<PAGE>
As Filed with the Securities and Exchange Commission on September 30, 1998
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AUTODESK, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2819853
-------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation organization) Identification Number)
111 McInnis Parkway
San Rafael, CA 94903
(415) 507-5000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
____________________
MARCIA K. STERLING, Esq.
Vice President, Business Development,
General Counsel and Secretary
AUTODESK, INC.
111 McInnis Parkway
San Rafael, California 94903
(415) 507-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
____________________
MARK A. BERTELSEN, ESQ.
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
____________________
Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.
/ /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==============================================================================================================
Title of Proposed Maximum Proposed Maximum Amount of
Securities to Amount to be Offering Price Per Aggregate Offering Registration Fee
be Registered Registered Share (1) Price (1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 3,000,000 $26.28125 $78,843,750 $23,259
===============================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(c) solely for the purpose of calculating
the registration fee, based on the average of the high and low prices of
the Registrant's Common Stock on the Nasdaq National Market on September
28, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
EXPLANATORY NOTE
This Registration Statement includes the form of Prospectus that will be
used for the sale of all of the shares covered hereby. Each sale of shares
hereunder will be accompanied by a prospectus supplement that will reflect the
terms of such sale and that will be filed with the Commission under Rule 424(b).
<PAGE>
****************************************************************************
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
*****************************************************************************
PROSPECTUS (Subject to Completion)
Issued ________________, 1998
3,000,000 SHARES
AUTODESK, INC.
____________________
COMMON STOCK
$0.01 PAR VALUE
___________________________________________
Autodesk, Inc. ("Autodesk" or the "Company") may offer and sell from time
to time up to 3,000,000 shares of the Company's Common Stock, par value $0.01
per share (the "Common Stock"), at prices and on terms to be determined at the
time of sale or sales and to be set forth in a supplement or supplements to
this Prospectus. The Company may sell the Common Stock directly or through
underwriters, dealers or agents designated from time to time, and may also
sell the Common Stock directly to other purchasers or through agents. See
"Plan of Distribution." The number of shares of the Common Stock to be
purchased by underwriters or dealers or sold by agents and the names and
compensation of such underwriters, dealers or agents will be set forth in an
applicable supplement to this Prospectus.
Payment for and delivery of the shares offered hereby will occur
immediately before the amalgamation of Discreet Logic Inc. ("Discreet") with two
indirect Autodesk subsidiaries, 9066-9771 Quebec Inc. and 9066-9854 Quebec Inc.,
and certain related, subsequent transactions pursuant to the Amended and
Restated Agreement and Plan of Acquisition and Amalgamation dated as of
September 23, 1998 (the "Acquisition Agreement") which will cause the entity
resulting from such amalgamation to become an indirect subsidiary of Autodesk
(collectively, the "Acquisition"). The Acquisition will be voted upon by the
stockholders of Discreet and of the Company at meetings scheduled for November
____, 1998. The Common Stock offered hereby will not be issued unless and until
all conditions to the consummation of the Acquisition have been satisfied or
waived.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
The Common Stock is traded on the Nasdaq National Market ("Nasdaq") under
the symbol ADSK. On October ___, 1998, the reported last sale price of the
Common Stock on the Nasdaq was $[______]
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE SELLING SHAREHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH
PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered, upon written or oral request of any
such person, a copy of any and all of the information that has been or may be
incorporated by reference in this Prospectus, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Requests for such copies should be directed to Autodesk, Inc.,
111 McInnis Parkway, San Rafael, CA 94903, Attention Investor Relations,
telephone (415) 507-5000.
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048, and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a
Website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Web site is http://www.sec.gov. The Common Stock is quoted on
the Nasdaq National Market. Reports, proxy and information statements and other
information concerning the Company may be inspected at The Nasdaq Stock Market
at 1735 K Street, N.W., Washington, D.C. 20006. Information, as of particular
dates, concerning directors and officers of the Company, their remuneration,
options granted to them, and the principal holders of securities of the Company
has been disclosed in the proxy statements distributed to shareholders of the
Company and filed with the Commission.
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission under the Securities Act. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the shares of Common Stock
offered hereby, reference is hereby made to the Registration Statement.
Statements contained herein concerning the provisions of any document are not
necessarily complete, and each such statement is qualified in its entirety by
reference to the copy of such document filed with the Commission.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. Any statements contained herein (including without limitation statements
to the effect that Autodesk, Discreet or management of one or both companies
"believes," "expects," "anticipates," "plans" and similar expressions) that are
not statements of historical fact should be considered forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements as a result of certain factors, including those set
forth in the "Risk Factors" section below. Reference is also made to the
particular discussions set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended January 31, 1998,
filed pursuant to Section 13 of the Exchange Act.
2. Quarterly Reports on Form 10-Q for the fiscal quarters ended April 30
and July 31, 1998, filed pursuant to Section 13 of the Exchange Act.
3. Current Report on Form 8-K filed May 18, 1998.
4. The definitive proxy statement dated May 22, 1998 for the 1998 Annual
Meeting of Stockholders and the definitive proxy statement dated February 27,
1998 for a Special Meeting of Stockholders.
5. The definitive Joint Proxy Statement/Prospectus of the Company and
Discreet dated October ___, 1998 included in the Company's Registration
Statement on Form S-4 (file 333-_____).
6. The description of the Company's capital stock contained in the
Company's Registration Statement on Form 8-A filed March 18, 1986, pursuant to
Section 12(g) of the Exchange Act.
7. The description of the Company's preferred share purchase rights
contained in the Company's Registration Statement on Form 8-A filed January 5,
1996, pursuant to Section 12(g) of the Exchange Act, as amended on January 8,
1996 and January 15, 1998.
In addition, all documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the securities offered hereby
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of the filing of such documents. Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document that also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this Prospectus
is delivered, on the request of any such person, a copy of any or all of the
foregoing documents incorporated by reference herein (other than exhibits to
such documents). Written or telephone requests should be directed to the
Company's principal executive offices: Autodesk, Inc., 111 McInnis Parkway, San
Rafael, CA 94903.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in, or incorporated into, this
Prospectus. References to "dollars" or "$" shall be to US dollars unless
otherwise specified herein. This Prospectus contains forward-looking statements
which reflect the current view of Autodesk and/or Discreet with respect to
future events that are expected to have an effect on their future individual or
combined operations and financial performance, including, but not limited to,
forward-looking statements regarding the expected benefits and synergies of the
Acquisition and regarding the reasons for the Acquisition. These forward-
looking statements are subject to various risks and uncertainties, including
those set forth under "Risk Factors" and elsewhere herein, that could cause
actual results to differ materially from historical results or those currently
anticipated. Readers are cautioned not to place undue reliance on these
forward-looking statements.
AUTODESK
Autodesk develops, markets and supports personal computer software for design
drafting, visualization and multimedia content creation. Autodesk has
structured its internal marketing and development organizations around five key
market groups that most closely match Autodesk's customer base: Architecture,
Engineering and Construction ("AEC"), Mechanical Computer-Aided Design ("MCAD"),
Geographic Information Systems ("GIS"), Personal Solutions Group ("PSG") and
Multimedia ("Kinetix"). Autodesk's AEC Market Group provides mechanical
engineers, designers and drafters with advanced, value-based solutions designed
to solve their professional design challenges. Autodesk's GIS products provide
easy-to-use mapping and GIS technology to help businesses and governments manage
their assets and infrastructure. Autodesk's PSG Market Group develops easy-to-
use, affordable tools for professionals, occasional users and consumers who
design, draft, and diagram. The Kinetix division of Autodesk is devoted to
bringing powerful 3D content-creation software to computer-industry
professionals focused on two markets: entertainment (film, broadcast video and
interactive games) and design conceptualization and visualization. Kinetix
provides two core platform products--3D Studio MAX and 3D Studio VIZ--that
specifically focus on these markets.
Autodesk is a corporation organized under the laws of the State of Delaware.
Its principal executive offices are located at 111 McInnis Parkway, San Rafael,
California 94903, and its telephone number is (415) 507-7000.
DISCREET
Discreet develops, assembles, markets and supports non-linear, on-line digital
systems and software for creating, editing and compositing imagery and special
effects for film, video, HDTV, broadcast and the Web. Discreet's systems and
software are utilized by creative professionals for a variety of applications,
including feature films, television programs, commercials, music and corporate
videos, interactive game production, live broadcasting as well as Web design.
Discreet's systems have played key roles in the creation of special visual
effects for films such as Armageddon, Titanic, Forrest Gump, Independence Day,
The Fifth Element, Batman & Robin, Contact and Air Force One; television
programs and special events such as ABC's "World News Tonight with Peter
Jennings" and the 1996 United States Presidential elections on ABC and CBS;
music videos by artists including U2, REM, Rolling Stones and The Beatles; and
commercials for clients such as Nike, Pepsi, AT&T and McDonald's. Discreet
believes that creative professionals and designers require tools that simplify
their work, enabling them to devote more time to creative activities and less
time to technical tasks.
Discreet offers high-end turnkey systems and software focused towards three
markets: special effects, editing and broadcast production. Discreet's systems
include its inferno* and flame* systems (special effects), its fire* and smoke*
systems (editing) and its frost* system (broadcast production). Discreet's
flame* system is an uncompressed, on-line, resolution independent, non-linear
digital system and is used to create, edit and composite special visual effects
in an on-line, real-time environment, providing instant feedback to the creative
professional. Discreet's inferno* system is an uncompressed, on-line,
resolution independent, non-linear, digital system providing all of the features
of flame* with film tools and increased film resolution and color control for
digital film work. Discreet's fire* system is an uncompressed, on-line, non-
linear, digital video editing system with special effects capabilities.
Discreet's smoke* system is an uncompressed, on-line, non-linear, digital video
editing system with limited special effects capabilities. In the broadcast
production market, Discreet offers its frost* system, a computer-based set of
modeling, animation and rendering tools for the creation and manipulation of 3D
graphics, including virtual sets for broadcast companies. Discreet's new media
software products include its effect* and
4
<PAGE>
paint* products, and its edit* and light* products. Discreet sells its systems
and software through a direct sales force as well as through distributors and
resellers.
Discreet is a company organized under the laws of the province of Quebec. Its
principal executive offices are located at 10 Duke Street, Montreal, Quebec H3C
2L7, and its telephone number is (514) 393-1616.
THE ACQUISITION
On September 23, 1998, the Company, Discreet, Autodesk Development B.V.
("Dutchco"), 9066-9771 Quebec Inc. ("Amalgamation Sub"), Autodesk Canada Inc.
and 9066-9854 Quebec Inc. ("Autodesk Quebec") entered into the Acquisition
Agreement, which amends and restates an acquisition agreement among the same
parties originally entered into on August 20, 1998. Pursuant to the Acquisition
Agreement, the Acquisition will be completed by way of an Amalgamation under the
Quebec Act and certain related transactions described below. Pursuant to the
Articles of Amalgamation, Discreet will be amalgamated with Autodesk Quebec and
Amalgamation Sub to form "New Discreet," which will carry on the existing
business of Discreet as an indirect Autodesk subsidiary. Each holder of
Discreet Common Shares will receive upon the Amalgamation one New Discreet Class
B Share for each Discreet Common Share then held by such holder. Immediately
following the Amalgamation, each such New Discreet Class B Share will
automatically, based upon the prior election of the holder thereof, either (i)
be redeemed by New Discreet for 0.525 New Discreet Exchangeable Shares or (ii)
be converted into one New Discreet Unit (consisting of one New Discreet Class
E Share and one New Discreet Class F Share), which will immediately thereafter
be acquired by Dutchco in exchange for 0.525 shares of Autodesk Common Stock,
in either case without any further required action on the part of the holder.
Pursuant to the Acquisition Agreement, the maximum number of New Discreet
Exchangeable Shares issuable in the Acquisition may not exceed 19.99% of the
Discreet Common Shares outstanding immediately prior to the Amalgamation,
multiplied by 0.525. In the event the number of New Discreet Exchangeable
Shares otherwise issuable to holders of the Discreet Common Shares pursuant to
the Acquisition exceeds this maximum number, such Discreet Shareholders will
receive, pro rata, New Discreet Units in lieu of New Discreet Exchangeable
Shares in respect of such excess. The New Discreet Exchangeable Shares will be
exchangeable at any time at the option of the holder, and will automatically
be exchanged on the eleventh anniversary of the Effective Time (or earlier
upon the occurrence of certain events, including the liquidation, dissolution
or winding-up of Autodesk or New Discreet), for Autodesk Common Stock on a one-
for-one basis plus the Dividend Amount. The Acquisition will be voted on by
the stockholders of the Company and of Discreet at meetings scheduled to be
held on November __, 1998.
If the Acquisition is approved by the stockholders of both the Company and
Discreet, and all other conditions to the Acquisition are satisfied or waived,
the Acquisition is anticipated to occur prior to November __, 1998, after the
closing of the issuance and sale of the Common Stock offered hereby. As a
result of the Acquisition, Discreet's business will become part of a subsidiary
of the Company.
The primary motivation for the timing of the offering is to qualify the
Acquisition for pooling of interests accounting treatment. To do so, the
Company must issue prior to the effective time of the Acquisition approximately
3 million shares of Common Stock, due to its prior repurchase of shares in
various transactions. The Common Stock offered hereby will not be
issued unless and until all conditions to the Acquisition have been satisfied
or waived.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company....................................... 3,000,000 shares
Common Stock to be outstanding after the Offering and the Acquisition..... 64,931,254 shares
Nasdaq symbol for the Common Stock........................................ ADSK
Use of proceeds........................................................... For general corporate purposes,
including working capital
</TABLE>
- --------------
(1) Based upon 46,381,804 shares outstanding at September 17, 1998 and
assuming the issuance of 3,000,000 shares offered hereby and the issuance
of 15,549,450 shares in the Acquisition.
5
<PAGE>
SELECTED HISTORICAL AND UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following selected historical financial information of Autodesk and
Discreet has been derived from their respective audited historical
consolidated financial statements, and should be read in conjunction with such
audited consolidated financial statements and the notes thereto, incorporated
herein by reference. The unaudited selected pro forma financial information of
Autodesk and Discreet are derived from the unaudited pro forma condensed
combined financial statements, which give effect to the Acquisition as a
pooling-of-interests, and should be read in conjunction with such unaudited
pro forma statements and notes thereto, which are included elsewhere in this
Prospectus.
For Autodesk and Discreet pro forma purposes, Autodesk's historical
condensed consolidated statements of income for the three fiscal years ended
January 31, 1996, 1997 and 1998, and Autodesk's unaudited condensed
consolidated statement of income for the six months ended July 31, 1998 have
been combined with the unaudited condensed consolidated statements of
operations of Discreet for the fiscal year ended July 31, 1996, the eleven
months ended June 30, 1997, the twelve months ended December 31, 1997, and the
unaudited condensed consolidated statement of operations of Discreet for the
six months ended June 30, 1998, respectively. The unaudited pro forma combined
condensed balance sheet assumes the Acquisition took place on July 31, 1998
and combines Autodesk's unaudited condensed consolidated balance sheet at that
date with Discreet's historical condensed consolidated balance sheet at June
30, 1998. The unaudited selected pro forma combined financial data should be
read in conjunction with the unaudited pro forma financial statements included
elsewhere in this Prospectus.
Autodesk paid quarterly dividends of $0.06 per share with respect to fiscal
1996, 1997 and 1998, and in each of the first two quarters of fiscal 1999, and
currently intends to continue paying such cash dividends on a quarterly basis.
Discreet has not paid any cash dividends on the Discreet Common Shares.
Discreet currently intends to retain any earnings for future growth and
therefore does not anticipate paying any cash dividends on the Discreet Common
Shares in the foreseeable future.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Acquisition had been consummated at the times
indicated, nor is it necessarily indicative of future operating results or
financial position.
AUTODESK SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED JANUARY 31, ENDED JULY 31,
-------------------------------------------- ------------------
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $405,596 $454,612 $534,167 $496,693 $617,126 $273,080 $373,844
Income (loss) from
operations (1)(2)...... 89,703 81,911 129,027 59,817 45,355 (28,327) 59,695
Net income (loss)
(1)(2)................. 62,166 56,606 87,788 41,571 15,364 (34,910) 36,753
Basic net income (loss)
per share.............. $ 1.30 $ 1.20 $ 1.86 $ 0.91 $ 0.33 $ (0.78) $ 0.79
Diluted net income
(loss) per share....... $ 1.25 $ 1.14 $ 1.76 $ 0.88 $ 0.31 $ (0.78) $ 0.74
Shares used in computing
basic net income (loss)
per share.............. 47,770 47,320 47,090 45,540 46,760 45,045 46,500
Shares used in computing
diluted net income
(loss) per share....... 49,740 49,840 49,800 47,190 49,860 45,045 49,670
Dividends paid per
share.................. $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.12 $ 0.12
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, AS OF
-------------------------------------------- JULY 31,
1994 1995 1996 1997 1998 1998
-------- -------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Working capital......... $177,241 $205,735 $190,718 $147,500 $108,215 $215,400
Total assets............ 404,874 482,076 517,929 492,233 533,683 565,666
Long term liabilities... 5,679 3,602 31,306 33,948 31,064 2,499
Put warrants............ -- -- -- 64,500 -- --
Total stockholders'
equity................. 296,879 323,484 342,328 243,614 303,132 349,193
</TABLE>
6
<PAGE>
- --------
(1) Includes the effect of nonrecurring charges of $25.5 million, $4.7
million, $58.5 million and $37.7 million recorded in fiscal 1995, 1997,
1998 and for the six months ended July 31, 1998, respectively. The fiscal
1995 amount represents a federal district court judgment against Autodesk
in a trade secret lawsuit. The charges for fiscal 1997 and 1998 consist of
charges relating to the write off of purchased in-process research and
development that had not reached technological feasibility and had no
alternate future use. Nonrecurring charges for the six months ended July
31, 1998 consist primarily of a charge relating to the write off of
purchased in-process research and development that had not reached
technological feasibility and had no alternate future use, restructuring
charges for the consolidation of certain development centers, the write-
off of purchased technologies associated with these operations, staff
reductions in the Asia Pacific region and costs in relation to potential
legal settlements.
(2) Income from operations for the six months ended July 31, 1998 includes a
reversal of a portion of the litigation reserve in the amount of $18.2
million as a result of a favorable decision on appeal of the trade secret
lawsuit (see footnote 1, above). In addition to the $18.2 million, $2.7
million of interest associated with the litigation reserve was reversed
and is reflected in net income for the six months ended July 31, 1998.
SEE AUTODESK FINANCIAL STATEMENTS AND THE NOTES THERETO FOR THE YEAR ENDED
JANUARY 31, 1998 AND THE UNAUDITED INTERIM FINANCIAL STATEMENTS FOR THE SIX-
MONTH PERIOD ENDED JULY 31, 1998, INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
7
<PAGE>
DISCREET SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ELEVEN FISCAL
MONTHS YEAR
FISCAL YEAR ENDED JULY 31, ENDED ENDED
--------------------------- JUNE 30, JUNE 30,
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 15,392 $ 64,549 $ 83,997 $101,924 $151,558
Operating income (loss)(1).... 944 13,460 (44,914) (1,257) 8,177
Net income (loss)(1).......... 483 7,785 (44,141) (6,756) (611)
Basic net income (loss) per
share........................ $ 0.02 $ 0.34 $ (1.64) $ (0.24) $ (0.02)
Diluted net income (loss) per
share........................ $ 0.02 $ 0.31 $ (1.64) $ (0.24) $ (0.02)
Shares used in computing basic
net income (loss) per share.. 22,954 23,017 26,837 27,948 29,029
Shares used in computing
diluted net income (loss) per
share........................ 23,094 24,886 26,837 27,948 29,029
Dividends paid per share...... $ -- $ -- $ -- $ -- $ --
<CAPTION>
AS OF JULY 31, AS OF JUNE 30,
--------------------------- ------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Working capital (deficit)..... $ (382) $ 41,847 $ 24,030 $ 18,536 $ 40,409
Total assets.................. 9,431 76,858 80,148 95,945 114,610
Long term liabilities......... 317 1,261 1,442 713 2,229
Total shareholders' equity.... 934 50,124 42,343 36,948 59,566
</TABLE>
- --------
(1) Operating income includes the effect of nonrecurring charges of $1.4
million, $26.0 million, $16.3 million and $24.1 million recorded in fiscal
1994, 1996, 1997 and 1998, respectively. The fiscal 1994 amount represents
a legal settlement by Discreet. The fiscal 1996 charges consist primarily
of the write off of in-process research and development, restructuring
charges and costs in relation to a legal settlement. Fiscal 1997 charges
consist primarily of the write off of amounts relating to in-process
research and development and a legal settlement. The fiscal 1998 charge
consists of amounts for the write off of in-process research and
development, costs in relation to the termination of a merger transaction,
a gain on the sale of an investment and the reversal of provisions no
longer required for restructuring charges and legal settlements.
