<PAGE>
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
-----------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
---
Act of 1934
For the quarterly period ended April 30, 2000
OR
__ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number: 0-14338
AUTODESK, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2819853
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 McInnis Parkway
San Rafael, California 94903
(Address of principal executive offices)
Telephone Number (415) 507-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No __
-----
As of April 30, 2000, there were approximately 58.3 million shares of the
Registrant's Common Stock outstanding.
==============================================================================
<PAGE>
AUTODESK, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No
-------
<S> <C>
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statement of Operations
Three months ended April 30, 2000 and 1999.................... 3
Condensed Consolidated Balance Sheet
April 30, 2000 and January 31, 2000........................... 4
Condensed Consolidated Statement of Cash Flows
Three months ended April 30, 2000 and 1999.................... 6
Notes to Condensed Consolidated Financial Statements.......... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 16
Item 6. Exhibits and Reports on Form 8-K.............................. 16
Signatures.................................................... 16
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
April 30,
-----------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Net revenues $ 223,329 $ 194,939
--------- ---------
Costs and expenses:
Cost of revenues 36,148 32,408
Marketing and sales 70,150 80,145
Research and development 40,255 38,598
General and administrative 31,805 34,972
Amortization of goodwill and purchased intangibles 7,788 7,244
Nonrecurring (credits) charges (800) 21,781
--------- ---------
185,346 215,148
--------- ---------
Income (loss) from operations 37,983 (20,209)
Interest and other income, net 2,973 4,496
--------- ---------
Income (loss) before income taxes 40,956 (15,713)
Provision for income taxes (13,105) (1,431)
Equity in net loss of affiliate (2,245) -
--------- ---------
Net income (loss) $ 25,606 $ (17,144)
--------- ---------
Basic net income (loss) per share $ 0.43 $ (0.29)
--------- ---------
Diluted net income (loss) per share $ 0.41 $ (0.29)
--------- ---------
Shares used in computing basic net income (loss) per
share 59,005 58,930
--------- ---------
Shares used in computing diluted net income (loss)
per share 62,583 58,930
========= =========
</TABLE>
See accompanying notes.
3
<PAGE>
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
(In thousands)
<TABLE>
<CAPTION>
April 30, 2000 January 31, 2000
-------------- ----------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 105,363 $ 108,641
Marketable securities 138,965 250,290
Accounts receivable, net 120,456 110,839
Inventories 16,402 19,264
Deferred income taxes 28,286 27,670
Prepaid expenses and other current assets 25,154 28,555
---------- ------------
Total current assets 434,626 545,259
---------- ------------
Marketable securities 189,425 181,992
Computer equipment, furniture, and leasehold
improvements, at cost:
Computer equipment and furniture 151,768 142,528
Leasehold improvements 21,458 22,723
Less accumulated depreciation (128,181) (123,367)
---------- ------------
Net computer equipment, furniture, and leasehold 45,045 41,884
improvements
Purchased technologies and capitalized software, net 25,377 29,029
Goodwill, net 68,352 75,489
Deferred income taxes 29,458 27,818
Other assets 21,102 5,855
---------- ------------
$ 813,385 $ 907,326
========== ============
</TABLE>
See accompanying notes.
4
<PAGE>
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
April 30, 2000 January 31, 2000
-------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 38,827 $ 45,310
Accrued compensation 39,188 50,448
Accrued income taxes 83,493 88,006
Deferred revenues 40,956 33,604
Other accrued liabilities 76,425 82,024
------------- ------------
Total current liabilities 278,889 299,392
------------- ------------
Deferred income taxes 4,082 4,380
Other liabilities 1,361 1,255
Commitments and contingencies
Stockholders' equity:
Common stock 545,443 561,814
Accumulated other comprehensive loss (16,694) (14,822)
Deferred compensation (1,095) (1,338)
Retained earnings 1,399 56,645
------------- -------------
Total stockholders' equity 529,053 602,299
------------- -------------
$ 813,385 $ 907,326
============= ============
</TABLE>
See accompanying notes.
