<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 October 31, 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 November 30, 2000, there were approximately 56.4 million shares of the
Registrant's Common Stock outstanding.
================================================================================
<PAGE>
AUTODESK, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<C> <S> <C>
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Operations
Three and nine months ended October 31, 2000 and 1999........................... 2
Condensed Consolidated Balance Sheets
October 31, 2000 and January 31, 2000........................................... 3
Condensed Consolidated Statements of Cash Flows
Nine months ended October 31, 2000 and 1999..................................... 5
Notes to Condensed Consolidated Financial Statements............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................... 18
Item 5. Other Information............................................................... 18
Item 6. Exhibits and Reports on Form 8-K................................................ 18
Signatures...................................................................... 18
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, October 31,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 221,849 $ 202,072 $ 671,428 $ 599,956
------------ ------------ ------------ ------------
Costs and expenses:
Cost of revenues 37,884 35,220 112,611 107,242
Marketing and sales 73,978 75,439 215,132 237,607
Research and development 42,658 41,151 125,185 124,441
General and administrative 32,387 32,168 97,315 101,210
Amortization of goodwill and
purchased intangibles 5,856 7,801 20,916 22,838
Nonrecurring (credits) charges (434) 14,728 (1,234) 36,510
------------ ------------ ------------ ------------
192,329 206,507 569,925 629,848
------------ ------------ ------------ ------------
Income (loss) from operations 29,520 (4,435) 101,503 (29,892)
Interest and other income, net 6,372 6,482 13,646 16,798
------------ ------------ ------------ ------------
Income (loss) before income taxes 35,892 2,047 115,149 (13,094)
Provision for income taxes (11,485) (654) (36,824) (2,268)
Equity in net loss of affiliate (5,896) - (13,455) -
------------ ------------ ------------ ------------
Net income (loss) $ 18,511 $ 1,393 $ 64,870 $ (15,362)
============ ============ ============ ============
Basic net income (loss) per share $ 0.33 $ 0.02 $ 1.12 $ (0.25)
============ ============ ============ ============
Diluted net income (loss) per share $ 0.32 $ 0.02 $ 1.09 $ (0.25)
============ ============ ============ ============
Shares used in computing basic net
income (loss) per share 56,681 61,157 57,825 60,300
============ ============ ============ ============
Shares used in computing diluted net
income (loss) per share 57,073 61,482 59,319 60,300
============ ============ ============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
<TABLE>
<CAPTION>
October 31, 2000 January 31, 2000
------------------ -----------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 95,900 $ 108,641
Marketable securities 147,003 250,290
Accounts receivable, net 150,495 110,839
Inventories 18,070 19,264
Deferred income taxes 25,558 27,670
Prepaid expenses and other current assets 27,506 28,555
----------------- -----------------
Total current assets 464,532 545,259
----------------- -----------------
Marketable securities 190,593 181,992
Computer equipment, furniture, and leasehold
improvements, at cost:
Computer equipment and furniture 161,600 142,528
Leasehold improvements 23,042 22,723
Less accumulated depreciation (137,324) (123,367)
----------------- -----------------
Net computer equipment, furniture, and leasehold
improvements 47,318 41,884
Purchased technologies and capitalized software, net 18,076 29,029
Goodwill, net 56,080 75,489
Deferred income taxes 41,157 27,818
Other assets 12,188 5,855
----------------- -----------------
$ 829,944 $ 907,326
================= =================
</TABLE>
See accompanying notes.
3
<PAGE>
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
October 31, 2000 January 31, 2000
------------------ -----------------
(Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 47,750 $ 45,310
Accrued compensation 45,252 50,448
Accrued income taxes 105,340 88,006
Deferred revenues 45,830 33,604
Other accrued liabilities 78,912 82,024
----------------- -----------------
Total current liabilities 323,084 299,392
----------------- -----------------
Deferred income taxes 4,043 4,380
Other liabilities 1,284 1,255
Commitments and contingencies
Minority interest 13,730 -
Stockholders' equity:
Common stock and additional paid-in capital 473,004 561,814
Accumulated other comprehensive loss (18,741) (14,822)
Deferred compensation (927) (1,338)
Retained earnings 34,467 56,645
----------------- -----------------
Total stockholders' equity 487,803 602,299
----------------- -----------------
$ 829,944 $ 907,326
================= =================
</TABLE>
See accompanying notes.