SEE DISCREET FINANCIAL STATEMENTS AND NOTES THERETO FOR THE YEAR ENDED JUNE
30, 1998, INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
8
<PAGE>
UNAUDITED SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX
MONTHS
TWELVE MONTHS ENDED JANUARY 31, ENDED
-------------------------------- JULY 31,
1996 1997 1998 1998
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $ 618,164 $ 598,617 $ 754,627 $449,729
Income from operations............ 84,113 58,560 32,773 76,975
Net income (loss)................. 43,647 34,815 (6,856) 50,454
Basic net income (loss) per share. $ 0.71 $ 0.58 $ (0.11) $ 0.82
Diluted net income (loss) per
share............................ $ 0.67 $ 0.56 $ (0.11) $ 0.77
Shares used in computing basic net
income (loss) per share.......... 61,179 60,213 61,526 61,895
Shares used in computing diluted
net income (loss) per share...... 64,963 62,359 61,526 65,917
Dividends paid per share.......... $ 0.24 $ 0.24 $ 0.24 $ 0.12
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1998
--------------------------------------
AUTODESK DISCREET ADJUSTMENTS COMBINED
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
PRO FORMA CONDENSED COMBINED BALANCE
SHEET DATA:
Working capital...................... $215,400 $ 40,409 $(13,000) $242,809
Total assets......................... 565,666 114,610 -- 680,276
Long term liabilities................ 2,499 2,229 -- 4,728
Stockholders' equity................. 349,193 59,566 (13,000) 395,759
</TABLE>
SEE UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION AND
ACCOMPANYING NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
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<PAGE>
RISK FACTORS
The following risk factors should be considered by prospective investors in
evaluating whether to purchase Autodesk Common Stock. These factors should be
considered in conjunction with the other information included in this
Prospectus. This Prospectus contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. Actual results could differ materially from those projected in
these forward-looking statements as a result of a variety of factors, including
those set forth below and elsewhere in this Prospectus. Some of these factors
relate directly to the Acquisition, while others are present independent
of the Acquisition in the general business environment of each of Autodesk,
Discreet and the combined company following the Acquisition (the "Combined
Company").
RISKS RELATING TO THE ACQUISITION
Failure to Achieve Beneficial Synergies. Autodesk and Discreet have entered
into the Acquisition Agreement with the expectation that the Acquisition will
result in beneficial synergies. These include mutual benefits from
complementary strengths in the 3D modeling and animation tools markets, the
competitive advantages resulting from offering a comprehensive suite of
integrated product offerings, combined industry experience and market
knowledge and shared distribution channels. Achieving these anticipated
synergies will depend on a number of factors including, without limitation,
the successful integration of Autodesk's and Discreet's operations and general
and industry-specific economic factors. Even if Autodesk and Discreet are able
to integrate their operations and economic conditions remain unchanged, there
can be no assurance that the anticipated synergies will be achieved. The
failure to achieve such synergies could have a material adverse effect on the
business, results of operations and financial condition of the Combined
Company.
Integration of Operations and Technologies. Achieving the anticipated
benefits of the Acquisition will depend in part upon whether the integration
of the two companies' businesses is accomplished in an efficient and effective
manner, and there can be no assurance as to the extent to which this will
occur, if at all. The combination of Autodesk and Discreet will require, among
other things, integration of the companies' respective operations, products,
technologies, management information systems, distribution channels and key
personnel and the coordination of their sales, marketing and research and
development efforts. In particular, the Combined Company will be required to
integrate Autodesk's sales channel, which consists principally of independent
resellers, with Discreet's sales force, which typically sells product directly
to customers. As a result of these and other factors, the integration may not
be accomplished smoothly or successfully, if at all. If significant
difficulties are encountered in the integration of the existing operations,
products or technologies or the development of new products and technologies,
resources could be diverted from new product development, and delays in new
product introductions could occur. Compared to Autodesk's products, Discreet's
products have traditionally experienced longer, more complex sales cycles.
There can be no assurance that the Combined Company will be able to take full
advantage of the combined sales efforts. In addition, the difficulties of
integrating Autodesk and Discreet may be increased by the necessity of
coordinating organizations with distinct corporate cultures and widely
dispersed operations in two different countries. See "-- Integration of
Operations of a non-US Company." The consummation of the Acquisition and the
integration of operations and technologies following the consummation of the
Transactions will constitute a significant challenge to Autodesk's, Discreet's
and the Combined Company's managements and will require substantial effort and
dedication of management and other personnel, which may distract their
attention from the day-to-day business of these entities, the development or
acquisition of new technologies, and the pursuit of other business
opportunities. In addition, certain Discreet systems currently include
computer hardware, which may present business issues as to which Autodesk
management has limited experience. See "--Risks Relating to the Combined
Company--Dependence on Single Workstation Vendor" and "--Reliance on Sole
Source Suppliers." Failure to successfully accomplish the
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integration of the two companies' operations, technologies and personnel would
likely have a material adverse effect on the Combined Company's business,
financial condition and results of operations. In addition, during the pre-
acquisition and integration phases, aggressive competitors may undertake
initiatives to attract customers or employees through various incentives,
which could have a material adverse effect on the business, results of
operations and financial conditions of Autodesk, Discreet and/or the Combined
Company.
Customers. The present and potential customers of Discreet and Autodesk may
not continue their current buying patterns in light of the Acquisition.
Certain customers may defer purchasing decisions as they evaluate the proposed
Acquisition, other recent acquisitions and product announcements in the
multimedia and design software industries, the Combined Company's future
product strategy, current and anticipated product offerings of competitors,
and any other outside forces which may affect customer buying patterns.
Customers may ultimately decide to purchase competitors' products in lieu of
the Combined Company's products. Historically, Discreet and Autodesk have had
significantly different types of customers. These different customer types may
evaluate the Combined Company differently. The decision of customers to defer
their purchasing decisions or to purchase products elsewhere could have a
material adverse effect on the business, results of operations and financial
condition of the Combined Company.
Dependence on Retention and Integration of Key Employees. The success of the
Combined Company is dependent on the retention and integration of the key
management, sales, marketing, engineering and other technical employees of
Autodesk and Discreet. Competition for qualified personnel in the multimedia
and design software industries is very intense, and competitors often use
aggressive tactics to recruit key employees during the period leading up to an
acquisition and during the integration phase following an acquisition. Stock
options, which generally become exercisable only over a period of several
years of employment, serve as an important incentive for retaining key
employees. In accordance with their original terms, certain stock options held
by several key Discreet employees will be fully exercisable or the vesting
thereof will accelerate upon the consummation of the Acquisition, thus
potentially reducing the retention incentive provided by these options. While
the Combined Company will endeavor to retain key Discreet employees, there can
be no assurance that key employees will remain with the Combined Company. The
loss of services of any of the key employees of the Combined Company could
materially and adversely affect the Combined Company's business, financial
condition and results of operation.
Integration of Operations of a non-US Company. Cross-border acquisitions
entail certain special risks in addition to those normally encountered in a
domestic acquisition. These include the difficulty of integrating employees
from a different corporate culture into the acquiring organization; the need
to understand different incentives that motivate employees in a non-US
company; the greater difficulty of transplanting the acquiring company's
corporate culture to an organization that is physically distant; and the
difficulty and expense of relocating employees from one country to another in
the event of an internal group restructuring following an acquisition. These
factors can reduce the likelihood of the long-term success of a cross-border
acquisition. Although Autodesk derives the majority of its revenues from non-
US sales and has significant operations outside the United States, it has
limited experience integrating the management, sales, product development and
marketing organizations of a significant non-US business with its existing
operations. Although Discreet has sales and marketing operations in the United
States and derives a significant portion of its revenue from US sales, its
management and product development personnel are predominantly based in
Canada. There can be no assurance that Autodesk will be able to successfully
integrate the personnel and operations of Discreet into the existing Autodesk
organization.
Potential Dilutive Effect to Stockholders. Although Autodesk and Discreet
believe that beneficial synergies will result from the Acquisition, combining
the two companies' businesses, even if the combination is achieved in an
efficient, effective and timely manner, may not result in combined results of
operations and financial condition superior to what would have been achieved
by each company independently, and may in any event require a longer period
than management of Autodesk or Discreet anticipates. In addition, based on the
capitalization of each of Autodesk and Discreet as of August 20, 1998, the
date the companies announced the
11
<PAGE>
proposed Acquisition, Autodesk will issue approximately 15,591,113 new shares
of Autodesk Common Stock (including shares of Autodesk Common Stock issuable
upon exchange of all New Discreet Exchangeable Shares issued in the
Acquisition), which shares will represent approximately 25.16% of the Autodesk
Common Stock outstanding upon consummation of the Acquisition (assuming
exchange of all New Discreet Exchangeable Shares). Autodesk will also issue up
to 3 million shares of Autodesk Common Stock in the offering being made
hereby. The issuance of new shares of Autodesk Common Stock in connection with
the Acquisition and the offering will have the initial effect of reducing
Autodesk's net income per share and could reduce the market price of the
Autodesk Common Stock unless and until revenue growth, cost savings or other
business synergies sufficient to offset the effect of such issuance can be
achieved. There can be no assurance that Autodesk stockholders would not
achieve greater returns on investment if Autodesk and Discreet were to remain
independent of each other.
Volatility Of Stock Prices. The market for the Autodesk Common Stock is
highly volatile. The trading price of the AutodeskCommon Stock has in the past
been and could in the future be subject to wide fluctuations in response to
quarterly variations in operating results, announcements following the
development or acquisition of technological innovations or new products by
Autodesk or Discreet or their competitors, changes in prices of Autodesk's or
Discreet's or their competitors' products and services, changes in product
mix, changes in revenue and revenue growth rates for Autodesk or Discreet as a
whole or for geographic areas or business units, and other events or factors.
Statements or changes in opinions, ratings or earnings estimates made by
brokerage firms or industry analysts relating to the markets in which Autodesk
does business or relating to Autodesk or Discreet specifically have resulted,
and could in the future result, in an immediate and adverse effect on the
market price of the Autodesk Common Stock. Statements by financial or industry
analysts regarding the impact on Autodesk's net income per share resulting
from the Acquisition and the extent to which such analysts expect potential
business synergies to affect reported results in future periods can be
expected to contribute to volatility in the market price of the Autodesk
Common Stock. Moreover, the issuance of significant numbers of additional
shares by Autodesk, including the issuance of up to 3 million shares in the
offering being made hereby, may have the effect of reducing the market price
of the Autodesk Common Stock. In addition, the stock market has from time to
time experienced extreme price and volume fluctuations which have particularly
affected the market price for the securities of many high-technology companies
and which often have been unrelated to the operating performance of these
companies. These broad market fluctuations may adversely affect the market
price of the Autodesk Common Stock.
12
<PAGE>
Substantial Expenses Resulting from the Acquisition. Autodesk and Discreet
estimate they will incur direct transaction costs, relating primarily to
regulatory filing costs, and the fees of financial advisors, attorneys,
accountants, financial printers and proxy solicitors, of approximately $13
million associated with the Acquisition, which will be charged to operations
upon consummation of the Acquisition. Autodesk and Discreet expect the
Combined Company to incur an additional significant charge to operations,
currently estimated at $6-8 million, to reflect costs associated with
integrating the two companies which will be expensed as incurred. The Combined
Company may also incur additional material charges in subsequent quarters to
reflect additional costs associated with the Acquisition.
RISKS RELATING TO THE COMBINED COMPANY
As is true for technology companies generally, Autodesk and Discreet
currently operate, and, following consummation of the Acquisition, the
Combined Company will operate, in a rapidly changing environment that involves
a number of risks, some of which are beyond their control.
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 adversely affect 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 competes. This competition includes the entry of
competitors with innovative technologies and the consolidation of companies
with complementary products and technologies. 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 multimedia and design software markets. 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.
The digital imaging software market in which Discreet competes is extremely
competitive and characterized by frequent and rapid changes in technology and
customer preferences. Discreet competes with other software vendors for access
to distribution channels and customers. Competition is generally based on
product features and functionality, ease of use, quality of customer support,
timeliness of product upgrades and price, among other factors. As the market
for the software products of Discreet continues to develop and other software
vendors expand their product lines to include products that compete with those
of Discreet, competition may intensify. A number of Discreet's competitors and
potential competitors possess significantly greater financial, technical,
marketing and sales and other resources than Discreet or the Combined Company.
In addition, as desktop computers become more powerful and less expensive, a
broader group of software developers may be able to introduce products for
personal computers that would be competitive with Discreet's products in terms
of price and performance. Accordingly, there can be no assurance that the
future products produced by the Combined Company will be successful or gain
market acceptance.
The ability of the Combined Company to compete will depend on factors both
within and outside its control, including the success and timing of new
product development and product introductions by the Combined Company and its
competitors, product performance and price, distribution and customer support.
There can be no assurance that the Combined Company will be able to compete
successfully with respect to these factors. Although Autodesk and Discreet
believe that the Combined Company will have certain technological and other
advantages over its competitors, maintaining such advantages will require
continued investment by the Combined Company in research and development,
sales and marketing and customer service and support. There can be no
assurance that the Combined Company will have sufficient resources to make
such investment or that the Combined Company will be able to make the
technological advances necessary to maintain such competitive advantages. In
addition, as the Combined Company enters new markets, distribution channels,
technical requirements and levels and bases of competition may be different
from those in the Combined Company's current markets and there can be no
assurance that the Combined Company will be able to compete favorably.
13
<PAGE>
The future financial performance of Autodesk's Discreet business unit as
part of the Combined Company will depend in part on the successful
development, introduction and customer acceptance of existing and new or
enhanced products. In addition, in order for the unit to achieve sustained
growth as part of the Combined Company, the market for its systems and
software must continue to develop and the Combined Company must expand this
market to include additional applications within the film and video industries
and develop or acquire new products for use in related markets. There can be
no assurance that the Combined Company will be successful in marketing its
existing or new or enhanced products. In addition, as the Combined Company
enters new markets, distribution channels, technical requirements and levels
and bases of competition may be different from those in Discreet's current
markets; there can be no assurance that the Combined Company will be able to
compete favorably.
In April 1998, Autodesk received notice that the FTC had undertaken a
nonpublic investigation of its business practices. The FTC has not made any
claims or allegations regarding Autodesk's current business practices or
policies, nor have any charges been filed. Autodesk intends to cooperate fully
with the FTC in its inquiry. Autodesk does not believe that the investigation
will have a material adverse effect on its business or consolidated results of
operations.
Fluctuations in Quarterly Operating Results. From time to time, Autodesk
experiences fluctuations in its quarterly operations as a result of periodic
release cycles, competitive factors and general economic conditions, among
other things. In addition, Autodesk has experienced fluctuations in operating
results in interim periods in certain geographic regions due to seasonality.
In particular, Autodesk's operating results in Europe during its third fiscal
quarter are usually impacted by a slow summer period while the Asia/Pacific
region typically experiences seasonal slowing in Autodesk's third and fourth
fiscal quarters.
Autodesk receives and fulfils a majority of its orders within a particular
quarter, with the majority of the sales to distributors and dealers (value-
added resellers or "VARs"). These resellers typically carry inventory of
Autodesk's products and place volume orders equivalent to a few days or a few
weeks of sales. The timing of these orders could have a material impact on
quarterly operating results. Additionally, Autodesk's operating expenses are
based in part on its expectations of 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 the Combined Company's
consolidated results of operations and financial conditions.
Similarly, shortfalls in Autodesk's and Discreet's revenues or earnings from
levels expected by securities analysts have in the past had an immediate and
significant adverse effect on the trading price of each company's common
stock, and any such shortfalls can be expected to have a similar effect on
Autodesk's stock price following consummation of the Acquisition. Moreover,
each of Autodesk's and Discreet's stock price is, and Autodesk's stock price
will be, subject to the volatility generally associated with technology stocks
and may also be affected by broader market trends unrelated to performance.
A variety of factors have caused period-to-period fluctuations in Discreet
and Autodesk's operating results, including the integration of operations
resulting from acquisitions of companies, products or technologies, revenues
and expenses related to the introduction of new products or new versions of
existing products, changes in selling prices, delays in purchase in
anticipation of upgrades to existing products, or introduction of new products
(including products of third parties), currency fluctuations, dealer and
distributor order patterns or general economic trends. In addition, in the
future, the Combined Company is more likely to recognize a disproportionate
amount of its revenue for a given fiscal quarter or fiscal year at the end of
such fiscal quarter or fiscal year.
Autodesk and Discreet believe that the operating results of Autodesk's
Discreet business unit could vary significantly from quarter to quarter. 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 such
systems and the timing of purchase orders. In addition, the timing of revenue
is influenced by a number of other factors, including the timing of individual
orders and shipments, other industry trade shows, competition, seasonal
customer buying
14
<PAGE>
patterns, changes in customer buying patterns in response to platform changes
and changes in product development, and sales and marketing expenditures.
Because Discreet's operating expenses are based on anticipated revenue levels
and a high percentage of Discreet's expenses are relatively fixed in the short
term, variations in the timing of recognition of revenue could cause
significant fluctuations in operating results from quarter to quarter and may
result in unanticipated quarterly earnings shortfalls or losses.
Product Concentration. Autodesk derives, and after consummation of the
Acquisition is expected to continue to derive, a substantial portion of its
revenues from sales of AutoCAD software, AutoCAD upgrades, and adjacent
products which are interoperable with AutoCAD. 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, the availability of third-party applications or
the introduction of products which substitute for AutoCAD, could have a
material adverse effect on the Combined Company's business and consolidated
results of operations.
Rapidly Changing Industry. The multimedia and design software industries are
characterized by rapid growth and technological change and changes in customer
requirements. The success of the Combined Company in this industry will depend
on many factors, including the continued acceptance of Discreet's current
products, its ability to enhance and support those products, its ability to
create an effective, integrated organization to develop and introduce new
products that address changing customer needs and technological advances by
competitors on a timely basis, and its ability to establish and maintain
effective distribution channels for its products. The Combined Company may not
be successful in these efforts. The future growth of the Combined Company's
revenues for its new media products also depends in part on sustained growth
in the demand for interactive media applications, which in turn depends on a
number of factors including product acceptance, price-point sensitivities,
consumer demand for film and video content and the proliferation of high
definition television. The demand for these applications may not develop at
the pace or in the direction anticipated by the Combined Company.
Product Development and Introduction. The multimedia and design software
industries are characterized by rapid technological change as well as changes
in customer requirements and preferences. The software products offered by
Autodesk and Discreet are complex and, despite extensive testing and quality
control, may contain errors or defects ("bugs"), especially when first
introduced. There can be no assurance that defects or errors will not occur in
future releases of AutoCAD, Discreet's products, or other software products
offered by the Combined Company. Such defects or errors could result in
corrective releases to the Combined Company's software products, damage to the
Combined Company's reputation, loss of revenues, an increase in product
returns, or lack of market acceptance of its products, any of which could have
a material and adverse effect on the Combined Company's business and
consolidated results of operations.
Autodesk and Discreet believe that the Combined Company's future results
will depend largely upon its ability to offer products that compete favorably
with respect to, reliability, performance, range of useful features,
continuing product enhancements, reputation, price and training. The discovery
of product defects could result in the delay or cancellation of planned
development projects, and could have a material and adverse effect on the
Combined Company's business and consolidated results of operations. Further,
increased competition in design, mapping or multimedia software products could
also have a negative impact on the Combined Company's business and
consolidated results of operations. More specifically, gross margins may be
adversely affected if customers purchase low-end CAD products, which
historically have had lower margins, instead of the Combined Company's higher-
margin products.
Certain 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, there can be no assurance that independent developers,
including those who have developed products for Autodesk in the past, will be
able to provide development support to the Combined Company in the future.
15
<PAGE>
Similarly, there can be no assurance that the Combined Company will be able to
obtain and renew license agreements on favorable terms, if at all, and any
failure to do so could have a material adverse effect on the Combined
Company's business and consolidated results of operations.