5
<PAGE>
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
April 30,
---------------------------------------------
2000 1999
------------------ -------------------
<S> <C> <C>
Operating activities
Net income (loss) $ 25,606 $ (17,144)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 19,006 16,794
Net loss on asset disposals 709 408
Equity in net loss of affiliate 2,245 -
Charge for acquired in-process research and development - 3,287
Changes in operating assets and liabilities (9,064) (15,068)
-------------- -------------
Net cash provided by (used in) operating activities 38,502 (11,723)
-------------- -------------
Investing activities
Net maturities (purchases) of marketable securities 103,741 (150,316)
Capital expenditures (10,481) (3,548)
Business combinations, net of cash acquired - (25,642)
Investments in unconsolidated entities (19,500) -
Purchases of software technologies, capitalization of software 2,560 (913)
costs, and other -------------- -------------
Net cash provided by (used in) investing activities 76,320 (180,419)
-------------- -------------
Financing activities
Repayment of notes payable and borrowings (2) (1,589)
Repurchases of common stock (192,961) -
Proceeds from issuance of common stock, net of issuance costs 83,615 133,967
Dividends paid (3,500) (3,593)
-------------- -------------
Net cash (used in) provided by financing activities (112,848) 128,785
-------------- -------------
Effect of exchange rate changes on cash and cash equivalents (5,252) (2,571)
Discreet Logic activity for the one month ended January 31, 1999 - 320
-------------- -------------
Net decrease in cash and cash equivalents (3,278) (65,608)
Cash and cash equivalents at beginning of year 108,641 258,941
-------------- -------------
Cash and cash equivalents at end of period $ 105,363 $ 193,333
============== =============
Supplemental cash flow information:
Cash paid during the period for income taxes $ 3,921 $ 5,140
============== =============
</TABLE>
See accompanying notes.
6
<PAGE>
AUTODESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. These statements should
be read in conjunction with the consolidated financial statements and notes
thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in Autodesk's fiscal 2000 Annual
Report on Form 10-K. The results of operations for the three months ended April
30, 2000 are not necessarily indicative of the results for the entire fiscal
year ending January 31, 2001.
2. Recently Issued Accounting Standards
------------------------------------
Autodesk has until fiscal 2002 to adopt the provisions of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which was issued in June, 1998. This
Statement requires Autodesk to recognize all derivatives on the balance sheet at
fair value. Autodesk is currently evaluating the impact of SFAS 133 on its
financial statements and related disclosures.
During the fourth quarter of fiscal 2000, the Staff of the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements." Management believes that
Autodesk's practices and policies are in compliance with SAB 101.
3. Net Income (Loss) Per Share
---------------------------
A reconciliation of the numerators and denominators used in the basic and
diluted net income (loss) per share amounts follows:
Three months ended
April 30,
---------
(In thousands) 2000 1999
---- ----
Numerator:
Numerator for basic and diluted per share amount -- net
income (loss) $ 25,606 $ (17,144)
======== ========
Denominator:
Denominator for basic net income (loss) per share --
weighted average shares 59,005 58,930
Effect of dilutive common stock options 3,578 -
-------- --------
Denominator for dilutive net income (loss) per share 62,583 58,930
======== ========
For the three months ended April 30, 2000, options to purchase 2.0 million
shares were excluded from the computation of diluted net income per share.
These options were excluded because the options' exercise prices were greater
than the average market price of Autodesk's common stock.
For the three months ended April 30, 1999, all outstanding options were excluded
from the computation of diluted net loss per share because Autodesk incurred a
loss.
7
<PAGE>
4. Comprehensive Income (Loss)
---------------------------
Autodesk's total comprehensive income (loss) was as follows:
Three months ended
April 30,
------------------------------
(In thousands) 2000 1999
---- ----
Net income (loss) $ 25,606 $ (17,144)
Other comprehensive loss, net (1,872) (1,393)
----------- -----------
Total comprehensive income (loss) $ 23,734 $ (18,537)
=========== ===========
5. Investment in Affiliate -- Buzzsaw.com, Inc.
--------------------------------------------
In April 2000, Autodesk invested an additional $17.5 million in Buzzsaw.com,
Inc., an Internet start-up formed by Autodesk during the third quarter of fiscal
2000. Autodesk currently maintains a 40 percent interest in Buzzsaw.com, and
accounts for this investment under the equity method of accounting.