4
<PAGE>
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
October 31,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Operating activities
Net income (loss) $ 64,870 $ (15,362)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 52,498 61,171
Net loss on asset disposals 1,570 3,240
Equity in net loss of affiliate 13,455 -
Charge for acquired in-process research and development - 3,287
Changes in operating assets and liabilities (3,854) (22,640)
------------- -------------
Net cash provided by operating activities 128,539 29,696
------------- -------------
Investing activities
Net maturities (purchases) of marketable securities 96,206 (197,675)
Capital expenditures (24,911) (16,395)
Business combinations, net of cash acquired - (25,642)
Investments in unconsolidated entities (23,800) -
Other investing activities 6,769 5,345
------------- -------------
Net cash provided by (used in) investing activities 54,264 (234,367)
------------- -------------
Financing activities
Repayment of notes payable and borrowings (221) (587)
Repurchases of common stock (292,744) -
Proceeds from issuance of common stock, net of issuance costs 107,029 146,239
Dividends paid (10,333) (11,000)
Minority interest 13,957 -
------------- -------------
Net cash (used in) provided by financing activities (182,312) 134,652
------------- -------------
Effect of exchange rate changes on cash and cash equivalents (13,232) (6,048)
Discreet Logic activity for the one month ended January 31, 1999 - 320
------------- -------------
Net decrease in cash and cash equivalents (12,741) (75,747)
Cash and cash equivalents at beginning of year 108,641 258,941
------------- -------------
Cash and cash equivalents at end of period $ 95,900 $ 183,194
============= =============
Supplemental cash flow information:
Cash paid during the period for income taxes $ 9,184 $ 40,333
============= =============
</TABLE>
See accompanying notes.
5
<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 and nine months
ended October 31, 2000 are not necessarily indicative of the results for the
entire fiscal year ending January 31, 2001.
2. Recently Issued Accounting Standards
------------------------------------
Beginning in March 2000, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board issued specific accounting guidance in response to a
number of issues raised by the Securities and Exchange Commission (SEC) related
to accounting for Internet activities. This new guidance, which includes the
accounting for Web site development costs, hosting revenues, sales incentives,
and the classification of shipping and handling fees and costs, takes effect at
various times during the third and fourth quarters of fiscal 2001. Management
believes that the adoption of this new guidance will not have a material effect
on Autodesk's financial position, results of operations, or classification of
net revenues and costs.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). Autodesk will adopt SAB 101 in
the fourth quarter of fiscal 2001. Management believes that Autodesk's practices
and policies are in compliance with SAB 101.
During June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This Statement requires Autodesk to
recognize all derivatives on the balance sheet at fair value. Autodesk will
adopt SFAS 133 in the first quarter of fiscal 2002. Upon adoption, Autodesk will
be required to adjust hedging instruments to fair value on the balance sheet and
recognize the offsetting gains or losses as adjustments to be reported in net
income or other comprehensive income, as appropriate. Management continues to
evaluate the impact of SFAS 133 on its financial statements and related
disclosures. Had Autodesk adopted the provisions of SFAS 133 during the quarter
ended October 31, 2000, the impact to its financial position and results of
operations would not have been material.
