Charges. Nonrecurring charges in fiscal 2000 ($34.7 million)
consisted primarily of Discreet and VISION acquisition-related charges and a
corporate restructuring that occurred during the third quarter. As a result of
the restructuring, which involved the elimination of approximately 350 positions
and related office closures, Autodesk is currently realizing quarterly savings
of approximately $9.0 million. These savings are expected to last through the
end of fiscal 2001 and will be reflected in each on-going cost and expense line
item in the consolidated statement of operations. The savings will be offset
over time by costs associated with, among other things, recent acquisitions and
investments in related Internet entities.
Nonrecurring charges in fiscal 1999 ($19.7 million) consisted primarily of
Genius acquisition-related charges and other charges that involved the
consolidation of certain development centers, write-off of purchased
technologies associated with these development centers and the elimination of 87
positions in Asia Pacific. The savings resulting from these activities were
offset by costs associated with new businesses.
Nonrecurring charges in fiscal 1998 ($26.8 million) consisted primarily of
Softdesk, Inc. ("Softdesk"), D-Vision Systems, Inc. ("D-Vision") and other
acquisition-related charges. These charges were offset by a gain on the sale of
Autodesk's interest in a network technology company and the reversal of certain
lease-related reserves related to Discreet's 1996 restructuring.
For additional information regarding the nonrecurring charges recorded over the
past three fiscal years, see Note 10. Nonrecurring Charges in the Notes to
Consolidated Financial Statements.
Litigation Accrual Reversal. In fiscal 1999, Autodesk reversed $18.6 million of
accruals associated with litigation matters. Of the amount, $18.2 million
related to final adjudication of a claim involving a trade-secret
misappropriation brought by Vermont Microsystems, Inc.
Interest and Other Income. Interest and other income, net was $23.2 million,
$17.1 million and $11.7 million in fiscal 2000, 1999 and 1998, respectively. The
fiscal 1999 balance includes Autodesk's $2.7 million reversal of an interest
accrual resulting from the closure of the Vermont Microsystems litigation
matter, and a $1.3 million gain associated with the sale of various technical
programs and intangible assets. Excluding these fiscal 1999 amounts, the
increases in interest and other income, net between fiscal 2000 and 1999 and
between fiscal 1999 and 1998 were largely due to increases in average cash and
marketable securities balances resulting from cash provided by operating
activities and common stock issuances.
14
Provision for Income Taxes. Autodesk's effective income tax rate, excluding the
impact of nonrecurring charges, was 32.0 percent, 36.6 percent and 38.3 percent
in fiscal 2000, 1999 and 1998, respectively. The effective tax rate for fiscal
2000 is less than the federal statutory rate of 35 percent due to the benefits
associated with Autodesk's foreign earnings which are taxed at rates different
from the federal statutory rate, research credits and tax-exempt interest,
partially offset by non-deductible goodwill amortization. The fiscal 2000 rate
is lower than the fiscal 1999 rate due to a relatively higher impact of these
permanent items. The decrease in the effective income tax rate in fiscal 1999
compared to fiscal 1998 was due to incremental tax benefits associated with
Autodesk's foreign earnings, which are taxed at rates different from the U.S.
statutory rate, and a reduction in the relative impact of amortization of
certain intangible assets, partially offset by a reduction of the benefit from
utilization of net operating losses. No tax benefit was recorded with regard to
the nonrecurring charges incurred in connection with the Discreet and VISION
acquisitions.
Autodesk's U.S. income tax returns for the fiscal years ended January 31, 1992
through 1996, have been examined by the Internal Revenue Service ("IRS"). On
August 27, 1997, the IRS issued a Notice for Deficiency proposing increases to
the amount of Autodesk's federal income taxes for fiscal 1992 and 1993. On
November 25, 1997, Autodesk filed a petition with the United States Tax Court to
contest these alleged tax deficiencies. In July 1999, Autodesk made tax payments
with respect to all issues addressed as part of the IRS audit. As a result,
Autodesk has either resolved all matters or made prepayments with respect to
remaining outstanding issues for the tax years ended January 31, 1992 through
1996. The resolution of any remaining adjustments that may ultimately result
from these examinations are not expected to have a material adverse impact on
Autodesk's consolidated results of operations or its financial position.
Business Combinations
In addition to the acquisition of Discreet, the following acquisitions occurred
over the past three years.
VISION
On April 22, 1999, Autodesk acquired VISION, a vendor of enterprise automated
mapping/facilities management/geographic information systems (AM/FM/GIS)
solutions. Of the $26.0 million purchase price, which was paid in cash, $3.3
million represented the value of in-process research and development ("IPR&D")
that had not yet reached technological feasibility and had no alternative future
use, and as such, was expensed during fiscal 2000. Of the remaining purchase
price, $17.6 million and $2.1 million were allocated to goodwill and other
intangibles, respectively.
As of the acquisition date, the IPR&D consisted of the development of two
products, VISION 5.3, which was 60 percent complete at the time, and VISION
Electric 2.3, which was 39 percent complete. Both projects, which were
originally expected to be completed in late fiscal 2000 at an aggregate cost to
complete of $1.4 million, are expected to be introduced in fiscal 2001. At
January 31, 2000, the estimated cost to complete both projects was less than
$0.2 million.
In valuing the developed and in-process technologies at the acquisition date,
Autodesk used a discounted cash flow analysis based on projected net revenues,
cost of revenues, operating expenses and income taxes resulting from such
technologies over a 4-year period. The projected financial results, which were
discounted using a 20 percent rate for the developed technology and a 25 percent
rate for the in-process technology, were based on expectations for VISION on a
stand-alone basis and excluded any special synergistic benefits that Autodesk
expected to achieve after the acquisition.
The revenue projections for the developed technologies, which considered the
release dates of new products, assumed a gradual decline. The revenue
projections for the IPR&D were based on expected trends in technology and the
timing of new product introductions by Autodesk.
Genius
On May 4, 1998, Autodesk entered into an agreement with Genius, a German limited
liability company, to purchase various mechanical CAD software applications and
technologies. Autodesk accounted for this
15
acquisition under the purchase method of accounting. Of the total purchase price
of $68.9 million, which was paid in cash, $13.1 million was allocated to IPR&D
and was expensed; $12.7 million was allocated to an intangible asset, purchased
technology; and $41.6 million was allocated to goodwill.
As of the acquisition date, Genius had initiated the research and development
effort related to product features and functionality that currently resides in
(1) Genius AutoCAD and AutoCAD LT, (2) Genius Desktop, (3) Genius Vario and (4)
Genius Modules product families. The research and development projects were in
varying stages of completion, ranging from 20 percent to 45 percent complete as
of the acquisition date, with total estimated costs of $1.5 million to reach
technological feasibility at the time. The in-process projects were completed in
fiscal 2000, at an aggregate amount approximately equal to the original
estimated costs to complete.
In valuing the developed and in-process technologies, Autodesk used a discounted
cash flow analysis based on projected net revenues, cost of revenues, operating
expenses and income taxes resulting from such technologies over a 5-year period.
The projected financial results were discounted using a 15 percent rate for the
developed technology and a 20 percent rate for the in-process technology.
The revenue projections for the developed technology, which considered
historical product life cycles and anticipated product release dates, assumed a
gradual decline over the 5-year period. The revenue projections for the IPR&D
assumed higher than historical average sales due to the integration and
expansion of Genius products into Autodesk's worldwide sales channels,
particularly in North America and Asia Pacific, which historically had not
contributed significant revenues to Genius.
Autodesk believed that the assumptions used in the valuations were reasonable at
the time of the acquisition. Actual revenue results to date have been lower than
forecasted due primarily to the reduced demand for AutoCAD-related products in
fiscal 2000.
Softdesk
On March 31, 1997, Autodesk exchanged 2.9 million shares of its common stock for
all of the outstanding stock of Softdesk, a supplier of AutoCAD-based
applications software for the architecture, engineering, and construction
market. Based on the value of Autodesk stock and options exchanged, the
transaction, including associated costs, was valued at approximately $94.1
million.
Of the $94.1 million purchase price, $19.2 million was allocated to IPR&D and
expensed in fiscal 1998; $9.2 million was allocated to an intangible asset,
purchased technologies; $6.7 million was allocated to other intangible assets;
and $48.0 million was allocated to goodwill.
As of the acquisition date, Softdesk had spent a significant amount of research
and development effort related to the reprogramming of all its existing products
to a new ARX technology (AutoCAD Runtime Extension) code base. The new ARX
technology was expected to provide significant improvement in the orientation of
objects in CAD products. As of the acquisition date, Softdesk had completed
improvements of ARX technology in various development projects associated within
the following technology categories: (1) AutoCAD Architectural/Structural, (2)
AutoCAD Civil, (3) AutoCAD Imaging, (4) AutoCAD maintenance, (5) AutoCAD
Productivity and (6) AutoCAD Retail.
The research and development projects were in varying stages of completion,
ranging from 65 percent to 90 percent complete as of the acquisition date, with
total estimated costs to complete of $1.8 million to reach technological
feasibility at the time. These in-process projects were completed two years ago
at an aggregate amount approximately equal to the original estimated costs to
complete.
In valuing the developed and in-process technologies, Autodesk used a discounted
cash flow analysis based on projected net revenues, cost of revenues, operating
expenses and income taxes over a 7-year period. The projected financial results
were discounted using a 15 percent rate for the developed technology and a 20
percent rate for the in-process technology.
The revenue projections for the developed and in-process technologies were based
on (1) aggregate revenue growth rates for the business as a whole, (2)
individual product revenues, (3) growth rates for the CAD software market, (4)
the aggregate size of the CAD software market, (5) anticipated product
development and introduction schedules, (6) product sales cycles and (7) the
estimated life of a product's underlying technology.
Autodesk believed that the assumptions used in the valuations were reasonable at
the time of the acquisition. Actual results to date, however, have been lower
than forecasted. This shortfall reflects the reduced demand for
16
AutoCAD-related products, competitive factors related to price, difficulties in
developing robust commercial applications in the new ObjectARX environment,
functionality and performance in the architecture, engineering and construction
software industry, particularly in regard to localized building services
applications.
Lightscape Technologies, Inc. ("Lightscape")
On December 2, 1997, Discreet entered into an Agreement and Plan of Merger and
Reorganization with Lightscape, a Delaware corporation. The merger closed on
December 30, 1997. As a result of the merger, Discreet acquired, among other
products, the Lightscape product, a software application which integrates
radiosity and raytracing with physically based lighting, including related
know-how and goodwill. The aggregate purchase consideration of $7.6 million
consisted primarily of $6.4 million of assumed liabilities.
Of the $7.6 million purchase price, $1.7 million was allocated to IPR&D and was
expensed during fiscal 1998; and $4.3 million was allocated to goodwill.
As of the acquisition date, the in-process research and development project
involved next generation Lightscape technology, which was 25 percent complete at
the time with estimated costs to complete of $2.0 million. In valuing the in-
process technology, Discreet used a discounted cash flow analysis based on
projected net revenues, cost of revenues, operating expenses and income taxes
resulting from the project over a 5-year period. The projected financial results
were discounted using a 40 percent rate. The development project has not yet
been completed. Management is currently assessing how the technology will be
integrated with the 3D Studio MAX rendering system.
The revenue projection was based on estimates of relevant market sizes and
growth factors, expected trends in technology and the nature and expected timing
of new product introductions by Discreet and its competitors.
Discreet believed that the assumptions used in valuing the in-process technology
were reasonable at the time of the acquisition. While the next generation
product has been released, actual financial results have been lower than
originally projected due to the following factors: (1) unanticipated delays in
the integration of the Lightscape product into Discreet's corporate branding
initiatives, resulting in a longer than anticipated period of reduced marketing
effort; (2) slow progress in the development of a distribution channel; and (3)
delays in integrating retained Lightscape personnel into Discreet's research and
development and sales and marketing groups. As a result of these factors,
Discreet missed market opportunities and anticipates greater uncertainty
regarding future revenue levels from Lightscape products.
D-Vision
On July 15, 1997, Discreet acquired all of the outstanding shares of capital
stock of D-Vision, an Illinois corporation, pursuant to a Stock Purchase
Agreement. As a result of this acquisition, Discreet acquired the D-Vision
ONLINE and PRO software products for nonlinear video and digital media editing
solutions including related know-how and goodwill. The $27.2 million purchase
price was primarily paid through a combination of 0.2 million newly issued
common shares that had a value of $10.7 million, and approximately $10.8 million
in cash.
Of the $27.2 million purchase price, $5.3 million was allocated to IPR&D and was
expensed during fiscal 1998; $3.1 million was allocated to an intangible asset,
purchased technology; and $16.7 million was allocated to goodwill.