During the first quarter of fiscal 2001, Autodesk recognized $2.2 million of
losses, representing its proportionate share of Buzzsaw.com's April losses. The
carrying value of Autodesk's investment in Buzzsaw.com was $11.3 million at
April 30, 2000, and is included in Other Assets in the Condensed Consolidated
Balance Sheet.
6. Restructuring Accruals
----------------------
The following table sets forth the activity during the first quarter of fiscal
2001 associated with restructurings that occurred during fiscal 2000:
<TABLE>
<CAPTION>
Balance at Balance at
(In thousands) February 1, Charges April 30,
2000 Additions Utilized Reversals 2000
------------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Employee termination costs $ 1,000 $ 0 $ (315) $ (300) $ 385
Office closure costs 700 0 (78) (100) 522
Legal entity liquidations 500 0 (54) (200) 246
------------- ------------ ----------- ------------ -------------
Total $ 2,200 $ 0 $ (447) $ (600) $ 1,153
============= ============ =========== ============ =============
</TABLE>
The $0.6 million of reversals is included in Nonrecurring Charges in the
Condensed Consolidated Statement of Operations. Certain accruals established in
fiscal 2000 were settled for less than originally estimated.
7. Segments
--------
Autodesk's operating results have been aggregated into two reportable segments:
the Discreet Segment and the Design Solutions Segment. Segment information
involving the Geographic Information Systems Solutions Division ("GIS") and
Autodesk Ventures was aggregated with the Design Solutions Division
(collectively, referred to in these financial statements as the "Design
Solutions Segment"). The Design Solutions and GIS divisions have similar
production processes, customer types and distribution methods. Autodesk
Ventures' segment information is not material.
8
<PAGE>
Autodesk evaluates each segment's performance on the basis of income from
operations before income taxes. Autodesk currently does not separately
accumulate and report asset information by market group. Information concerning
the operations of the reportable segments is as follows:
Three months ended
April 30,
---------
(In thousands) 2000 1999
---- ----
Net revenues:
Design Solutions $ 177,009 $ 161,060
Discreet 46,320 33,879
----------- ----------
$ 223,329 $ 194,939
=========== ==========
Income (loss) from operations:
Design Solutions $ 122,919 76,906
Discreet 1,112 (24,708)
Unallocated amounts/1/ (86,048) (72,407)
----------- ---------
$ 37,983 $ (20,209)
=========== =========
/1/ Unallocated amounts are attributed primarily to other geographic costs and
expenses that are managed outside the reportable segments.
8. Stock Repurchase Program
------------------------
During the first quarter of fiscal 2001, Autodesk repurchased and retired 4.0
million shares of its common stock at an average repurchase price of $48.06. As
a result, common stock and retained earnings were reduced by $115.6 million and
$77.3 million, respectively.
In March 2000, Autodesk announced a plan to repurchase up to an additional 8.0
million shares of its common stock. The primary purpose of the stock repurchase
program is to help offset the dilution to earnings per share caused by the
issuance of stock under the employee stock plans.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion below contains trend analyses and other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements, trend
analyses and other information contained below relating to markets for our
products and trends in revenue, as well as other statements including such words
as "anticipate," "believe," "plan," "estimate," "expect," "goal," and "intend"
and other similar expressions constitute forward-looking statements. These
forward-looking statements are subject to business and economic risks, and our
actual results could differ materially from those set forth in the forward-
looking statements as a result of the factors set forth below, including "Risk
Factors Which May Impact Future Operating Results," page 11, as well as factors
set forth in our fiscal 2000 Annual Report on Form 10-K.
Results of Operations
Three Months Ended April 30, 2000 and 1999
-------------------------------------------
Net revenues. Our first quarter net revenues of $223.3 million increased from
$194.9 million recognized in the first quarter of the prior fiscal year.