3. Net Income (Loss) Per Share
---------------------------
The following is a reconciliation of the numerators and denominators used in the
basic and diluted net income (loss) per share amounts:
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, October 31,
----------- -----------
(In thousands) 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted per share amount -- net
income (loss) $ 18,511 $ 1,393 $ 64,870 $ (15,362)
======== ======== ======== =========
Denominator:
Denominator for basic net income (loss) per share --
weighted average shares 56,681 61,157 57,825 60,300
Effect of dilutive common stock options 392 325 1,494 -
-------- -------- -------- ---------
Denominator for dilutive net income (loss) per share 57,073 61,482 59,319 60,300
======== ======== ======== =========
</TABLE>
6
<PAGE>
For the three months ended October 31, 2000 and 1999, options to purchase 10.3
million and 15.2 million shares, respectively, were excluded from the
computation of diluted net income per share. For the nine months ended October
31, 2000 options to purchase 5.3 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 prices of
Autodesk's common stock during the respective periods.
For the nine months ended October 31, 1999, all outstanding options were
excluded from the computation of diluted net loss per share because Autodesk
incurred a loss.
4. Comprehensive Income (Loss)
---------------------------
Autodesk's total comprehensive income (loss) was as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, October 31,
----------- -----------
(In thousands) 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 18,511 $ 1,393 $ 64,870 $ (15,362)
Other comprehensive income (loss), net (2,872) 3,479 (3,919) (1,517)
-------- -------- -------- ----------
Total comprehensive income (loss) $ 15,639 $ 4,872 $ 60,951 $ (16,879)
======== ======== ======== ==========
</TABLE>
5. Investment in Affiliate -- Buzzsaw.com, Inc.
--------------------------------------------
In April 2000, Autodesk invested an additional $17.5 million in Buzzsaw.com,
Inc., which was formed by Autodesk during the third quarter of fiscal
2000. Autodesk currently maintains approximately a 40 percent interest in
Buzzsaw.com, and accounts for this investment under the equity method of
accounting.
During the nine months ended October 31, 2000, Autodesk recognized $13.5 million
of losses, of which $5.9 million was recognized during the third quarter. These
losses represent Autodesk's proportionate share of Buzzsaw.com's losses from
April through October 2000. The carrying value of Autodesk's investment in
Buzzsaw.com was $0.1 million at October 31, 2000, and is included in Other
Assets in the Condensed Consolidated Balance Sheet.
6. Minority Interest - RedSpark, Inc.
----------------------------------
In April 2000, Autodesk formed RedSpark, Inc. In October 2000, RedSpark received
$14.0 million of third party venture funding. Autodesk currently maintains a
majority interest in RedSpark, and consolidates RedSpark's financial position
and results of operations.
The minority interest at October 31, 2000 represents equity funding received by
RedSpark from third party investors, net of allocated losses for the month of
October.
7
<PAGE>
7. Restructuring Accruals
----------------------
The following table sets forth the activity during the nine months ended October
31, 2000 associated with restructurings that occurred during fiscal 2000:
<TABLE>
<CAPTION>
Balance at Balance at
February 1, Charges October
(In thousands) 2000 Additions Utilized Reversals 31, 2000
------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Employee termination costs $ 1,000 $ 0 $ (395) $ (428) $ 177
Office closure costs 700 0 (319) (281) 100
Legal entity liquidations 500 0 (61) (325) 114
------------- ---------- ------------ ------------ -----------
Total $ 2,200 $ 0 $ (775) $ (1,034) $ 391
============= ========== ============ =========== ===========
</TABLE>
The $1.0 million of reversals is included in Nonrecurring (Credits) Charges in
the Condensed Consolidated Statement of Operations. Of this amount, $0.4 million
was recognized during the third quarter. Certain accruals established in fiscal
2000 were settled for less than originally estimated.
8. Segments
--------
Autodesk's operating results have been aggregated into two reportable segments:
the Discreet Segment and the Design Solutions Segment.
The Discreet Segment derives revenues from the sale of its products to creative
professionals for a variety of applications, including feature films, television
programs, commercials, music and corporate videos, interactive game production,
live broadcasting and Web design.
The Design Solutions Segment derives revenues from the sale of design software
products for professionals, occasional users or consumers who design, draft and
diagram, and from the sale of mapping and geographic information systems
technology to public and private users.
