AUTODESK INC
10-Q, 2000-08-30
PREPACKAGED SOFTWARE
Previous: CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 3, PRE 14A, PREC14C, 2000-08-30
Next: AUTODESK INC, 10-Q, EX-27, 2000-08-30



<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 July 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 July 31, 2000, there were approximately 57.6 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 and six months ended July 31, 2000 and 1999...........................      3

          Condensed Consolidated Balance Sheet
           July 31, 2000 and January 31, 2000..........................................      4

          Condensed Consolidated Statement of Cash Flows
           Six months ended July 31, 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

Item 3.   Quantitative and Qualitative Disclosures About Market Risk...................     17

                                    PART II. OTHER INFORMATION

Item 1.   Legal Proceedings............................................................     17

Item 4.   Submission of Matters to a Vote of Security Holders..........................     18

Item 6.   Exhibits and Reports on Form 8-K.............................................     18

          Signatures...................................................................     18
</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                     Six months ended
                                                      July 31,                              July 31,
                                           --------------------------           -------------------------------
                                              2000            1999                 2000                 1999
                                           ----------      ----------           ----------           ----------
<S>                                        <C>             <C>                  <C>                  <C>
Net revenues                               $ 226,250       $ 202,945            $ 449,579            $ 397,884
                                           ---------       ---------            ---------            ---------

Costs and expenses:
 Cost of revenues                             38,579          39,614               74,727               72,022
 Marketing and sales                          71,004          82,023              141,154              162,168
 Research and development                     42,272          44,692               82,527               83,290
 General and administrative                   33,123          34,071               64,928               69,043
 Amortization of goodwill and
  purchased intangibles                        7,272           7,793               15,060               15,037
 Nonrecurring (credits) charges                    -               -                 (800)              21,781
                                           ---------       ---------            ---------            ---------

                                             192,250         208,193              377,596              423,341
                                           ---------       ---------            ---------            ---------
Income (loss) from operations                 34,000          (5,248)              71,983              (25,457)
Interest and other income, net                 4,301           5,820                7,274               10,316
                                           ---------       ---------            ---------            ---------
Income (loss) before income taxes             38,301             572               79,257              (15,141)
Provision for income taxes                   (12,234)           (183)             (25,339)              (1,614)
Equity in net loss of affiliate               (5,314)              -               (7,559)                   -
                                           ---------       ---------            ---------            ---------

Net income (loss)                          $  20,753       $     389            $  46,359            $ (16,755)
                                           =========       =========            =========            =========

Basic net income (loss) per share          $    0.36       $    0.01            $    0.79            $   (0.28)
                                           =========       =========            =========            =========

Diluted net income (loss) per share        $    0.35       $    0.01            $    0.77            $   (0.28)
                                           =========       =========            =========            =========

Shares used in computing basic net
 income (loss) per share                      57,752          60,845               58,397               59,890
                                           =========       =========            =========            =========

Shares used in computing diluted net
 income (loss) per share                      59,073          61,535               60,579               59,890
                                           =========       =========            =========            =========
</TABLE>

                            See accompanying notes.

                                       3
<PAGE>

                                AUTODESK, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEET
                                    ASSETS
                                (In thousands)

<TABLE>
<CAPTION>
                                                                 July 31, 2000       January 31, 2000
                                                                 -------------       ----------------
                                                                  (Unaudited)            (Audited)
<S>                                                              <C>                 <C>
Current assets:
  Cash and cash equivalents                                         $  89,599            $ 108,641
  Marketable securities                                               159,436              250,290
  Accounts receivable, net                                            154,765              110,839
  Inventories                                                          15,280               19,264
  Deferred income taxes                                                30,574               27,670
  Prepaid expenses and other current assets                            23,805               28,555
                                                                    ---------            ---------

    Total current assets                                              473,459              545,259
                                                                    ---------            ---------
Marketable securities                                                 193,133              181,992

Computer equipment, furniture, and leasehold improvements,
 at cost:
  Computer equipment and furniture                                    158,589              142,528
  Leasehold improvements                                               21,667               22,723
  Less accumulated depreciation                                      (133,442)            (123,367)
                                                                    ---------            ---------
    Net computer equipment, furniture, and leasehold
     improvements                                                      46,814               41,884
Purchased technologies and capitalized software, net                   21,435               29,029
Goodwill, net                                                          61,277               75,489
Deferred income taxes                                                  29,981               27,818
Other assets                                                           18,109                5,855
                                                                    ---------            ---------

                                                                    $ 844,208            $ 907,326
                                                                    =========            =========
</TABLE>

                            See accompanying notes.