As of the acquisition date, the in-process research and development project
involved next generation D-Vision technology, which was 26 percent complete at
the time with estimated costs to complete of $2.6 million. The development
project was later completed and the product was released in fiscal 2000 at an
aggregate amount approximately equal to the original estimated costs to
complete.
In valuing the acquired D-Vision ONLINE and PRO software products and the
in-process technology, Discreet used a discounted cash flow analysis based on
projected net revenues, cost of revenues, operating expenses and income taxes
resulting from such technologies over a 5-year period. The projected financial
results were discounted using a 20 percent rate for the developed technology and
a 25 percent rate for the in-process technology.
17
The revenue projections for the developed technologies, which considered the
release dates of new products, assumed a gradual decline over the 5-year period.
The revenue projections for the IPR&D were based on expected trends in
technology and the timing of new product introductions by Discreet.
Discreet believed that the assumptions used in the valuations were reasonable at
the time of the acquisition. Actual results to date have been lower than
forecasted. This has been primarily due to the following factors: (1)
unanticipated delays in the integration of the D-Vision product into Discreet's
corporate branding initiatives, resulting in a longer than anticipated period of
reduced marketing effort; (2) slow progress in resolving disputes with
D-Vision's existing resellers and the development of a distribution channel; (3)
following the acquisition, Discreet generated revenues solely from the sale of
D-Vision software and not from the sale of software/hardware bundles (including
D-Vision software and Truevision graphics boards) as originally forecasted; (4)
following the acquisition, Truevision discontinued selling D-Vision software,
however, the forecasts were prepared using the assumption that these sales would
continue; (5) delays in the realization of synergies from fully integrated
products based on the D-Vision technology due to delays in the completion and
integration of this technology; and (6) delays in completing research and
development projects due to changes in technological and market requirements. As
a result of these factors, Discreet missed market opportunities and anticipates
greater uncertainty regarding future revenue levels, than originally forecasted.
Denim Software L.L.C. ("Denim")
On June 12, 1997, Discreet acquired substantially all of the assets and assumed
certain liabilities of Denim pursuant to the terms of an asset purchase
agreement. The purchased assets consisted primarily of Denim software products,
including ILLUMINAIRE Paint, ILLUMINAIRE Composition and ILLUMINAIRE Studio and
related know-how and goodwill. The aggregate purchase price of $12.2 million
consisted primarily of a cash payment of $9.1 million and the assumption of $2.2
million of liabilities.
Of the $12.2 million purchase price, $2.2 million was allocated to IPR&D and was
expensed in fiscal 1998; $1.5 million was allocated to an intangible asset,
purchased technology; and $7.9 million was allocated to goodwill. As of the
acquisition date, the in-process research and development project involved next
generation Denim technology, which was 24 percent complete at the time with an
estimated cost to complete the project of $1.0 million. The project was later
completed and the product was released in fiscal 2000 at an aggregate amount
approximately equal to the original estimated costs to complete.
In valuing the developed and in-process technologies, Discreet used a discounted
cash flow analysis based on projected net revenues, cost of revenues, operating
expenses and income taxes resulting from such technologies over a 5-year period.
The projected financial results were discounted using a 20 percent rate for the
developed technology and a 25 percent rate for the in-process technology.
The revenue projections for the developed technologies, which considered the
release dates of new products, assumed a gradual decline over the 5-year period.
The revenue projections for the IPR&D were based on expected trends in
technology and the timing of new product introductions by Discreet.
Discreet believed that the assumptions used in the valuations were reasonable at
the time of the acquisition. Actual results to date, however, have been lower
than forecasted due to the following factors: (1) unanticipated delays in the
integration of the Denim product into Discreet's corporate branding initiatives,
resulting in a longer than anticipated period of reduced marketing effort; (2)
slow progress in the development of a distribution channel; (3) delays in the
realization of synergies from fully integrated products based on the Denim
technology due to delays in the integration of this technology; and (4) delays
in completing research and development projects due to changes in technological
and market requirements for digital video systems. As a result of these factors,
Discreet missed market opportunities and anticipates greater uncertainty
regarding future revenue levels than originally forecasted.
18
Recently Issued Accounting Standards
Autodesk has until fiscal year 2002 to adopt the provisions of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," or SFAS 133, which was issued in June 1998. This
Statement requires Autodesk to recognize all derivatives on the balance sheet at
fair value. Autodesk is currently evaluating the impact of SFAS 133 on its
financial statements and related disclosures.
During the fourth quarter of fiscal 2000, the Staff of the Securities and
Exchange Commission issued two Staff Accounting Bulletins, involving the
accounting for restructuring charges and revenue recognition. Management
believes that Autodesk's practices and policies are in compliance with the Staff
Accounting Bulletins and that the impact will not have a material effect on
Autodesk's financial position or results of operations.
Liquidity and Capital Resources
Cash, cash equivalents and marketable securities, which consist primarily of
high-quality municipal bonds, tax-advantaged money market instruments and U.S.
Treasury bills, totaled $540.9 million at January 31, 2000, compared to $428.0
million at January 31, 1999. The $112.9 million increase was due primarily to
cash generated from operations ($103.3 million) and cash proceeds from the
issuance of common stock ($165.2 million). This increase was partially offset by
cash used to acquire VISION ($26.0 million), to repurchase shares of Autodesk's
common stock under a program announced in November, 1999 ($90.1 million), to
purchase fixed and other assets ($14.9 million), and to pay dividends ($14.6
million).
In November 1999, management announced a plan to repurchase up to 8.0 million
shares of Autodesk's common stock. The primary purpose of the stock repurchase
program was to help offset the dilution to earnings per share caused by the
issuance of stock under Autodesk's employee stock plans. By January 31, 2000,
Autodesk repurchased and retired 2.9 million shares, which were acquired in the
open market. In addition, during the fourth quarter of fiscal 2000, Autodesk
entered into a series of equity collar (option) contracts with a financial
institution with respect to 1.8 million shares of its common stock. The options,
which expire between June and December 2000, give Autodesk a choice of physical,
cash and net-share settlement methods.
In March 2000, management announced another plan to repurchase up to an
additional 8.0 million shares of Autodesk's common stock.
In April 2000, Autodesk invested $17.5 million in a related company,
Buzzsaw.com, Inc. Autodesk is accounting for this investment under the equity
method of accounting. The impact of Buzzsaw.com's losses in fiscal 2000 was
immaterial.
Autodesk has a U.S. line of credit permitting short-term, unsecured borrowings
of up to $40.0 million, which may be used from time to time to facilitate
short-term cash flow. At January 31, 2000, there were no borrowings outstanding
under this agreement, which expires in January, 2001.
Additionally, Autodesk has a revolving demand line of credit with a bank, under
which it may borrow up to Cdn$5.0 million ($3.5 million at January 31, 2000).
The amount available under the revolving line of credit was reduced by letters
of guarantee totaling Cdn$0.3 million ($0.2 million at January 31, 2000).
Principal commitments at January 31, 2000, consisted of obligations under
operating leases for facilities.
Longer-term cash requirements, other than normal operating expenses, are
anticipated for development of new software products including the incremental
product offerings resulting from the acquisitions of Discreet, Genius, and
VISION and enhancement of existing products; financing anticipated growth;
dividend payments; the share repurchase program; and the acquisition of
businesses, software products, or technologies complementary to Autodesk's
business. Autodesk believes that its existing cash, cash equivalents, marketable
securities, available line of credit, and cash generated from operations will be
sufficient to satisfy its currently anticipated short-term and longer-term cash
requirements.
Risk Factors Which May Impact Future Operating Results
19
Autodesk operates in a rapidly changing environment that involves a number of
risks, many of which are beyond its control. The following discussion highlights
some of these risks and the possible impact of these factors on future results
of operations.
Fluctuations in quarterly operating results. From time to time, Autodesk
experiences fluctuations in its quarterly operations as a result of, among other
things, the timing of the introduction of new products by Autodesk or its
competitors, increases in personnel, marketing or operating expenses, changes in
product pricing or product mix, delays in product, competitive factors and
general economic conditions. During fiscal 2000, Autodesk experienced reduced
sales which Autodesk believes may be attributable to a slowdown of customer
purchases in response to product transition issues relating to the introduction
of AutoCAD 2000 before introduction of current versions of products such as
Mechanical Desktop 4.0 and AutoCAD LT 2000, and to general concerns about Year
2000 problems, in particular diversion of software budgets to Year 2000 testing.
In addition, Autodesk has in the past experienced fluctuations in operating
results in interim periods in certain geographic regions due to seasonality. In
particular, Autodesk's operating results in Europe during the third quarter are
usually impacted by a slow summer period, and the Asia Pacific operations
typically experience seasonal slowing in the third and fourth quarters.
Within Discreet, a limited number of system sales may account for a substantial
percentage of Discreet's quarterly revenue because of the high average sales
price of products and the timing of purchase orders. Historically, Discreet has
generally experienced greater revenues during the period following the
completion of the National Association of Broadcasters trade show, which
typically is held in April. In addition, the timing of revenue is influenced by
other factors, including the timing of individual orders and shipments, other
industry trade shows, competition, seasonal customer buying patterns, changes in
customer buying patterns in response to platform changes and changes in product
development, and sales and marketing expenditures.
Additionally, Autodesk's operating expenses are based in part on its
expectations for future revenues and are relatively fixed in the short term.
Accordingly, any revenue shortfall below expectations could have an immediate
and significant adverse effect on Autodesk's consolidated results of operations
and financial condition.
Shortfalls in Autodesk's revenues or earnings from levels expected by securities
analysts could have an immediate and significant adverse effect on the trading
price of Autodesk's common stock. Moreover, Autodesk's stock price is subject to
the volatility generally associated with technology stocks and may also be
affected by broader market trends unrelated to performance.
Product Concentration. Autodesk derives a substantial portion of its revenues
from sales of AutoCAD software, AutoCAD upgrades, and adjacent products that are
interoperable with AutoCAD. As such, any factor adversely affecting sales of
AutoCAD and AutoCAD upgrades, including product life cycle, market acceptance,
product performance and reliability, reputation, price, competition and the
availability of third-party applications, would likely harm Autodesk's business.
Competition. The software industry has limited barriers to entry, and the
availability of desktop computers with continually expanding capabilities at
progressively lower prices contributes to the ease of market entry. Because of
these and other factors, competitive conditions in the industry are likely to
intensify in the future. Increased competition could result in price reductions,
reduced revenues and profit margins and loss of market share, any of which could
harm Autodesk's business, consolidated results of operations and financial
condition. The design software market in particular is characterized by vigorous
competition in each of the vertical markets in which Autodesk and its individual
market groups compete, both by entry of competitors with innovative technologies
and by consolidation of companies with complementary products and technologies.
Certain of the competitors of Autodesk have greater financial, technical, sales
and marketing and other resources than Autodesk.
Autodesk believes that the principal factors affecting competition in its
markets are product reliability, performance, ease of use, range of useful
features, continuing product enhancements, reputation, price and training. In
addition, the availability of third-party application software is a competitive
factor within the CAD market. Autodesk believes that it competes favorably in
these areas and that its competitive position depends, in part, upon its
continued ability to enhance existing products and to develop and market new
products.
Product Development and Introduction. The software industry is characterized by
rapid technological change as well as changes in customer requirements and
preferences. The software products offered by Autodesk are internally complex,
and despite extensive testing and quality control, may contain errors or
defects. Defects or errors may occur in future releases of AutoCAD or other
software products offered by Autodesk. These defects
20
or errors could result in corrective releases to Autodesk's software products,
damage to Autodesk's reputation, loss of revenues, an increase in product
returns or lack of market acceptance of its products, any of which could harm
Autodesk's business.
Autodesk believes that its future results will depend largely upon its ability
to offer products that compete favorably with respect to reliability,
performance, ease of use, range of useful features, continuing product
enhancements, reputation, price and training. Delays or difficulties may result
in the delay or cancellation of planned development projects and could harm
Autodesk's business. Further, increased competition in the market for design,
drafting, mapping, or multimedia software products could also have a negative
impact on Autodesk's business and consolidated results of operations. More
specifically, gross margins may be adversely affected if sales of low-end CAD
products and AutoCAD upgrades, which historically have had lower margins, grow
at a faster rate than Autodesk's higher-margin products.