Autodesk evaluates each segment's performance on the basis of income from
operations before income taxes. Autodesk currently does not separately
accumulate and report asset information by segment. Information concerning the
operations of the reportable segments is as follows:
Three months ended Nine months ended
October 31, October 31,
----------- -----------
(In thousands) 2000 1999 2000 1999
---- ---- ---- ----
Net revenues:
Design Solutions $ 171,520 $ 156,185 $ 524,756 $ 473,360
Discreet 50,329 45,887 146,672 126,596
--------- --------- --------- ---------
$ 221,849 $ 202,072 $ 671,428 $ 599,956
========= ========= ========= =========
Income (loss) from operations:
Design Solutions $ 112,472 $ 73,925 $ 375,911 $ 219,821
Discreet 8,004 5,289 18,410 (15,163)
Unallocated amounts/1/ (90,956) (83,649) (292,818) (234,550)
--------- --------- --------- ---------
$ 29,520 $ (4,435) $ 101,503 $ (29,892)
========= ========= ========= =========
/1/ Unallocated amounts are attributed primarily to other geographic costs and
expenses that are managed outside the reportable segments.
8
<PAGE>
9. Stock Repurchase Program
------------------------
The Board of Directors has approved a plan to repurchase up to 16.0 million
shares of Autodesk's common stock. Of these 16.0 million shares, 10.1 million
have been repurchased as of October 31, 2000. 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.
During the nine months ended October 31, 2000, Autodesk repurchased and retired
7.2 million shares of its common stock, of which 2.0 million shares were
repurchased and retired during the third quarter at an average repurchase price
of $29.13 per share. As a result of the stock repurchase activity during the
past nine months, common stock and additional paid-in capital and retained
earnings were reduced by $214.0 million and $78.8 million, respectively.
Through a series of equity collar contracts that were entered into with a
financial institution, Autodesk has the option to purchase and retire 1.2
million shares of its common stock. The underlying put and call options, which
are at various prices and expire in December 2000, give Autodesk the choice of
physical, cash and net share settlement methods.
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" as well as factors set forth
in our fiscal 2000 Annual Report on Form 10-K.
Results of Operations
Three Months Ended October 31, 2000 and 1999
--------------------------------------------
Net revenues. Our net revenues for the third quarter were $221.8 million, as
compared to $202.1 million in the third quarter of the prior fiscal year. The 10
percent growth reflected increased net revenues in the Americas of 16 percent
and in Asia/Pacific of 20 percent as compared to the same period in the prior
fiscal year. Sales in Europe declined 4 percent as compared to the same period
in the prior fiscal year, primarily as a result of unfavorable exchange rate
movements. In addition, net revenues for the Discreet Segment increased 10
percent compared to the third quarter in the prior fiscal year. The net revenues
for the Design Solutions Segment also increased 10 percent compared to the third
quarter in the prior fiscal year. Sales of AutoCAD and AutoCAD upgrades, which
were reflected in the net revenues for the Design Solutions Segment, accounted
for approximately 33 percent of our consolidated net revenues in the third
quarter of fiscal 2001 and 32 percent of our consolidated net revenues in the
same period of fiscal 2000.
The stronger value of the US dollar, relative to international currencies, had a
negative impact on net revenues in the third quarter of the current fiscal year.
Had the rates from the prior year been in effect in the third quarter of fiscal
2000, translated international revenue billed in local currencies would have
been $10.0 million higher. We believe that unfavorable exchange rates will
continue to have a negative impact on next quarter's net revenues. International
sales, including exports from the U.S., accounted for approximately 64 percent
of our net revenues in the third quarter of fiscal 2001 as compared to 61
percent in the same period of the prior fiscal year.