                                       4
<PAGE>

                                AUTODESK, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEET
                     LIABILITIES AND STOCKHOLDERS' EQUITY
                                (In thousands)

<TABLE>
<CAPTION>
                                                     July 31, 2000        January 31, 2000
                                                   -----------------     ------------------
                                                      (Unaudited)             (Audited)
<S>                                                <C>                   <C>
Current liabilities:
   Accounts payable                                    $    49,605           $    45,310
   Accrued compensation                                     45,970                50,448
   Accrued income taxes                                     95,270                88,006
   Deferred revenues                                        43,825                33,604
   Other accrued liabilities                                85,468                82,024
                                                       -----------           -----------
      Total current liabilities                            320,138               299,392
                                                       -----------           -----------


Deferred income taxes                                        4,078                 4,380
Other liabilities                                            1,240                 1,255
Commitments and contingencies


Stockholders' equity:
   Common stock and additional paid-in capital             514,996               561,814
   Accumulated other comprehensive loss                    (15,869)              (14,822)
   Deferred compensation                                    (1,128)               (1,338)
   Retained earnings                                        20,753                56,645
                                                       -----------           -----------
      Total stockholders' equity                           518,752               602,299
                                                       -----------           -----------
                                                       $   844,208           $   907,326
                                                       ===========           ===========
</TABLE>

                            See accompanying notes.

                                       5
<PAGE>

                                AUTODESK, INC.
                CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                   Six months ended
                                                                                       July 31,
                                                                           --------------------------------
                                                                              2000                  1999
                                                                           -----------           ----------
<S>                                                                        <C>                   <C>
Operating activities
  Net income (loss)                                                        $   46,359            $  (16,755)
  Adjustments to reconcile net income (loss) to net cash provided by
   operating activities:
    Depreciation and amortization                                              36,302                43,142
    Net loss on asset disposals                                                 1,381                   757
    Equity in net loss of affiliate                                             7,559                     -
    Charge for acquired in-process research and development                         -                 3,287
    Changes in operating assets and liabilities                                   604               (26,600)
                                                                           ----------            ----------
Net cash provided by operating activities                                      92,205                 3,831
                                                                           ----------            ----------

Investing activities
  Net maturities (purchases) of marketable securities                          80,808              (178,408)
  Capital expenditures                                                        (18,265)              (13,845)
  Business combinations, net of cash acquired                                       -               (25,642)
  Investments in unconsolidated entities                                      (22,800)                    -
  Other investing activities                                                    3,616                 2,810
                                                                           ----------            ----------
Net cash provided by (used in) investing activities                            43,359              (215,085)
                                                                           ----------            ----------

Financing activities
  Repayment of notes payable and borrowings                                      (214)                 (587)
  Repurchases of common stock                                                (233,528)                    -
  Proceeds from issuance of common stock, net of issuance costs                92,244               137,376
  Dividends paid                                                               (6,952)               (7,088)
                                                                           ----------            ----------
Net cash (used in) provided by financing activities                          (148,450)              129,701
                                                                           ----------            ----------

Effect of exchange rate changes on cash and cash equivalents                   (6,156)               (5,169)
Discreet Logic activity for the one month ended January 31, 1999                    -                   320
                                                                           ----------            ----------
Net decrease in cash and cash equivalents                                     (19,042)              (86,402)
Cash and cash equivalents at beginning of year                                108,641               258,941
                                                                           ----------            ----------
Cash and cash equivalents at end of period                                 $   89,599            $  172,539
                                                                           ==========            ==========

Supplemental cash flow information:
  Cash paid during the period for income taxes                             $    3,723            $   34,484
                                                                           ==========            ==========
</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 and six months
ended July 31, 2000 are not necessarily indicative of the results for the entire
fiscal year ending January 31, 2001.

2.   Recently Issued Accounting Standards
     ------------------------------------

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements."  Autodesk is required to adopt SAB 101 in the fourth quarter of
fiscal 2001.  The SEC has indicated that they intend to issue additional written
guidance to further supplement SAB 101.  Autodesk is currently evaluating the
impact of the proposed additional SAB 101 guidance on its required disclosures
and accounting practices.

During the six months ended July 31, 2001, the Emerging Issues Task Force (EITF)
of the Financial Accounting Standards Board issued specific accounting
literature in response to a number of issues raised by the SEC related to
accounting for Internet activities.  This new literature, which addresses
accounting for web site development costs, hosting revenues, sales incentives,
and shipping and handling revenue and costs, is generally effective beginning in
the third or fourth quarters of the current fiscal year. Autodesk is currently
evaluating the impact of this literature on its financial statements and related
disclosures.