The success of Autodesk's Discreet business unit will depend in part upon
the Combined Company's ability to enhance Discreet's existing systems and
software and to develop and introduce new products and features which meet
changing customer requirements and emerging industry standards on a timely
basis. In addition, in connection with Discreet's recent acquisitions, the
Combined Company must fully integrate the edit*, effect*, paint* and light*
products into its product line and operations. Discreet and Autodesk have from
time to time experienced delays in introducing new products and product
enhancements and there can be no assurance that the Combined Company will not
experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products or product
enhancements. In addition, there can be no assurance that such new products or
product enhancements will meet the requirements of the marketplace and achieve
market acceptance. Any such failure could have a material adverse effect on
the Combined Company's business and consolidated results of operations. From
time to time the Combined Company or others may announce products, features or
technologies which have the potential to shorten the life cycle of or replace
the Combined Company's then existing products. Such announcements could cause
customers to defer the decision to buy or determine not to buy the Combined
Company's products or cause the Combined Company's distributors to seek to
return products to the Combined Company, any of which could have material
adverse effect on the Combined Company's business and consolidated results of
operations. In addition, product announcements by Silicon Graphics, Inc.
("SGI") and others in the past have caused customers to defer their decision
to buy or determine not to buy Discreet's products. In addition, there can be
no assurance that products or technologies developed by others will not render
the Combined Company's products or technology noncompetitive or obsolete.
Single Market for Discreet's Systems; Risks Associated with Expansion into
New Markets. To date, Discreet's products have been purchased primarily by
creative professionals for use in production and post-production in the film
and video industries. In order for Autodesk's Discreet business unit, to
achieve sustained growth, the market for Discreet's systems and software must
continue to develop and the Combined Company must expand this market to
include additional applications within the film and video industries and
develop new products for use in related markets. Discreet recently announced
its multi-platform software initiative to develop and market software across
Apple Macintosh, Microsoft Windows NT and UNIX operating systems, in addition
to its existing real time turnkey systems solutions, targeted at two new
market segments: institutional customers and prosumer (professional
consumers). While Autodesk and Discreet believe that the market recognition
which Discreet has achieved through sales of flame*, smoke*, effect*, inferno*
and fire* systems to creative professionals will facilitate the Combined
Company's marketing efforts in new markets, there can be no assurance that
Autodesk's Discreet business unit will be able to successfully develop and
market systems and software for other markets, or, if it does so, that such
systems and software will 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 and there can be no assurance that the Combined
Company will be able to compete favorably in those markets.
International Operations. Revenue from international operations currently
accounts for a significant portion of the consolidated revenues of Autodesk
and Discreet, and such revenue is expected to continue to account for a
significant portion of the Combined Company's consolidated revenues. Risks
inherent in Autodesk's and Discreet's international operations include the
following: unexpected changes in regulatory practices and tariffs;
difficulties in staffing and managing foreign operations; longer collection
cycles; potential changes in tax laws; greater difficulty in protecting
intellectual property; and the impact of fluctuating exchange rates between
the US dollar and foreign currencies in the markets where Autodesk and
Discreet conduct business. In particular, during the first six months of
Autodesk's fiscal 1999, changes in exchange rates from the same period of the
prior fiscal year adversely impacted Autodesk's revenues, principally due to
changes in the rate of exchange between the US dollar and the Japanese yen and
the Australian dollar.
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Autodesk's international results have been recently impacted by unfavorable
economic and political conditions in the Asian markets, and Autodesk believes
such conditions will continue over the forseeable period to negatively impact
its business. See "Autodesk Management's Discussion and Analysis of Financial
Condition and Results of Operations." There can be no assurance that the
economic crisis and currency issues currently being experienced in the Asian
markets will not have a material adverse effect on the Combined Company's
future international sales and, consequently, on the Combined Company's
business and consolidated results of operations.
Dependence on Distribution Channels. Autodesk sells its software products
primarily to 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 currently experienced any material problems with its
VAR network, computer software dealers and distributors are typically not
highly capitalized and have experienced difficulties during times of economic
contraction and may do so in the future. The loss of or a significant
reduction in business with any one of Autodesk's major international
distributors or large US resellers could have a material adverse effect on the
Combined Company's business and consolidated results of operations in future
periods.
Product Returns. With the exception of certain 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. Although product returns, comparing the first quarter of fiscal 1999
to the same period in the prior year, decreased as a percentage of
consolidated revenues, management anticipates that 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.
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 Autodesk's reserve estimates, and such
differences could be material to the Combined Company's consolidated financial
statements.
Intellectual Property. Each of Autodesk's and Discreet's success is
dependent on its proprietary technology. Autodesk and Discreet rely on a
combination of patent, copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its
proprietary rights. Despite such efforts to protect proprietary rights,
unauthorized parties may attempt to copy aspects of the Combined Company's
software products or to obtain and use information that the Combined Company
regards as proprietary. Policing unauthorized use of Autodesk's and Discreet's
software products is time-consuming and costly. Although neither company is
able to measure accurately the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. There can
be no assurance that the Combined Company's means of protecting its
proprietary rights will be adequate or that its competitors will not
independently develop similar technology.
Autodesk and Discreet expect that software product developers will be
increasingly subject to infringement claims as the number of products and
competitors in its market grows and the functionality of products in different
market segments overlap. From time to time, infringement claims have been
asserted against Autodesk and Discreet, and there can be no assurance that
infringement or invalidity claims (or claims for indemnification resulting
from infringement claims) will not be asserted against the Combined Company in
the future or that any such assertions will not have a material adverse effect
on the Combined Company's business and consolidated results of operations. 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 the Combined Company to enter into royalty or licensing agreements.
Such royalty or license agreements, if required, may not be available on
acceptable terms, if at all, which could have a material adverse effect on the
Combined Company's business and consolidated results of operations. If
infringement is alleged by any third party, the Combined Company may be
required to discontinue the use of certain software codes or processes, to
cease the manufacture, use and sale of
17
<PAGE>
infringing products, to incur significant litigation costs and expenses and to
develop non-infringing technology or to obtain licenses to use the allegedly
infringed technology. There can be no assurance that the Combined Company
would be able to develop alternative technologies or to obtain such licenses
or, if a license were obtainable, that the terms would be commercially
reasonable or acceptable to the Combined Company.
In addition, Autodesk, and in some cases Discreet, also relies on certain
software that is licensed from third parties, including software that is
integrated with internally developed software and used in its products to
perform key functions. There can be no assurance that these third-party
software licenses will continue to be available on commercially reasonable
terms, or that the software will be appropriately supported, maintained, or
enhanced by the licensors. The loss of licenses, 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 have a
material adverse effect on the Combined Company's business and consolidated
results of operations.
Discreet generally seeks to enter into confidentiality agreements with its
employees and license agreements with its distributors and to limit access to
and distribution of its systems, software, documentation and other proprietary
information. Until fiscal 1996, substantially all of Discreet's systems were
sold without written license agreements. There can be no assurance that the
Combined Company will not be involved in litigation with respect thereto or
that the outcome of any such litigation might not be more unfavorable to the
Combined Company as a result of such omissions. Discreet uses both software
and hardware keys with respect to its systems and software but otherwise does
not copy-protect its systems and software. It may be possible for unauthorized
third parties to copy Discreet's products or to reverse engineer or obtain and
use information that Discreet regards as proprietary. There can be no
assurance that the Combined Company's competitors will not independently
develop technologies that are substantially equivalent or superior to
Discreet's technologies.
Risks Associated with Recent Acquisitions and Investments. Each of Autodesk
and Discreet periodically acquires or invests in businesses, software products
and technologies which are complementary to its business through acquisitions,
strategic alliances, debt and equity investments, joint ventures and the like.
The risks associated with such acquisitions or investments include, among
others, the difficulty of integrating 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. There can be
no assurance that Autodesk or Discreet will be successful in overcoming such
risks or that such investments and acquisitions will not have a material
adverse impact upon the Combined Company's business, financial condition or
consolidated results of operations. In addition, such investments and
acquisitions may contribute to potential fluctuations in quarterly results of
operations due to acquisition-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
the Combined Company's operating results or financial condition.
On May 4, 1998, Autodesk acquired the mechanical applications business of
Genius CAD Software GmbH ("Genius"), a German limited liability company, for
approximately $69 million in cash, which includes fees and expenses. In
addition, Discreet in fiscal 1997 and 1998 completed three acquisitions: the
assets of Denim Software L.L.C., D-Vision Systems, Inc. and Lightscape
Technologies, Inc. There can be no assurance that the anticipated benefits of
these acquisitions or any future acquisitions will be realized.
Attraction and Retention of Employees. The continued growth and success of
the Combined Company depends significantly on the continued service of highly
skilled employees. In particular, Discreet's success to date has depended to a
significant extent upon a number of key management and technical employees,
the loss of any of whom could have a material adverse effect on Discreet's
business and results of operations. Competition for these employees in today's
marketplace, especially in the technology industries, is intense. The Combined
Company's ability to attract and retain employees is dependent on a number of
factors including its continued ability to grant stock incentive awards. There
can be no assurance that the Combined Company will be successful in continuing
to recruit new personnel and to retain existing personnel. The loss of one or
more
18
<PAGE>
key employees or the Combined Company's inability to maintain existing
employees or recruit new employees could have a material adverse impact on the
Combined Company. In addition, the Combined Company may experience increased
compensation costs to attract and retain skilled personnel.
Impact of Year 2000. Some of the computer programs used by Autodesk and
Discreet in their internal operations rely on time-sensitive software that was
written using two digits rather than four to identify the applicable year.
These programs may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. Additionally, as Autodesk and Discreet are in the
business of software production, year 2000 issues may affect each company's
products which are being sold externally. Autodesk expects to successfully
implement a six-phase year 2000 compliance program and does not believe that
the cost of such procedures will have a material effect on Autodesk's results
of operations or financial condition. There can be no assurance, however, that
there will not be a delay in the completion of these procedures or that the
cost of such procedures will not exceed original estimates, either of which
could have a material adverse effect on future results of operations.
In addition to correcting the business and operating systems used by
Autodesk in the ordinary course of business as described above, Autodesk has
also reviewed all products it produces internally for sale to third parties to
determine compliance of its products. Products either have been found to be
compliant or are currently being tested for compliance. However, many Autodesk
products run on computer hardware and operating systems produced and sold by
third-party vendors. There can be no assurance that these application systems
will be converted in a timely manner, and any failure in this regard may cause
Autodesk products not to function as designed. Discreet has made preliminary
assessments of its products and information systems and has determined that
they are Year 2000 compliant, or that only a limited effort will be required
to achieve compliance. Discreet is currently proceeding with detailed reviews
of every application used. It is expected that some will have to be upgraded
to Year 2000 compliant applications. It is expected that some customers may
experience some difficulties related to non-Discreet products, which may
affect the performance of Discreet products and, therefore, lead to an
unusually high number of calls to the Discreet technical support department.
Any future costs associated with ensuring that Autodesk's products or the
products of Autodesk's Discreet business unit are compliant with the Year 2000
are not expected to have a material impact on Autodesk's results of operations
or financial position.
Dependence on Single Workstation Vendor. Discreet's flame*, effect*,
inferno*, fire*, smoke* and frost* systems currently include workstations
manufactured by SGI. There are significant risks associated with this reliance
on SGI, and the Combined Company may be impacted by the timing of the
development and release of products by SGI, as was the case during fiscal
1996. In addition, there may be unforeseen difficulties associated with
adapting Discreet's products to future SGI products. Discreet is an authorized
master VAR of workstations manufactured by SGI. Discreet's agreement with SGI
is subject to annual renewal in May of each year and termination by SGI for
cause. The agreement with SGI has been extended through December 31, 1998 and
Discreet has no reason to believe that SGI will not renew such agreement. In
addition, although Discreet has no reason to believe that it will be unable to
obtain sufficient quantities of SGI workstations on a timely basis or that its
status as a master VAR will be changed, there can be no assurance that the
Combined Company will continue to be able to procure such workstations in
sufficient quantities or on a timely basis or that SGI will continue to
recognize the Combined Company as a master VAR. The success of Autodesk's
Discreet business unit also depends, in part, on the continued market
acceptance of SGI workstations by consumers in general, and by the
professional film and video industries, in particular. Although the Combined
Company intends to continue to evaluate new hardware platforms and may adapt
its products as technological advances and market demands dictate, Discreet
and Autodesk believe that Autodesk's Discreet business unit will continue to
derive a substantial portion of its revenue for the foreseeable future from
the sale and maintenance of systems designed to include SGI workstations. As a
result, financial, market and other developments adversely affecting SGI or
the sales of workstations, the introduction or acquisition by SGI
19
<PAGE>
of products which are competitive with those of Discreet, or the unanticipated
timing or pricing of SGI products that could cause customers to defer the
decision to buy or determine not to buy the Autodesk Discreet business unit's
then available products or systems, could have an adverse effect upon the
Combined Company's business and results of operations, as was the case with
respect to Discreet for the three month period ended January 31, 1996. As a
master VAR, Discreet also obtains certain advance access to SGI technology in
order to develop compatible systems and to modify and improve existing
products. If the Combined Company were unable to obtain such advance access,
it could have an adverse impact on the Combined Company's business and results
of operations.
Reliance on Sole Source Suppliers. Discreet is dependent on SGI as
Discreet's sole source for video input/output cards used in Discreet's
systems. Discreet is also dependent on a single workstation vendor. See "--
Dependence on Single Workstation Vendor." Discreet also purchases electronic
tablets manufactured by Wacom Technology Corporation and believes that while
alternative suppliers are available, there can be no assurance that
alternative electronic tablets would be functionally equivalent or be
available on a timely basis or on similar terms. Discreet 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. Discreet has
experienced quality control problems and supply shortages for sole source
components in the past and there can be no assurance that the Combined Company
will not experience significant quality control problems or supply shortages
for these components in the future. Discreet does not maintain an extensive
inventory of these components, and an interruption in supply could have a
material adverse effect on Discreet's business and results of operations.
Because of Discreet's reliance on these suppliers, Discreet may also be
subject to increases in component costs which could adversely affect the
Combined Company's business and results of operations.
20
<PAGE>
USE OF PROCEEDS
The net proceeds from this offering, after deducting the estimated expenses
of the offering, are estimated to be approximately $79.7 million, assuming that
all 3,000,000 shares covered by this Prospectus are sold at a price of $26.5625
per share, which was the reported last sale price of the Common Stock on the
Nasdaq National Market on September 29, 1998. The Company expects such proceeds
to be used for general corporate purposes, including working capital.
The primary motivation for the timing of the offering is to qualify the
Acquisition for pooling of interests accounting treatment. The Company
previously repurchased certain shares of its Common Stock pursuant to an
existing repurchase program. In order to qualify for the Acquisition for pooling
of interests treatment, the Company is required to issue approximately 3 million
shares of Common Stock before the effective time of the Acquisition. The Common
Stock offered hereby will not be issued unless and until all conditions to the
Acquisition have been satisfied or waived.
In addition to the reasons described above, the Company believes that the
availability of substantial financial resources is an important competitive
factor in the software industry, where many of the Company's competitors have
significantly greater resources. The offering will strengthen the Company's
financial position and provide the Company with additional financial flexibility
to take advantage of business opportunities as they may arise. Such
opportunities could include the acquisition of complementary businesses,
products or technologies, although there are currently no agreements or
understandings with respect to any material acquisition other than the
Acquisition.
The Company plans to invest the net proceeds in income producing obligations
pending their use.
21
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
July 31, 1998, (ii) the pro forma capitalization giving effect to the
Acquisition, and (iii) the pro forma capitalization as adjusted to reflect the
issuance and sale by the Company of 3,000,000 shares of Common Stock at an
assumed public offering price of $26.5625 per share which was the reported last
sale price of the Common Stock on the Nasdaq on September 29, 1998.
<TABLE>
<CAPTION>
APRIL 30, 1998
------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock, $0.01 par value:
2,000,000 shares authorized, none issued and outstanding............. - - -
Common stock, $0.01 par value:
250,000,000 shares authorized; 46,347,000 shares outstanding, actual; 337,284 444,125 523,805
61,896,000 shares outstanding, pro forma; 64,896,000 shares
outstanding, pro forma as adjusted(2)................................
Retained earnings (deficit)............................................ 30,612 (25,639) (25,639)
Accumulated translation adjustment..................................... (18,703) (22,727) (22,727)
-------- --------- ------------
Total stockholders' equity........................................... 349,193 395,759 475,439
-------- --------- ------------
Total capitalization................................................ $349,193 $ 395,759 $ 475,439
======== ========= ============
</TABLE>
- ------------
(1) See "Pro Forma Combined Condensed Financial Information" and the
accompanying notes thereto.
(2) Excludes shares reserved for issuance pursuant to the Company's stock option
plans, under which 1,528,606 shares were outstanding as of July 31, 1998.
Also excludes 2,000,000 shares reserved for future issuance under the
Company's Employee Stock Purchase Plan.
22
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
AUTODESK COMMON STOCK
Autodesk Common Stock has been traded on the Nasdaq National Market under the
symbol "ADSK" since May 1996, and was traded on the Nasdaq National Market under
the symbol "ACAD" from Autodesk's initial public offering in 1985 until that
time. The following table sets forth, for the periods indicated, the high and
low closing sale prices as reported on the Nasdaq National Market for Autodesk
Common Stock for the fiscal periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
FISCAL YEAR ENDED JANUARY 31, 1997
<S> <C> <C>
First Quarter $ 43 1/4 $ 29 3/4
Second Quarter 42 21
Third Quarter 27 19 5/8
Fourth Quarter 34 1/8 21 3/8
FISCAL YEAR ENDED JANUARY 31, 1998
First Quarter 36 1/8 28 3/4
Second Quarter 42 7/16 35
Third Quarter 50 32 3/4
Fourth Quarter 41 1/4 32 1/2
FISCAL YEAR ENDED JANUARY 31, 1999
First Quarter 49 7/8 39 3/16
Second Quarter 48 7/8 31 1/8
Third Quarter (through ____________, 1998) 35 23 3/16
</TABLE>
The closing price for a share of Autodesk Common Stock as reported on the
Nasdaq National Market on ____________, 1998, the last practicable trading
day for which information was available before the printing of this Prospectus,
was $_______.
Autodesk paid quarterly cash dividends of $0.06 per share with respect to
fiscal 1997 and 1998 and the first two quarters of fiscal 1999, and currently
intends to continue paying such cash dividends on a quarterly basis.
23
<PAGE>
THE ACQUISITION
On September 23, 1998, the Company, Discreet, Autodesk Development B.V.
("Dutchco"), 9066-9771 Quebec Inc. ("Amalgamation Sub"), Autodesk Canada Inc.
and 9066-9854 Quebec Inc. ("Autodesk Quebec") entered into the Acquisition
Agreement, which amends and restates an acquisition agreement among the same
parties originally entered into on August 20, 1998. Pursuant to the Acquisition
Agreement, the Acquisition will be completed by way of an Amalgamation under the
Quebec Act and certain related transactions described below. Pursuant to
Articles of Amalgamation to be filed with appropriate Quebec provincial
authorities, Discreet will be amalgamated with Autodesk Quebec and
Amalgamation Sub to form "New Discreet," which will carry on the existing
business of Discreet as an indirect Autodesk subsidiary. Each holder of
Discreet Common Shares will receive upon the Amalgamation one New Discreet
Class B Share for each Discreet Common Share then held by such holder.
Immediately following the Amalgamation, each such New Discreet Class B Share
will automatically, based upon the prior election of the holder thereof,
either (i) be redeemed by New Discreet for 0.525 New Discreet Exchangeable
Shares or (ii) be converted into one New Discreet Unit (consisting of one New
Discreet Class E Share and one New Discreet Class F Share), which will
immediately thereafter be acquired by Dutchco in exchange for 0.525 shares of
Autodesk Common Stock, in either case without any further required action on
the part of the holder. Pursuant to the Acquisition Agreement, the maximum
number of New Discreet Exchangeable Shares issuable in the Acquisition may not
exceed 19.99% of the Discreet Common Shares outstanding immediately prior to
the Amalgamation, multiplied by the 0.525. In the event the number of New
Discreet Exchangeable Shares otherwise issuable to holders of the Discreet
Common Shares pursuant to the Acquisition exceeds this maximum number, such
Discreet Shareholders will receive, pro rata, New Discreet Units in lieu of
New Discreet Exchangeable Shares in respect of such excess. The New Discreet
Exchangeable Shares will be exchangeable at any time at the option of the
holder, and will automatically be exchanged on the eleventh anniversary of the
Acquisition (or earlier upon the occurrence of certain events, including the
liquidation, dissolution or winding-up of Autodesk or New Discreet), for
Autodesk Common Stock on a one-for-one basis (plus any unpaid dividends to
which the holders are entitled). The Acquisition will be voted on by the
stockholders of the Company and Discreet at meetings scheduled to be held on
November __, 1998.
REASONS FOR THE ACQUISITION
The parties believe that the Acquisition will result in certain benefits that
should contribute to the success of the combined enterprise, including
positioning it to create the premier total solutions provider of digital content
design, creation and manipulation tools for the creation of moving images.
Following the Acquisition, Autodesk plans to combine the businesses of
Discreet and its Kinetix division into a new organization headed by Discreet's
current Chairman of the Board, President and Chief Executive Officer Richard
Szalwinski, who will report to Autodesk's President, Eric Herr, and will be part
of Autodesk's executive staff. The new organization, the Discreet business unit
of Autodesk, will be headquartered in Montreal, Quebec. Autodesk's Discreet
business unit will focus on developing and marketing tools for the creation of
digital content in the entertainment and creative design industries. The
combined organization will continue to develop and deliver the existing Discreet
and Kinetix product lines to a wide range of creative professionals including
those in the entertainment, design and visualization industries.
The engineering organizations of Discreet and Kinetix will be combined in
Autodesk's Discreet business unit, and certain general and administrative
functions will be integrated with similar functions at Autodesk. Discreet's
advanced editing and effects system will continue to be sold by Discreet's
existing direct sales force. These products will be marketed and supported by
the Combined Company's Discreet Advanced Systems division. Discreet's new media
software products and Kinetix products will be sold through Autodesk's
distribution channel and will be marketed and supported by the Combined
Company's New Media division.
24
<PAGE>
AUTODESK MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion in "Autodesk Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains trend analysis and
other forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. 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 "--Certain Risk
Factors Which May Impact Future Operating Results" and "Risk Factors."
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net revenues,
consolidated statement of income data for the periods indicated. These
operating results are not necessarily indicative of results for any future
periods.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
JANUARY 31, JULY 31,
----------------- -------------
1998 1997 1996 1998 1997
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues................................ 100% 100 % 100% 100% 100 %
Costs and expenses:
Costs of revenues......................... 12 13 13 10 13
Marketing and sales....................... 38 40 34 35 41
Research and development.................. 20 19 15 19 21
General and administrative................ 14 15 14 14 14
Nonrecurring charges...................... 9 1 -- 5 21
--- --- --- ----- -----
Total costs and expenses................ 93 88 76 83 110
--- --- --- ----- -----
Income (loss) from operations............... 7 12 24 17 (10)
Interest and other income, net.............. 2 1 2 2 2
--- --- --- ----- -----
Income (loss) before income taxes........... 9 13 26 19 (8)
Provision for income taxes.................. 6 5 9 8 4
--- --- --- ----- -----
Net income (loss)....................... 3% 8% 17% 11% (12)%
=== === === ===== =====
</TABLE>
SIX MONTHS ENDED JULY 31, 1998 AND 1997
Net revenues. Autodesk's net revenues for the six months ended July 31, 1998
were $373.8 million, which represented a 37 percent increase from the same
period of the prior fiscal year. Autodesk achieved significant net revenue
growth in the Americas and Europe when compared to the same period in the
prior fiscal year, while net revenues decreased in Asia Pacific. This net
revenue growth was the result of strong demand for products offered by
Autodesk's Design Solutions and Personal Solutions operating segments such as
AutoCAD Mechanical Desktop 2.0, AutoCAD LT97, AutoCAD Map 2.0, and incremental
revenues associated with the May 1998 acquisition of Genius CAD Software GmbH
(see Note 2 to the Autodesk Condensed Consolidated Interim Financial
Statements, incorporated herein by reference). Sales of AutoCAD and AutoCAD
upgrades accounted for approximately 71 percent and 81 percent of Autodesk's
consolidated net revenues for the six months ended July 31, 1998 and 1997,
respectively. The stronger value of the US dollar, relative to certain
international currencies, primarily the Japanese yen and the Australian
dollar, negatively impacted net revenues in the first six months of fiscal
year 1999 by $8.7 million when compared to the same period in the prior fiscal
year. International sales, including exports from the U.S., accounted for
approximately 57 percent of Autodesk's revenues in the first six months of
fiscal year 1999 as compared to 60 percent in the same period of the prior
fiscal year.
Autodesk experienced a decline in Asia Pacific net revenues during the first
six months of fiscal year 1999 compared to the corresponding period of the
prior year due to weak economic conditions in the region, most
25
<PAGE>
notably Japan and South Korea. Autodesk expects that these adverse conditions
in Asia Pacific will continue in the short term, and that they may continue to
adversely affect Autodesk's revenue and earnings.
Autodesk derives a substantial portion of its revenues from sales of AutoCAD
software, AutoCAD upgrades, and adjacent products which are interoperable with
AutoCAD. 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 have a material adverse effect
on Autodesk's business and consolidated results of operations. Additionally,
slowdowns in any of Autodesk's geographical markets could also have a material
adverse impact on Autodesk's business and consolidated results of operations.
Product returns, consisting principally of stock rotation, are recorded as a
reduction of revenues and represented approximately 4 percent and 6 percent of
consolidated revenues in the first six months of fiscal years 1999 and 1998,
respectively. The decrease in product returns as a percentage of revenues is
primarily due to Autodesk's continued focus on channel inventory management
and sell through sales activities and programs. Although product returns
decreased as a percentage of consolidated revenues, comparing the first half
of fiscal year 1999 to the same period in the prior fiscal year, 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 as a percentage of net revenues for the
six months ended July 31, 1998 was 10 percent, compared to 13 percent in the
same period in the prior fiscal year. This reduction is largely due to
efficiencies in production and distribution activities. Cost of revenues as a
percentage of net revenues has been and may continue to be impacted by the mix
of product sales, software amortization, royalty rates for licensed technology
embedded in Autodesk's products, and the geographic distribution of sales.
Marketing and sales. As a percentage of net revenues, marketing and sales
expenses decreased from 41 percent in the six months ended July 31, 1997 to 35
percent in the corresponding period of the current fiscal year. Actual
spending for this period increased 17 percent as a result of higher employee
costs as well as increased marketing costs associated with the launch of
products acquired from Genius and other new and enhanced product offerings.
Research and development. Research and development expenses as a percentage
of net revenues for the six months ended July 31, 1998 decreased to 19 percent
from 21 percent for the same period in the prior fiscal year. Actual research
and development spending (including capitalized software costs of $2,184,000
recorded during the first six months of fiscal year 1998) increased 17 percent
as compared to the same period in the prior fiscal year. The absolute dollar
increase is due primarily to the addition of software engineers, expenses
associated with the development and translation of new products including
AutoCAD Release 14, and incremental research and development personnel
expenses associated with the acquisition of certain assets from Genius during
May, 1998. Autodesk anticipates that research and development expenses will
increase in future periods as a result of product development efforts by
Autodesk's market groups and incremental personnel costs. Additionally,
Autodesk intends to continue recruiting and hiring experienced software
developers and to consider the licensing and acquisition of complementary
software technologies and businesses.
General and administrative. General and administrative expenses were 15
percent of net revenues for the six months ended July 31, 1998, and 14 percent
of net revenues in the same period of the prior fiscal year. In absolute
dollar terms, general and administrative expenses increased 42 percent for the
six months ended July 31, 1998 from the same period of the prior fiscal year,
primarily because of increased employee-related expenses, amortization of
intangibles recorded in connection with the merger with Softdesk, Inc. and the
acquisition of Genius, costs incurred to ensure that Autodesk's infrastructure
is year 2000 compliant, and costs incurred in the ongoing nonpublic FTC
investigation. Autodesk currently expects that general and administrative
expenses will increase in future periods to support spending on
infrastructure, including continued investment in Autodesk's worldwide
information systems and making any additional corrections to Autodesk's
infrastructure in
26
<PAGE>
connection with its Year 2000 compliance program; and to amortize goodwill and
other intangible assets associated with recent business combinations.
Nonrecurring charges--Genius acquisition. On May 4, 1998, Autodesk entered
into an agreement with Genius CAD Software GmbH ("Genius"), a German limited
liability company to purchase various mechanical computer-aided-design ("CAD")
software applications and technologies (the "acquisition"). In consideration
for this acquisition, Autodesk paid Genius approximately $69 million in cash.
The acquisition has been accounted for using the purchase method of
accounting.
In connection with the acquisition, Autodesk recorded a charge for in-
process research and development of $29 million, all of which was recorded
during the six months ended July 31, 1998. The value was computed using a
discounted cash flow analysis on the anticipated income stream of the related
product sales. The discounted cash flow analysis was based on management's
forecast of future revenues, costs of revenues and operating expenses related
to the products and technologies purchased from Genius which represent the
process and expertise employed to develop mechanical design application
software designed to work in conjunction with Autodesk's mechanical CAD
products. The Genius technology and product families identified includes
Genius Desktop, Genius AutoCAD and Genius AutoCAD LT.
Revenues and related expenses for the in-process technology were estimated
from the acquisition date through the end of Autodesk's fiscal year 2004.
Management's analysis considered anticipated product release dates for
Autodesk's mechanical CAD products, as well as release dates for the various
acquired Genius products and technologies which are interoperable with
Autodesk's mechanical CAD products. The overall technology life was estimated
to be approximately three years for the Genius Desktop products, and
approximately six years for all other Genius products and technologies
purchased by Autodesk. Management's aggregate projections reflect moderate
revenue growth in earlier periods resulting from expansion in Autodesk's
existing channels, particularly in North America and Asia Pacific which
historically have not been significant for the Genius products, as well as
anticipated growth in the overall mechanical CAD market.
The cost to complete the in-process technology was also based on
management's estimates, which considered the number of man-months required to
reach technological feasibility for each of the Genius projects classified as
"in-process"; the type of professional and engineering staff involved in the
completion process and their fully burdened monthly salaries. Management
estimated the direct costs to achieve technological feasibility to be
approximately $2.5 million, covering a period of time extending into the first
half of Autodesk's fiscal year 2000. Beyond this period, management estimates
significantly less expense in supporting and maintaining active products
identified at the acquisition date to be in-process technology. The effective
tax rate utilized in the analysis of in-process technology was 34 percent,
which reflects Autodesk's current combined federal and state statutory tax
rate, exclusive of nonrecurring charges.
Management discounted the net cash flows of the in-process technology to its
present value using a discount rate of 20 percent, which was determined to be
higher than Autodesk's weighted average cost of capital ("WACC") due to the
fact that the technology had not yet reached technological feasibility as of
the date of valuation. In utilizing a discount rate greater than Autodesk's
WACC, management has reflected the risk premium associated with achieving the
forecasted cash flows associated with these projects.
If the in-process projects contemplated in management's forecast are not
successfully developed, future revenue and profitability of Autodesk may be
adversely affected. Additionally, the value of other intangible assets
acquired from Genius may become impaired.
Revenues for developed technology were estimated by management for the
remainder of fiscal year 1999 through fiscal year 2004. Management's estimates
reflect a gradual decline in revenues from developed technologies after
considering historical product life cycles and anticipated product release
dates. While revenues derived from both developed and in-process technologies
are estimated to decline over the next several fiscal years, overall revenues
attributable to the Genius products and technologies are anticipated to grow
in absolute
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dollars and as a percentage of aggregate revenue to reflect the growth of
future (yet-to-be-developed) technologies. Operating expenses, including
general and administrative, marketing and sales, were based on anticipated
costs after the Genius operations were merged into Autodesk's operating
structure. Because Autodesk and Genius share the same marketing and
distribution channel, operating expenses related to the developed technology
were estimated to be lower than the historical operating expense structure of
Autodesk.
Management discounted the net cash flows for developed technology to its
present value using a discount rate of 15 percent which reflects Autodesk's
current weighted average cost of capital.
If the projects contemplated in management's forecast are not successfully
developed, future revenue and profitability of Autodesk may be adversely
affected. Additionally, the value of other intangible assets acquired from
Genius may become impaired.
Nonrecurring charges--Other. During the three months ended July 31, 1998,
Autodesk recorded charges of approximately $8.9 million relating to
restructuring charges associated with the consolidation of certain development
centers; the write-off of purchased technologies associated with these
operations; staff reductions in Asia Pacific in response to current economic
conditions in the region; and costs in relation to potential legal
settlements.
On March 31, 1997, Autodesk exchanged 2.9 million shares of Autodesk Common
Stock for all of the outstanding stock of Softdesk, Inc. Based on the value of
the Autodesk Common Stock and options exchanged, the transaction, including
transaction costs, was valued at approximately $94 million. This transaction
was accounted for using the purchase method of accounting with the purchase
price being principally allocated to capitalized software, purchased
technologies, and intangible assets. Approximately $55.1 million of the total
purchase price represented the value of in-process research and development
that had not yet reached technological feasibility and had no alternative
future use. Approximately $3.0 million of technology acquired from 3D/Eye
during the first quarter of fiscal year 1998 also represented the value of in-
process research and development that had not yet reached technological
feasibility and had no alternative future use. The $55.1 million and the $3.0
million were charged to operations in the first quarter of fiscal year 1998.
Litigation accrual reversal. Autodesk recorded a $25.5 million nonrecurring
charge during fiscal year 1995 on a claim of trade-secret misappropriation
brought by Vermont Microsystems, Inc. ("VMI"). As of the end of the first
quarter of fiscal year 1999, the total amount accrued related to the initial
judgment plus accrued interest was approximately $29.3 million. Autodesk
appealed this decision, and in May 1998, final judgment was entered in the VMI
litigation and a corresponding final payment of approximately $8.4 million was
made to VMI. During the quarter ended July 31, 1998, Autodesk recognized $18.2
million and $2.7 million to operating income and interest income,
respectively, to reflect the remaining unutilized litigation and related
interest accruals.
Interest and other income. Interest and other income for the six months
ended July 31, 1998 was $8.6 million as compared to $4.8 million for the same
period in the prior fiscal year. The increase is largely due to the interest
portion of the VMI settlement (see Note 3 to the Autodesk Condensed
Consolidated Financial Statements) and the net gain on the disposition of one
of Autodesk's business units.
Provision for income taxes. Autodesk's effective income tax rate, excluding
the one-time charge for acquired in-process research and development, was 34.0
percent for the first half of fiscal year 1999 as compared to 36.0 percent for
the same period in the prior fiscal year. The decrease in the effective income
tax rate was due to incremental tax benefits associated with Autodesk's
foreign sales corporation and foreign earnings that are taxed at rates
different than the US statutory rate. The $1.6 million benefit from the $29
million charge for in-process research and development associated with the
acquisition of certain assets from Genius is less than the U.S. statutory rate
as a portion of it will not be deductible for US tax purposes. Additionally, a
valuation allowance has been established for a portion of the deferred tax
asset which is deductible for US tax purposes over an extended period of time.
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Autodesk's United States income tax returns for fiscal years ended January
31, 1992 through 1996, are under examination by the IRS. On August 27, 1997,
the IRS issued a Notice of 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. Resolution of these alleged tax
deficiencies and any adjustments that may ultimately result from these
examinations are not expected to have a material adverse impact on the
Autodesk's consolidated results of operations or its financial position.
FISCAL YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
Net Revenues. Autodesk's consolidated net revenues in fiscal year 1998 were
$617.1 million, which represented a 24.2 percent increase from fiscal year
1997 net revenues of $496.7 million. Revenues in the Americas and Europe
increased $101.0 million or 54 percent and $19.3 million or 10 percent,
respectively, from the prior fiscal year, while remaining flat in Asia
Pacific. These increases were due largely to higher sales of AutoCAD software,
Autodesk's flagship product, and significant growth in Autodesk's market group
revenues. The most recent release of AutoCAD software, AutoCAD Release 14
("AutoCAD R14"), was released in the United States in May 1997 and in most
other regions shortly thereafter. Also contributing to the increased revenues
in fiscal year 1998 were revenues contributed by Softdesk, Inc., which was
acquired by Autodesk in March 1997. Net revenues in fiscal year 1997 decreased
7 percent from the $534.2 million posted in fiscal year 1996, reflecting
primarily slowdowns in the US dealer channel, Germany, Switzerland, and
France. The lower fiscal 1997 revenues reflected slowing sales of AutoCAD and
AutoCAD update software as the then most recent version of the product,
Release 13, entered the end of its product life cycle.
AutoCAD and AutoCAD updates represented approximately 70 percent, 70
percent, and 80 percent of total consolidated revenues in fiscal years 1998,
1997, and 1996, respectively. During fiscal year 1998, approximately 244,000
new AutoCAD licenses were added worldwide, compared to 207,000 and 233,000
licenses added during fiscal years 1997 and 1996, respectively. AutoCAD
upgrade revenues were $108 million, $45 million, and $49 million in fiscal
years 1998, 1997, and 1996, respectively.
Foreign revenues, including exports from the United States, accounted for
approximately 58 percent, 65 percent, and 64 percent of consolidated revenues
in fiscal years 1998, 1997, and 1996, respectively. The stronger value of the
US dollar, relative to international currencies, primarily the Japanese yen
and German mark, negatively affected international revenues by approximately
$30 million in fiscal year 1998 compared to fiscal year 1997 and $17 million
in fiscal year 1997 compared to fiscal year 1996. Fluctuations in foreign
exchange rates positively impacted international operating expenses by $11
million in fiscal year 1998, and did not materially impact operating expenses
in fiscal years 1997 and 1996. A summary of revenues by geographic area is
presented in Note 9 to the Autodesk Consolidated Financial Statements.
Autodesk records product returns as a reduction of revenues. In fiscal years
1998, 1997, and 1996, product returns, consisting principally of stock
rotation, totaled $35.4 million, $44.3 million, and $51.2 million (or
6 percent, 9 percent, and 9 percent of total consolidated revenues,
respectively). Total product returns decreased $8.9 million from fiscal year
1997 to fiscal year 1998 due largely to continued management focus on the
level of inventories with Autodesk's resellers, sell-through sales activities
and programs in Autodesk's distribution channel, and fewer returns associated
with AutoCAD R14 compared to the prior version. Returns of AutoCAD products
accounted for 40 percent, 61 percent, and 79 percent of total product returns
in fiscal years 1998, 1997, and 1996, respectively. The lower level of product
returns in fiscal year 1998 compared to fiscal years 1997 and 1996 reflected a
lower level of product rotation that had previously been associated with
performance issues relating to AutoCAD Release 13 and customers' perception
issues associated with this product.
The nature and technical complexity of Autodesk's software is such that
defect corrections have occurred in the past and may occur in future releases
of AutoCAD and other products offered by Autodesk. As is the case with most
complex software, Autodesk has experienced performance issues with previous
releases of its
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AutoCAD software, and performance issues could occur in future releases of
AutoCAD and other products offered by Autodesk.
Delays in the introduction of planned future product releases, or failure to
achieve significant customer acceptance of these new products, may have a
material adverse effect on Autodesk's revenues and consolidated results of
operations in future periods. Additionally, slowdowns in any of Autodesk's
geographical markets, including the recent economic instability in certain
countries of the Asia Pacific region, could also have a material adverse
effect on Autodesk's business and consolidated results of operations. The
foregoing forward-looking information is based upon Autodesk's current
expectations. Actual results could differ materially for the reasons noted and
due to other risks, including, but not limited to, those mentioned above and
otherwise discussed under "--Certain Risk Factors Which May Impact Future
Operating Results."
Cost of Revenues. Cost of revenues includes the purchase of disks and
compact disks (CD-ROMs), 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. When expressed as a percentage of net revenues, cost of revenues
decreased approximately 1 percent in fiscal year 1998 as compared to the prior
fiscal year. Gross margins in fiscal year 1998 were positively impacted by
continued operational efficiencies, lower royalties for licensed technology
embedded in Autodesk's products, and the geographic distribution of sales. The
one-half of 1 percent decrease in gross margins between fiscal year 1996 and
1997 was largely due to the mix of product sales, particularly the fact that a
smaller portion of revenues was contributed by AutoCAD and a larger portion
was contributed by AutoCAD LT, and, to a lesser extent, the impact of
increased fixed costs on a lower net revenue base. In the future, cost of
revenues as a percentage of net revenues may be impacted by the mix of product
sales, royalty rates for licensed technology embedded in Autodesk's products,
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. When expressed as a percentage of net
revenues, marketing and sales expenses decreased from 40 percent in fiscal
year 1997 to 38 percent in fiscal year 1998. Actual fiscal year 1998 marketing
and sales expenses of $237.1 million increased by 19 percent from the $199.9
million of expense incurred in the prior fiscal year. The increase in spending
was largely due to higher employee costs and increases in advertising and
promotional costs associated with the launch of AutoCAD Release 14 during the
second quarter and other new and enhanced products released throughout the
year. Fiscal year 1997 marketing and sales expenses of $199.9 million
increased 9 percent over fiscal year 1996 expenses of $183.6 million due to
higher employee costs as well as marketing and sales costs associated with the
launch of certain new products introduced by Autodesk's market groups during
fiscal year 1997. 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, costs of
computer equipment used in software development, and facilities expenses.
During fiscal years 1998, 1997, and 1996, Autodesk incurred $122.4 million,
$93.7 million, and $78.7 million, respectively, of research and development
expenses (excluding capitalized software development costs of $2.2 million
during fiscal year 1998; no software development costs were capitalized during
fiscal years 1997 and 1996). Research and development expenses increased both
in absolute dollars and as a percentage of net revenues in fiscal year 1998
due to the addition of software engineers, expenses associated with the
development of new and enhanced products, and incremental research and
development personnel expenses associated with the March 1997 business
combination with Softdesk. The increase in research and development expenses
between fiscal years 1996 and 1997 was due to the addition of software
engineers and fiscal year 1997 business combinations. Autodesk anticipates
that
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research and development expenses will increase in fiscal year 1999 as a
result of product development efforts by Autodesk's market groups and
incremental personnel costs. Additionally, Autodesk intends to continue
recruiting and hiring experienced software developers and to consider the
licensing and acquisition of complementary software technologies and
businesses.
General and Administrative. General and administrative expenses include
Autodesk's information systems, finance, human resources, legal, purchasing,
and other administrative operations. Fiscal year 1998 general and
administrative expenses of $83.3 million increased 12 percent from the $74.3
million recorded in the prior fiscal year, primarily due to higher employee-
related costs and amortization expense associated with intangible assets
recorded in connection with the acquisition of Softdesk, Inc. Fiscal year 1997
general and administrative expenses decreased 2 percent from fiscal year 1996
spending of $76.1 million reflecting lower professional fees, partially offset
by increased expenses to maintain and expand Autodesk's worldwide information
systems. Autodesk currently expects that general and administrative expenses
in the coming year will increase to support spending on infrastructure,
including continued investment in Autodesk's worldwide information systems and
making any additional corrections to Autodesk's hardware, software, and
products for compliance in the year 2000.
Nonrecurring Charges. Nonrecurring charges represent charges for purchased
in-process research and development associated with Autodesk's acquisition of
Softdesk, Inc. ($55.1 million) and licensing of 3D/Eye technology ($3.0
million) in fiscal year 1998 and acquisitions of Teleos Research ($3.2
million) and Argus Technologies, Inc. ($1.5 million) in fiscal year 1997. For
additional information, see "Business Combinations" in Note 1 of the Autodesk
Consolidated Financial Statements.
As discussed in Note 4 to the Autodesk Consolidated Financial Statements, a
$25.5 million judgment was entered against Autodesk in fiscal year 1995 on a
claim of trade secret misappropriation brought by Vermont Microsystems, Inc.
("VMI"). Autodesk recorded this nonrecurring charge in the fourth quarter of
fiscal year 1995. Autodesk appealed and a reduced judgment was entered against
Autodesk in February 1998 in the amount of $7.8 million. In May 1998, final
judgment was entered in the VMI litigation. See Notes to the Autodesk Interim
Unaudited Financial Statements as of July 31, 1998.
Interest and Other Income. Interest income was $9.8 million, $8.8 million,
and $10.6 million for fiscal years 1998, 1997, and 1996, respectively. The
increase in fiscal year 1998 interest income over fiscal year 1997 interest
income was largely due to an increase in average cash, cash equivalents, and
marketable securities balances. The decrease in fiscal year 1997 interest
income from the prior fiscal year resulted from a lower average balance of
cash, cash equivalents, and marketable securities, partially offset by higher
interest rates on Autodesk's international investment portfolio when compared
to the same period in the prior fiscal year. Interest and other income for
fiscal years 1998, 1997, and 1996 was net of interest expense of $0.2 million,
$1.8 million, and $1.8 million, respectively.
Autodesk has a hedging program to minimize foreign exchange gains or losses,
where possible, from recorded foreign-denominated assets and liabilities. This
program involves the use of forward foreign exchange contracts in the primary
European and Asian currencies. Autodesk does not hedge anticipated foreign-
denominated revenues and expenses not yet incurred. Gains (losses) resulting
from foreign currency transactions primarily in Europe and Asia Pacific, which
are included in interest and other income, were ($68,000), ($197,000), and
$554,000 in fiscal years 1998, 1997, and 1996, respectively.
Provision for Income Taxes. Autodesk's effective income tax rate, excluding
one-time charges for acquired in-process research and development associated
with the March 1997 acquisition of Softdesk, Inc. and fiscal year 1997
acquisitions, was 36.0 percent in fiscal year 1998 compared to 35.5 percent
and 36.5 percent in fiscal years 1997 and 1996, respectively. The increase in
the effective income tax rate in fiscal year 1998 compared to fiscal year 1997
was principally due to the amortization of certain intangible assets not
deductible for tax purposes and foreign earnings which are taxed at rates
different from the US statutory rate. The decrease in the tax rate between
fiscal years 1997 and 1996 was due largely to a decrease in Autodesk's
effective state income tax rate.
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See Note 3 to the Autodesk Consolidated Financial Statements for an analysis
of the differences between the US statutory and the effective income tax
rates.
Autodesk's United States income tax returns for fiscal years ended January
31, 1992 through 1996 are under examination by the Internal Revenue Service.
On August 27, 1997, the Internal Revenue Service issued a Notice of Deficiency
proposing increases to the amount of Autodesk's United States 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.
Management believes that adequate amounts have been provided for any
adjustments that may ultimately result from these examinations.
Recently Issued Accounting Standards. In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general-purpose financial statements and which is required to be adopted by
Autodesk beginning in its fiscal year 1999. Additionally, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which establishes standards for the way public business
enterprises report information in annual statements and interim financial
reports regarding operating segments, products and services, geographic areas,
and major customers. SFAS 131 will first be reflected in Autodesk's fiscal
year 1999 Annual Report and will apply to both annual and interim financial
reporting subsequent to this date. Autodesk is currently evaluating the impact
of SFAS 130 and SFAS 131 on its financial disclosures.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), which supersedes SOP 91-1. SOP 97-2 will be effective beginning
in fiscal year 1999. In March 1998, the AICPA issued Statement of Position 98-
4 ("SOP 98-4"), which amends certain provisions of SOP 97-2. Autodesk believes
it is in compliance with the provisions of SOP 97-2 as amended by SOP 98-4.
However, detailed implementation guidelines for this standard have not been
issued. Once issued, such guidance could lead to unanticipated changes in
Autodesk's current revenue recognition practices and such changes could be
material to Autodesk's results of operations.
In March 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This standard requires companies to
capitalize qualifying computer software costs which are incurred during the
application development stage and amortize them over the software's estimated
useful life. Autodesk is required to adopt this standard in fiscal year 2000
and is currently evaluating the impact that its adoption will have on the
consolidated financial position and results of operations of Autodesk.
CERTAIN RISK FACTORS WHICH MAY IMPACT FUTURE OPERATING RESULTS
Autodesk operates in a rapidly changing environment that involves a number
of risks, some of which are beyond Autodesk's control. The following
discussion highlights some of these risks and the possible impact of these
factors on future results of operations.
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 adversely affect 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 competes, both by entry of competitors with innovative
technologies and by consolidation of companies with complementary products and
technologies.
The AEC family of products competes directly with software offered by
companies such as Bentley Systems, Inc. ("Bentley"); Computervision
Corporation (a subsidiary of Parametric Technologies, Inc.)
("Computervision"); CADAM Systems Company, Inc.; Diehl Graphsoft, Inc.;
EaglePoint Software;
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International Microcomputer Software, Inc. ("IMSI"); Intergraph Corporation;
Ketiv Technologies; Nemetschek Systems, Inc.; and Visio Corporation ("Visio").
Autodesk's MCAD products compete with products offered by Bentley; Visionary
Design Systems; Hewlett-Packard Corporation; Parametric Technologies, Inc.;
Structural Dynamics Research Corporation; Unigraphics; Computervision;
Dassault Systemes ("Dassault"); Solidworks Corporation (a subsidiary of
Dassault); and Baystate Technologies, Inc. Autodesk's GIS Market Group faces
competition from Bentley; Intergraph; MapInfo Corporation; Earth Sciences
Research Institute ("ESRI"); and MCI Systemhouse. Kinetix product offerings
compete with products offered by other multimedia companies such as Adobe
Systems Inc.; Macromedia, Inc.; and Silicon Graphics, Inc. The Personal
Solutions Group family of products competes with; IMSI; The Learning Company;
Visio; Micrografx Inc. and others. 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 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 FTC has undertaken a
nonpublic investigation of its business practices. The FTC has not made any
claims or allegations regarding the Autodesk's current business practices or
policies, nor have any charges been filed. Autodesk intends to cooperate fully
with the FTC in its inquiry. Autodesk does not believe that the investigation
will have a material impact on its business or consolidated results of
operations.
Fluctuations in Quarterly Operating Results. Autodesk has experienced
fluctuations in operating results in interim periods in certain geographic
regions due to seasonality. Autodesk's operating results in Europe during the
third fiscal quarter are usually impacted by a slow summer period while the
Asia Pacific operations typically experience seasonal slowing in the third and
fourth fiscal quarters.
The technology industry is particularly susceptible to fluctuations in
operating results within a quarter. While Autodesk experienced more linear
operating results within fiscal year 1998 compared to prior years,
historically the majority of Autodesk's orders within a fiscal quarter have
frequently been concentrated within the last weeks or days of that quarter.
These fluctuations are caused by a number of factors, including the relatively
long sales cycle of some of Autodesk's products, the timing of the
introduction of new products by Autodesk or its competitors, and other
economic factors experienced by Autodesk's customers and the geographic
regions in which Autodesk does business. 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.
Similarly, 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 updates, and adjacent
products which are interoperable with AutoCAD. As such, any factor adversely
affecting sales of AutoCAD and AutoCAD updates, including such factors as
product life cycle, market acceptance, product performance and reliability,
reputation, price competition, and the availability of third-party
applications, could have a material adverse effect on Autodesk's business and
consolidated results of operations.
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
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are internally complex and, despite extensive testing and quality control, may
contain errors or defects ("bugs"), especially when first introduced. In
fiscal year 1996, Autodesk experienced quality and performance issues
associated with AutoCAD Release 13, including issues related to compatibility
with certain hardware platforms and peripheral equipment, interoperability
problems with products designed to work in conjunction with AutoCAD Release
13, and other issues associated with the software's object-oriented design.
These factors resulted in a high rate of product returns in fiscal year 1996.
There can be no assurance that defects or errors will not occur in future
releases of AutoCAD or other software products offered by Autodesk. Such
defects 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 have a material and adverse effect on Autodesk's business and
consolidated results of operations.
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
have a material and adverse effect on Autodesk's business and consolidated
results of operations. Further, increased competition in the market for
design, 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, which historically have had lower margins, grow at a faster rate
than Autodesk's higher-margin products.
Certain 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, there can be no assurance that independent developers,
including those who have developed products for Autodesk in the past, will be
able to provide development support to Autodesk in the future. Similarly,
there can be no assurance that Autodesk will be able to obtain and renew
license agreements on favorable terms, if at all, and any failure to do so
could have a material adverse effect on Autodesk's business and consolidated
results of operations.
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. There can be no assurance
that certain developers will not elect to support other products or otherwise
experience disruption in product development and delivery cycles. Such
disruption in particular markets could negatively impact these third-party
developers and end users, which could have a material adverse effect on
Autodesk's business and consolidated results of operations. Further, increased
merger and acquisition activity currently experienced in the technology
industry could affect relationships with other third-party developers, and
thus adversely affect 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; potential changes in tax laws; greater difficulty in protecting
intellectual property; and the impact of fluctuating exchange rates between
the US dollar and foreign currencies in markets where Autodesk does business.
During fiscal year 1998, changes in exchange rates from the same period of the
prior fiscal year adversely impacted revenues, principally due to changes in
the Japanese yen and the German mark. As more fully described in Note 2 to the
Autodesk consolidated financial statements, 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. Autodesk's international
results have been impacted by recent unfavorable economic and political
conditions in the Asian markets. There can be no assurance that
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the economic crisis and currency issues currently being experienced will not
have a material adverse effect on Autodesk's future international operations
and, consequently, on Autodesk's business and consolidated results of
operations.
Dependence on Distribution Channels. Autodesk sells its software products
primarily to distributors and resellers (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
to date experienced any material problems with its VAR network, computer
software dealers and distributors are typically not highly capitalized and
have experienced difficulties during times of economic contraction and may do
so in the future. While no single customer accounted for more than 10 percent
of Autodesk's consolidated revenues in fiscal years 1998, 1997, or 1996, the
loss of or a significant reduction in business with any one of Autodesk's
major international distributors or large US resellers could have a material
adverse effect on Autodesk's business and consolidated results of operations
in future periods.
Product Returns. With the exception of certain 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. While Autodesk experienced a decrease in the overall level of product
returns in fiscal year 1998 compared to fiscal years 1997 and 1996, 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 Autodesk's reserve estimates, and such
differences could be material to Autodesk's consolidated financial statements.
Intellectual Property. Autodesk relies on a combination of patent, copyright
and trademark laws, trade secrets, confidentiality procedures, and contractual
provisions to protect its proprietary rights. Despite such efforts to protect
Autodesk's proprietary rights, unauthorized parties may attempt to copy
aspects of Autodesk's software products or to obtain and use information that
Autodesk regards as proprietary. Policing unauthorized use of Autodesk's
software products is time-consuming and costly. Although Autodesk is unable to
measure the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. There can be no assurance
that Autodesk's means of protecting its proprietary rights will be adequate or
that its competitors will not 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 the functionality of products in different
industry segments overlaps. There can be no assurance that infringement or
invalidity claims (or claims for indemnification resulting from infringement
claims) will not be asserted against Autodesk or that any such assertions will
not have a material adverse effect on 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 could have a material adverse effect on Autodesk's business and
consolidated results of operations.
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. There can be no
assurance that these third-party software licenses will continue to be
available on commercially reasonable terms, or that the software will 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 have a material adverse effect on Autodesk's
business and consolidated results of operations.
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Risks Associated with Acquisitions and Investments. Autodesk periodically
acquires or invests in businesses, software products, and technologies which
are complementary to Autodesk's business through strategic alliances, debt and
equity investments, joint ventures, 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. There can be no assurance that Autodesk
will be successful in overcoming such risks or that such investments and
acquisitions will not have a material adverse impact on Autodesk's business,
financial condition, or results of operations. 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 or financial condition.
During the first quarter of fiscal year 1998, Autodesk completed its
acquisition of all of the outstanding stock of Softdesk, Inc. Autodesk
continues to integrate the operations acquired in the Softdesk merger with its
own. There can be no assurance that the anticipated benefits of the Softdesk
merger and any future mergers or acquisitions will be realized.
Attraction and Retention of Employees. The continued growth and success of
Autodesk 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, which are described in more detail in
Note 6 to the Autodesk consolidated financial statements. There can be no
assurance that Autodesk will be successful in continuing to recruit new
personnel and to retain existing personnel. The loss of one or more key
employees or Autodesk's inability to maintain existing employees or recruit
new employees could have a material adverse impact on Autodesk. In addition,
Autodesk may experience increased compensation costs to attract and retain
skilled personnel.
Impact of Year 2000. Some of the computer programs used by Autodesk in its
internal operations rely on time-sensitive software that was written using two
digits rather than four to identify the applicable year. These programs may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Additionally, as Autodesk is in the business of software production, year 2000
issues may affect Autodesk's products which are being sold externally.
Autodesk launched a six-phase year 2000 compliance program in the third
quarter of fiscal year 1998. The first and second phases, respectively,
included conducting preliminary and detailed assessments of vendor hardware
and software to determine Autodesk's overall exposure to the year 2000 issue.
The third phase included implementing a year 2000-compliant procurement
process and testing the current desktop operating environment. These three
phases were complete as of the end of fiscal year 1998 and cost approximately
$500,000. These costs have been charged to expense as incurred.
The fourth phase of the compliance program involves determining a working
plan, including defining the future analyses needed, the scope, and total
budget for required compliance actions. The fifth phase involves the repair or
replacement of any noncompliant hardware or software currently purchased or
developed internally. The sixth and final phase will involve a final systems
check to ensure that all hardware and software in use by Autodesk is
compliant. Autodesk expects to spend between $5 million and $6 million during
fiscal year 1999 to complete phases four, five, and six. Of the total cost,
Autodesk plans to capitalize up to $1.7 million as it relates primarily to the
purchase of new software. The remaining $3.3 million to $4.3 million relates
to modifying existing software and will be expensed as incurred in accordance
with EITF 96-14, "Accounting for
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the Costs Associated with Modifying Computer Software for the Year 2000."
There can be no assurance, however, that there will not be a delay in the
completion of these procedures or that the cost of such procedures will not
exceed original estimates, either of which could have a material adverse
effect on future results of operations.
In addition to correcting the business and operating systems used by
Autodesk in the ordinary course of business as described above, Autodesk has
also reviewed all products it produces internally for sale to third parties to
determine compliance of its products. Products either have been found to be
compliant or are currently being tested for compliance. However, many Autodesk
products run on computer hardware and operating systems produced and sold by
third-party vendors. There can be no assurance that these computer hardware
and operating systems will be converted in a timely manner, and any failure in
this regard may cause Autodesk products not to function as designed. Any
future costs associated with ensuring that Autodesk's products are compliant
with the year 2000 are not expected to have a material impact on Autodesk's
results of operations or financial position. Autodesk anticipates that all
compliance procedures will be completed before the beginning of Autodesk's
fiscal year 2000, which begins February 1, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and marketable securities, which consist primarily
of high-quality municipal bonds, tax-advantaged money market instruments, and
US treasury bills, totaled $301.3 million at January 31, 1998, compared to
$286.3 million at January 31, 1997. The $15.0 million increase in cash, cash
equivalents, and marketable securities was due primarily to cash generated
from operations ($158.6 million) and cash proceeds from the issuance of shares
through employee stock option and stock purchase programs ($80.1 million).
This increase was partially offset by cash used to repurchase shares of
Autodesk's common stock ($174.9 million), to acquire complementary software
technologies and businesses ($19.8 million), to purchase computer equipment,
furniture, and leasehold improvements ($15.0 million), and to pay dividends on
Autodesk's common stock ($11.3 million).
During fiscal years 1998, 1997, and 1996, Autodesk repurchased and retired a
total of 2,332,500, 1,659,500, and 2,671,000 shares of Autodesk Common Stock
at average repurchase prices of $38.39, $32.44, and $40.43, respectively,
pursuant to an ongoing and systematic repurchase plan ("Systematic Plan")
approved by Autodesk Board to reduce the dilutive effect of common shares to
be issued under Autodesk's employee stock plans. In December 1997, the
Autodesk Board authorized the purchase of an additional 4 million shares under
the Systematic Plan.
In August 1996, Autodesk announced another stock repurchase program under
which Autodesk may purchase up to 5 million shares of Autodesk Common Stock in
open market transactions as market and business conditions warrant -- the
"Supplemental Plan." In December 1997, the Autodesk Board authorized the
purchase of an additional 5 million shares under the Supplemental Plan.
Autodesk may also utilize equity options as part of the Supplemental Plan.
In connection with the Supplemental Plan, Autodesk sold put warrants to an
independent third party in September 1996 and purchased call options from the
same independent third party. The premiums received with respect to the equity
options equaled the premiums paid. Consequently, there was no exchange of
cash. Autodesk exercised the call options, repurchasing 2,000,000 shares of
Autodesk Common Stock during the third quarter of fiscal year 1998 for $51
million. The put warrants expired unexercised in September 1997 and were
reclassified from put warrants to stockholders' equity during the third
quarter of fiscal year 1998. For additional information, see Note 7 to the
Autodesk consolidated financial statements. In addition to the exercise of the
call options in fiscal year 1998, Autodesk repurchased an additional 1,000,000
shares in the open market at an average per share repurchase price of $34.37.
During fiscal year 1997, Autodesk repurchased 557,500 shares of Autodesk
Common Stock at an average per share repurchase price of $24.09 subject to the
Supplemental Plan.
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In December 1997, Autodesk sold put warrants to an independent third party
that entitle the holder of the warrants to sell 1.5 million shares of Autodesk
Common Stock at $38.12 per share. Additionally, Autodesk purchased call
options from the same independent third party that entitle Autodesk to buy 1
million shares at $39.88 per share. The premiums received with respect to the
equity options totaled $4.5 million and equaled the premiums paid.
Consequently, there was no exchange of cash. The outstanding put warrants at
January 31, 1998, permitted a net share settlement at Autodesk's option. As a
result, the transaction did not result in a put warrant liability on the
consolidated balance sheet.
Autodesk has an unsecured $40 million bank line of credit, of which $20
million is guaranteed, that may be used from time to time to facilitate short-
term cash flow. At January 31, 1998, there were no borrowings outstanding
under this credit agreement, which expires in January 1999.
Autodesk's principal commitments at January 31, 1998, consisted of
obligations under operating leases for facilities. For additional information,
see Note 5 to the Autodesk Consolidated Financial Statements.
Longer-term cash requirements, other than normal operating expenses, are
anticipated for development of new software products and enhancement of
existing products; financing anticipated growth; dividend payments;
repurchases of Autodesk Common Stock; 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 cash requirements.
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AUTODESK
BUSINESS
BACKGROUND
Autodesk was incorporated in California in April 1982 and was reincorporated
in Delaware in May 1994. Its principal executive offices are located at 111
McInnis Parkway, San Rafael, California 94903 and its telephone number is
(415) 507-5000. Autodesk's two-dimensional ("2D") and three-dimensional ("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, is one of
the world's leading computer-aided design ("CAD") tools, with an installed
base of more than 2 million units worldwide. Autodesk's software products are
sold worldwide, primarily through a network of dealers and distributors.
In February 1995, Autodesk realigned its internal marketing and development
organizations around key market groups that most closely match Autodesk's
customer base. During fiscal year 1998, Autodesk defined a new market group,
the Personal Solutions Group ("PSG"), whose products are targeted to
individual users as well as professionals. Each market group incorporates
product development, quality assurance, technical publications, and product
industry marketing. Autodesk's market groups are discussed below.
Architecture, Engineering, and Construction ("AEC"). The architecture,
engineering, construction, and facilities management industries utilize
software from Autodesk and third-party developers to manage every phase of a
building's life cycle--from conceptual design through construction,
maintenance, and renovation. During fiscal year 1998, Autodesk expanded its
product offerings for the AEC Market Group by acquiring Softdesk, Inc. in
March 1997. AEC products include AutoCAD + S8 Architectural Suite, Softdesk 8
AEC Tools, and AEC Professional Suite.
Mechanical Computer-Aided Design ("MCAD"). Autodesk's Mechanical CAD Market
Group is dedicated to providing mechanical engineers, designers, and drafters
with advanced, value-based software solutions that are designed to solve their
professional design challenges. Autodesk's premier MCAD product is Mechanical
Desktop. In May 1998, Autodesk expanded its mechanical CAD products through
the purchase of various software technologies and applications from Genius CAD
Software GmbH, a German limited liability company.
Geographic Information Systems ("GIS"). Autodesk's GIS Market Group strategy
is to provide easy-to-use mapping and GIS technology to help businesses and
governments manage their assets and infrastructure. The GIS Market Group is
assisting automated mapping/facilities managers, as well as GIS and CAD users,
to share mapping, GIS, and associated information in a corporate environment.
Autodesk's current GIS products include AutoCAD Map, Autodesk MapGuide, and
Autodesk World.
Personal Solutions Group ("PSG"). The PSG Market Group develops easy-to-use,
affordable tools for professionals, occasional users, or consumers who design,
draft, and diagram, thus expanding Autodesk's traditional customer base of
architects and engineers. PSG products include AutoCAD LT and AutoSketch.
Kinetix. The Kinetix division of Autodesk is devoted to bringing powerful 3D
content-creation software to computer-industry professionals focused on two
markets: entertainment (film, broadcast video, and interactive games) and
design conceptualization and visualization. Kinetix provides two core platform
products--3D Studio MAX and 3D Studio VIZ, that specifically focus on these
markets.
PRODUCTS
Autodesk has aligned its market groups into three segments: the Design
Solutions segment (which includes the AEC, MCAD, and GIS market groups, as
well as AutoCAD products), the Personal Solutions segment, and Kinetix (the
multimedia segment). Autodesk's Design Solutions segment includes the
following products:
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AutoCAD
AutoCAD software is a general-purpose CAD tool used independently and in
conjunction with specific applications designed to work with AutoCAD in fields
ranging from architecture and mechanical design to plant design and mapping.
Professionals utilize AutoCAD for design, modeling, drafting, mapping,
rendering, and management tasks. AutoCAD runs on Windows 95, Windows 98, and
Windows 3.1. Because AutoCAD software's DWG files are portable across many
platforms and operating systems, it is a viable solution for customers with
multiple computer systems who need to exchange drawing files in such an
environment.
The most current version, AutoCAD Release 14, was introduced in May 1997.
Built for speed and efficiency, AutoCAD Release 14 includes enhancements in
areas that most influence productivity, including: precision drawing tools
such as AutoSnap, data-sharing features like raster image and reference file
clipping, photorealistic rendering, solid fills, and TrueType fonts.
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 technology, a new generation of C++-based application programming
interfaces ("APIs"). ObjectARX-based applications utilize AutoCAD software's
object-oriented capabilities.
Sales of AutoCAD and AutoCAD upgrades accounted for approximately 70 percent
of Autodesk's revenues in fiscal years 1998 and 1997 as compared to
approximately 80 percent in fiscal year 1996. During fiscal year 1998,
approximately 244,000 new AutoCAD licenses were added worldwide, compared to
207,000 licenses and 233,000 licenses added during fiscal years 1997 and 1996,
respectively.
AutoCAD OEM
AutoCAD OEM ("Original Equipment Manufacturer") for Windows-based operating
systems is a selectively licensed CAD engine offering a complete application-
development environment for creating and delivering targeted or niche
solutions with scaled feature sets. It is for developers, system integrators,
and commercial software developers who require an embeddable CAD system which
gives them the ability to scale and control the application feature set.
AutoCAD OEM provides developers with a complete toolkit of AutoCAD features
and APIs including ObjectARX capabilities, a full suite of drawing and editing
functions as well as AutoLISP, a LISP API, and the AutoCAD Development System,
a C programming interface. These capabilities enable development of new
products for new markets untapped by traditional CAD products and solutions.
Mechanical Desktop
Mechanical Desktop software is an integrated software application that
unites advanced 2D and 3D mechanical design capabilities for PCs. The
Mechanical Desktop contains integrated modules for fully parametric feature-
based solid modeling, surface modeling, and assembly modeling; 2D
design/drafting and bidirectional associative drafting; as well as a built-in
Autodesk IGES Translator, which enables users to accurately exchange IGES
(Initial Graphics Exchange Specification) data with other systems. Mechanical
Desktop Release 2.0, which was released in December 1997, includes an Express
User Interface, Edit-in-Place assembly functionality, and improved integration
with Autodesk's AutoCAD Release 14 for mechanical drafting, and 3D Studio MAX
for 3D photorealistic rendering and animation. Advanced ordinate dimensioning,
editing and display of crosshatch patterns, surface scaling, section view, and
associative bill-of-materials generation are among the features included in
the latest release of Mechanical Desktop software.
AutoCAD Map
AutoCAD Map software is the first AutoCAD-based automated-mapping product
for professional planners, utility managers, and technicians who create and
maintain their own maps and use their data for engineering-
based analysis and planning. Built with AutoCAD software, AutoCAD Map focuses
on five key areas: digital map creation, analysis, maintenance of up-to-date
maps, data exchange, and publishing. The API in AutoCAD
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Map lets developers build vertical applications for industries such as
telecommunications, utilities, oil and gas, state and local government, and
natural resource and environmental engineering. AutoCAD Map also contains
ObjectARX capabilities.
Autodesk MapGuide
MapGuide is a Web-based GIS technology that is designed to allow corporate
customers and developers to use the Internet and business intranets to rapidly
deploy decision support systems with a geographic component. Suited for a wide
range of users--from GIS professionals to the casual computer user--MapGuide
software enables users to access and query digital maps and permits users to
display and analyze geographic data for applications that include tracking
customers, allocating resources, and managing facilities infrastructure.
Autodesk World
Autodesk World allows for the management of geographic-based data. It offers
capture, edit, analysis, integration, and presentation functionality for
spatial data, including raster, vector (CAD and GIS), and attributes. It also
includes Object Linking and Embedding ("OLE"), which allows users to link
drawings to other Windows applications such as Microsoft Word or Excel,
application programming interfaces, and an integrated Visual Basic for
Applications 5.0 scripting environment for easy customization and application
development.
AEC Professional Suite
Autodesk AEC Professional Suite 2.0, introduced in June 1997, is an
integrated set of design tools created for professionals in the fields of
Architecture, Engineering, Construction, Facility Management, and Plant Design
and Management. It includes AutoCAD Release 14 software, specialized AEC
AutoCAD enhancements, Architectural Symbols, Autodesk WalkThrough,
DesignBlocks, and Autodesk View. The AEC Professional Suite Release 2.0 serves
a variety of needs of the AEC professional via improved customization and
ease-of-use, integration of visualization tools into the design process and
CAD applications, access to standard manufacturer data, and a lower cost for
the overall design solution. Enhancements to the Suite enable the user to
detect and mend lines and arcs that are coincident or overlapping, create and
control perspective view with Camera Object, and provide access to more than
300 ready-made textures from multiple AEC-specific materials libraries.
Softdesk 8 Civil/ Survey Special Edition
The Softdesk 8 Civil/Survey Special Edition is a focused set of programs for
professionals in the Civil Engineering, Land Planning, and Surveying
industries. These products extend AutoCAD Release 14 or AutoCAD Map 2.0 by
addressing common surveying requirements such as Surface Modeling and
Contouring, Point Manipulation, Data Input and Analysis, Base Map Creation,
and the incorporation of raster imagery. The solution also offers design and
analysis capabilities for site and transportation, storm and sanitary drain
systems, grading, parking, and landscape design.
AutoCAD + S8 Architectural Suite
The AutoCAD + S8 Architectural Suite includes other AEC products such as S8
Architectural Professional Special Edition, AEC Tools, and Auto-Architect.
Auto-Architect includes landscape tools and utilities to generate structural
foundation/framing plans and elevations in addition to space planning, walls,
doors and windows, roofs and stairs. In this suite, AEC Tools is used to
manage project and office standards and to create and manage details and other
productive utilities.
Autodesk's Personal Solutions segment includes the following products:
AutoCAD LT
AutoCAD LT 97 is a low-cost 2D CAD application intended for CAD managers,
designers, and engineers who need a powerful, stand-alone CAD tool, but who do
not require the advanced feature set in AutoCAD.
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AutoCAD LT 97 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 wizards to help the user
create or open a drawing quickly; real-time pan and zoom; a Drag-and-Drop
Content Explorer featuring hundreds 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 OLE. AutoCAD LT 97 is
fully compatible with Windows 95 and Windows NT 4.0 and has built-in Microsoft
Office 97 compatibility.
AutoSketch
AutoSketch Release 95 is a precision drawing program that can be used for
creating technical diagrams, architectural layouts, electrical drawings,
mechanical plans, information graphics, and presentations. The Application
Wizards customize their interfaces based on the type of drawing to allow for
the creation of drawings, diagrams, and sketches.
The principal product offerings from the Kinetix segment are discussed
below:
3D Studio MAX
3D Studio MAX R2 software, which began shipping in the third quarter of
fiscal year 1998, 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 PCs.
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 allows 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, a powerful character-animation and
skinning plug-in software product offered by Kinetix.
3D Studio VIZ
3D Studio VIZ, introduced in May 1997, is a design tool that enables users
to express ideas on-screen, in full 3D. Architectural models, engineering
samples, and construction-site previews all become a quick reality with this
new Kinetix software tool. Real-world feedback can be incorporated into the
design, and users can explore more options with their customers more cost-
effectively. 3D Studio VIZ and AutoCAD files are easily exchanged and allow
for the development of advanced engineering or architectural visualizations.
3D Studio VIZ animates, so clients can take a simulated walkthrough of a site,
understand a structure, or view a part as it will operate in the final
assembly. The VIZ user interface employs CAD-like creation tools including
fillets, trims, and chamfers.
PRODUCT DEVELOPMENT AND ENHANCEMENT
The computer industry is characterized by rapid technological change in
computer hardware, operating systems, and software. To keep pace with this
change, Autodesk maintains an aggressive program of new product development.
Autodesk dedicates considerable resources to research and development to
further enhance its existing products and to create new products and
technologies. During fiscal years 1998, 1997, and 1996, Autodesk incurred
$122,432,000, $93,702,000, and $78,678,000, respectively, for software design,
development, product localization, and project-management activities
(excluding capitalized software development costs of
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approximately $2,200,000 in fiscal year 1998; no software development costs
were capitalized during fiscal years 1997 and 1996).
The majority of Autodesk's basic research and product development has been
performed in the United States, while translation and localization of foreign-
market versions are generally 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 is centralized 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 software products offered by Autodesk are internally complex. Despite
extensive testing and quality control, these products may contain errors or
defects ("bugs"), especially when first introduced. In fiscal year 1996,
Autodesk experienced quality and performance issues associated with AutoCAD
Release 13, including issues related to compatibility with certain hardware
platforms and peripheral equipment, interoperability problems with products
designed to work in conjunction with AutoCAD Release 13, and other issues
associated with the software's object-oriented design. These factors resulted
in a high rate of product returns in fiscal year 1996. There can be no
assurance that defects or errors will not occur in future releases of AutoCAD
or other software products offered by Autodesk. Such defects 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 have a material
and adverse effect on Autodesk's business and consolidated results of
operations.
Autodesk believes that its future results will depend largely upon its
ability to offer products that compete favorably with respect to price,
reliability, performance, range of useful features, continuing product
enhancements, reputation, and training. Delays or difficulties may result in
the delay or cancellation of planned development projects, and could have a
material and adverse effect on Autodesk's business and consolidated results of
operations. Further, increased competition in the market for design, 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,
which historically have had lower margins, grow at a faster rate than
Autodesk's higher-margin products.
Certain 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, there can be no assurance that independent developers,
including those who have developed products for Autodesk in the past, will be
able to provide development support to Autodesk in the future. Similarly,
there can be no assurance that Autodesk will be able to obtain and renew
existing license agreements on favorable terms, if at all, which could have a
material and adverse effect on Autodesk's business and consolidated results of
operations.
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. There can be no assurance
that certain developers will not elect to support other products or otherwise
experience disruption in product development and delivery cycles. Such
disruption in particular markets could negatively impact these third-party
developers and end users, which could have a material adverse effect on
Autodesk's business and consolidated results of operations. Further, increased
merger and acquisition activity currently experienced in the technology industry
could affect relationships with other third-party developers, and thus adversely
affect operating results.
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Additionally, there can be no assurance that Autodesk's development efforts
will result in the timely introduction of new products or that such new
products will be commercially successful. Failure to successfully develop new
products, delays in the introduction of these new products, or lower-than-
anticipated demand for these products could have a material and adverse effect
on Autodesk's business and consolidated results of operations.
MARKETING AND SALES
Autodesk's customer-related operations are divided into three geographic
regions: the Americas, Europe, and Asia Pacific. Autodesk's products are
marketed worldwide through a network of domestic and foreign offices. Autodesk
sells its software products primarily through distributors and dealers (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, periodic publications, and Autodesk's Home Page on the
Internet.
In addition, Autodesk works directly with dealer and distributor sales
organizations, computer manufacturers, other software developers, and
peripherals manufacturers through cooperative advertising, promotions, and
trade-show presentations. Autodesk also holds annual "Expos" throughout the
world. These dedicated trade shows, incorporated within major industry trade
shows, highlight Autodesk's products, as well as a number of third-party
products. Autodesk also employs mass-marketing techniques such as direct
mailings and advertising in business and trade journals. Further, Autodesk
supports user groups dedicated to the exchange of information related to the
use of Autodesk's products.
Domestically, Autodesk distributes its products primarily through its
authorized dealer network. Other domestic sales are made principally to large
corporations, governmental agencies, educational institutions, and, for
certain low-end CAD products, to end users. Substantially all of Autodesk's
international sales are made to dealers and distributors, which are supported
by Autodesk's foreign subsidiaries and international sales organizations.
Certain 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, negatively impacted
foreign revenues during fiscal year 1998. These foreign currency fluctuations,
as well as any slowdowns in any of Autodesk's geographical markets, including
the recent economic instability experienced in certain Asia Pacific countries,
could have a material adverse effect on Autodesk's business and future
consolidated 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 has not to date experienced any material problems with its VAR
network, computer software dealers 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 fiscal years 1998, 1997, or 1996, the
loss of, or a significant reduction in, business with any one of Autodesk's
major international distributors or large U.S. resellers could have a material
adverse effect on Autodesk's business and consolidated results of operations.
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. Foreign revenues, including
export sales from the United States to foreign customers, accounted for
approximately 58 percent, 65 percent, and 64 percent of revenues in fiscal
years 1998, 1997, and 1996, respectively.
CUSTOMER AND DEALER SUPPORT
During fiscal year 1998, Autodesk realigned its customer and dealer support
network around its market groups to better provide services related to
specific industry segments. Autodesk requires each authorized dealer and
distributor to provide a professional level of technical support to customers
by employing full-time, trained,
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<PAGE>
technical-support personnel. Autodesk supports its dealers and distributors
through technical product training, sales training classes, and direct
telephone support. During fiscal year 1998, Autodesk began to offer more end-
user support in addition to services which had historically been offered such
as the online support available through the Autodesk Home Page on the
Internet. These new support services include the Web-Based Learning program, a
fee-based distance learning program that provides lessons and tutorials that
highlight critical components of Autodesk's products, and the Multimedia
Learning Assistance program, which provides lessons related to design projects
through an interactive multimedia tool.
Autodesk offers phone support through authorized Autodesk dealers under two
programs: the Autodesk Premier Support Program ("APSP") and the Autodesk
Systems Center Program ("ASCP"). Under the APSP, participating dealers act as
dedicated account managers to Autodesk customers that have technical questions
related to a specific vertical industry. The ASCP requires dealers to provide
superior industry-specific application training to end users of Autodesk's
products. In addition, Autodesk provides direct phone support to end users
under the new Safety Net Program ("SNP"). Under the SNP, Autodesk support
staff provide technical support for customers with questions about AutoCAD and
products offered by Autodesk's market groups.
As of January 31, 1998, Autodesk had authorized more than 900 independent
Autodesk Training Centers ("ATCs") throughout the world. These accredited
training centers offer in-depth education and training in computer-aided
design skills on AutoCAD and other Autodesk products, as well as on related,
independently developed software.
Customers have formed Autodesk user groups as forums for education and to
suggest product enhancements and development of new products. The Autodesk
User Group International ("AUGI"), officially recognized by Autodesk, sponsors
an annual meeting held concurrently with the Autodesk University user show;
publishes a quarterly newsletter; independently evaluates Autodesk products;
compiles user feature and functionality requirements; and offers telecourses
taught by its membership on CompuServe. In addition, there are local user
groups in Europe, Asia Pacific, and the Americas focused on expanding the use
of Autodesk 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 peripheral
and complementary products which enhance sales of Autodesk products. This
approach enables customers and third parties to customize Autodesk's products
for a wide variety of highly specific uses. The Autodesk Developer Network
program offers several programs that provide marketing, sales, and technical
support and programming tools to nearly 3,000 participating developers
worldwide, who have, to date, developed more than 5,000 commercially available
add-on applications for Autodesk products. Although Autodesk derives no direct
revenue from these application developers, Autodesk believes that the
availability and use of their add-on products enhance sales opportunities for
Autodesk's core products.
Under the Autodesk Developer Channel, Autodesk offers three programs to
third-party developers that are interested in licensing Autodesk software and
technology. The Unique Application Reseller program ("UAR") allows software
developer partners the ability to sell and support Autodesk software when
bundled with specifically defined vertical applications. The OEM program
provides the technology for qualified developers to create and deliver suites
of scalable products that focus on solving customer needs in specialized
markets. The Solution Integrator ("SI") allows solution provider partners the
ability to sell and support Autodesk software when bundled with specifically
defined vertical solutions.
To support the growth of third-party developers, whose applications extend
and enhance the functionality of Autodesk's products worldwide, Autodesk
established the Virtual Corporation Partner Program ("VCPP") during fiscal
year 1995. The VCPP is a business network comprised of dealers, independent
application developers, Autodesk Training Centers, and customers. This program
provides sales, marketing, technical, product, management, and financial
support to Autodesk Strategic Developers and dealers.
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During fiscal year 1998, Autodesk continued to expand the Mechanical
Applications Initiative ("MAI") by adding new partners. This program, which
was introduced in fiscal year 1996, is aimed at the development and marketing
of products which can be integrated with Autodesk's MCAD products. MAI
partners participate with Autodesk in product marketing and development
activities.
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, any of which could
adversely affect 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
competes, both by entry of competitors with innovative technologies and by
consolidation of companies with complementary products and technologies.
The AEC family of products competes directly with software offered by
companies such as Bentley Systems, Inc. ("Bentley"); Computervision
Corporation (a subsidiary of Parametric Technologies, Inc.); CADAM Systems
Company, Inc.; Diehl Graphsoft, Inc.; EaglePoint Software; International
Microcomputer Software, Inc. ("IMSI"); Intergraph Corporation; Ketiv
Technologies; Nemetschek Systems, Inc.; and Visio Corporation ("Visio").
Autodesk's MCAD products compete with products offered by a number of
competitors, including Bentley; Visionary Design Systems; Hewlett-Packard
Corporation; Parametric Technologies, Inc.; Structural Dynamics Research
Corporation; Unigraphics; Computervision Corporation (a subsidiary of
Parametric Technologies); Dassault Systemes; SolidWorks Corporation (a
subsidiary of Dassault); and Baystate Technologies, Inc. Autodesk's GIS Market
Group faces competition from companies such as Bentley; Intergraph
Corporation; MapInfo Corporation; Earth Sciences Research Institute; and MCI
Systemhouse. Kinetix product offerings compete with products offered by other
multimedia companies such as Adobe Systems Inc.; Macromedia, Inc.; and Silicon
Graphics, Inc. The Personal Solutions Group family of products competes with
IMSI; The Learning Company; Visio; Micrografx Inc. and others. 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 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 FTC has undertaken a
nonpublic investigation of its business practices. The FTC had not made any
claims or allegations regarding Autodesk's current business practices or
policies, nor have any charges been filed. Autodesk intends to cooperate fully
with the FTC in its inquiry. Autodesk does not believe that the investigation
will have a material impact on its business or consolidated results of
operations.
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, there can be no assurance that Autodesk's intellectual
property rights can be successfully asserted in the future or will not 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
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property rights to the same extent as U.S. laws. The inability of Autodesk to
protect its proprietary information could have a material adverse effect on
Autodesk's business and consolidated results of operations.
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 have a material adverse effect on
Autodesk's business and consolidated results of operations.
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. Additionally, Autodesk is a member and co-
founder of the Business Software Alliance ("BSA"), 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
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. Certain 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.
EMPLOYEES
As of July 31, 1998, Autodesk had 2,587 full-time employees, of which 1,981
were based in the Americas, 390 in Europe, and 216 in Asia Pacific. The
continued growth and success of Autodesk 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.
There can be no assurance that Autodesk will be successful in continuing to
recruit new personnel and to retain existing personnel. The loss of one or
more key employees or Autodesk's inability to maintain existing employees or
recruit new employees could have a material adverse impact on Autodesk. None
of Autodesk's employees in the United States is subject to a collective
bargaining agreement, and Autodesk has never experienced a work stoppage.
Management believes that its relations with its employees are good.
PROPERTIES
Autodesk's executive offices and those related to 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 United States for local sales, development, and
technical support personnel. Autodesk's
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foreign subsidiaries lease office space for their operations. Autodesk owns
substantially all equipment used in its facilities.
LEGAL PROCEEDINGS
In May 1997, Autodesk settled a lawsuit filed by Tektronix, Inc. alleging a
patent infringement, pursuant to which all of Tektronix's claims have been
dismissed.
In December 1994, Autodesk recorded a $25.5 million litigation charge as a
result of a judgment against Autodesk on a claim of a trade secret
misappropriation brought by Vermont Microsystems, Inc. ("VMI"). Autodesk
appealed that judgment and, upon remand to the Federal District Court, a
reduced judgment was entered against Autodesk in the amount of $14.2 million
plus interest. On February 23, 1998, the U.S. Court of Appeals for the Second
Circuit reduced the judgment to $7.8 million.
In May 1998, final judgment was entered in the Vermont Microsystems, Inc.
("VMI") trade secret litigation in the amount of $7.8 million plus accrued
interest. Final payment of approximately $8.4 million was made to VMI and
charged against a previously recorded litigation accrual. During the quarter
ended July 31, 1998, Autodesk credited $18.2 million and $2.7 million to
operating income and interest income, respectively, to record the gain on the
litigation settlement and remaining unutilized interest accruals.
Autodesk is a party to various legal proceedings arising from the normal
course of business activities. While the outcome of these matters cannot be
predicted with certainty, 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.
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DISCREET
In this section, "Discreet" refers to, depending on the context, Discreet,
its subsidiaries and its ventures collectively, or Discreet and its
subsidiaries.
BUSINESS
BACKGROUND
Discreet develops, assembles, markets and supports non-linear, on-line
digital systems and software for creating, editing and compositing imagery and
special effects for film, video, HDTV, broadcast and the Web. Discreet's
systems and software are utilized by creative professionals for a variety of
applications, including feature films, television programs, commercials, music
and corporate videos, interactive game production, live broadcasting, as well
as Web design. Discreet's systems have played key roles in the creation of
special visual effects for films such as Armageddon, Titanic, Forrest Gump,
Independence Day, The Fifth Element, Batman & Robin, Contact and Air Force
One; television programs and special events such as ABC's "World News Tonight
with Peter Jennings" and the 1996 United States Presidential elections on ABC
and CBS; music videos by artists including U2, REM, Rolling Stones and The
Beatles; and commercials for clients such as Nike, Pepsi, AT&T and McDonald's.
Discreet believes that creative professionals and designers require tools that
simplify their work, enabling them to devote more time to creative activities
and less time to technical tasks.
Discreet offers turnkey systems for high end post production and broadcast
facilities focused towards three markets: special effects, editing and
broadcast production (its "Advanced Systems"). Discreet's Advanced Systems are
comprised of proprietary software utilizing workstations manufactured by SGI,
scalable disk arrays and other peripherals. These can be networked together to
enable users to manage data more efficiently and collaborate in an integrated
production environment. Discreet's systems include its inferno* and flame*
systems (special effects), its fire* and smoke* systems (editing), and its
frost* system (broadcast production). Discreet's special effects and editing
Advanced Systems are used to manipulate digital media in an on-line, real-time
environment, providing instant feedback to the creative professional. These
systems are currently or are currently being designed to be resolution
independent and to allow users to work on uncompressed images from a variety
of media sources in the full range of resolutions necessary for film, video
and HDTV. In the broadcast production market, Discreet offers its frost*
system, a set of modeling, animation and rendering tools for the creation and
manipulation of 3D environments, including virtual sets, for broadcast
companies. Discreet sells its Advanced Systems worldwide through a direct
sales force as well as through high-end, sophisticated distributors.
During the last 18 months, Discreet has entered the new media marketplace
through a series of acquisitions and now offers editing and special effects
software which runs on the Microsoft Windows NT, the Apple Macintosh and/or
the Unix operating systems. The new media market is characterized by
institutional and educational customers, designers and prosumers. Discreet's
desktop or new media software (its "New Media Software") products include its
edit* software (formerly D-Vision OnLine) (video editing), its effect*
software (formerly Flint and Illuminaire Composition) (special effects), its
paint* software (formerly Illuminaire Paint) (special effects), and its light*
software (formerly Lightscape) (radiosity). Discreet's New Media Software is
primarily used to create, manipulate, and finish computer graphics images,
interactive and on-line content. effect* provides 3D video composition, clip
animation, and visual effects enabling artists to combine, enhance and modify
video frames or sequences of frames with a very high level of efficiency and
interactivity. paint* is a vector-based, object-oriented painting and
animation system for the manipulation and enhancement of both multi-frame
clips and single-frame graphic images. edit* is a real-time non-linear,
compressed editing software solution which performs compositing, keying and
visual effects on the desktop. light* is a 3D rendering solution that uses
advanced radiosity techniques to significantly enhance realism and lighting
accuracy in 3D environments created for virtual sets, film and video effects,
interactive games and architectural design projects.
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Discreet's goal is to become a leading supplier of digital tools used to
manipulate still and moving pictures to the high-end professional, post-
production and broadcast markets, the desktop or new media market, and the
consumer markets. To achieve this goal, Discreet plans to further expand and
leverage its technology base, customer relationships and existing reputation,
extend its product line to include other aspects of the content creation
process, and expand its worldwide sales and distribution organization.
Discreet is a company incorporated by articles of incorporation on September
10, 1991 under Part IA of the Quebec Act whose head office is located at 10
Duke Street, Montreal, Quebec, Canada H3C 2L7. Discreet has sales offices in
the United States in New York, Chicago, Los Angeles; Rio de Janeiro, Brazil;
London, England; Paris, France; Munich, Germany; Singapore; Bombay, India;
Hong Kong, China; Madrid, Spain; and Tokyo, Japan. As of August 31, 1998,
Discreet had 405 employees.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
give effect to the combination of Autodesk and Discreet on a pooling of
interests basis. The unaudited pro forma combined condensed balance sheet
assumes the Acquisition took place on July 31, 1998 and combines Autodesk's
unaudited condensed consolidated balance sheet at that date with Discreet's
historical condensed consolidated balance sheet at June 30, 1998. The
unaudited pro forma combined condensed statements of operations assume that
the Acquisition took place as of the beginning of each of the periods
presented and combine Autodesk's unaudited condensed statement of income for
the six months ended July 31, 1998 and the historical consolidated statements
of income for the three fiscal years ended January 31, 1998, 1997 and 1996 and
Discreet's unaudited condensed statement of operations for the six months
ended June 30, 1998 and the twelve months ended December 31, 1997 and the
historical condensed statements of operations for the eleven months ended June
30, 1997, and the fiscal year ended July 31, 1996, respectively. Autodesk has
not yet determined which period will be combined for inclusion in its audited
consolidated statement of income after consummation of the Acquisition.
The unaudited pro forma combined condensed statements of operations are not
necessarily indicative of operating results which would have been achieved had
the Acquisition been consummated as of the beginning of such periods and
should not be construed as representative of future operations.
Autodesk paid quarterly dividends of $0.06 per share with respect to fiscal
years 1996, 1997 and 1998, and in each of the first two quarters of fiscal
year 1999, and currently intends to continue paying such cash dividends on a
quarterly basis. Discreet has never paid any cash dividends on its Common
Shares. Discreet currently intends to retain any earnings for future growth
and therefore does not anticipate paying any cash dividends on its Common
Shares in the foreseeable future.
These unaudited pro forma combined condensed financial statements should be
read in conjunction with the respective audited historical consolidated
financial statements, the unaudited interim financial statements and the notes
thereto of Autodesk and Discreet which are incorporated by reference in this
Prospectus.
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AUTODESK, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JULY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
AUTODESK DISCREET PRO FORMA PRO FORMA
JULY 31, 1998 JUNE 30, 1998 ADJUSTMENTS COMBINED
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.. $ 43,402 $ 43,746 $ -- $ 87,148
Marketable securities...... 249,998 -- -- 249,998
Accounts receivable, net... 84,079 32,102 -- 116,181
Inventories................ 6,358 12,657 -- 19,015
Deferred income taxes...... 28,486 -- -- 28,486
Prepaid expenses and other
current assets............ 17,051 4,719 -- 21,770
-------- -------- ------- --------
Total current assets..... 429,374 93,224 -- 522,598
Computer equipment,
furniture, and leasehold
improvements, net........... 39,302 9,576 -- 48,878
Purchased technologies and
capitalized software, net... 36,241 5,042 -- 41,283
Goodwill, net................ 36,751 902 -- 37,653
Deferred income taxes........ 7,086 878 -- 7,964
Other assets................. 16,912 4,988 -- 21,900
-------- -------- ------- --------
$565,666 $114,610 $ -- 680,276
======== ======== ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable........... $ 27,500 $ 23,266 $ -- $ 50,766
Accrued compensation....... 30,054 6,857 -- 36,911
Accrued income taxes....... 84,575 9,883 -- 94,458
Deferred revenues.......... 17,747 6,545 -- 24,292
Other accrued liabilities.. 54,098 6,264 13,000 73,362
-------- -------- ------- --------
Total current
liabilities............. 213,974 52,815 13,000 279,789
Deferred income taxes........ 492 2,229 -- 2,721
Other liabilities............ 2,007 -- -- 2,007
Stockholders' equity:
Common stock............... 337,284 106,841 -- 444,125
Retained earnings
(deficit)................. 30,612 (43,251) (13,000) (25,639)
Foreign currency
translation adjustment.... (18,703) (4,024) -- (22,727)
-------- -------- ------- --------
Total stockholders'
equity.................. 349,193 59,566 (13,000) 395,759
-------- -------- ------- --------
$565,666 $114,610 $ -- $680,276
======== ======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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AUTODESK, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AUTODESK
FISCAL DISCREET
YEAR ENDED TWELVE MONTHS
JANUARY ENDED PRO FORMA PRO FORMA
31, 1998 DECEMBER 31, 1997 ADJUSTMENTS COMBINED
---------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues................ $617,126 $137,501 $-- $754,627
Costs and expenses:
Cost of revenues.......... 70,858 58,109 -- 128,967
Marketing and sales....... 237,107 28,419 -- 265,526
Research and development.. 122,432 12,868 -- 135,300
General and
administrative........... 83,287 7,587 -- 90,874
Nonrecurring charges, net. 58,087 43,100 -- 101,187
-------- -------- ---- --------
Total costs and
expenses............... 571,771 150,083 -- 721,854
-------- -------- ---- --------
Income (loss) from
operations................. 45,355 (12,582) -- 32,773
Interest and other income,
net........................ 9,644 761 -- 10,405
-------- -------- ---- --------
Income (loss) before income
taxes...................... 54,999 (11,821) -- 43,178
Provision for income taxes.. 39,635 10,399 -- 50,034
-------- -------- ---- --------
Net income (loss)........... $ 15,364 $(22,220) $-- $ (6,856)
======== ======== ==== ========
Basic net income (loss) per
share...................... $ 0.33 $ (0.79) $-- $ (0.11)
======== ======== ==== ========
Diluted net income (loss)
per share.................. $ 0.31 $ (0.79) $-- $ (0.11)
======== ======== ==== ========
Shares used in computing
basic net income (loss) per
share...................... 46,760 28,125 61,526
======== ======== ========
Shares used in computing
diluted net income (loss)
per share.................. 49,860 28,125 61,526
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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AUTODESK, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DISCREET
AUTODESK ELEVEN MONTHS
FISCAL YEAR ENDED ENDED PRO FORMA PRO FORMA
JANUARY 31, 1997 JUNE 30, 1997 ADJUSTMENTS COMBINED
----------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues............. $496,693 $101,924 $ -- $598,617
Costs and expenses:
Cost of revenues....... 64,217 47,571 -- 111,788
Marketing and sales.... 199,939 23,206 -- 223,145
Research and
development........... 93,702 9,708 -- 103,410
General and
administrative........ 74,280 6,396 -- 80,676
Nonrecurring charges... 4,738 16,300 -- 21,038
-------- -------- ----- --------
Total costs and
expenses............ 436,876 103,181 -- 540,057
-------- -------- ----- --------
Income (loss) from
operations.............. 59,817 (1,257) -- 58,560
Interest and other
income, net............. 6,695 990 -- 7,685
-------- -------- ----- --------
Income (loss) before
income taxes............ 66,512 (267) -- 66,245
Provision for income
taxes................... 24,941 6,489 -- 31,430
-------- -------- ----- --------
Net income (loss)........ $ 41,571 $ (6,756) $ -- $ 34,815
======== ======== ===== ========
Basic net income (loss)
per share............... $ 0.91 $ (0.24) $ -- $ 0.58
======== ======== ===== ========
Diluted net income (loss)
per share............... $ 0.88 $ (0.24) $ -- $ 0.56
======== ======== ===== ========
Shares used in computing
basic net income (loss)
per share............... 45,540 27,948 60,213
======== ======== ========
Shares used in computing
diluted net income
(loss) per share........ 47,190 27,948 62,359
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
54
<PAGE>
AUTODESK, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AUTODESK DISCREET PRO
FISCAL YEAR ENDED FISCAL YEAR ENDED PRO FORMA FORMA
JANUARY 31, 1996 JULY 31, 1996 ADJUSTMENTS COMBINED
----------------- ----------------- ----------- --------
<S> <C> <C> <C> <C>
Net revenues............ $534,167 $ 83,997 $-- $618,164
Costs and expenses:
Cost of revenues....... 66,812 49,333 -- 116,145
Marketing and sales.... 183,550 26,088 -- 209,638
Research and
development........... 78,678 16,902 -- 95,580
General and
administrative........ 76,100 10,582 -- 86,682
Nonrecurring charges... -- 26,006 -- 26,006
-------- -------- ---- --------
Total costs and
expenses............. 405,140 128,911 -- 534,051
-------- -------- ---- --------
Income (loss) from
operations............. 129,027 (44,914) -- 84,113
Interest and other
income, net............ 9,253 2,208 -- 11,461
-------- -------- ---- --------
Income (loss) before
income taxes........... 138,280 (42,706) -- 95,574
Provision for income
taxes.................. 50,492 1,435 -- 51,927
-------- -------- ---- --------
Net income (loss)....... $ 87,788 $(44,141) -- $ 43,647
======== ======== ==== ========
Basic net income (loss)
per share.............. $ 1.86 $ (1.64) $-- $ 0.71
======== ======== ==== ========
Diluted net income
(loss) per share....... $ 1.76 $ (1.64) -- $ 0.67
======== ======== ==== ========
Shares used in computing
basic net income (loss)
per share.............. 47,090 26,837 61,179
======== ======== ========
Shares used in computing
diluted net income
(loss) per share....... 49,800 26,837 64,963
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
55
<PAGE>
AUTODESK, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AUTODESK DISCREET
SIX MONTHS ENDED SIX MONTHS ENDED PRO FORMA PRO FORMA
JULY 31, 1998 JUNE 30, 1998 ADJUSTMENTS COMBINED
---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues............ $373,844 $75,885 $-- $449,729
Costs and expenses:
Cost of revenues...... 37,983 31,206 -- 69,189
Marketing and sales... 130,698 18,480 -- 149,178
Research and
development.......... 70,510 7,434 -- 77,944
General and
administrative....... 55,466 4,181 -- 59,647
Nonrecurring charges.. 37,692 (2,696) -- 34,996
Litigation accrual
reversal............. (18,200) -- -- (18,200)
-------- ------- ---- --------
Total costs and
expenses........... 314,149 58,605 -- 372,754
-------- ------- ---- --------
Income from operations.. 59,695 17,280 -- 76,975
Interest and other
income, net............ 8,646 1,403 -- 10,049
-------- ------- ---- --------
Income before income
taxes.................. 68,341 18,683 -- 87,024
Provision for income
taxes.................. 31,588 4,982 -- 36,570
-------- ------- ---- --------
Net income.............. $ 36,753 $13,701 $-- $ 50,454
======== ======= ==== ========
Basic net income per
share.................. $ 0.79 $ 0.47 $-- $ 0.82
======== ======= ==== ========
Diluted net income per
share.................. $ 0.74 $ 0.44 $-- $ 0.77
======== ======= ==== ========
Shares used in computing
basic net income per
share.................. 46,500 29,324 61,895
======== ======= ========
Shares used in computing
diluted net income per
share.................. 49,670 30,947 65,917
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
56
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(1)PERIODS COMBINED
The Autodesk condensed consolidated statements of income for the three years
ended January 31, 1998 have been combined with the Discreet condensed
consolidated statements of operations for the fiscal year ended July 31, 1996,
the eleven months ended June 30, 1997 and the unaudited twelve months ended
December 31, 1997, respectively. Additionally, the Autodesk unaudited
condensed consolidated statement of income for the six months ended July 31,
1998 has been combined with the Discreet unaudited condensed consolidated
statement of operations for the six months ended June 30, 1998.
Autodesk's July 31, 1998 unaudited condensed consolidated balance sheet has
been combined with Discreet's June 30, 1998 condensed consolidated balance
sheet.
Operating results for the period from January 1, 1997 to June 30, 1997 for
Discreet are duplicated in the pro forma condensed consolidated statement of
income of the Combined Company for the years ended January 31, 1998 and 1997.
Net revenues, net loss and basic and diluted net loss per share for the six
month period January 1, 1997 through June 30, 1997 for Discreet were $61.8
million, $7.9 million and $0.28, respectively.
(2)PRO FORMA BASIS OF PRESENTATION
These unaudited pro forma condensed combined financial statements reflect
the issuance of 15,549,000 shares of Autodesk Common Stock in exchange for an
aggregate of 29,618,000 of Discreet Common Shares (outstanding as of June 30,
1998) in connection with the Acquisition, assuming an Exchange Ratio of 0.525
as set forth in the following table (in thousands, except Exchange Ratio):
<TABLE>
<S> <C>
Discreet Common Shares outstanding as of June 30, 1998............... 29,618
Exchange Ratio....................................................... 0.525
------
Number of shares of Autodesk Common Stock exchanged.................. 15,549
Number of shares of Autodesk Common Stock outstanding as of July 31,
1998................................................................ 46,348
------
Number of shares of Autodesk Common Stock outstanding upon
consummation of the Acquisition..................................... 61,897
======
</TABLE>
The actual number of shares of Autodesk Common Stock to be issued (including
shares issuable upon exchange of New Discreet Exchangeable Shares) will be
determined at the time of the Amalgamation by multiplying the Exchange Ratio
(0.525) by the number of Discreet Common Shares outstanding on that date.
(3)TRANSACTION COSTS AND RELATED EXPENSES
Autodesk and Discreet estimate they will incur direct transaction costs of
approximately $6-$8 million and $5-$7 million, respectively, associated with
the Acquisition consisting of transaction fees for investment bankers,
attorneys, accountants, financial printing and other related charges. These
nonrecurring transaction costs will be charged to operations in the quarter in
which they are incurred.
It is expected that following consummation of the Acquisition, the Combined
Company will incur an additional charge to operations, currently estimated at
$6-$8 million, to reflect costs associated with integrating the two companies,
which will be expensed as incurred. There can be no assurance that the
Combined Company will not incur additional charges to reflect costs associated
with the Acquisition, or that management will be successful in its efforts to
integrate the two companies.
57
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The unaudited pro forma condensed combined balance sheet gives effect to
estimated direct transaction costs totaling $13 million, as if such costs and
expenses had been incurred as of July 31, 1998. These costs and expenses are
not reflected in the unaudited pro forma condensed combined statement of
income.
(4)CONFORMING ADJUSTMENTS
No adjustments have been made to conform the accounting policies of the
combined companies. The nature and extent of such adjustments, if any, will be
based upon further study and analysis and are not expected to be significant.
(5)NON-RECURRING TRANSACTIONS
(a) Nonrecurring Transactions of Autodesk
Included in Net Income for Autodesk are nonrecurring charges of $4.7
million, $58.5 million and $37.7 million recorded in fiscal years 1997 and
1998 and for the six months ended July 31, 1998, respectively. The charges for
fiscal years 1998 and 1997 consist of charges relating to the write off of
purchased in-process research and development that had not reached
technological feasibility and had no alternative future use. The nonrecurring
charges for the six months ended July 31, 1998 consist of:
(1) a write-off of purchased in-process technology that had not yet reached
technological feasibility and had no alternative future use; and
(2) expenses relating to the restructuring charges associated with the
consolidation of certain development centers, the write-off of
purchased technologies associated with these operations, staff
reductions in Asia Pacific and costs in relation to potential legal
settlements.
(b) Nonrecurring Transactions of Discreet
Included in net income for Discreet are nonrecurring charges of $43.1
million, $16.3 million and $26.0 million for the twelve month period ended
December 31, 1997, eleven month period ended June 30, 1997 and fiscal year
ended July 31, 1996, respectively. These charges consist primarily of charges
relating to the write-off of purchased in-process research and development
that had not yet reached technological feasibility and had no alternative use,
restructuring charges and legal settlements.
Included in nonrecurring charges for the six month period ended June 30,
1998 is a net credit relating to the gain on sale of an investment, costs
related to a terminated merger transaction and the reversal of restructuring
and litigation provisions which were no longer required.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTODESK CAPITAL STOCK
The authorized capital stock of Autodesk consists of 250,000,000 shares of
Common Stock, $0.01 par value per share and 2,000,000 shares of Preferred
Stock, $0.01 par value per share
Autodesk Common Stock
As of , 1998, there were approximately shares of Autodesk Common
Stock outstanding, held of record by approximately stockholders. Autodesk
Common Stock is listed on the Nasdaq National Market under the symbol "ADSK."
Autodesk Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to Autodesk Common Stock. Autodesk Stockholders are entitled to
receive ratably such dividends, if any, as may be declared from time to time
by the Autodesk Board out of funds legally available therefor. In the event of
a liquidation, dissolution or winding up of Autodesk, each share of Autodesk
Common Stock is entitled to participate pro rata in the distribution of all
assets remaining after payment of liabilities. All outstanding shares of
Autodesk Common Stock are fully paid and non-assessable, and the shares of
Autodesk Common Stock to be outstanding upon completion of the Transactions
will be fully paid and non-assessable.
Autodesk Stockholders are entitled to one vote per share on all matters to
be voted upon by Autodesk Stockholders. Autodesk Stockholders do not have
cumulative voting rights in connection with the election of Directors. The By-
laws of Autodesk (the "Autodesk By-Laws") provide that any action required or
permitted to be taken at any annual or special meeting of Autodesk
Stockholders may be taken without a meeting, without prior notice, and without
a vote, if written consents are obtained from the holders of outstanding
Autodesk Common Stock having not less than the minimum number of votes that
would be necessary to take such action at a meeting at which all shares
entitled to vote were present and voted.
Preferred Stock
Autodesk has 2,000,000 shares of Preferred Stock authorized, of which, as of
, 1998, no shares were outstanding. Under Autodesk's Restated Certificate
of Incorporation (the "Autodesk Certificate"), the Autodesk Board has the
authority to issue these shares of Preferred Stock in one or more series and,
subject to limitations prescribed by law, to fix the designations, rights,
powers, and preferences and the qualifications, limitations or restrictions
thereof, of each such series of Preferred Stock, including without limitation
authority to fix the dividend rights, dividend rate, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions),
and liquidation preferences of any wholly unissued series of Preferred Stock
and the number of shares constituting any such series and the designation
thereof, or any of the foregoing, without any further vote or action by the
stockholders. Although it presently has no intention to do so, the Autodesk
Board, without Autodesk Stockholder approval, can issue Preferred Stock with
voting and conversion rights which could adversely affect the voting power or
other rights of the holders of Autodesk Common Stock and the issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of Autodesk.
In connection with the adoption of a stockholder rights plan in December
1995, the Autodesk Board of Directors designated a series of Preferred Stock
as "Series A Participating Stock," with a par value of $0.01 per share and
consisting of 100,000 shares.
In connection with the Acquisition, the Autodesk Board will also designate
one share of Preferred Stock as "Series B Preferred Stock," which share will
be issued to a trustee pursuant to a Voting and Exchange Trust Agreement to be
entered into by such trustee, Autodesk, Dutchco and New Discreet in connection
with the Acquisition.
Autodesk Transfer Agent and Registrar
The Transfer Agent and Registrar for the Autodesk Common Stock is Harris
Trust & Savings Bank, Chicago, IL.
59
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell the Common Stock being offered hereby in four ways: (i)
directly to purchasers, (ii) through agents, (iii) through underwriters, and
(iv) through dealers.
Offers to purchase Common Stock may be solicited directly by the Company or
by agents designated by the Company from time to time. Any such agent, who may
be deemed to be an underwriter as that term is defined in the Securities Act of
1933, involved in the offer or sale of the Common Stock in respect of which this
Prospectus is delivered will be named, and any commissions payable by the
Company to such agent set forth, in the Prospectus Supplement. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment. Agents may be entitled under
agreements which may be entered into with the Company to indemnification by the
Company against certain civil liabilities, including liabilities under the
Securities Act of 1933, and may be customers of, engage in transactions with or
perform services for the Company in the ordinary course of business.
If any underwriters are utilized in the sale, the Company will enter into an
underwriting agreement with such underwriters at the time of sale to them and
the names of the underwriter and the terms of the transaction will be set forth
in the Prospectus Supplement, which will be used by the underwriters to make
resales of the Common Stock in respect of which this Prospectus is delivered to
the public. The underwriters may be entitled, under the relevant underwriting
agreement, to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act of 1933.
If a dealer is utilized in the sale of the Common Stock in respect of which
this Prospectus is delivered, the Company will sell such Common Stock to the
dealer, as principal. The dealer may then resell such Common Stock to the
public at varying prices to be determined by such dealer at the time of resale.
Dealers may be entitled to indemnification by the Company against certain
liabilities under the Securities Act of 1933.
Payment for and delivery of the shares offered hereby will occur prior to the
closing of the Acquisition. The Acquisition will be voted upon by the
stockholders of Autodesk and the shareholders of Discreet at meetings scheduled
for November __, 1998. The Common Stock offered hereby will not be issued unless
and until all conditions to the consummation of the Acquisition have been
satisfied or waived.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Mark A. Bertelsen, a director of the Company, is a member
of Wilson, Sonsini, Goodrich & Rosati.
EXPERTS
The consolidated financial statements of Autodesk incorporated by reference
in Autodesk's Annual Report (Form 10-K) for the year ended January 31, 1998 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon incorporated by reference therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Discreet as of June 30, 1997 and
1998, and for the year ended July 31, 1996, the eleven-month period ended June
30, 1997, and the year ended June 30, 1998, incorporated by reference in this
Prospectus have been audited by Arthur Andersen & Cie, independent chartered
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
60
<PAGE>
- ---------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE BY THIS
PROSPECTUS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING STOCKHOLDER OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
OF OR OFFER TO SELL THE SHARES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
PAGE
----
Available Information...............................................
Incorporation of Certain Documents By Reference.....................
Prospectus Summary..................................................
Risk Factors........................................................
Use of Proceeds.....................................................
Plan of Distribution................................................
Legal Matters.......................................................
Experts.............................................................
[LOGO OF AUTODESK]
AUTODESK, INC.
3,000,000 SHARES
COMMON STOCK
----------------
PROSPECTUS
----------------
, 1998
- ------------------------------------------------------------------------------
<PAGE>
AUTODESK, INC.
REGISTRATION STATEMENT ON FORM S-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item
Number
- ------
Item 14 Other Expenses of Issuance and Distribution.*
-------------------------------------------
The following table sets forth costs and expenses of the sale and
distribution of the securities being registered. All amounts except Securities
and Exchange Commission and Nasdaq National Market Listing fees are estimates.
Registration Fee--Securities and
Exchange Commission....................... $ 23,259
Nasdaq National Market Listing Fee.......... $ *
Accounting fees............................. $ *
Legal fees.................................. $ *
Miscellaneous............................... $ *
Total....................................... $ *
- ----------
* To be disclosed by amendment.
Item 15 Indemnification of Directors and Officers.
------------------------------------------
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation, as amended, includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach or alleged breach of their duty of care. In addition, as permitted by
Section 145 of the Delaware General Corporation Law, the Bylaws of the
Registrant provide that: (i) the Registrant is required to indemnify its
directors and officers and persons serving in such capacities in other business
enterprises (including, for example, subsidiaries of the Registrant) at the
Registrant's request, to the fullest extent permitted by Delaware law; (ii) the
Registrant may, in its discretion, indemnify employees and agents in those
circumstances where indemnification is not required by law; (iii) the Registrant
is required to advance expenses, as incurred, to its directors and officers in
connection with defending a proceeding, provided that payment of expenses
incurred by a director or officer of the corporation in advance of the final
disposition of such proceeding shall be made only on receipt of an undertaking
by the officer or director to repay all amounts advanced if it should ultimately
be determined that the officer or director is not entitled to be indemnified;
(iv) the rights conferred in the Bylaws are not exclusive, and the Registrant is
authorized to enter into indemnification agreements with its directors, officers
and employees; and (v) the Registrant may not retroactively amend the Bylaw
provisions in a way that is adverse to such directors, officers and employees.
The Registrant's policy is to enter into indemnification agreements with each
of its directors and officers that provide the maximum indemnity allowed to
directors and officers by Section 145 of the Delaware General Corporation Law
and the Bylaws, as well as certain additional procedural protections. In
addition, the indemnification agreements provide that directors and officers
will be indemnified to the fullest possible extent permitted by law against all
expenses (including attorney's fees) and settlement amounts paid or incurred by
them in an action or proceeding, including any action by or in the right of the
Registrant, arising out of such person's services as a director or officer of
the Registrant, any subsidiary of the Registrant or any other company or
enterprise to which such person provides services at the request of the
Registrant. The Registrant will not be obligated pursuant to the indemnification
agreements to indemnify or advance expenses to an indemnified party with respect
to proceedings or claims initiated by the indemnified party and not by way of
defense, except with respect to proceedings specifically authorized by the Board
of Directors or brought to enforce a right to indemnification under the
indemnification agreement, the Registrant's Bylaws or any statute or law. Under
the agreements, the Registrant is not obligated to indemnify the indemnified
party (i) for any expenses incurred by the indemnified party with respect to any
proceeding instituted by the indemnified party to enforce or interpret the
agreement, if a court of competent jurisdiction determines that each of the
material assertions made by the indemnified party in such proceeding was not
made in good faith or was frivolous; (ii) for any amounts paid in settlement of
a proceeding unless the Registrant consents to such settlement; (iii) on account
of any suit in which judgment is rendered against the indemnified party for an
accounting of profits made from the purchase or sale by the indemnified party of
securities of the Registrant pursuant to the provisions of Section 16(b) of the
Exchange Act and related laws; or (iv) if a final decision by a court having
jurisdiction in the matter shall determine that such indemnification is not
lawful.
The indemnification provisions in the Bylaws and the indemnification
agreements entered into between the Registrant and its directors and officers
may be sufficiently broad to permit indemnification of the Registrant's
directors and officers for liabilities arising under the Securities Act.
From and after the Effective Time, (i) New Discreet and the Registrant will
fulfill and honor in all respects the obligations of Discreet and its
subsidiaries pursuant to the indemnification provisions in the Discreet
Articles and the Discreet By-laws existing as in effect on the date of the
Acquisition Agreement with respect to Discreet's directors and officers
(including without limitation advancement of legal and other expenses to the
extent provided for in the Discreet Articles and Discreet By-Laws), and (ii)
in the event any of Discreet's directors or officers is or becomes involved in
any capacity in any action, proceeding or investigation in connection with any
matter relating to the Acquisition Agreement or the transactions contemplated
thereby occurring on or prior to the Effective Time, the Registrant will, or
will cause New Discreet to, pay as incurred such reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, subject to an undertaking to repay such amounts as
required by applicable law.
The Registrant and New Discreet will indemnify each present director, officer,
employee, fiduciary and agent of Discreet or any of its subsidiaries
(collectively, the "Indemnified Parties"), to the fullest extent permitted
under applicable law or under the Registrant's or New Discreet's, as the case
may be, Bylaws, against any costs or expenses (including attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to any action or omission occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
the Acquisition Agreement), and to pay as incurred such legal and other expenses
(including the costs of any investigation and preparation) incurred in
connection therewith, subject to an undertaking to repay such amounts as
required by applicable law.
For a period of five years after the Effective Time, the Registrant and
Dutchco will, or will cause New Discreet to, provide officers' and directors'
liability insurance in respect of acts or omissions occurring on or prior to the
Effective Time covering each person covered by Discreet's officers' and
directors' liability insurance policy prior to the Effective Time on terms
substantially similar to those of the policy in effect as of the date of the
Acquisition Agreement.
Item 16 Exhibits.
--------
Exhibit
Number
------
1.1 Form of Underwriting Agreement*
2.1 Amended and Restated Agreement and Plan of Acquisition and
Amalgamation by and among the Registrant, Autodesk Development
B.V., 9066-9771 Quebec Inc., Autodesk Canada Inc., 9066-9854
Quebec Inc. and Discreet Logic Inc., dated as of September 23,
1998 (incorporated by reference to the exhibit filed with the
Registrant's Registration Statement on Form S-4 filed on
September 30, 1998).
2.2 Amalgamation Agreement by an among Discreet Logic Inc., 9066-9854
Quebec Inc., 9066-9771 Quebec Inc. and the Registrant dated as
of September 23, 1998 (incorporated by reference to the exhibit
filed with the Company's Registration Statement on Form S-4 filed
on September 30, 1998).
4.1 Preferred Shares Rights Agreement dated December 14, 1995
(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).
4.2 Amendment No. 1 to Preferred Shares Rights Agreement
(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).
*5.1 Opinion and Consent of Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Arthur Andersen & Cie.
*23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
24.1 Power of Attorney (see signatures).
---------------
* To be filed by amendment.
II-1
<PAGE>
Item 17 Undertakings.
------------
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act, (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate represent a fundamental change
in the information set forth in the registration statement, and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
as that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1993, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1993, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Rafael, State of California, on this 30th day of
September, 1998.
AUTODESK, INC.
By: /s/ Carol A. Bartz
---------------------------------------
Carol A. Bartz, Chairman of the
Board and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints jointly and severally, Carol A.
Bartz and Marcia K. Sterling, and each one of them, his or her attorneys-in-
fact, each with the power of substitution, for him or her in any way and all
capacities, to sign any and all amendments (including post-effective amendments
and registration statements filed pursuant to Rule 462) to this Registration
Statement 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 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 Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated on the 30th day of September,
1998.
SIGNATURE TITLE DATE
- ----------------------- -------------------------- ---------------------
Chairman of the Board and September 30, 1998
/s/ Carol A. Bartz Chief Executive Officer
- ----------------------- (Principal Executive Officer)
Carol A. Bartz
/s/ Steve Cakebread Vice President, Finance and September 30, 1998
- ----------------------- Acting Financial Officer
Steve Cakebread (Principal Financial and
Accounting Officer)
/s/ Mark A. Bertelsen Director September 30, 1998
- -----------------------
Mark A. Bertelsen
/s/ Crawford W. Beveridge Director September 30, 1998
- -----------------------
Crawford W. Beveridge
/s/ J. Hallam Dawson Director September 30, 1998
- -----------------------
J. Hallam Dawson
II-3
<PAGE>
SIGNATURE TITLE DATE
- ----------------------- -------------------------- ---------------------
/s/ Paul S. Otellini Director September 30, 1998
- -----------------------
Paul S. Otellini
/s/ Mary Alice Taylor Director September 30, 1998
- -----------------------
Mary Alice Taylor
/s/ Morton Topfer Director September 30, 1998
- -----------------------
Morton Topfer
II-4
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Autodesk, Inc. for
the registration of 3,000,000 shares of its common stock and to the
incorporation by reference therein of our report dated February 24, 1998, with
respect to the consolidated financial statements of Autodesk, Inc.
incorporated by reference in its Annual Report (Form 10-K) for the year ended
January 31, 1998 and the related financial statements schedules included
therein, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
San Jose, California
September 29, 1998
<PAGE>
EXHIBIT 23.2
================================================================================
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
================================================================================
As independent chartered accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-3 of our report dated July
31, 1998 (except with respect to the matters discussed in Note 22, as to which
the date is September 11, 1998) related to Discreet Logic Inc.'s Consolidated
Financial Statements as of June 30, 1997 and 1998 and for the periods ended July
31, 1996, June 30, 1997 and June 30, 1998 and to all references to our Firm,
included in or made a part of Registration Statement on Form S-3.
Arthur Andersen & Cie
Montreal, Quebec Chartered Accountants
September 30, 1998 General Partnership