Product returns, consisting principally of stock rotation, are recorded as a
reduction of revenues. Product returns as a percentage of revenues have
historically ranged from two to six percent quarterly. The level of product
returns is 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 remained constant at 17 percent of net revenues for both the third
quarter of the current and prior fiscal year. Cost of revenues for the third
quarter of the current fiscal year reflected lower royalty and software
amortization costs of $2.0 million offset by higher professional fees, material
costs, and employee-related expenses. Royalty costs declined as a result of the
expiration 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 were 33 percent of net
revenues in the third quarter of fiscal 2001 as compared to 37 percent of net
revenues in the third quarter of fiscal 2000. This difference was partially due
to lower advertising and promotion expenses and spending related to product
launches,
10
<PAGE>
totaling $3.1 million, offset in part by higher employee-related expenses. We
expect to continue to make significant investments in marketing and sales, both
in absolute dollars and as a percentage of net revenues.
Research and development. Research and development expenses were $42.7 million
in the third quarter of fiscal 2001 as compared to $41.2 million in the third
quarter of the prior year. The difference was primarily due to higher employee
related costs. 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 15 percent
of net revenues in the third quarter of fiscal 2001 as compared to 16 percent of
net revenues in the third quarter of the prior fiscal year. This difference was
primarily due to lower professional fees and depreciation costs, partially
offset by higher employee-related costs. We 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 was $5.9 million in the third quarter of fiscal 2001 as
compared to $7.8 million in the third quarter of the prior year due to some
intangibles reaching the end of their estimated useful lives.
Nonrecurring (credits) charges. During the third quarter of fiscal 2001, we
reversed $0.4 million related to restructuring accruals established in fiscal
2000. The accruals were settled for less than originally estimated. During the
quarter ended October 31, 1999, we recognized $14.7 million of nonrecurring
charges related to restructuring activity.
Interest and other income. Interest and other income, net was $6.4 million in
the third quarter of fiscal 2001 compared to $6.5 million in the corresponding
period of the prior year. The slight difference was 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
third quarters of both fiscal 2001 and 2000. Consistent with last year, the
effective tax rate for the third 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 $5.9 million equity in net loss of
affiliate represents our proportionate share of Buzzsaw.com's August through
October 2000 losses. We expect our equity in net losses of Buzzsaw.com to
continue to be significant in the remaining quarter of the current fiscal year.
RedSpark, Inc. During the second quarter of fiscal 2001, we formed RedSpark,
Inc. Autodesk currently maintains a majority interest in RedSpark, and as such
the financial position and results of operations of RedSpark are consolidated
and included within the operating expense categories of our statement of
operations. We expect to continue to consolidate RedSpark through the end of the
current fiscal year and expect losses next quarter to be significant. The extent
of our exposure to RedSpark's results of operations is dependent upon Autodesk's
future level of ownership interest, which will depend on the amount of RedSpark
equity issued to other investors in the future.
Nine Months Ended October 31, 2000 and 1999
-------------------------------------------
Net revenues. Our net revenues for the nine months ended October 31, 2000 were
$671.4 million, as compared to $600.0 million in the same period of the prior
fiscal year. Increases in the Americas net revenues of 18 percent and increases
in Asia/Pacific's net revenues of 25 percent more than offset a decrease of 3
percent in net revenues in Europe, as compared to the same period in the prior
fiscal year. The decrease in European net revenues was primarily caused by
unfavorable exchange rate movements. Net revenues for the Discreet Segment
increased 16 percent compared to the same
11
<PAGE>
period in the prior fiscal year. The net revenues for the Design Solutions
Segment increased 11 percent compared to the same period in the prior fiscal
year. Sales of AutoCAD and AutoCAD upgrades, which were reflected in the net
revenues for the Design Solutions Segment, accounted for approximately 32
percent of our consolidated net revenues in the first nine months of fiscal 2001
and 39 percent of our consolidated net revenues in the first nine months of
fiscal 2000.
The stronger value of the US dollar, relative to international currencies, had a
significant negative impact on net revenues in the first nine months of the
current fiscal year.