Autodesk has until fiscal year 2002 to adopt the provisions of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which was issued in June, 1998. This
Statement requires Autodesk to recognize all derivatives on the balance sheet at
fair value. Autodesk is currently evaluating the impact of SFAS 133 on its
financial statements and related disclosures.

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:

<TABLE>
<CAPTION>
                                                    Three months ended               Six months ended
                                                          July 31,                       July 31,
                                                          --------                       --------
(In thousands)                                    2000            1999            2000             1999
                                                 ------          ------          ------           ------
<S>                                            <C>              <C>             <C>              <C>
Numerator:

Numerator for basic and diluted per
share amount -- net income (loss)              $20,753          $   389         $46,359          $(16,755)
                                               =======          =======         =======          ========

Denominator:

Denominator for basic  net income
(loss) per share -- weighted average
shares                                          57,752           60,845          58,397            59,890
Effect of dilutive common stock
options                                          1,321              690           2,182                 -
                                               -------          -------         -------          --------
Denominator for dilutive net income
(loss) per share                                59,073           61,535          60,579            59,890
                                               =======          =======         =======          ========
</TABLE>

                                       7
<PAGE>

For the three months ended July 31, 2000 and 1999, options to purchase 5.5
million and 10.5 million shares, respectively, were excluded from the
computation of diluted net income per share.  For the six months ended July 31,
2000 options to purchase 3.4 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 six months ended July 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               Six months ended
                                                          July 31,                       July 31,
                                                          --------                       --------
(In thousands)                                    2000            1999            2000             1999
                                                 ------          ------          ------           ------
<S>                                             <C>             <C>             <C>             <C>
Net income (loss)                               $20,753         $   389         $46,359         $(16,755)
Other comprehensive income (loss), net              826          (3,603)         (1,047)          (4,996)
                                                -------         -------         -------         --------
     Total comprehensive income (loss)          $21,579         $(3,214)        $45,312         $(21,751)
                                                =======         =======         =======         ========
</TABLE>

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 approximately a 40 percent interest in
Buzzsaw.com, and accounts for this investment under the equity method of
accounting.

During the six months ended July 31, 2000, Autodesk recognized $7.6 million of
losses, of which $5.3 million was recognized during the second quarter.  These
losses represent Autodesk's proportionate share of Buzzsaw.com's losses from
April through July 2000.  The carrying value of Autodesk's investment in
Buzzsaw.com was $6.0 million at July 31, 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 six months ended July 31,
2000 associated with restructurings that occurred during fiscal 2000:

<TABLE>
<CAPTION>
                                 Balance at                                                                Balance at
                                 February 1,                           Charges                              July 31,
(In thousands)                      2000             Additions         Utilized           Reversals           2000
                                 -----------       -------------     ------------       -------------    --------------
<S>                              <C>               <C>               <C>                <C>              <C>
Employee termination costs        $  1,000              $   0          $  (343)            $  (300)          $   357
Office closure costs                   700                  0             (135)               (100)              465
Legal entity liquidations              500                  0              (58)               (200)              242
                                  --------              -----          -------             -------           -------
Total                             $  2,200              $   0          $  (536)            $  (600)          $ 1,064
                                  ========              =====          =======             =======           =======
</TABLE>


The $0.6 million of reversals is included in Nonrecurring (Credits) Charges in
the Condensed Consolidated Statement of Operations and was recognized during the
first quarter.  Certain accruals established in fiscal 2000 were settled for
less than originally estimated.

                                       8
<PAGE>

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.

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:

<TABLE>
<CAPTION>
                                                   Three months ended                Six months ended
                                                        July 31,                         July 31,
                                                        --------                         --------
(In thousands)                                    2000            1999            2000             1999
                                                 ------          ------          ------           ------
<S>                                             <C>            <C>             <C>              <C>
Net revenues:
Design Solutions                                $176,228       $156,115        $ 353,237        $ 317,175
Discreet                                          50,022         46,830           96,342           80,709
                                                --------       --------        ---------        ---------
                                                $226,250       $202,945        $ 449,579        $ 397,884
                                                ========       ========        =========        =========

Income (loss) from operations:
Design Solutions                                $115,773       $ 68,990        $ 238,692        $ 145,896
Discreet                                           1,894          4,256            3,006          (20,452)
Unallocated amounts/1/                           (83,667)       (78,494)        (169,715)        (150,901)
                                                --------       --------        ---------        ---------
                                                $ 34,000       $ (5,248)       $  71,983        $ (25,457)
                                                ========       ========        =========        =========
</TABLE>

/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 second quarter of fiscal 2001, Autodesk repurchased and retired 1.2
million shares of its common stock at an average repurchase price of $34.53 per
share.  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 per share.  As a result, common stock and additional paid-in capital and
retained earnings were reduced by $156.2 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.