Increases in the America's net revenues of 26 percent as well as a 33 percent
increase in Asia/Pacific more than offset a decrease of 6 percent in net
revenues in Europe, as compared to the same period in the prior fiscal year. In
addition, net revenues for the Discreet Segment, increased 37 percent compared
to the first quarter in the prior fiscal year. The overall increase in net
revenues was primarily due to an increase in the sales of vertical products and
sales of VISION* Solutions, or VISION, which was acquired on April 22, 1999.
Sales of AutoCAD and AutoCAD upgrades accounted for approximately 32 percent of
our consolidated net revenues in the first quarter of fiscal year 2001 and 45
percent of net revenue in fiscal year 2000.
The value of the US dollar, relative to international currencies, had a negative
impact of $4.1 million on net revenues in the first quarter of the current
fiscal year as compared to the same period in the prior fiscal year.
International sales, including exports from the U.S., accounted for
approximately 60 percent of our net revenues in the first quarter of fiscal year
2001 as compared to 56 percent in the same period of the prior fiscal year.
Product returns, consisting principally of stock rotation, are recorded as a
reduction of revenues and represented approximately 2 percent of consolidated
revenues in the first quarter of fiscal year 2001 and 4 percent in the first
quarter of fiscal year 2000. We anticipate 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. When expressed as a percentage of net revenues, cost of
revenues decreased from 17 percent of net revenues in the first quarter of the
prior fiscal year to 16 percent of net revenues in the first quarter of the
current fiscal year. This decrease is primarily due to reduced royalty costs of
$1.9 million that resulted from the conclusion of some of our royalty
arrangements in fiscal 2000. 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 costs, royalty rates for licensed technology embedded in our
products, and the geographic distribution of sales.
Marketing and sales. Marketing and sales expenses decreased to 31 percent of net
revenues in the first quarter of fiscal year 2001 from 41 percent of net
revenues in the first quarter of fiscal year 2000. This decrease is partially
due to lower employee-related expenses of $3.8 million. Additionally, during the
first quarter of last year, we incurred advertising and promotion costs related
to the March 1999 launch of AutoCAD 2000. We expect to continue to make
significant investments in marketing and sales, both in absolute dollars and as
a percentage of net revenues.
10
<PAGE>
Research and development. First quarter research and development expenses of
$40.3 million increased from $38.6 million recognized in the first quarter of
the prior year. The incremental costs were due to $2.0 million related to VISION
and increased employee-related spending. We anticipate that research and
development expenses will increase in future periods as a result of product
development efforts by our market groups and incremental personnel costs.
General and administrative. General and administrative expenses were 14 percent
of net revenues in the first quarter of fiscal year 2001 as compared to 18
percent of net revenues in the first quarter of the prior fiscal year. Lower
employee-related spending of $1.3 million and lower spending of $2.1 million
related to information systems contributed to the overall reduction in expenses.
We currently expect that general and administrative expenses will continue to be
significant in future periods to support spending on infrastructure, including
continued investment in our worldwide information systems.
Amortization of goodwill and purchased intangibles. Amortization of goodwill and
purchased intangibles for the three months ended April 30, 2000, increased
slightly as compared to the same period in the prior fiscal year. The increase
is largely due to incremental amortization associated with the April 1999
acquisition of VISION.
Nonrecurring (credits) charges. During the first quarter of fiscal year 2001, we
reversed $0.8 million related to one-time accruals established in fiscal 2000.
Of the $0.8 million, $0.6 million related to restructuring accruals established
in fiscal 2000. The accruals were settled for less than originally estimated.
During the first quarter of last year, we recognized $21.8 million of
nonrecurring charges related to the acquisitions of Discreet Logic Inc. and
VISION.
Interest and other income. Interest and other income, net was $3.0 million in
the first quarter of fiscal year 2001 compared to $4.5 million in the
corresponding period of the prior year. The decrease is related to lower
investment balances resulting from cash used for share repurchase activity.
Provision for income taxes. Our effective income tax rate was 32 percent for the
first quarter of fiscal 2001 and 2000. Consistent with last year, the effective
tax rate for the first quarter of fiscal 2001 is less than the federal statutory
rate of 35 percent due to the benefits associated with our foreign earnings
which are taxed at rates different from the federal statutory rate, research
credits and tax-exempt interest, partially offset by non-deductible goodwill
amortization.