Product returns, consisting principally of stock rotation, are recorded as a
reduction of revenues and represented approximately 3 percent of consolidated
revenues during the nine months ended October 31, 2000 as compared to 5 percent
during the same period last year. 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 were 17 percent of net revenues in the nine months ended October 31,
2000 as compared to 18 percent of net revenues for the nine months ended October
31, 1999. This difference was primarily due to reduced royalty costs of $3.8
million that resulted from the expiration of some of our royalty arrangements in
fiscal 2000 and reduced software amortization costs, offset in part by higher
employee-related expenses and professional fees. 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 were 32 percent of net
revenues in the nine months ended October 31, 2000 compared to 40 percent of net
revenues in the same period of the prior fiscal year. This difference was
partially due to lower employee-related expenses of $6.2 million. Additionally,
during the nine months ended October 31, 1999, 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.
Research and development. Research and development expenses were $125.2 million
in the nine months ended October 31, 2000 compared to $124.4 million in the same
period of the prior fiscal year. Lower facilities costs were offset by
additional spending by acquired businesses. 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 nine months of fiscal 2001 as compared to 17
percent of net revenues in the same period of the prior fiscal year. This
difference was primarily due to lower employee-related spending and lower
spending related to information systems. We 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 was $20.9 million for the nine months ended October 31,
2000 as compared to $22.8 million for the same period in the prior fiscal year
due to some intangibles reaching the end of their estimated useful lives. We
expect amortization of goodwill and purchased intangibles to continue to decline
in future periods.
Nonrecurring (credits) charges. During the first nine months of fiscal 2001, we
reversed $1.2 million related to one-time accruals established in fiscal 2000.
Of the $1.2 million, $1.0 million related to restructuring accruals established
in fiscal 2000. The accruals were settled for less than originally estimated.
During the nine months ended October 31, 1999, we recognized $36.5 million of
nonrecurring charges related to restructuring activity and the acquisitions of
Discreet Logic Inc. and VISION* Solutions.
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Interest and other income. Interest and other income, net was $13.6 million in
the first nine months of fiscal 2001 compared to $16.8 million in the
corresponding period of the prior year. The difference was 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 three quarters of both fiscal 2001 and 2000. Consistent with last year,
the effective tax rate for the first three quarters 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 $13.5 million equity in net loss of
affiliate represents our proportionate share of Buzzsaw.com's April through
October 2000 losses. In April 2000, we invested an additional $17.5 million in
Buzzsaw.com, which we formed during the third quarter of fiscal 2000. We expect
our equity in net losses of Buzzsaw.com to continue to be significant during the
remaining quarter of the current fiscal year.
RedSpark, Inc. During the second quarter of fiscal 2001, we formed RedSpark,
Inc. Autodesk currently maintains a majority interest in RedSpark, and as such
the financial position and results of operations of RedSpark are consolidated
and included within the operating expense categories of our statement of
operations. We expect to continue to consolidate RedSpark through the end of the
current fiscal year and expect losses next quarter to be significant. The extent
of our exposure to RedSpark's results of operations is dependent upon Autodesk's
future level of ownership interest, which will depend on the amount of RedSpark
equity issued to other investors in the future.
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 adversely impacted. 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 operating results. These fluctuations are caused
by numerous factors including, among other things the timing of the introduction
of new products by us or our competitors, changes in marketing or operating
expenses, changes in product pricing or product mix, platform changes, delays in
product releases, competitive factors, distribution channel management, changes
in compensation practices, and general economic conditions. Within the Discreet
Segment, a limited number of system sales may account for a substantial
percentage of the quarterly revenue of that segment because of the high average
sales price of products and the timing of purchase orders. Historically, the
Discreet Segment has generally experienced greater revenues during the period
following the annual National Association of Broadcasters trade show, which
typically is held in April.
In addition, we have experienced fluctuations in operating results in interim
periods in certain geographic regions due to seasonality or regional economic
conditions. 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.
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. Gross margins may be adversely affected if our
sales of low-end CAD products and AutoCAD upgrades, which historically have had
lower margins, grow at a faster rate than sales of our higher-margin products.
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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 our performance.
Product Concentration. We derive a substantial portion of our revenues from
sales of AutoCAD software, AutoCAD upgrades, and 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. Since
customers increasingly rely on the Internet, new platforms and technologies can
be expected to be developed in the design industries. 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 our future results 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.
In addition, the availability of third-party application software is a
competitive factor within the CAD market. We believe 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. 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.
For the Discreet Segment to achieve sustained growth, we must expand the market
for Discreet's product offerings to include additional applications within the
film and video industries, broadcast, games and the Internet, and develop new
products for use in related markets. The Discreet Segment may not be able to
successfully develop and market systems and software for other markets, and,
even if it does so, such systems and software may not be accepted at a rate, and
in levels, sufficient to maintain growth. Further, the distribution channels,
technical requirements, and levels and bases of competition in other markets are
different than those in Discreet's current market, so Discreet may not be able
to compete favorably in those markets.
With the prevalence of the new Internet technologies and the demand for
increased customer connectivity, new platforms and technologies can be expected
to be developed in the design industries. We are devoting significant resources
to the development of such technologies as well as transitioning to new business
models, requiring a considerable investment of technical and financial
resources. There can be no assurance that such investments will result in
sufficient revenue generation to justify their costs or that competitors will
not introduce new products and services that will achieve acceptance among our
current customers, adversely affecting our competitive position.
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
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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.
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 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 third 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. These reserves are 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 recovered 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
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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, invalidity
claims, or misappropriation 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 license 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 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. 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.
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 periodically make investments in related entities, such as Buzzsaw.com, Inc.
and RedSpark, Inc., which typically do not expect to earn significant revenues
in the initial period of operations and which
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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 $433.5 million at
October 31, 2000, compared to $540.9 million at January 31, 2000. The primary
uses of cash during the first nine months of fiscal 2001 were: the repurchase of
7.2 million shares of our common stock for $292.7 million, capital expenditures
of $24.9 million, dividend payments totaling $10.3 million and an additional
investment in Buzzsaw.com of $17.5 million. The primary sources of cash were
cash provided by operating activities of $128.5 million, stock issuances
resulting from our employee stock plans of $107.0 million, and $14.0 million of
third party venture funding for RedSpark.
The Board of Directors has approved a plan to repurchase up to 16.0 million
shares of our common stock. Of these 16.0 million shares, 10.1 million have been
repurchased as of October 31, 2000. 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.
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 October 31, 2000, there were no borrowings outstanding under this
agreement, which expires in January 2001. Management intends to maintain
adequate credit lines to carry out its business.
Principal commitments at October 31, 2000, consisted of obligations under
operating leases for facilities and some computer equipment.
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
nine months ended October 31, 2000 were Euro, British pound, and Japanese yen.
We monitor our foreign exchange exposures to ensure the overall effectiveness of
our foreign currency hedge positions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have no material changes to the disclosure on this matter made in our report
on Form 10-K for the fiscal year ended January 31, 2000.
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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. These complaints
were consolidated into one lawsuit in August 2000. The plaintiffs seek to act on
behalf of purchasers of Autodesk common stock during the period between
September 14, 1998 and May 4, 1999 and are seeking unspecified damages. In a
hearing before the United States District Court, Northern District of California
on November 8, 2000, the Court granted our motion to dismiss the lawsuit for
failure to state a claim and gave the plaintiffs leave to amend their complaint.
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 5. OTHER INFORMATION
In accordance with SEC Rule 10b5-1, Autodesk Chairman, President and Chief
Executive Officer Carol Bartz has established a written plan which provides for
the exercise of certain options of the Company's common stock and the sale of
the underlying shares of common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
--------
27.0 Financial Data Schedule for the quarter ended October 31, 2000
Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended October 31,
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: December 14, 2000
AUTODESK, INC.
(Registrant)
/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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