Through a series of equity collar contracts that were entered into with a
financial institution, Autodesk has the option to purchase and retire 1.8
million shares of its common stock.  The underlying put and call options, which
are at various prices and expire at various dates through 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," page 12, as well as factors
set forth in our fiscal 2000 Annual Report on Form 10-K.

Results of Operations

Three Months Ended July 31, 2000 and 1999
-----------------------------------------

Net revenues.  Our second quarter net revenues of $226.3 million increased from
$202.9 million recognized in the second quarter of the prior fiscal year.  The
11 percent increase reflects increases in net revenues in the Americas of 14
percent and in Asia/Pacific of 24 percent as compared to the same period in the
prior fiscal year.  Sales in Europe were approximately the same as in the prior
fiscal quarter primarily as a result of unfavorable exchange rate movements.  In
addition, net revenues for the Discreet Segment increased 7 percent compared to
the second quarter in the prior fiscal year.  The overall increase in net
revenues was primarily due to an increase in the sales of vertical products.
Sales of AutoCAD and AutoCAD upgrades accounted for approximately 33 percent of
our consolidated net revenues in the second quarter of fiscal year 2001 and 44
percent of our consolidated net revenues in the same period of fiscal year 2000.

The stronger value of the US dollar, relative to international currencies, had a
negative impact on net revenues in the second quarter of the current fiscal
year.  Had the rates from the prior year been in effect in the second quarter of
fiscal 2000, translated international revenue billed in local currencies would
have been $5.0 million higher. International sales, including exports from the
U.S., accounted for approximately 64 percent of our net revenues in the second
quarter of fiscal year 2001 as compared to 65 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 3 percent of consolidated
revenues in the second quarter of fiscal year 2001 and 4 percent in the second
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 20 percent of net revenues in the second quarter of the
prior fiscal year to 17 percent of net revenues in the second quarter of the
current fiscal year. This decrease is primarily due to lower material costs of
$1.7 million, lower capitalized software amortization of $1.4 million, as well
as reduced royalty costs of $0.8 million offset in part by increased 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 decreased to 31 percent of
net revenues in the second quarter of fiscal year 2001 from 40 percent of net
revenues in the second quarter of fiscal year 2000. This decrease is partially
due to lower employee-related expenses of $3.8 million and higher spending last
year related to the 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.  Second quarter research and development expenses of
$42.3 million decreased from $44.7 million recognized in the second quarter of
the prior year.  The reduction is primarily due to lower facilities costs of
$1.6 million.  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 second quarter of fiscal year 2001 as compared to 17
percent of net revenues in the second quarter of the prior fiscal year.  This
reduction is primarily due to lower facilities costs of $0.9 million. 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 for the three months ended July 31, 2000 decreased
slightly as compared to the same period in the prior fiscal year due to some
intangibles reaching the end of their estimated useful lives.

Interest and other income.  Interest and other income, net was $4.3 million in
the second quarter of fiscal year 2001 compared to $5.8 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 second quarter of fiscal 2001 and 2000.  Consistent with last year, the
effective tax rate for the second 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 $5.3 million equity in net loss of
affiliate represents our proportionate share of Buzzsaw.com's May through July
2000 losses.  We expect our equity in net losses of Buzzsaw.com to continue to
be significant in the remaining quarters of the current fiscal year.

Six Months Ended July 31, 2000 and 1999
---------------------------------------

Net revenues.  Our net revenues for the six months ended July 31, 2000 of $449.6
million increased from $397.9 million recognized in the same period of the prior
fiscal year. Increases in the Americas net revenues of 20 percent as well as a
28 percent increase in Asia/Pacific 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 19
percent compared to the same period 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 33 percent of our consolidated net revenues in the first six
months of fiscal 2001 and 45 percent of our consolidated net revenue in the
first six months of fiscal 2000.

The stronger value of the US dollar, relative to international currencies, had a
negative impact on net revenues in the first six months of the current fiscal
year.  Had the rates from the prior year been in effect in the six months ended
July 31, 2000 translated international revenue billed in local currencies would
have been $9.2 million higher.