Equity in net loss of affiliate. The $2.2 million equity in net loss of
affiliate represents our proportionate share of Buzzsaw.com's April 2000 losses.
During April 2000, we invested an additional $17.5 million in Buzzsaw.com, an
Internet start-up we formed during the third quarter of fiscal 2000. We expect
equity in net losses to be significant in future quarters.
Risk Factors Which May Impact Future Operating Results
We operate in a rapidly changing environment that involves a number of risks,
many of which are beyond our control. The following discussion highlights some
of these risks and the possible impact of these factors on future results of
operations.
You should carefully consider these risks before making an investment decision.
If any of the following risks actually occur, our business, financial condition
or results of operations could be harmed. In that case, the trading price of our
common stock could decline, and you could lose all or part of your investment.
Fluctuations in quarterly operating results. At various times, we experience
fluctuations in our quarterly operations. These fluctuations are a result of,
among other things: the timing of the introduction of new products by us or our
competitors; increases in personnel; marketing or operating expenses; changes in
product pricing or product mix; delays in product releases; competitive factors;
and general economic conditions.
11
<PAGE>
In addition, we have experienced fluctuations in operating results in interim
periods in certain geographic regions due to seasonality. In particular, our
operating results in Europe during the third quarter are usually impacted by a
slow summer period, and the Asia Pacific operations typically experience
seasonal slowing in the third and fourth quarters.
Within Discreet, a limited number of system sales may account for a substantial
percentage of Discreet's quarterly revenue because of the high average sales
price of products and the timing of purchase orders. Historically, Discreet has
generally experienced greater revenues during the period following the
completion of the National Association of Broadcasters trade show, which
typically is held in April. In addition, the timing of revenue is influenced by
other factors, including: the timing of individual orders and shipments;
introduction of new products; other industry trade shows; competition; seasonal
customer buying patterns; changes in customer buying patterns in response to
platform changes and changes in product development; and sales and marketing
expenditures.
Additionally, our operating expenses are based in part on our 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 our business.
Shortfalls in our revenues or earnings from levels expected by securities
analysts could have an immediate and significant adverse effect on the trading
price of our common stock. Moreover, our 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. We derive a substantial portion of our revenues from
sales of AutoCAD software, AutoCAD upgrades, and adjacent products that are
interoperable with AutoCAD. As such, any factor adversely affecting sales of
AutoCAD and AutoCAD upgrades, including: product life cycle, market acceptance,
product performance and reliability, reputation, price competition, and the
availability of third-party applications would likely harm our business.
Competition. The software industry has limited barriers to entry, and the
availability of desktop computers with continually expanding capabilities at
progressively lower prices contributes to the ease of market entry. Because of
these and other factors, competitive conditions in the industry are likely to
intensify in the future. Increased competition could result in price reductions,
reduced revenues and profit margins and loss of market share, any of which could
harm our business. The design software market in particular is characterized by
vigorous competition in each of the vertical markets in which we compete, both
by entry of competitors with innovative technologies and by consolidation of
companies with complementary products and technologies. Some of our competitors
have greater financial, technical, sales and marketing and other resources.
We believe that the principal factors affecting competition in our 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. We believe that we compete favorably
in these areas and that our competitive position depends, in part, upon our
continued ability to enhance existing products and to develop and market new
products.
Product Development and Introduction. Rapid technological change as well as
changes in customer requirements and preferences characterize the software
industry. The software products we offer are internally complex, and despite
extensive testing and quality control, may contain errors or defects. Defects or
errors may occur in future releases of AutoCAD or other software products we
offer. These defects or errors could result in: corrective releases to our
software products, damage to our reputation, loss of revenues, an increase in
product returns or lack of market acceptance of our products, any of which could
harm our business.
12
<PAGE>
We believe that our future results will depend largely upon our ability to offer
products that compete favorably with respect to reliability, performance, ease
of use, range of useful features, continuing product enhancements, reputation,
price and training. Delays or difficulties may result in the delay or
cancellation of planned development projects and could harm our business.
Further, increased competition in the market for design, drafting, mapping, or
multimedia software products could also harm our business and consolidated
results of operations. More specifically, gross margins may be adversely
affected if sales of low-end CAD products and AutoCAD upgrades, which
historically have had lower margins, grow at a faster rate than our higher-
margin products.
The success of the Discreet Segment will depend in part upon our ability to
enhance Discreet's existing systems and software and to develop and introduce
new products and features that meet changing customer requirements and emerging
industry standards on a timely basis. To date, creative professionals have
purchased Discreet's products for use in production and postproduction in the
film and video industries and computer gaming. For the Discreet Segment to
achieve sustained growth, the market for Discreet's product offerings must
continue to develop. We must expand this market to include additional
applications within the film and video industries, broadcast, games and the
Internet, and develop new products for use in related markets. While we believe
that the market recognition that Discreet achieved through sales of flame*,
smoke*, flint*, frost*, inferno*, and fire* systems will facilitate our
marketing efforts in new markets, the Discreet Segment may not be able to
successfully develop and market systems and software for other markets, and,
even if it does so, such systems and software may not be accepted at a rate, and
in levels, sufficient to maintain growth. Further, the distribution channels,
technical requirements, and levels and bases of competition in other markets are
different than those in the Discreet's current market, so Discreet may not be
able to compete favorably in those markets.
Independent firms and contractors have performed some of our product development
activities, while other technologies are licensed from third parties. We
generally either own or license the software developed by third parties. Because
talented development personnel are in high demand, independent developers,
including those who have developed products for us in the past, may not be able
to provide development support to us in the future. Similarly, we may not be
able to obtain and renew license agreements on favorable terms, if at all, and
any failure to do so could harm our business.
Our business strategy has historically depended in part on our relationships
with third-party developers, who provide products that expand the functionality
of our design software. Some developers may elect to support other products or
otherwise experience disruption in product development and delivery cycles. In
particular markets, this disruption could negatively impact these third-party
developers and end users, which could harm our business. Further, increased
merger and acquisition activity currently experienced in the technology industry
could affect relationships with other third-party developers and thus harm
operating results.
International Operations. We anticipate that international operations will
continue to account for a significant portion of our consolidated revenues.
Risks inherent in our international operations include the following: unexpected
changes in regulatory practices and tariffs; difficulties in staffing and
managing foreign operations; longer collection cycles for accounts receivable;
potential changes in tax laws; greater difficulty in protecting intellectual
property; and the impact of fluctuating exchange rates between the U.S. dollar
and foreign currencies in markets where we do business.
Our risk management strategy uses derivative financial instruments in the form
of foreign currency option contracts and forward contracts for the purpose of
hedging foreign currency market exposures, which exist as a part of our ongoing
business operations. We do not enter into derivative contracts for the purpose
of trading or speculative transactions. Our international results may also be
impacted by general economic and political conditions in these foreign markets.
These and other factors may adversely impact our future international operations
and consequently on our business as a whole.
Dependence on Distribution Channels. We sell our software products primarily to
distributors and value-added resellers, or VARs. Our ability to effectively
distribute products depends in part upon the financial and business condition of
our VAR network. Although we have not recently experienced any material
13
<PAGE>
problems with the financial viability of our VAR network, computer software
dealers and distributors are typically not highly capitalized, have previously
experienced difficulties during times of economic contraction and may do so in
the future. In addition, the changing distribution models resulting from the
Internet may impact our VAR network in the future. While no single customer
accounted for more than 10 percent of our consolidated net revenues in the first
quarter of fiscal 2001, the loss of or a significant reduction in business with
any one of our major international distributors or large U.S. resellers could
harm our business.
Product Returns. With the exception of various European distributors, agreements
with our VARs do not contain specific product-return privileges. However, we
permit our VARs to return product in certain instances, generally during periods
of product transition and during update cycles. We anticipate that product
returns in future periods will continue to be impacted by product update cycles,
new product releases and software quality.
We establish reserves, including reserves for stock balancing and product
rotation. The reserve is 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 we maintain strict measures to monitor
channel inventories and to provide appropriate reserves, actual product returns
may differ from our reserve estimates, and such differences could harm our
business.
Intellectual Property. We rely on a combination of patents, copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary rights. Despite such efforts to protect
our proprietary rights, unauthorized parties from time to time have copied
aspects of our software products or have obtained and used information that we
regard as proprietary. Policing unauthorized use of our software products is
time-consuming and costly. While we have received some revenues resulting from
the unauthorized use of our software products, we are unable to measure the
extent to which piracy of our software products exists, and software piracy can
be expected to be a persistent problem. Our means of protecting our proprietary
rights may not be adequate, and our competitors may independently develop
similar technology. We expect that software product developers will be
increasingly subject to infringement claims as the number of products and
competitors in our industry segments grows and as the functionality of products
in different industry segments overlaps. Infringement or invalidity claims (or
claims for indemnification resulting from infringement claims) may be asserted
against us, and any such assertions could harm our 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
us to enter into royalty or licensing agreements. In addition, such royalty or
license agreements, if required, may not be available on acceptable terms, if at
all, which would likely harm our business.
We also rely on certain software that we licenses from third parties, including
software that is integrated with internally developed software and used in our
products to perform key functions. These third-party software licenses may not
continue to be available on commercially reasonable terms, and the software may
not be appropriately supported, maintained or enhanced by the licensors. The
loss of licenses to, or inability to support, maintain and enhance any such
software could result in increased costs, or in delays or reductions in product
shipments until equivalent software could be developed, identified, licensed and
integrated, which could harm our business.
Attraction and Retention of Employees. Our continued growth and success depends
significantly on the continued service of highly skilled employees. Competition
for these employees in today's marketplace, especially in the technology
industries, is intense. Our ability to attract and retain employees is dependent
on a number of factors including our continued ability to grant stock incentive
awards. The growth of well-financed Internet start-up companies, particularly in
the San Francisco Bay Area, may negatively impact our ability to recruit new
personnel or retain existing personnel. The loss of key employees or inability
to recruit new employees would negatively impact our business. In addition, we
may experience increased compensation costs to attract and retain skilled
personnel.
Impact of Year 2000. Prior to January 1, 2000, we completed our remediation and
testing of systems for Year 2000 readiness. As a result of those planning and
implementation efforts, we experienced no
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significant disruptions in mission critical information technology or other
systems and believe those systems successfully responded to the Year 2000 date
change.
Single European Currency. We are in the process of addressing the issues raised
by the introduction of the Euro as of January 1, 1999 and during the transition
period ending January 1, 2002. We will continue to modify the internal systems
that will be affected by this conversion during fiscal 2001, and do not expect
the costs of further system modifications to be material. We may not be able to
complete such modifications to comply with Euro requirements, which could harm
our business. We are currently evaluating the impact of the introduction of the
Euro on our foreign exchange activities, functional currency designations, and
pricing strategies in the new economic environment. In addition we face risks to
the extent that banks and vendors upon whom we rely and their suppliers are
unable to make appropriate modifications to support our operations with respect
to Euro transactions. While we will continue to evaluate the impact of the Euro,
we do not believe its introduction will harm our business.
Risks Associated with Acquisitions and Investments. We periodically acquire or
invest in businesses, software products and technologies that are complementary
to our business through strategic alliances, debt and equity investments, and
the like. The risks associated with such acquisitions or investments include,
among others, the difficulty of assimilating the operations and personnel of the
companies, the failure to realize anticipated synergies, and the diversion of
management's time and attention. In addition, such investments and acquisitions
may involve significant transaction-related costs. We may not be successful in
overcoming such risks and such investments and acquisitions may negatively
impact our business. In addition, such investments and acquisitions may
contribute to potential fluctuations in quarterly results of operations. The
fluctuations could arise from merger-related costs and charges associated with
eliminating redundant expenses or write-offs of impaired assets recorded in
connection with acquisitions. These costs or charges could negatively impact
results of operations for a given period or cause lack of linearity quarter to
quarter in our operating results and financial condition.
We acquired Discreet with the expectation that the acquisition would result in
beneficial synergies. The failure to achieve such synergies would likely harm
our business. The future financial performance of the Discreet business unit
will depend in part on the successful development, introduction, and customer
acceptance of existing and new or enhanced products. In addition, for Discreet
to achieve sustained growth, the market for its systems and software must
continue to develop, and we must expand this market to include additional
applications within the film, broadcast and video industries and Internet-
related businesses and develop or acquire new products for use in related
markets. We may not be successful in marketing the existing or new or enhanced
products. In addition, as we enter new markets, distribution channels, technical
requirements and competition may be different from those in our current markets,
and we may not be able to compete favorably.
We periodically make investments in related Internet entities, such as
Buzzsaw.com, Inc., which typically do not expect to earn significant revenues in
the initial period of operations and which incur considerable start-up costs.
Such investments may negatively impact our results of operations and financial
condition.
Liquidity and Capital Resources
Cash, cash equivalents, and marketable securities totaled $433.8 million at
April 30, 2000, compared to $540.9 million at January 31, 2000. The primary uses
of cash during the first quarter of fiscal 2001 were: the repurchase of 4.0
million shares of our common stock ($193.0 million), capital expenditures ($10.5
million), dividend payments ($3.5 million) and an additional investment in
Buzzsaw.com ($17.5 million). The primary sources of cash were cash provided by
operating activities ($38.5 million) and stock issuances resulting from our
employee stock plans ($83.6 million).
In March 2000, we announced another plan to repurchase up to an additional 8.0
million shares of our common stock. The primary purpose of the stock repurchase
programs is to help offset the dilution to earnings per share caused by the
issuance of stock under our employee stock plans.
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We have a U.S. line of credit permitting short-term, unsecured borrowings of up
to $40.0 million, which may be used from time to time to facilitate short-term
cash flow. At April 30, 2000, there were no borrowings outstanding under this
agreement, which expires in January, 2001.
Principal commitments at April 30, 2000, consisted of obligations under
operating leases for facilities.
We believe that our existing cash, cash equivalents, marketable securities,
available line of credit, and cash generated from operations will be sufficient
to satisfy our currently anticipated short-term and longer-term cash
requirements. Longer-term cash requirements, other than normal operating
expenses, are anticipated for the development of new software products and
incremental product offerings resulting from the enhancement of existing
products; financing anticipated growth; dividend payments; the share repurchase
programs; investments in related Internet entities; and the acquisition of
businesses, software products, or technologies complementary to our business.
Our international operations are subject to currency fluctuations. To minimize
the impact of these fluctuations, we use foreign currency option contracts to
hedge our exposure on anticipated transactions and forward contracts to hedge
our exposure on firm commitments, primarily certain payables and receivables
denominated in foreign currencies. Our foreign currency instruments generally
have maturities of less than three months, and the option contracts settle
before the end of a quarterly period. The principal currencies hedged during the
first quarter of the fiscal year were the Euro and the Japanese yen. We monitor
our foreign exchange exposures to ensure the overall effectiveness of our
foreign currency hedge positions.
PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
We are involved in various legal proceedings arising from the normal course of
business activities. In addition, in March and April 2000, three class action
complaints were filed against us and certain of our officers and directors,
alleging violations of the Securities Exchange Act of 1934. The plaintiffs seek
to act on behalf of purchasers of Autodesk common stock during the period
between September 14, 1998 and May 4, 1999. We believe the complaints are
without merit and intend to vigorously defend the actions.
In our opinion, resolution of these matters is not expected to have a material
adverse impact on our consolidated results of operations or our financial
position. However, depending on the amount and timing, an unfavorable resolution
of a matter could materially affect our future results of operations or cash
flows in a particular period.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
--------
27.0 Financial Data Schedule for the quarter ended April 30, 2000
Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended April 30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 30, 2000
AUTODESK, INC.
(Registrant)
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/S/ CAROL A. BARTZ
-------------------
Carol A. Bartz
Chairman, President and Chief Executive Officer
/S/ STEVE CAKEBREAD
--------------------
Steve Cakebread
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
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