The success of the Discreet Segment will depend in part upon Autodesk's ability
to enhance Discreet's existing systems and software and to develop and introduce
new products and features that meet changing customer requirements and emerging
industry standards on a timely basis. To date, Discreet's products have been
purchased primarily by creative professionals for use in production and
postproduction in the film and video industries and computer gaming. In order
for the Discreet Segment to achieve sustained growth, the market for Discreet's
product offerings must continue to develop, and Autodesk must expand this market
to include additional applications within the film and video industries,
broadcast, games and the Internet, and develop new products for use in related
markets. While Autodesk believes that the market recognition that Discreet
achieved through sales of flame*, smoke*, flint*, frost*, inferno*, and fire*
systems to creative professionals will facilitate Autodesk's marketing efforts
in new markets, the Discreet Segment may not be able to successfully develop and
market systems and software for other markets, and, even if it does so, such
systems and software may not be accepted at a rate, and in levels, sufficient to
maintain growth. Further, the distribution channels, technical requirements, and
levels and bases of competition in other markets are different than those in
Discreet's current market, so Discreet may not be able to compete favorably in
those markets.
Some of Autodesk's historical product development activities have been performed
by independent firms and contractors, while other technologies are licensed from
third parties. Autodesk generally either owns or licenses the software developed
by third parties. Because talented development personnel are in high demand,
independent developers, including those who have developed products for Autodesk
in the past, may not be able to provide development support to Autodesk in the
future. Similarly, Autodesk may not be able to obtain and renew license
agreements on favorable terms, if at all, and any failure to do so could harm
Autodesk's business.
Autodesk's business strategy has historically depended in large part on its
relationships with third-party developers, who provide products that expand the
functionality of Autodesk's design software. Some developers may elect to
support other products or otherwise experience disruption in product development
and delivery cycles. This disruption in particular markets could negatively
impact these third-party developers and end users, which could harm Autodesk's
business. Further, increased merger and acquisition activity currently
experienced in the technology industry could affect relationships with other
third-party developers and thus harm operating results.
International Operations. Autodesk anticipates that international operations
will continue to account for a significant portion of its consolidated revenues.
Risks inherent in Autodesk's international operations include the following:
unexpected changes in regulatory practices and tariffs; difficulties in staffing
and managing foreign operations; longer collection cycles for accounts
receivable; potential changes in tax laws; greater difficulty in protecting
intellectual property; and the impact of fluctuating exchange rates between the
U.S. dollar and foreign currencies in markets where Autodesk does business.
Autodesk's risk management strategy uses derivative financial instruments in the
form of forward foreign exchange contracts for the purpose of hedging foreign
currency market exposures of underlying assets, liabilities and other
obligations which exist as a part of its ongoing business operations. Autodesk
does not enter into derivative contracts for the purpose of trading or
speculative transactions. Autodesk's international results may also be impacted
by general economic and political conditions in these foreign markets. These and
other factors may adversely impact Autodesk's future international operations
and consequently on Autodesk's business as a whole.
Dependence on Distribution Channels. Autodesk sells its software products
primarily to distributors and value-added resellers, or VARs. Autodesk's ability
to effectively distribute products depends in part upon the financial and
business condition of its VAR network. Although Autodesk has not recently
experienced any
21
material problems with the financial viability of its VAR network, computer
software resellers and distributors are typically not highly capitalized, have
previously experienced difficulties during times of economic contraction and may
do so in the future. In addition, Autodesk's VAR network may be impacted in the
future by the changing distribution models resulting from the Internet. While no
single customer accounted for more than 10 percent of Autodesk's consolidated
net revenues in fiscal 2000, 1999 or 1998, the loss of or a significant
reduction in business with any one of Autodesk's major international
distributors or large U.S. resellers could harm Autodesk's business.
Product Returns. With the exception of various European distributors, agreements
with Autodesk's VARs do not contain specific product-return privileges. However,
Autodesk permits its VARs to return product in certain instances, generally
during periods of product transition and during update cycles. Management
anticipates that product returns in future periods will continue to be impacted
by product update cycles, new product releases and software quality.
Autodesk establishes reserves, including reserves for stock balancing and
product rotation, based on estimated future returns of product and after taking
into account channel inventory levels, the timing of new product introductions
and other factors. While Autodesk maintains strict measures to monitor channel
inventories and to provide appropriate reserves, actual product returns may
differ from its reserve estimates, and such differences could harm Autodesk's
business.
Intellectual Property. Autodesk relies on a combination of patents, copyright
and trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. Despite such efforts to protect
its proprietary rights, unauthorized parties from time to time have copied
aspects of Autodesk's software products or have obtained and used information
that Autodesk regards as proprietary. Policing unauthorized use of Autodesk's
software products is time-consuming and costly. While Autodesk has received some
revenues resulting from the unauthorized use of its software products, it is
unable to measure the extent to which piracy of its software products exists,
and software piracy can be expected to be a persistent problem. Autodesk's means
of protecting its proprietary rights may not be adequate, and its competitors
may independently develop similar technology. Autodesk expects that software
product developers will be increasingly subject to infringement claims as the
number of products and competitors in its industry segments grows and as the
functionality of products in different industry segments overlaps. Infringement
or invalidity claims (or claims for indemnification resulting from infringement
claims) may be asserted against Autodesk, and any such assertions could harm its
business. Any such claims, whether with or without merit, could be
time-consuming, result in costly litigation and diversion of resources, cause
product shipment delays, or require Autodesk to enter into royalty or licensing
agreements. In addition, such royalty or license agreements, if required, may
not be available on acceptable terms, if at all, which would likely harm
Autodesk's business.
Autodesk also relies on certain software that it licenses from third parties,
including software that is integrated with internally developed software and
used in its products to perform key functions. These third-party software
licenses may not continue to be available on commercially reasonable terms, and
the software may not be appropriately supported, maintained or enhanced by the
licensors. The loss of licenses to, or inability to support, maintain and
enhance any such software could result in increased costs, or in delays or
reductions in product shipments until equivalent software could be developed,
identified, licensed and integrated, which could harm Autodesk's business.
Attraction and Retention of Employees. Autodesk's continued growth and success
depends significantly on the continued service of highly skilled employees.
Competition for these employees in today's marketplace, especially in the
technology industries, is intense. Autodesk's ability to attract and retain
employees is dependent on a number of factors including its continued ability to
grant stock incentive awards. The growth of well-financed Internet start-up
companies, particularly in the San Francisco Bay Area, may negatively impact
Autodesk's ability to recruit new personnel or retain existing personnel. The
loss of key employees or inability to recruit new employees would negatively
impact Autodesk's business. In addition, Autodesk may experience increased
compensation costs to attract and retain skilled personnel.
Impact of Year 2000. Prior to January 1, 2000, Autodesk completed its
remediation and testing of systems for Year 2000 readiness. As a result of those
planning and implementation efforts, Autodesk experienced no significant
disruptions in mission critical information technology or other systems and
believes those systems successfully responded to the Year 2000 date change.
Autodesk expensed $1.3 million during fiscal 2000 in connection with remediating
its systems.
22
Single European Currency. Autodesk is in the process of addressing the issues
raised by the introduction of the Single European Currency ("Euro") as of
January 1, 1999 and during the transition period ending January 1, 2002.
Autodesk will continue to modify the internal systems that will be affected by
this conversion during fiscal 2001, and does not expect the costs of further
system modifications to be material. Autodesk may not be able to complete such
modifications to comply with Euro requirements, which could harm Autodesk's
business. Autodesk is currently evaluating the impact of the introduction of the
Euro on its foreign exchange activities, functional currency designations, and
pricing strategies in the new economic environment. In addition Autodesk faces
risks to the extent that banks and vendors upon whom Autodesk relies and their
suppliers are unable to make appropriate modifications to support Autodesk's
operations with respect to Euro transactions. While Autodesk may continue to
evaluate the impact of the Euro, management does not believe its introduction
will harm Autodesk's business.
Risks Associated with Acquisitions and Investments. Autodesk periodically
acquires or invests in businesses, software products and technologies that are
complementary to Autodesk's business through strategic alliances, debt and
equity investments, and the like. The risks associated with such acquisitions or
investments include, among others, the difficulty of assimilating the operations
and personnel of the companies, the failure to realize anticipated synergies,
and the diversion of management's time and attention. In addition, such
investments and acquisitions may involve significant transaction-related costs.
Autodesk may not be successful in overcoming such risks and such investments and
acquisitions may negatively impact Autodesk's business. In addition, such
investments and acquisitions may contribute to potential fluctuations in
quarterly results of operations due to merger-related costs and charges
associated with eliminating redundant expenses or write-offs of impaired assets
recorded in connection with acquisitions, any of which could negatively impact
results of operations for a given period or cause lack of linearity quarter to
quarter in Autodesk's operating results and financial condition.
Autodesk acquired Discreet with the expectation that the acquisition would
result in beneficial synergies. The failure to achieve such synergies would
likely harm Autodesk's business. The future financial performance of the
Discreet division will depend in part on the successful development,
introduction, and customer acceptance of existing and new or enhanced products.
In addition, for Discreet to achieve sustained growth, the market for its
systems and software must continue to develop, and Autodesk must expand this
market to include additional applications within the film and video industries
and Internet-related businesses and develop or acquire new products for use in
related markets. Autodesk may not be successful in marketing its existing or new
or enhanced products. In addition, as Autodesk enters new markets, distribution
channels, technical requirements and competition may be different from those in
Autodesk's current markets, and Autodesk may not be able to compete favorably.
Autodesk periodically makes investments in related Internet entities, such as
Buzzsaw.com, Inc., which typically do not expect to earn significant revenues in
the initial period of operations and which incur considerable start-up costs.
Such investments may negatively impact Autodesk's results of operations and
financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign currency exchange risk
Autodesk's earnings and cash flows are subject to fluctuations due to changes in
foreign currency exchange rates. Autodesk's risk management strategy utilizes
forward foreign exchange contracts to manage its exposures of underlying assets,
liabilities, and other obligations which exist as part of its ongoing business
operations. Contracts are primarily denominated in Euro dollars, Swiss francs,
Canadian dollars, British pounds and Japanese yen. Autodesk does not enter into
any foreign exchange derivative instruments for speculative purposes.
A sensitivity analysis was performed on Autodesk's hedging portfolio as of
January 31, 2000. This analysis indicated that a hypothetical 10 percent
appreciation of the U.S. dollar from January 31, 2000 market rates would
increase the fair value of Autodesk's forward contracts by $3.8 million.
Conversely, a hypothetical 10 percent depreciation of the dollar from January
31, 2000 market rates would decrease the fair value of Autodesk's forward
contracts by $3.8 million. Autodesk does not anticipate any material adverse
impact to its consolidated financial position, results of operations or cash
flows as a result of these forward foreign exchange contracts.
23
Interest rate sensitivity
Autodesk had an investment portfolio of fixed income securities, including those
classified as security deposits, of $432.2 million at January 31, 2000. These
securities are subject to interest rate fluctuations and will decrease in market
value if interest rates increase.
A sensitivity analysis was performed on Autodesk's investment portfolio as of
January 31, 2000. This sensitivity analysis is 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
over 6-month and 12-month time horizons. For the 6-month time horizon the market
value changes for a 50, 100, or 150 basis point increase were ($1.9) million,
($4.1) million and ($6.2) million, respectively. For the 12-month time horizon
the market value changes for a 50, 100 or 150 basis point increase were ($1.6)
million, ($3.3) million and ($5.0) million, respectively
Autodesk does not use derivative financial instruments in its investment
portfolio to manage interest rate risk. Autodesk places its investments in
instruments that meet high credit quality standards, as specified in its
investment policy guidelines, which limits the amount of credit exposure to any
one issue, issuer or type of instrument.
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AUTODESK, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
Fiscal year ended January 31,
-----------------------------------------
2000 1999 1998
---------- ---------- -----------
Net revenues $820,182 $ 871,879 $ 768,684
---------- ----------- ---------
Costs and expenses:
Cost of revenues 143,871 134,247 133,371
Marketing and sales 312,124 295,890 271,428
Research and development 163,985 157,080 136,816
General and administrative 134,066 112,770 83,713
Amortization of goodwill and
purchased intangibles 30,625 28,716 21,957
Nonrecurring charges 34,748 19,694 26,810
Litigation accrual reversal -- (18,605) (405)
---------- ---------- ----------
819,419 729,792 673,690
---------- ---------- ----------
Income from operations 763 142,087 94,994
Interest and other income, net 23,157 17,134 11,710
---------- ---------- ----------
Income before income taxes 23,920 159,221 106,704
Provision for income taxes 14,112 62,089 50,489
---------- ---------- ----------
Net income $ 9,808 $ 97,132 $ 56,215
========== ========== ==========
Basic net income per share $ 0.16 $ 1.72 $ 1.00
========== ========== ==========
Diluted net income per share $ 0.16 $ 1.64 $ 0.94
========== ========== ==========
Shares used in computing basic net
income per share 60,328 56,394 56,340
========== ========== ==========
Shares used in computing diluted net
income per share 61,406 59,141 60,022
========== ========== ==========
See accompanying notes.
25
AUTODESK, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
(in thousands)
January 31, 2000 January 31, 1999
---------------- ----------------
Current assets:
Cash and cash equivalents $ 108,641 $ 258,941
Marketable securities 250,290 102,756
Accounts receivable, net of allowance for doubtful 110,839
accounts of $10,652 ($10,642 in 1999) 114,901
Inventories 19,264 23,169
Deferred income taxes 27,670 20,323
Prepaid expenses and other current assets 28,555 24,325
--------------- -------------
Total current assets 545,259 544,415
--------------- -------------
Marketable securities 181,992 66,265
Computer equipment, furniture and leasehold
improvements, at cost:
Computer equipment and furniture 142,528 140,513
Leasehold improvements 22,723 24,767
Less accumulated depreciation (123,367) (116,625)
---------------- -------------
Net computer equipment, furniture and leasehold
improvements 41,884 48,655
Purchased technologies and capitalized software, net of
accumulated amortization of $68,620 ($48,961 in 1999) 29,029 40,630
Goodwill, net 75,489 85,546
Deferred income taxes 27,818 12,147
Other assets 5,855 25,602
--------------- -------------
$ 907,326 $ 823,260
=============== =============
See accompanying notes.
26
AUTODESK, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(in thousands, except per share data)
January 31, 2000 January 31, 1999
---------------- ----------------
Current liabilities:
Accounts payable $ 45,310 $ 49,053
Accrued compensation 50,448 49,592
Accrued income taxes 88,006 96,731
Deferred revenues 33,604 24,833
Other accrued liabilities 82,024 58,905
------------ --------------
Total current liabilities 299,392 279,114
------------ --------------
Deferred income taxes 4,380 3,333
Other liabilities 1,255 3,486
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value; 250,000 shares
authorized; 59,241 and 57,221 shares outstanding at
January 31, 2000 and 1999, respectively 561,814 470,801
Accumulated other comprehensive loss (14,822) (14,132)
Deferred compensation (1,338) (551)
Retained earnings 56,645 81,209
------------- --------------
Total stockholders' equity 602,299 537,327
------------- --------------
$ 907,326 $ 823,260
============= ==============
See accompanying notes.
27
AUTODESK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Fiscal year ended January 31,
-----------------------------------------------
2000 1999 1998
----------- -------------- -------------
Operating activities
Net income $ 9,808 $ 97,132 $ 56,215
Adjustments to reconcile net income to net cash provided by operating
activities:
Charge for acquired in-process research and development 4,170 13,100 29,102
Depreciation and amortization 79,748 80,782 66,331
Litigation and related interest accrual reversal -- (20,900) --
Reversal of restructuring reserve, net (1,630) (1,504) (1,504)
Net gain on disposition of business unit -- (1,307) --
Net gain on sale of investment -- (2,500) (2,500)
Loss on investment 4,776 -- --
Write-off of assets for restructuring -- -- 610
Net loss on fixed asset disposals 5,894 4,032 --
Changes in operating assets and liabilities, net of business combinations:
Settlement of class action litigation -- -- (10,800)
Insurance proceeds related to class action litigation -- -- 3,459
Accounts receivable 4,985 (24,486) 4,503
Inventories 1,980 (872) 3,913
Deferred income taxes (21,264) 11,940 (7,177)
Prepaid expenses and other current assets (4,167) (4,604) 1,266
Accounts payable and accrued liabilities 27,403 7,181 25,888
Accrued income taxes (8,418) 14,559 6,413
-------- --------- ---------
Net cash provided by operating activities 103,285 172,533 175,719
-------- --------- ---------
28
AUTODESK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(in thousands)
2000 1999 1998
------------ ----------- -------------
Investing activities
Purchases of available-for-sale marketable securities (3,791,568) (838,591) (1,102,015)
Maturities of available-for-sale marketable securities 3,528,305 874,800 1,126,174
Business combinations, net of cash acquired (26,596) (69,279) (16,108)
Capital and other expenditures (14,932) (42,809) (24,538)
Proceeds from disposition of fixed assets 5,587 2,719 818
Proceeds from disposition of business unit - 5,137 -
Proceeds from sale of investment - 2,500 2,500
Purchases of software technologies and capitalization of
software development costs (5,150) (5,979) (19,833)
Acquisition of other assets - (7,537) -
--------------- ------------- --------------
Net cash used in investing activities (304,354) (79,039) (33,002)
--------------- ------------- --------------
Financing activities
Proceeds from issuance of common stock, net of issuance costs 165,222 106,431 95,247
Repurchase of common stock (90,072) (48,866) (174,907)
Dividends paid (14,581) (11,722) (11,290)
(Decrease) increase in credit line (1,921) 2,643 2,713
Notes payable and borrowings (repayments) (704) 1,828 -
--------------- ------------- -------------
Net cash provided by (used in) financing activities 57,944 50,314 (88,237)
--------------- ------------- -------------
Effect of exchange rate changes on cash and cash equivalents (7,495) 6,375 (8,414)
Adjustment to conform fiscal year of Discreet Logic 320 (33,810) -
--------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents (150,300) 116,393 46,066
Cash and cash equivalents at beginning of year 258,941 142,548 96,482
--------------- ------------- ------------
Cash and cash equivalents at end of period $ 108,641 $ 258,941 $ 142,548
=============== ============= ============
Supplemental noncash information:
Common stock received in relation to the equity collar $ - $ 4,265 $ -
=============== ============= =============
Common stock issued in connection with the acquisition of
Softdesk $ - $ - $ 92,021
=============== ============= =============
See accompanying notes.
29
AUTODESK, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
Accumulated
Common stock other Total
---------------------
Comprehensive comprehensive Deferred Retained stockholders'
Shares Amount income income compensation earnings equity
--------- ---------- --------------- ------------------------------------- ------------
Balances, January 31, 1997 54,387 $ 228,167 $ (10,663) $ (674) $ 71,165 $ 287,995
Common shares issued under stock
option and stock purchase plans 2,889 65,490 65,490
Tax effect of stock options 16,230 16,230
Grant of compensatory stock options 836 (836)
Compensation expense related to
stock options 603 603
Reclassification of put warrants 9,870 54,630 64,500
Shares issued in connection with
acquisitions 3,083 102,670 102,670
Shares issued to Intel,
net-Discreet Logic 213 13,527 13,527
Comprehensive income:
Net income $56,215 56,215 56,215
Other comprehensive loss, net
of tax:
Unrealized gains on available-
for-sale securities, net of 362 362
reclassification adjustments
Foreign currency translation
adjustment (9,801) (9,801)
--------
Other comprehensive loss (9,439) (9,439)
--------
Comprehensive income $ 46,776
Dividends paid (11,290) (11,290)
Repurchase of common shares (5,333) (29,726) (145,181) (174,907)
------- ---------- ------------------------------------- ----------
Balances, January 31, 1998 55,239 407,064 (20,102) (907) 25,539 411,594
Common shares issued under stock 3,224 76,550 76,550
option and stock purchase plans
Tax effect of stock options 15,469 15,469
Cancellation of compensatory
stock options (25) 25
Compensation expense related to
stock options 331 331
Comprehensive income:
Net income $97,132 97,132 97,132
Other comprehensive income, net
of tax:
Unrealized gains on available-
for-sale securities, net of 198 198
reclassification adjustments
Foreign currency translation
adjustment 5,772 5,772
---------
Other comprehensive income 5,970 5,970
---------
Comprehensive income $ 103,102
Adjustment to conform fiscal
year of Discreet Logic (9,131) (9,131)
Dividends paid (11,722) (11,722)
Repurchase of common shares (1,242) (28,257) (20,609) (48,866)
------- ---------- ------------------------------------- ----------
Balances, January 31, 1999 57,221 470,801 (14,132) (551) 81,209 537,327
30
AUTODESK, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Continued)
(In thousands)
Accumulated
Common stock other Total
---------------------
Comprehensive comprehensive Deferred Retained stockholders'
Shares Amount income income compensation earnings equity
---------- ---------- --------------- ------------------------------------- ------------
Balances, January 31, 1999 57,221 $ 470,801 $ (14,132) $ (551) $ 81,209 $ 537,327
Common shares issued under stock
option and stock purchase plans 1,915 42,819 42,819
Tax effect of stock options 4,642 4,642
Shares issued 3,000 117,467 117,467
Compensation expense related to
stock options 1,400 (787) 613
Comprehensive income:
Net income 9,808 9,808 9,808
Other comprehensive income, net
of tax:
Unrealized gains on
available-for-sale securities,
net of reclassification adjustments (2,145)
Foreign currency translation
adjustment 1,455
---------
Other comprehensive income (690) (690) (690)
---------
Comprehensive income $ 9,118
Adjustment to conform fiscal year
of Discreet Logic (5,034) (5,034)
Dividends paid (14,581) (14,581)
Repurchase of common shares (2,895) (75,315) (14,757) (90,072)
------- ---------- ------------------------------------- ----------
Balances, January 31, 2000 59,241 $ 561,814 $ (14,822) $ (1,338) $ 56,645 $ 602,299
======= ========== ===================================== ==========
See accompanying notes.
31
AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2000
Note 1. Autodesk and Summary of Significant Accounting Policies
Autodesk and Basis of Presentation
Autodesk, Inc. ("Autodesk") is the world's leading supplier of PC and web design
software and digital content creation tools.
On March 16, 1999, Autodesk acquired Discreet Logic Inc. ("Discreet") by issuing
approximately 10.0 million shares of Autodesk common stock in exchange for
Discreet's outstanding common stock. Discreet develops, assembles, markets and
supports nonlinear digital systems and software for creating, editing and
compositing imagery for film, video and HDTV.
Autodesk accounted for this acquisition under the pooling of interests method.
Accordingly, all prior period consolidated financial statements presented have
been restated to include the combined results of operations, financial position
and cash flows as though Discreet had always been part of Autodesk. Separate
results of the combined entities for the three months ended April 30, 1999 and
the fiscal years ended January 31, 1999 and 1998 are as follows:
(In millions)
Three months
ended
April 30, 1999
(unaudited) 1999 1998
----------- ---- ----
Net revenues:
Autodesk $ 170.0 $ 740.2 $ 617.1
Discreet 24.9 131.7 151.6
-------- -------- --------
$ 194.9 $ 871.9 $ 768.7
======== ======== ========
Net income (loss):
Autodesk $ (7.3) $ 90.6 $ 45.2
Discreet (9.8) 6.5 11.0
-------- -------- --------
$ (17.1) $ 97.1 $ 56.2
======== ======== ========
Prior to the acquisition, Discreet's fiscal year ended on June 30. As a result
of differing year-ends, Autodesk's consolidated statements of operations,
stockholders' equity and cash flows for the fiscal years ended January 31, 1999
and 1998 were combined with Discreet's financial statements for the twelve
months ended December 31, 1998 and the fiscal year ended June 30, 1998,
respectively. As such, Discreet's operating results for the period from January
1, 1998 to June 30, 1998 were duplicated in the accompanying consolidated
statement of operations for the year ended January 31, 1999 and 1998. Discreet's
net revenues and net income for this six-month period were $75.9 million and
$9.1 million, respectively. The net income was recorded as an adjustment to
retained earnings during fiscal 1999.
Additionally, Discreet's January 1999 results have been excluded from the
accompanying statements of operations as a result of changing Discreet's
year-end to January 31. In January 1999, Discreet recognized net revenues of
$3.8 million and incurred a net loss of $5.0 million. The loss was recorded as
an adjustment to retained earnings during fiscal 2000.
On April 22, 1999, in an acquisition accounted for under the purchase method of
accounting, Autodesk acquired VISION* Solutions ("VISION") from MCI Systemhouse
Corporation, a subsidiary of MCI WorldCom Inc. Accordingly, VISION's operating
results, which are not material in relation to those of Autodesk, have been
included in Autodesk's consolidated financial statements since the date of
acquisition.
Principles of Consolidation
32
The accompanying consolidated financial statements include the accounts of
Autodesk and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain reclassifications have been made to
the fiscal 1999 and 1998 consolidated financial statements to conform to the
fiscal 2000 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in Autodesk's consolidated financial statements and
notes thereto. Actual results could differ materially from those estimates.
Foreign Currency Translation
The assets and liabilities of 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
reflected as a separate component of stockholders' equity. Gains and losses
resulting from foreign currency transactions are included in interest and other
income.
Forward Foreign Exchange Contracts ("Forwards")
Autodesk hedges a portion of its exposure in certain receivables and payables
denominated in foreign currencies using forwards in European and Asian
currencies. Gains and losses associated with exchange rate fluctuations on
forwards are recorded in interest and other income and offset corresponding
gains and losses on the assets and liabilities being hedged. The costs of
forwards are amortized on a straight-line basis over the life of the contract as
interest and other income.
Cash and Cash Equivalents
Autodesk considers all highly liquid investments with insignificant interest
rate risk and original maturities of three months or less to be cash
equivalents. Cash equivalents are recorded at cost, which approximates fair
value.
Marketable Securities
Marketable securities are stated at fair value. Marketable securities maturing
within one year that are not restricted are classified as current assets.
Autodesk determines the appropriate classification of its marketable securities
at the time of purchase and reevaluates such classification as of each balance
sheet date. Autodesk has classified all of its marketable securities as
available-for-sale and carries such securities at fair value, with unrealized
gains and losses, net of tax, reported in stockholders' equity until
disposition.
Concentration of Credit Risk
Autodesk places its cash, cash equivalents and marketable securities with and in
the custody of financial institutions with high credit standing and, by policy,
limits the amounts invested with any one institution, type of security and
issuer.
Autodesk's accounts receivable are derived from software sales to a large number
of resellers and distributors in the Americas, Europe and the Asia Pacific
region. Autodesk performs ongoing evaluations of its customers' financial
condition and limits the amount of credit extended when deemed necessary, but
generally requires no collateral. No single customer accounted for more than 10
percent of consolidated net revenues in fiscal 2000, 1999 or 1998.
Inventories
33
Inventories, consisting principally of disks, compact disks (CDs), user manuals
and hardware purchased for resale are stated at the lower of cost (determined on
the first-in, first-out method) or market.
Computer Equipment, Furniture and Leasehold Improvements
Computer equipment and furniture are depreciated using the straight-line and
declining balance methods over the estimated useful lives of the assets, which
range from two to five years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the estimated useful life or the lease
term. Depreciation expense was $30.2 million, $33.0 million and $29.9 million,
in fiscal 2000, 1999 and 1998, respectively.
Purchased Technologies and Capitalized Software
Costs incurred in the initial design phase of software development are expensed
as incurred. Once the point of technological feasibility is reached, production
costs (programming and testing) are capitalized. Certain acquired
software-technology rights are also capitalized. Capitalized software costs are
amortized ratably, as revenues are recognized, but not less than on a
straight-line basis over two- to seven-year periods. Amortization expense, which
is included as a component of cost of revenues, was $18.9 million, $19.1 million
and $14.4 million in fiscal 2000, 1999 and 1998, respectively. The actual lives
of Autodesk's purchased technologies or capitalized software may differ from
management's estimates, and such differences could cause carrying amounts of
these assets to be reduced materially.
Other Intangible Assets
Amortization of purchased intangibles and goodwill is provided on a
straight-line basis over the respective useful lives of the assets, which range
from three to ten years. Accumulated amortization was $91.9 million, $60.9
million and $39.6 million in fiscal 2000, 1999 and 1998, respectively.
As circumstances dictate, Autodesk assesses the recoverability of its other
intangible assets by comparing the undiscounted net cash flows associated with
such assets against their respective carrying values. Impairment, if any, is
based on the excess of the carrying value over the fair value.
Employee Stock Compensation
As permitted by Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), Autodesk measures
compensation expense for its stock-based employee compensation plans using the
intrinsic method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). In accordance with SFAS
123, Autodesk has provided in Note 8 the pro forma disclosures of the effect on
net income and earnings per share if SFAS 123 had been applied in measuring
compensation expense for all periods presented.
Revenue Recognition
Autodesk's revenue recognition policy is in compliance with the provisions of
the American Institute of Certified Public Accountants' Statement of Position
97-2, "Software Revenue Recognition" ("SOP 97-2"), as amended by Statement of
Position 98-4 ("SOP 98-4"). Revenue from software licenses and the related
hardware and peripherals is recognized at the time of shipment, provided that no
significant vendor obligations exist and collection of the resulting receivable
is deemed probable. Revenues related to customer consulting and training are
recognized as the services are performed. Revenue from post contract customer
support and other related services is recognized ratably as the obligations are
fulfilled, or when the related services are performed.
With the exception of certain European distributors, agreements with Autodesk's
value-added resellers ("VARs") do not contain specific product-return
privileges. However, Autodesk permits its VARs to return product in certain
instances, generally during periods of product transition and during update
cycles.
Autodesk establishes allowances for product returns, including allowances for
stock balancing and product rotation, based on estimated future returns of
product and after taking into consideration channel inventory levels at its
resellers, the timing of new product introductions and other factors. These
allowances are recorded
34
as direct reductions of revenue and accounts receivable. While Autodesk
maintains strict measures to monitor channel inventories and to provide
appropriate allowances, actual product returns may differ from Autodesk's
estimates, and such differences could be material to the consolidated financial
statements.
Advertising Expenses
Advertising costs are expensed the first time the advertising takes place. Total
advertising expenses incurred were $18.3 million, $13.1 million and $14.4
million during fiscal 2000, 1999 and 1998, respectively.
Recently Issued Accounting Standards
Autodesk has until fiscal year 2002 to adopt the provisions of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which was issued in June 1998. This
Statement requires Autodesk to recognize all derivatives on the balance sheet at
fair value. Autodesk is currently evaluating the impact of SFAS 133 on its
financial statements and related disclosures.
During the fourth quarter of fiscal 2000, the Staff of the Securities and
Exchange Commission issued two Staff Accounting Bulletins, involving the
accounting for restructuring charges and revenue recognition. Management
believes that Autodesk's practices and policies are in compliance with the Staff
Accounting Bulletins and that the impact will not have a material impact on
Autodesk's financial position or results of operations.
Note 2. Net Income Per Share
Basic net income per share is calculated using the weighted average number of
common shares outstanding. Diluted net income per share is computed using the
weighted average number of common shares outstanding and the dilutive common
stock equivalents outstanding during the period. A reconciliation of the
numerators and denominators used in the basic and diluted net income per share
amounts follows:
(In thousands) Year ended January 31,
----------------------
2000 1999 1998
---- ---- ----
Numerator:
Numerator for basic and diluted net income per share--net income $ 9,808 $ 97,132 $ 56,215
======= ======== ========
Denominator:
Denominator for basic net income per share--weighted average
shares 60,328 56,394 56,340
Effect of dilutive common stock options 1,078 2,747 3,682
------- -------- -------
Denominator for diluted net income per share 61,406 59,141 60,022
======= ======== =======
For fiscal 2000, 1999 and 1998, options to purchase 8.3 million, 3.2 million and
1.9 million shares, respectively, have been excluded from the computation of
diluted net income per share. Such options were excluded because the options had
exercise prices greater than the average market prices of common stock during
the respective periods, and, therefore were anti-dilutive.
Note 3. 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:
35
(In thousands) January 31, 2000 January 31, 1999
---------------- ----------------
Cost Fair value Cost Fair value
-------------- -------------- --------------- ---------------
Cash and cash equivalents $ 108,641 $ 108,641 $ 258,941 $ 258,941
Marketable securities 434,296 432,282 167,846 169,021
Forward foreign currency contracts 8 8 (80) (80)
Forwards
Autodesk utilizes forwards to reduce its foreign exchange rate risk. The
forwards, which have average maturities of 60 days or less, are used to hedge
material foreign currency denominated receivables and payables. They are not
used for trading or speculative purposes. Forwards are marked-to-market at the
end of each 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 $37.6 million and $31.2
million at January 31, 2000 and 1999, respectively. 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. Gains
resulting from foreign currency transactions were not material in fiscal 2000,
1999 and 1998.
Marketable Securities
Marketable securities include the following available-for-sale securities at
January 31, 2000 and 1999:
(In thousands) January 31, 2000
----------------
Cost Gross unrealized Gross unrealized Estimated fair
---- ---------------- ---------------- --------------
gains losses value
----- ------ -----
Short-term:
Municipal Bonds $ 138,084 $ 87 $ (3) $ 138,168
Preferred Stock 37,200 -- -- 37,200
Money Market 60,945 -- -- 60,945
Agency
Securities 13,996 -- (19) 13,977
--------------- --------------- --------------- ---------------
250,225 87 (22) 250,290
--------------- --------------- --------------- ---------------
Long-term:
Municipal Bonds 165,663 -- (1,997) 163,666
Treasury Notes 7,991 -- -- 7,991
Corporate Bonds 1,500 -- -- 1,500
Asset Backed
Securities 2,003 -- -- 2,003
Agency
Securities 6,914 -- (82) 6,832
--------------- --------------- --------------- ---------------
184,071 -- (2,079) 181,992
--------------- --------------- --------------- ---------------
$ 434,296 $ 87 $ (2,101) $ 432,282
=============== =============== =============== ===============
36
(In thousands) January 31, 1999
----------------
Cost Gross unrealized Gross unrealized
---- ---------------- ----------------
gains losses Estimated fair value
----- ------ --------------------
Short-term:
Municipal Bonds $ 90,655 $ 157 $ -- $ 90,812
Preferred Stock 10,000 -- -- 10,000
Treasury Bills 1,944 -- -- 1,944
--------------- --------------- --------------- ---------------
102,599 157 -- 102,756
Long-term:
Municipal Bonds 65,247 1,018 -- 66,265
--------------- --------------- --------------- ---------------
$ 167,846 $ 1,175 $ -- $ 169,021
=============== =============== =============== ===============
The contractual maturities of Autodesk's long-term marketable securities at
January 31, 2000 were as follows: $43.6 million between one and two years; $59.0
million maturing in three years; $70.3 million maturing in four to five years;
and $9.1 million beyond five years. Expected maturities may differ from
contractual maturities because the issuers of the securities may have the right
to prepay or call obligations without prepayment penalties. Realized gains and
losses on available-for-sale securities were immaterial in fiscal 2000, 1999 and
1998. The cost of securities sold is based on the specific identification
method.
Note 4. Income Taxes
The provision for income taxes consists of the following:
(In thousands) Fiscal year ended January 31,
-----------------------------
2000 1999 1998
---- ---- ----
Federal:
Current $ 17,059 $ 30,708 $ 33,361
Deferred (13,027) 7,773 (7,385)
State:
Current 2,068 3,627 6,043
Deferred (1,393) 1,229 (1,245)
Foreign:
Current 14,946 17,029 19,106
Deferred (5,541) 1,723 609
-------- -------- --------
$ 14,112 $ 62,089 $ 50,489
======== ======== ========
The principal reasons that the aggregate income tax provisions differ from the
U.S. statutory rate are as follows:
37
(In thousands) Fiscal year ended January 31,
-----------------------------
2000 1999 1998
---- ---- ----
Income tax provision at statutory rate $ 8,372 $ 55,727 $ 37,346
Foreign income taxed at rates different from the U.S. (2,679) (1,994) 528
statutory rate
State income taxes, net of federal benefit 576 3,041 2,727
Tax-exempt interest (3,165) (2,087) (2,031)
Acquired in-process research and development 645 3,973 9,348
Goodwill amortization 5,945 7,478 6,724
Effect of not benefiting foreign subsidiaries tax losses -- 2,304 1,599
Utilization of net operating losses not previously benefited -- (3,786) (4,839)
Research and development tax credit benefit (2,438) (2,521) (1,802)
Non-deductible acquisition costs 6,473 -- --
Other 383 (46) 889
-------- -------- --------
$ 14,112 $ 62,089 $ 50,489
======== ======== ========
38
Significant components of Autodesk's deferred tax assets and liabilities are as
follows:
(In thousands) January 31,
---------
2000 1999
---- ----
Purchased technology and capitalized software $ 10,880 $ 13,580
Reserves for product returns and bad debts 9,359 6,902
Tax loss carryforwards 5,720 5,676
Accrued compensation and benefits 4,966 4,705
Fixed assets 9,371 3,249
Accrued state income taxes 331 410
Research and development credit carryforwards 11,325 --
Inventory reserves 1,319 1,039
Other accruals not currently deductible for tax 8,947 4,775
Other 4,945 6,050
-------- --------
Total deferred tax assets 67,163 46,386
Less: Valuation allowance (10,037) (11,231)
-------- --------
Net deferred tax assets 57,126 35,155
-------- --------
Unremitted earnings of foreign subsidiaries (6,018) (6,018)
-------- --------
Total deferred tax liability (6,018) (6,018)
-------- --------
Net deferred tax assets $51,108 $ 29,137
======== ========
The tax benefit associated with dispositions from employee stock plans reduced
taxes currently payable for fiscal 2000, 1999 and 1998 by $4.6 million, $15.5
million and $16.2 million, respectively. No provision has been made for federal
income taxes on unremitted earnings of certain of Autodesk's foreign
subsidiaries (cumulative $266.0 million at January 31, 2000) because Autodesk
plans to reinvest all such earnings for the foreseeable future. At January 31,
2000, the unrecognized deferred tax liability for these earnings was
approximately $77.0 million. Foreign pretax income was $16.6 million, $110.1
million and $57.5 million, in fiscal 2000, 1999 and 1998, respectively. The
valuation allowance decreased by $1.2 million and increased by $2.8 million in
fiscal 2000 and 1999, respectively.
Autodesk's U.S. income tax returns for the fiscal years ended January 31, 1992
through 1996, have been examined by the Internal Revenue Service ("IRS"). On
August 27, 1997, the IRS issued a Notice for Deficiency proposing increases to
the amount of Autodesk's federal income taxes for fiscal years 1992 and 1993. On
November 25, 1997, Autodesk filed a petition with the United States Tax Court to
contest these alleged tax deficiencies. In July 1999, Autodesk made tax payments
with respect to all issues addressed as part of the IRS audit. As a result,
Autodesk has either resolved all matters or made prepayments with respect to
remaining outstanding issues for the tax years ended January 31, 1992 through
1996. The resolution of any remaining adjustments that may ultimately result
from these examinations are not expected to have a material adverse impact on
Autodesk's consolidated results of operations or its financial position.
Cash payments for income taxes were approximately $37.6 million, $20.9 million
and $35.8 million for fiscal 2000, 1999 and 1998, respectively.
Autodesk has $17.5 million of cumulative tax loss carryforwards, which may be
available to reduce future income tax liabilities in certain jurisdictions. The
tax loss carryforwards will expire beginning January 31, 2007. Autodesk has
recorded a valuation allowance against certain deferred tax assets including the
tax benefit of these tax loss carryforwards due to the uncertainty of their
realizability.
Autodesk has $11.3 million of cumulative research tax credit carryforwards,
which may be available to reduce future income tax liabilities in the U.S. The
credit carryforwards will expire beginning January 31, 2019.
Note 5. Borrowing Arrangements
Autodesk has a U.S. line of credit permitting short-term, unsecured borrowings
of up to $40.0 million, which may be used from time to time to facilitate
short-term cash flow. At January 31, 2000, there were no borrowings outstanding
under this agreement, which expires in January 2001.
39
Additionally, Autodesk has a revolving demand line of credit with a bank, under
which it may borrow up to Cdn$5.0 million (U.S.$3.5 million at January 31,
2000). The amount available under the revolving line of credit was reduced by
letters of guarantee totaling Cdn$0.3 million (U.S.$0.2 million at January 31,
2000).
Note 6. Commitments and Contingencies
Autodesk leases office space and equipment under noncancelable operating lease
agreements. The leases generally provide that Autodesk pay taxes, insurance and
maintenance expenses related to the leased assets. Future minimum lease payments
for fiscal years ended January 31 are as follows: $24.1 million in 2001; $17.1
million in 2002; $13.4 million in 2003; $10.0 million in 2004; $8.8 million in
2005; and $21.1 million thereafter.
Rent expense was $30.2 million, $25.7 million and $19.7 million in fiscal 2000,
1999 and 1998, respectively.
Autodesk is a party to various legal proceedings arising from the normal course
of business activities. In management's opinion, resolution of these matters is
not expected to have a material adverse impact on Autodesk's consolidated
results of operations or its financial position. However, depending on the
amount and timing, an unfavorable resolution of a matter could materially affect
Autodesk's future results of operations or cash flows in a particular period.
Note 7. Stockholders' Equity
Preferred Stock
Under Autodesk's Certificate of Incorporation, 2.0 million shares of preferred
stock are authorized. At January 31, 2000, there were no preferred shares issued
or outstanding. The Board of Directors has the authority to issue the preferred
stock in one or more series and to fix rights, preferences, privileges and
restrictions, including dividends, and the number of shares constituting any
series or the designation of such series, without any further vote or action by
the stockholders.
Common Stock Repurchase Programs
During fiscal years 2000, 1999 and 1998, Autodesk repurchased and retired a
total of 2.9 million, 1.2 million and 5.3 million shares of its common stock at
average repurchase prices of $31.11, $39.34 and $32.80, respectively. The
primary purpose of the stock repurchase programs was to help offset the dilution
to earnings per share caused by the issuance of stock under Autodesk's employee
stock plans.
In November, 1999, Autodesk announced a plan to repurchase up to 8.0 million
shares of Autodesk's common stock. The number of shares acquired and the timing
of the purchases are based on several factors, including general market
conditions and the trading price of Autodesk common stock. By January 31, 2000,
Autodesk repurchased and retired 2.9 million shares, which were acquired in the
open market. In addition, during the fourth quarter of fiscal 2000, Autodesk
entered into a series of equity collar contracts with a financial institution
with respect to 1.8 million shares of its common stock by selling put options
(which entitle the holder of the option to sell shares to Autodesk at a
specified price) and purchasing call options (which entitle Autodesk to purchase
shares of common stock from the seller of the option at a specified price).
There was no exchange of cash in placement of the contracts. The put and call
options, which expire between June and December, 2000, give Autodesk a choice of
physical, cash and net share settlement methods.
In fiscal 1999 and 1998, Autodesk used a combination of open market purchases
and equity collar contracts to repurchase Autodesk's common stock. These share
repurchases were part of an on-going and systematic repurchase plan that was
approved by Autodesk's Board of Directors. In August 1998, in connection with
the acquisition of Discreet, the Board of Directors rescinded its authorization
and terminated Autodesk's repurchase plans that existed at the time.
Dividends
40
During fiscal 2000, 1999 and 1998, Autodesk paid annual dividends of $0.24,
$0.20 and $0.20 per share, respectively. Fiscal year 2000 dividends were paid at
a rate of $0.06 each quarter.
41
Note 8. Stock Compensation and Employee Benefit Plans
Stock Option Plans
Incentive and nonqualified stock options may be granted to officers, employees,
directors and consultants. Options vest over periods of one to five years and
generally have terms of up to ten years. The exercise price of the stock options
is generally at least equal to the fair market value of the stock on the grant
date. A summary of stock option activity is as follows:
(Shares in thousands)
Weighted
Number of average price
shares per share
----------- --------------
Options outstanding at January 31, 1997 13,541 $ 27.44
Granted 3,709 36.47
Assumed via acquisitions 306 23.72
Exercised (2,387) 22.82
Canceled (952) 33.13
-----------
Options outstanding at January 31, 1998 14,217 $ 30.10
Granted 3,320 36.49
Exercised (2,595) 24.74
Canceled (1,020) 34.96
-----------
Options outstanding at January 31, 1999 13,922 $ 32.27
Granted 5,984 26.70
Exercised (1,087) 21.06
Canceled (2,902) 34.65
-----------
Options outstanding at January 31, 2000 15,917 $ 30.47
Options exercisable at January 31, 2000 7,662 $ 31.20
Options available for grant at January 31, 2000 2,685 --
The following table summarizes information about options outstanding and
exercisable at January 31, 2000.
Options Exercisable Options Outstanding
--------------------------------- -------------------------------------------------
Number of Weighted Number of Weighted Weighted
shares average shares (in average average
(in thousands) exercise price thousands) contractual exercise price
life (in years)
-------------- --------------- -------------- --------------- --------------
Range of per share exercise
prices:
$ 0.01 - 23.87 2,305 $ 19.27 3,021 4.5 $ 19.60
$ 24.13 - 33.34 2,213 28.76 7,967 8.2 28.05
$ 33.87 - 47.73 2,239 37,96 3,929 7.6 38.34
$ 47.93 - 49.25 905 50.80 1,000 5.9 51.67
--- ---------- ----- -----------
7,662 $ 31.20 15,917 7.2 $ 30.47
These options will expire if not exercised at specific dates ranging from
February 2000 to January 2010. A total of 18.6 million shares of Autodesk's
common stock have been reserved for future issuance under existing stock option
programs.
42
Employee Stock Purchase Plan
Under Autodesk's employee stock purchase plan, eligible employees may purchase
shares of Autodesk's common stock, at their discretion up to 15 percent of their
compensation subject to certain limitations, at not less than 85 percent of fair
market value as defined in the plan agreement. In fiscal 2000, 1999 and 1998,
shares totaling 0.8 million, 0.6 million and 0.5 million, respectively, were
issued under the plan at average prices of $20.25, $23.21 and $22.35 per share.
At January 31, 2000, a total of 1.9 million shares were available for future
issuance under the plan.
Pro Forma Net Income (Loss) Information
Autodesk applies APB 25 in accounting for its employee stock plans. Accordingly,
no compensation expense is recognized in Autodesk's consolidated statement of
operations, other than for stock awards that have exercise prices less than the
fair market value of Autodesk's common stock at the date of grant. Had
compensation expense been determined in accordance with the fair value method
prescribed by SFAS 123, Autodesk's pro forma net loss for fiscal 2000 and net
income for fiscal 1999 and 1998 was $(44.7) million, $52.2 million and $13.9
million, respectively. Pro forma basic net income (loss) per share was $(0.74),
$0.93 and $0.25 in fiscal 2000, 1999 and 1998, respectively. Pro forma diluted
net income (loss) per share was $(0.74), $0.88 and $0.23 in fiscal 2000, 1999
and 1998, respectively.
The weighted average estimated fair value of stock options granted during fiscal
2000, 1999 and 1998 was $22.60, $14.14 and $13.53 per share, respectively. These
were estimated using the Black-Scholes option-pricing model, based on the
following assumptions: expected volatility of 1.6, 0.6 and 0.5. for fiscal 2000,
1999 and 1998; the weighted average estimated life was 5 years for fiscal 2000
and 3 years for 1999 and 1998; the weighted average risk-free rate was 5.8%;
5.6% and 5.7% for fiscal 2000, 1999 and 1998; and the dividend yield was 0.9%,
0.7% and 0.6% for fiscal 2000, 1999 and 1998, respectively.
The weighted average estimated fair value of shares granted under the employee
stock purchase plan during fiscal 2000, 1999 and 1998 was $7.64, $9.07 and
$7.27, respectively. These were estimated using the Black-Scholes option-pricing
model, based on the following assumptions: expected volatility of 0.6, 0.6 and
0.5 for fiscal 2000, 1999 and 1998; the weighted average estimated life was 0.5
years for fiscal 2000, 1999 and 1998; the weighted average risk-free rate was
4.2%, 5.1% and 5.4% for fiscal 2000, 1999 and 1998; and the dividend yield was
0.9%, 0.7% and 0.6% for fiscal 2000, 1999 and 1998, respectively.
Pretax Savings Plan
Autodesk has a 401(k) plan that covers nearly all U.S. employees. Eligible
employees may contribute up to 20 percent of their pretax salary, subject to
certain limitations. Autodesk makes voluntary contributions and matches a
portion of employee contributions. Autodesk's contributions were $5.0, $4.6
million and $4.1 million in fiscal 2000, 1999 and 1998, respectively.
Autodesk provides defined-contribution plans in certain foreign countries where
required by statute. Autodesk's funding policy for foreign defined-contribution
plans is consistent with the local requirements in each country. Autodesk's
contributions to these plans during fiscal 2000, 1999 and 1998 were $2.4
million, $1.7 million and $1.4 million, respectively.
Note 9. Business Combinations
In addition to the acquisition of Discreet, the following acquisitions occurred
over the past three years. Pro forma financial results, as defined by Accounting
Principles Board Opinion No. 16, "Business Combinations," have not been provided
since the acquisitions were not material.
VISION
On April 22, 1999, Autodesk acquired VISION, a vendor of enterprise automated
mapping/facilities management/geographic information systems (AM/FM/GIS)
solutions. Of the $26.0 million purchase price, which was paid in cash, $3.3
million represented the value of in-process research and development ("IPR&D")
43
that had not yet reached technological feasibility and had no alternative future
use, and as such, was expensed during fiscal 2000. Of the remaining purchase
price, $17.6 million and $2.1 million were allocated to goodwill and other
intangibles, respectively.
Genius CAD Software GmbH ("Genius")
On May 4, 1998, Autodesk entered into an agreement with Genius, a German limited
liability company, to purchase various mechanical CAD software applications and
technologies. Autodesk accounted for this acquisition under the purchase method
of accounting. Of the total purchase price of $68.9 million, which was paid in
cash, $13.1 million was allocated to IPR&D and was expensed since the technology
had not reached technological feasibility and had no alternative future use;
$12.7 million was allocated to an intangible asset, purchased technology; and
$41.6 million was allocated to goodwill.
The value assigned to the IPR&D ($13.1 million) was determined by identifying
research projects in areas for which technological feasibility had not been
achieved. The calculations of value were adjusted to reflect the value creation
efforts of Genius prior to the close of the acquisition. The value was
determined by estimating the costs remaining to develop the purchased in-process
technology into commercially viable products, estimating the resulting net cash
flows from such projects, and discounting the net cash flows back to their
present value. The discount rate included a factor that took into account the
uncertainty surrounding the successful development of the purchased in-process
technology projects.
The value assigned to purchased technology ($12.7 million) was determined based
on the expected future cash flows of the existing developed technologies,
discounted for the characteristics and applications of the product, the size of
existing markets, growth rates of existing and future markets, as well as an
evaluation of past and anticipated product-life cycles.
Softdesk, Inc. ("Softdesk")
On March 31, 1997, Autodesk exchanged 2.9 million shares of its common stock for
all of the outstanding stock of Softdesk, a supplier of AutoCAD-based
applications software for the architecture, engineering and construction market.
Based on the value of Autodesk stock and options exchanged, the transaction,
including transactions costs, was valued at approximately $94.1 million.
Of the $94.1 million purchase price, $19.2 million was allocated to IPR&D and
expensed in fiscal 1998 since the technology had not yet reached technological
feasibility and had no alternative future use; $9.2 million was allocated to an
intangible asset, purchased technologies; $6.7 million was allocated to other
intangible assets; and $48.0 million was allocated to goodwill.
The value assigned to IPR&D ($19.2 million) was determined by identifying
research projects in areas for which technological feasibility had not been
achieved. The value was determined by estimating the costs to develop the
purchased in-process technology into commercially viable products, estimating
the resulting net cash flows from such projects, and discounting the net cash
flows back to their present value. The discount rate included a factor that took
into account the uncertainty surrounding the successful development of the
purchased in-process technology projects.
The value assigned to purchased technology ($9.2 million) was determined by
taking the expected future cash flows of the existing developed technologies,
and then discounting them for the specific characteristics and applications of
the product, the size of existing markets, growth rates of existing and future
markets, as well as an evaluation of past and anticipated product-life cycles.
3D/Eye
In fiscal 1998, Autodesk also acquired certain assets and licensed technology
from 3D/Eye for $5.8 million. Of the total cost, $3.0 million represented the
value of IPR&D that had not yet reached technological feasibility and had no
alternative future use. This amount was expensed.
44
Denim Software L.L.C. ("Denim")
On June 12, 1997, Discreet acquired substantially all of the assets and assumed
certain liabilities of Denim pursuant to the terms of an asset purchase
agreement. The purchased assets consisted primarily of Denim software products,
including ILLUMINAIRE Paint, ILLUMINAIRE Composition and ILLUMINAIRE Studio and
related know-how and goodwill. The aggregate purchase price of $12.2 million
consisted primarily of a cash payment of $9.1 million and the assumption of $2.2
million of liabilities.
Of the $12.2 million purchase price, $2.2 million was allocated to IPR&D and was
expensed in fiscal 1998 since the technology had not yet reached technological
feasibility and had no alternative use; $1.5 million was allocated to an
intangible asset, purchased technology; and $7.9 million was allocated to
goodwill.
D-Vision Systems, Inc. ("D-Vision")
On July 15, 1997, Discreet acquired all of the outstanding shares of capital
stock of D-Vision, an Illinois corporation, pursuant to a Stock Purchase
Agreement. As a result of this acquisition, Discreet acquired the D-Vision
OnLINE and PRO software products for non-linear video and digital media editing
solutions including related know-how and goodwill. The $27.2 million purchase
price was paid through a combination of 0.2 million newly issued common shares
that had a value of $10.7 million, and approximately $10.8 million in cash. Of
the $27.2 million purchase price, $5.3 million was allocated to IPR&D and was
expensed during fiscal 1998 since the technology had not yet reached
technological feasibility and had no alternative future use; $3.1 was allocated
to an intangible asset, purchased technology; and $16.7 million was allocated to
goodwill.
Lightscape Technologies, Inc ("Lightscape")
On December 2, 1997, Discreet entered into an Agreement and Plan of Merger and
Reorganization with Lightscape, a Delaware corporation. The merger closed on
December 30, 1997. As a result of the merger, Discreet acquired, among other
products, the Lightscape product, a software application which integrates
radiosity and raytracing with physically based lighting, including related
know-how and goodwill. The aggregate purchase consideration of $7.6 million
consisted primarily of $6.4 million of assumed liabilities.
Of the $7.6 million purchase price, $1.7 million was allocated to IPR&D and was
expensed during fiscal 1998 since the technology had not yet reached
technological feasibility and had no alternative future use; and $4.3 million
was allocated to goodwill.
Note 10. Nonrecurring Charges
During fiscal 2000, Autodesk recorded nonrecurring charges totaling $34.7
million, which primarily resulted from the acquisition of Discreet ($17.1
million), acquisition of VISION ($3.3 million--See Note 9), and a corporate
restructuring that occurred during the third quarter ($15.5 million). These
nonrecurring charges were offset by a $1.0 million reversal of a litigation
reserve established in fiscal 1999. The litigation matter was settled for less
than originally estimated.
Of the $17.1 million of charges resulting from the acquisition of Discreet,
$14.1 million related to transaction costs, which included fees paid to
investment bankers, attorneys, accountants and financial printers; $2.6 million
related to restructuring costs, which consisted primarily of employee
termination costs and legal entity liquidations, and $0.4 million related to
one-time costs. At January 31, 2000, the remaining liabilities associated with
these charges totaled $1.0 million, of which $0.5 million related to transaction
costs and $0.5 million related to the legal entity liquidation portion of the
restructuring.
Of the $15.5 million of corporate restructuring charges, which resulted from
Autodesk's efforts to reduce operating expenses, $11.7 million related to
termination and other employee costs associated with the elimination of 350
positions, most of which occurred in the U.S.; $3.2 million related to office
closure costs; and $0.6 million related to one-time costs. Employee termination
costs included wage continuation, advance notice pay and medical and other
benefits. The liabilities associated with the employee terminations will be
substantially settled over the next several months. Office closure costs
included losses on operating lease payments ($1.1 million) and the write-off of
leasehold improvements and equipment ($2.1 million). The following table sets
forth the restructuring activity during fiscal 2000:
45
(In millions) Balance at Balance at
February 1, Charges January 31,
1999 Additions Utilized Reversals 2000
--------------- --------------- --------------- ---------------- ----------------
Employee termination costs $ -- $ 13.4 $ (11.5) $ (0.9) $ 1.0
Office closure costs 0.3 3.3 (2.6) (0.3) 0.7
Legal entity liquidations 0.4 0.9 (0.4) (0.4) 0.5
One-time costs -- 0.9 (0.9) -- --
------- ------- -------- ------- -------
Total $ 0.7 $ 18.5 $ (15.4) $ (1.6) $ 2.2
======= ======= ======== ======= =======
During fiscal 1999, Autodesk recorded nonrecurring charges totaling $19.7
million, which resulted from the acquisition of Genius ($13.1 million - See Note
9) and certain other charges ($8.9 million). These nonrecurring charges were
offset by $2.3 million of excess lease-related reserves, which were associated
with a fiscal 1996 restructuring, that Discreet reversed.
Of the $8.9 million of other charges, $1.5 million related to the consolidation
of certain development centers, $2.2 million related to the write-off of
purchased technologies associated with these operations, $1.7 million related to
staff reductions in Asia Pacific, $2.5 million related to costs involving a
certain litigation matter, and $1.0 million related to the write-down to fair
market value of older computer equipment. At January 31, 2000, there were no
remaining liabilities associated with these nonrecurring charges.
During fiscal 1998, Autodesk recorded nonrecurring charges of $26.8 million,
which primarily resulted from the acquisitions of Softdesk ($19.2 million),
3D/Eye ($3.0 million), Denim ($2.2 million), D-Vision ($5.3 million) and
Lightscape ($1.7 million) - See Note 9. These nonrecurring charges were offset
by a gain on the sale of Autodesk's interest in a network technology company
($2.5 million) and the reversal of $2.3 million of reserves related to a prior
restructuring. The $2.3 reserve reversal was also included in the fiscal 1999
results as a result of consolidating Discreet, which previously had a different
fiscal year-end than Autodesk (see Note 1).
Note 11. Litigation Accrual Reversal
In fiscal 1995, Autodesk recorded a significant reserve as a result of a
judgment against Autodesk on a claim involving a trade-secret misappropriation.
Autodesk appealed the judgment and as a result of the appeal decision, which was
finalized in May 1998, the amount levied against Autodesk was significantly
reduced. During fiscal 1999, Autodesk reversed the remaining unutilized
litigation and interest accruals, which totaled $18.2 million and $2.7 million,
respectively.
Note 12. Segments
During the second quarter of fiscal 2000, Autodesk reorganized its operations
into four business divisions with industry-specific charters: the Design
Solutions Division (consisting primarily of the MCAD and AECAD market groups and
most of the Personal Solutions Group), the GIS Solutions Division ("GIS"), the
Discreet Division (consisting of the Kinetix and Discreet businesses), and
Autodesk Ventures.
Autodesk's operating results have been aggregated into two reportable segments:
the Discreet Segment and the Design Solutions Segment. Segment information
involving GIS and Autodesk Ventures was aggregated with the Design Solutions
Division (collectively, referred to in these financial statements as the "Design
Solutions Segment"). The Design Solutions and GIS divisions have similar
production processes, customer types and distribution methods. Autodesk Ventures
segment information is not material.
The Design Solutions Segment develops and sells design software products for
professionals, occasional users, or consumers who design, draft and diagram. The
end users of the design software products include architects, engineers,
construction firms, designers and drafters. The Discreet Segment derives
revenues from the sale of its products to creative professionals for a variety
of applications, including feature films, television programs, commercials,
music and corporate videos, interactive game production, live broadcasting and
Web design. Both
46
segments primarily distribute their respective products through authorized
dealers and distributors, and, in some cases, they also sell their products
directly to end-users.
The accounting policies of the reportable segments are the same as those
described in Note 1 to Notes of Consolidated Financial Statements. Autodesk
evaluates each segment's performance on the basis of income from operations
before income taxes. Autodesk currently does not separately accumulate and
report asset information by segment. Prior year amounts have been restated to
conform to the current year presentation. Information concerning the operations
of Autodesk's reportable segments was as follows:
(In millions) Fiscal year ended January 31,
-----------------------------
2000 1999 1998
---- ---- ----
Net revenues:
Design Solutions $ 648.1 $ 699.3 $ 584.0
Discreet 172.1 172.6 184.7
---------- ---------- ----------
$ 820.2 $ 871.9 $ 768.7
========== ========== ==========
Income (loss) from operations:
Design Solutions $ 323.4 $ 394.4 $ 320.9
Discreet (13.2) 19.5 17.4
Unallocated amounts/1/ (309.4) (271.8) (243.3)
---------- ---------- ----------
$ 0.8 $ 142.1 $ 95.0
========== ========== ==========
Depreciation and amortization:
Design Solutions $ 43.4 $ 39.4 $ 22.9
Discreet 20.6 22.1 23.7
Unallocated amounts 15.7 19.3 19.7
---------- ---------- ----------
$ 79.7 $ 80.8 $ 66.3
========== ========== ==========
/1/ Unallocated amounts in fiscal 2000 are attributed primarily to
corporate expenses of $136.0 million, other geographic costs and expenses
managed outside the reportable segments of $159.6 million, and
nonrecurring charges of $13.8 million, a significant portion of which
consisted of the corporate restructuring charges, which were not
allocated. Unallocated amounts in fiscal year 1999 are attributed
primarily to corporate expenses of $110.3 million, other geographic costs
and expenses that are managed outside the reportable segments of $174.2
million and nonrecurring income of $12.7 million. Fiscal year 1998
unallocated amounts are primarily related to corporate expenses of $76.6
million and other geographic costs and expenses not allocated to specific
segments of $166.7 million.
47
Information regarding Autodesk's operations by geographic area is as follows:
(In millions) Fiscal year ended January 31,
-----------------------------
2000 1999 1998
---- ---- ----
Net revenues:
United States customers $ 294.5 $ 356.5 $ 317.2
Other Americas 58.6 57.2 46.9
------- ------- -------
Total Americas 353.1 413.7 364.1
Europe 296.4 329.6 257.5
Asia Pacific 170.7 128.6 147.1
------- ------- -------
Total net revenues $ 820.2 $ 871.9 $ 768.7
======= ======= =======
(In millions) January 31,
-----------
2000 1999
---- ----
Long-lived assets:/1/
United States operations $ 347.0 $ 146.3
Other Americas 15.1 95.1
------- -------
Total Americas 362.1 241.4
Neuchatel, Switzerland/2/ 195.1 37.7
Other Europe 228.4 21.4
------- -------
Total Europe 423.5 59.1
Asia Pacific 6.6 26.2
------- -------
Consolidating eliminations (639.9) (126.3)
------- -------
Total long-lived assets $ 152.3 $ 200.4
======= =======
1 Long-lived assets exclude financial instruments and deferred tax
assets. As such, marketable securities and deferred taxes have been
excluded above.
2 Investment in Discreet held by Neuchatel. This investment eliminates
upon consolidation.
Note 13. Comprehensive Income
The components of total accumulated other comprehensive loss in the balance
sheet are as follows:
(In thousands) January 31,
-----------
2000 1999
---- ----
Unrealized gains (losses) on available-for-sale securities, net of tax $ (1,370) $ 775
Foreign currency translation adjustment (13,452) (14,907)
---------- ----------
Total accumulated other comprehensive loss $ (14,822) $ (14,132)
========== ==========
48
The related income tax effects allocated to each component of other
comprehensive income (loss) are as follows:
(In thousands)
Income
Amount tax Amount
before (expense) net of
taxes benefit taxes
----------- ------------- ------------
Fiscal 2000:
Unrealized losses on available-for-sale securities $ (2,869) $ 918 $ (1,951)
Less: reclassification for amounts realized in net income (285) 91 (194)
-------- --------- ---------
Net unrealized losses (3,154) 1,009 (2,145)
Foreign currency translation adjustments 1,455 -- 1,455
-------- --------- --------
Total other comprehensive loss $ (1,699) $ 1,009 $ (690)
======== ========= =========
Fiscal 1999:
Unrealized gains on available-for-sale securities $ 18 $ (6) $ 12
Less: reclassification for amounts realized in net income (269) 83 (186)
-------- --------- ---------
Net unrealized gains 287 (89) 198
Foreign currency translation adjustments 5,772 -- 5,772
-------- --------- ---------
Total other comprehensive income $ 6,059 $ (89) $ 5,970
======== ========= =========
Fiscal 1998:
Net unrealized gains on available-for-sale securities $ 565 $ (203) $ 362
Foreign currency translation adjustments (9,801) -- (9,801)
-------- --------- ---------
Total other comprehensive loss $ (9,236) $ (203) $ (9,439)
======== ========= =========
Note 14. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for fiscal 2000, 1999, and 1998 is as
follows:
(In thousands, except per share data)
1st quarter 2nd quarter 3rd quarter 4th quarter Fiscal year
-------------- ------------- -------------- --------------- --------------
Fiscal 2000
Net revenues $ 194,939 $ 202,945 $ 202,072 $ 220,226 $ 820,182
Gross margin 162,531 163,331 166,852 183,597 676,311
Income (loss) from operations (20,209) (5,248) (4,435) 30,655 763
Net income (loss) (17,144) 389 1,393 25,170 9,808
Basic net income (loss) per share (0.29) 0.01 0.02 0.42 0.16
Diluted net income (loss) per share (0.29) 0.01 0.02 0.41 0.16
Fiscal 1999
Net revenues $ 222,918 $ 226,811 $ 204,609 $ 217,541 $ 871,879
Gross margin 188,896 191,229 173,600 183,907 737,632
Income from operations 42,689 40,888 25,193 33,317 142,087
Net income 28,733 27,530 17,624 23,245 97,132
Basic net income per share 0.51 0.49 0.31 0.41 1.72
Diluted net income per share 0.48 0.46 0.31 0.39 1.64
Fiscal 1998
Net revenues $ 157,389 $ 191,364 $ 197,907 $ 222,024 $ 768,684
Gross margin 124,020 158,947 166,061 186,285 635,313
Income (loss) from operations (17,182) 29,438 33,160 49,578 94,994
Net income (loss) (18,529) 18,995 22,046 33,703 56,215
Basic net income (loss) per share (0.33) 0.33 0.39 0.61 1.00
Diluted net income (loss) per share (0.33) 0.31 0.36 0.57 0.94
49
Results for the first quarter of fiscal 2000 included nonrecurring charges
totaling $21.8 million, which resulted from the acquisition of Discreet and
VISION. Results for the third quarter of fiscal 2000 included nonrecurring
charges totaling $14.7 million, which primarily related to a corporate
restructuring. Results for the fourth quarter of fiscal 2000 included
nonrecurring credits totaling $1.8 million, primarily related to the reversal of
a litigation reserve established in fiscal 1999.
Results for the second quarter of fiscal 1999 included nonrecurring charges of
$19.7 million, which resulted from the acquisition of Genius and certain
restructuring charges. Results for the first quarter of fiscal 1998 included
nonrecurring charges of $19.2 million, $5.3 million and $3.0 million, related to
the Softdesk, D-Vision and 3D/Eye acquisitions, respectively. Results for the
second quarter of fiscal 1998 included nonrecurring charges of approximately
$1.7 million related to the Lightscape acquisition. Results for the fourth
quarter of fiscal 1998 included nonrecurring credits of $2.3 million primarily
related to a gain on sale of an investment.
50
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders of Autodesk, Inc.
We have audited the consolidated balance sheets of Autodesk, Inc., as of January
31, 2000 and 1999 and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended January 31, 2000. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of Autodesk's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits. We did not audit the financial statements of Discreet Logic Inc., a
wholly-owned subsidiary acquired in March, 1999, which statements reflect total
assets constituting 16% of the related consolidated financial statement totals,
and which reflect net income constituting approximately 9% of the related
consolidated financial statement totals for the two year period ended January
31, 1999. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
Discreet Logic Inc., is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Autodesk, Inc. at
January 31, 2000 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended January 31, 2000,
in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
San Jose, California
February 18, 2000
51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
52
PART III
Certain information required by Part III is omitted from this Report in that the
Registrant will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement that
specifically address the items set forth herein are incorporated by reference.
Such incorporation does not include the Compensation Committee Report or the
Performance Graph included in the Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning Autodesk's directors and compliance with Section 16
of the Securities and Exchange Act of 1934 required by this Item are
incorporated by reference to Autodesk's Proxy Statement.
The information concerning Autodesk's executive officers required by this Item
is incorporated by reference herein to the section of this Report in Part I,
Item 4, entitled "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to Autodesk's
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to Autodesk's
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to Autodesk's
Proxy Statement.
53
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements: The information concerning Autodesk's financial
--------------------
statements, and Report of Ernst & Young LLP, Independent Auditors required
by this Item is incorporated by reference herein to the section of this
Report in Item 8, entitled "Financial Statements and Supplementary Data."
2. Financial Statement Schedule: The following financial statement schedule of
----------------------------
Autodesk, Inc., for the fiscal years ended January 31, 2000, 1999 and 1998,
is filed as part of this Report and should be read in conjunction with the
Consolidated Financial Statements of Autodesk, Inc.
Schedule II Valuation and Qualifying Accounts................S-1
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes
thereto.
3. Exhibits: The Exhibits listed below are filed as part of, or incorporated
--------
by reference into, this Report.
Exhibit
No. Description
-- -----------
2.1 (1) Second Amended and Restated Agreement and Plan of
Acquisition and Amalgamation by and among Autodesk, Inc.,
Autodesk Development BV, 9066-9771 Quebec Inc., Autodesk
Canada Inc., 9066-9854 Quebec Inc. and Discreet Logic Inc.,
dated as of November 18, 1998, as amended on December 18,
1998 and January 18, 1999
2.2 (1) Second Amended and Restated Amalgamation Agreement by and
among Discreet Logic Inc., 9066-9854 Quebec Inc. and
Autodesk, Inc. dated as of January 18, 1999
3.1 (2) Certificate of Incorporation of Registrant
3.2 (4) Certificate of Designation of Rights, Preferences and
Privileges of Series A Participating Preferred Stock of
Autodesk, Inc.
3.3 (2) Certificate of the Powers, Designations, Preferences and
Rights of Series B Preferred Stock of Autodesk, Inc.
3.4 (3) Bylaws of Registrant, as amended
4.1 (5) Preferred Shares Right Agreement dated December 14, 1995
4.2 (5) Amendment No. 1 to Preferred Shares Rights Agreement
9.1 (2) Voting and Exchange Trust Agreement dated March 16, 1999
among Autodesk, Inc., Discreet Logic Inc., Autodesk
Development B.V., and Montreal Trust Company of Canada
10.2 * Registrant's 1998 Employee Qualified Stock Purchase Plan and
form of Subscription Agreement, as amended
10.3 (3)* Registrant's 1990 Directors' Option Plan, as amended
10.4 * Registrant's 1996 Stock Plan, as amended
10.5 (6)* Form of Indemnification Agreement executed by Autodesk and
each of its officers and directors
10.6 (7)* Agreement between Registrant and Carol A. Bartz dated April
7, 1992
54
10.7 (2) Support Agreement dated March 16, 1999 among Autodesk, Inc.,
Autodesk Development B.V. and Discreet Logic Inc.
10.8 * Form of Restricted Stock Purchase Agreement of Buzzsaw.com,
Inc.
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney
27.1 Financial Data Schedule
(1) Incorporated by reference to the exhibit filed with the
Registrant's Report on Form 8-K filed on March 16, 1999.
(2) Incorporated by reference to the exhibits filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1999.
(3) Incorporated by reference to the exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998.
(4) Incorporated by reference to the exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1997.
(5) Incorporated by reference to the Registrant's Report on Form 8-A
filed on January 5, 1996, as amended on January 8, 1996 and
January 15, 1998.
(6) Incorporated by reference to the exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1995.
(7) Incorporated by reference to the exhibit filed with the
Registrant's Report on Form 10-Q for the fiscal quarter ended
April 30, 1992.
* Denotes a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
None
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AUTODESK, INC.
By: /s/ CAROL A. BARTZ
--------------------------
Carol A. Bartz
Chairman of the Board
Dated: April 14, 2000
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Carol A. Bartz as his or her
attorney-in-fact, each with the power of substitution, for him or her in
any and all capacities, to sign any amendments to this Report on Form 10-K,
and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
---------------------------- ---------------------------- -----------
/s/ CAROL A. BARTZ Chairman, President and April 14, 2000
----------------------------
Carol A. Bartz Chief Executive Officer
(Principal Executive Officer)
/s/ STEVE CAKEBREAD Senior Vice President and April 14, 2000
---------------------------
Steve Cakebread Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ MARK A. BERTELSEN Director April 14, 2000
----------------------------
Mark A. Bertelsen
/s/ CRAWFORD W. BEVERIDGE Director April 14, 2000
--------------------------
Crawford W. Beveridge
/s/ J. HALLAM DAWSON Director April 14, 2000
---------------------------
J. Hallam Dawson
/s/ PAUL OTELLINI Director April 14, 2000
-----------------------------
Paul Otellini
/s/ MARY ALICE TAYLOR Director April 14, 2000
----------------------------
Mary Alice Taylor
56
Schedule II
AUTODESK, INC.
Valuation and Qualifying Accounts
Additions
Balance at Charged to Balance
Beginning Costs and Deductions at End
Description of Year Expenses Write-Offs of Year
- ------------------------------------------------ ------------- -------------- -------------- -------------
Fiscal year ended January 31, 2000
Allowance for doubtful accounts $ 10,642,000 $ 1,515,000 $ 1,505,000 $ 10,652,000
Allowance for stock balancing and
product rotation 14,777,000 47,255,000 42,662,000 19,370,000
Restructuring 723,000 18,500,000 17,023,000 2,200,000
Fiscal year ended January 31, 1999
Allowance for doubtful accounts $ 10,830,000 $ 1,930,000 $ 2,118,000 $ 10,642,000
Allowance for stock balancing and
product rotation 20,219,000 25,484,000 30,926,000 14,777,000
Restructuring 825,000 0 102,000 723,000
Fiscal year ended January 31, 1998
Allowance for doubtful accounts $ 10,122,000 $ 4,010,000 $ 3,302,000 $ 10,830,000
Allowance for stock balancing and
product rotation 17,175,000 38,419,000 35,375,000 20,219,000
Restructuring 4,273,000 829,000 4,277,000 825,000