Cost of revenues.  When expressed as a percentage of net revenues, cost of
revenues decreased slightly from 18 percent of net revenues in the six months
ended July 31, 1999 to 17 percent of net revenues for the six months ended July
31, 2000. This decrease is primarily due to reduced royalty costs of $2.7
million that resulted from the expiration of some of our royalty arrangements in
fiscal 2000 and reduced software amortization costs.  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.

                                       11
<PAGE>

Marketing and sales.  Marketing and sales expenses decreased to 31 percent of
net revenues in the six months ended July 31, 2000 from 41 percent of net
revenues in the same period of the prior fiscal year. This decrease is partially
due to lower employee-related expenses of $7.6 million.  Additionally, during
the six months ended July 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 decreased to $82.5
million in the six months ended July 31, 2000 from $83.3 million recognized 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 six months of fiscal 2001 as compared to 17 percent
of net revenues in the same period of the prior fiscal year. This reduction is
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 for the six months ended July 31, 2000 increased
slightly as compared to the same period in the prior fiscal year.

Nonrecurring (credits) charges.  During the first six months of fiscal 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 six months ended July 31, 1999, 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 $7.3 million in
the first six months of fiscal 2001 compared to $10.3 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 half of fiscal 2001 and 2000.  Consistent with last year, the
effective tax rate for the first half 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 $7.6 million equity in net loss of
affiliate represents our proportionate share of Buzzsaw.com's April through July
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 our equity in net losses of Buzzsaw.com to continue to be
significant in the remaining quarters of the current fiscal year.

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.

                                       12
<PAGE>

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, increases in personnel,
changes in marketing or operating expenses, changes in product pricing or
product mix, delays in product releases, competitive factors, and general
economic conditions.

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 annual 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 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. 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

                                       13
<PAGE>

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.

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. Additionally, 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 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.

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 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.

                                      14
<PAGE>

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 second 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 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.

                                       15
<PAGE>

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, 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 Segment 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 $442.2 million at July
31, 2000, compared to $540.9 million at January 31, 2000. The primary uses of
cash during the first six months of fiscal 2001 were: the repurchase of 5.2
million shares of our common stock ($233.5 million), capital expenditures ($18.3
million), dividend payments ($7.0 million) and an additional investment in
Buzzsaw.com ($17.5 million). The primary sources of cash were cash provided by
operating activities ($92.2 million) and stock issuances resulting from our
employee stock plans ($92.2 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.

                                       16
<PAGE>

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 July 31, 2000, there were no borrowings outstanding under this
agreement, which expires in January 2001.

Principal commitments at July 31, 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 and second 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes in our market risk exposure as described
in Item 7A: "Quantitative and Qualitative Disclosures About Market Risk" to our
2000 Annual Report on Form  10-K, which is incorporated herein by reference.

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 and are seeking unspecified damages.
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.

                                       17
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At our Annual Meeting of Stockholders held on June 22, 2000, the following
individuals were elected to the Board of Directors:

<TABLE>
<CAPTION>
                                                   Votes For           Votes Withheld
                                                   ---------           --------------
   <S>                                            <C>                  <C>
   Carol A. Bartz                                 50,350,487                  281,296
   Mark A. Bertelsen                              49,536,780                1,095,003
   Crawford W. Beveridge                          50,383,234                  248,549
   J. Hallam Dawson                               50,379,628                  252,155
   Per-Kristian Halvorsen                         50,335,743                  296,040
   Paul S. Otellini                               50,386,916                  244,867
   Mary Alice Taylor                              50,364,032                  267,751
   Larry Wangberg                                 50,381,353                  250,430
</TABLE>

The following proposals were approved at our Annual Meeting:

<TABLE>
<CAPTION>
                                                  Affirmative    Negative     Votes
                                                     Votes         Votes     Withheld
                                                     -----         -----     --------
   <S>                                            <C>           <C>          <C>
   1.  Approve the 2000 Directors' Option Plan.   37,166,184    13,233,806    231,793
   2.  Ratify the appointment of Ernst & Young
       LLP as independent auditors for the
       fiscal year ending January 31, 2001.       50,470,888        32,985    127,910
</TABLE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

       Exhibits
       --------

       27.0 Financial Data Schedule for the period ended July 31, 2000

       Reports on Form 8-K
       -------------------

       No reports on Form 8-K were filed during the quarter ended July 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: August 30, 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)

                                       18


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission