10-K 1 d10k.htm FORM 10-K Prepared by R.R. Donnelley Financial -- Form 10-K
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-K
 
x 
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended January 31, 2002
 
¨ 
 
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 incorporation or organization)
  
(I.R.S. employer
Identification No.)
 
111 McInnis Parkway,
San Rafael, California
  
94903
(Address of principal executive offices)
  
(Zip Code)
 
Registrant’s telephone number, including area code: (415) 507-5000
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
   
Name of each exchange
on which registered
None
   
None
 
Securities registered pursuant to Section 12(g) of the Act:
 
Common Stock, $0.01 Par Value
 
(Title of Class)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
 
        The aggregate market value of the voting Common Stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on April 4, 2002 as reported on the NASDAQ National Market, was approximately $2.5 billion. Shares of Common Stock held by each officer and director and by each person who owns 5 percent or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
 
As of April 4, 2002, Registrant had outstanding approximately 114.7 million shares of Common Stock.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Preliminary Proxy Statement for Registrant’s Annual Meeting of Stockholders to be held June 20,2002 are incorporated by reference in Part III of this Form 10-K. The Definitive Proxy Statement will be filed within 120 days of the Registrant’s fiscal year ended January 31, 2002.
 

PART I
 
FORWARD-LOOKING INFORMATION
 
This Annual Report contains forward-looking statements that are subject to assumptions, risks and uncertainties, many of which are discussed in this Annual Report, including under “Risk Factors Which May Impact Future Operating Results.” Actual results may vary from those projected in the forward-looking statements. If our assumptions about the future do not materialize or prove to be incorrect, the results could differ materially from those expressed or implied by such forward-looking statements. A forward-looking statement is any statement that looks to future events, including any statements of plans, strategies and objectives of management for the future and any statement of assumptions underlying any of the foregoing. We assume no obligation to update these forward-looking statements to reflect events that occur or circumstances that exist after the date on which they were made.
 
ITEM 1.    BUSINESS
 
GENERAL
 
We were incorporated in California in April 1982 and were reincorporated in Delaware in May 1994. We are one of the world’s leading design software and digital content companies for architectural design and land development, manufacturing, utilities, telecommunications and media and entertainment. We provide a broad range of totally integrated and interoperable design software, Internet portal services, wireless development platforms and point-of-location applications that empower more than four million customers in over 150 countries. Our software products are sold worldwide, both directly to customers and through a network of resellers and distributors.
 
We are organized in two reportable segments: the Design Solutions Segment and the Discreet Segment.
 
The Design Solutions Segment derives revenues from the sale of design software products for professionals or consumers who design, draft and diagram, and from the sale of mapping and geographic information systems technology to public and private users. The Design Solutions Segment consists primarily of the following business divisions, all of which have industry-specific focuses: Manufacturing; Geographic Information Services; Building Industry Division; and the Platform Technology Group.
 
Each of these divisions is served by Autodesk Point A, an Internet portal accessible either through a direct web connection or through Autodesk software products. Launched in April 2000, Autodesk Point A provides users with a global access point to Autodesk services and information, including subscription-based upgrades, tutorials, on-line training and support, product tips, and local industry links. During January 2002, Autodesk Point A was launched in an additional eight languages throughout Europe and Asia.
 
In addition, during fiscal 2002 we launched our Location Services division of the Design Solutions Segment to develop a technology platform and applications to assist wireless carriers and operators for location-sensitive wireless data services move beyond the voice services used by subscribers today.
 
The Discreet Segment develops, assembles, markets, sells and supports nonlinear digital systems and software for creating, editing, compositing and animating imagery. Revenues are derived from the sale of products to creative professionals for a variety of applications, including feature films, television programs, commercials, music and corporate videos, interactive game production, Web design and interactive Web streaming.

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PRODUCTS
 
The principal product offerings from the Design Solutions Segment are described below:
 
AutoCAD
 
AutoCAD software is a general-purpose Computer-Aided Design, or CAD, tool used independently and in conjunction with other specific applications in fields ranging from construction and manufacturing to process plant design and mapping. Professionals utilize AutoCAD for design, modeling, drafting, mapping, rendering and facility management tasks.
 
Introduced in June 2001, AutoCAD 2002 is the latest generation of our core design software. AutoCAD 2002 continues to be the technology foundation for design solutions serving the manufacturing, building design, communications, government, utilities, and land development industries. AutoCAD 2002 takes full advantage of previous product enhancements and also includes streamlined standards management using a suite of new, intranet/Internet-enabled CAD standards management tools and enhanced team collaboration features.
 
AutoCAD LT
 
AutoCAD LT is a low-cost 2D CAD application intended for CAD managers, designers and engineers who need a powerful, stand-alone drafting tool, but who do not require the advanced feature set in AutoCAD.
 
Autodesk Inventor
 
Autodesk Inventor is a 3D mechanical design creation tool that provides users an assembly-centric solid modeling (3D) and drawing production (2D) system together with adaptive design functionality. Users benefit from on-demand large assembly segment loading, adaptive design, layout and assembly functionality for solving function before form, built-in collaboration and design management tools, and AutoCAD file compatibility.
 
AutoCAD Mechanical
 
AutoCAD Mechanical software offers 2D mechanical design and engineering tools that are seamlessly compatible with all AutoCAD-based applications.
 
Mechanical Desktop
 
Mechanical Desktop is a midpriced 3D design system and is the only system that integrates 2D design with parametric, feature-based solid and surface modeling. It extends the power of the AutoCAD design environment by uniting 2D and 3D design.
 
Autodesk Architectural Desktop
 
Autodesk Architectural Desktop software offers architectural design tools. Supporting the architectural design process from conceptual design to design development, through construction documentation, Autodesk Architectural Desktop features industry-specific 2D production drafting functionality and integrated and accessible 3D design options and all of AutoCAD’s functionality. Users benefit from simplified mass modeling, intelligent building components, style definitions and layer management according to industry standards.
 
Autodesk Map
 
Autodesk Map is the Autodesk solution for precision mapping and geographic information system analysis in the AutoCAD environment. It contains the complete AutoCAD toolset to enhance productivity, plus it offers specialized functionality for creating, maintaining and producing maps and geospatial data.

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Autodesk Land Desktop
 
Autodesk Land Desktop is our land development design tool for the AutoCAD environment built around a centralized product structure that stores critical data—points, terrain models, and alignments—in a central location where they can be shared by team members. Users benefit from tools that create and label survey points, define and edit parcels and roadway alignments, automate drafting procedures, create terrain models, and calculate volumes and contours.
 
Autodesk Subscription Program
 
The Autodesk Subscription Program, available for a majority of our Design Solution products, provides subscription members with a simplified upgrade process, feature-enhancing extensions, downloadable e-Learning courses and optional on-line support. Users benefit from incremental product releases and extensions as an alternative to occasional upgrading, which can disrupt design teams through significant downtime and steep learning curves. This new program, currently available in North America, will be launched in Europe and Asia in fiscal 2003.
 
The principal product offerings from the Discreet Segment are discussed below:
 
3ds max
 
3ds max is a professional 3D modeling, animation and rendering software package providing advanced tools for character animation, next-generation game development and visual effects production. Users benefit from the unified, object-oriented platform, customizable real-time interface, multiple-processor support and 3D graphics acceleration capabilities.
 
flame
 
flame is an on-line, resolution-independent, non-linear, uncompressed digital effects and compositing system. The system is used by creative professionals to create, edit and composite special visual effects in a real-time workstation environment. Easily integrated into a suite environment and possessing the power and features necessary to serve as the core of a fully digital suite, flame is designed to allow the operator to create desired effects with near instantaneous feedback.
 
inferno
 
inferno is an on-line, non-linear, resolution-independent, uncompressed digital system providing all the features of flame with film tools, and increased image resolution and color control for digital film work. The system also features tools for grain management, wire and scratch removal and color calibration.
 
smoke
 
smoke is an on-line, non-linear editing and finishing solution that enables editors to fully edit and finish television commercials, documentaries and broadcast programs on a range of desktop workstations or real-time servers. Users benefit from smoke’s compatibility with Discreet’s visual effects systems (flame and inferno), allowing any Discreet visual effect to be incorporated into the final editorial process.
 
PRODUCT DEVELOPMENT AND INTRODUCTION
 
The majority of our basic research and product development has been performed in the U.S., while translation and localization of foreign-market versions, as well as some product development, are performed by development teams or contractors in our local markets. Various aspects of our product-related functions, including software development, localization, quality assurance and technical publications, are performed in Europe and Asia.

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The technology industry is characterized by rapid technological change in computer hardware, operating systems and software, as well as changes in customer requirements and preferences. To keep pace with these changes, we maintain an aggressive program of new product development to address demands in the marketplace for increased connectivity and use of digital data created by our products. We dedicate considerable technical and financial resources to research and development to further enhance our existing products and to create new products and technologies. These investments may not result in sufficient revenue generation to justify their costs or our competitors may introduce new products and services that will achieve acceptance among our current customers, either of which may adversely affect our competitive position.
 
Our software products are 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.
 
We actively recruit and hire experienced software developers and license and acquire complementary software technologies and businesses. In addition, we actively collaborate with and support independent software developers who offer products that enhance and complement our products.
 
Independent firms and contractors perform 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 currently develop products for us, may not be able to provide development support to us in the future. Similarly, we may not be able to obtain and renew existing 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 may 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.
 
MARKETING AND SALES
 
Our customer-related operations are divided into three geographic regions, the Americas, Europe and Asia/Pacific, and are supported by global marketing and sales organizations. These organizations develop and manage overall marketing and sales programs and work closely with a network of domestic and foreign offices. We sell our software products both directly to customers, which include large corporations, and also through distributors and resellers.
 
In addition, we work directly with reseller and distributor sales organizations, computer manufacturers, other software developers and peripheral manufacturers in cooperative advertising, promotions and trade-show presentations. We employ mass-marketing techniques such as webcasts, seminars, telemarketing, direct mailings and advertising in business and trade journals. We have a worldwide user group organization dedicated to the exchange of information related to the use of our products.
 
Our ability to effectively distribute our products depends in part upon the financial and business condition of our reseller networks. Computer software dealers and distributors are typically not highly capitalized and 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, from increased focus on direct sales to major accounts or from two-tiered distribution may impact our reseller network in the future. While no single

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customer accounted for more than 10 percent of our consolidated net revenues in any of the past three fiscal years, 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.
 
We intend to continue to make our products available in foreign languages. We believe that international sales will continue to be a significant portion of our consolidated net revenues. Many world economies are in the midst of current economic slowdowns. Economic weakness in any of the countries which contribute a significant portion of our net revenues would have a material adverse effect on our business.
 
CUSTOMER AND RESELLER SUPPORT
 
We provide technical support and training to customers through a leveraged model, augmented by programs designed to address specific direct needs. We expect that end users rely primarily on their resellers and distributors for technical support. We support the resellers and distributors through technical product training, sales training classes, the Internet and direct telephone support. Support content is also available on the Product Support portion of our Internet site. There are also a number of user group forums in which customers are able to share information.
 
While we expect the resellers and distributors to provide the majority of technical support to our customers, we have developed programs to deliver direct support to some customers.
 
DEVELOPER PROGRAMS
 
One of our key strategies is to maintain an open-architecture design of our software products to facilitate third-party development of complementary products and industry-specific software solutions. This approach enables customers and third parties to customize our products for a wide variety of highly specific uses. We offer several programs that provide marketing, sales, technical support and programming tools to developers who develop add-on applications for our products.
 
BACKLOG
 
We typically ship products shortly after receipt of an order, which is common in the computer software industry. Accordingly, we do not maintain a significant backlog. Also, the backlog as of any particular date gives no indication of actual sales for any succeeding period.
 
COMPETITION
 
We compete with a variety of companies in different aspects of our business.
 
The software industry has limited barriers to entry, and the availability of desktop computers with continually expanding capacity at progressively lower prices contributes to the ease of market entry. The design software market in particular is fairly mature and 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. In addition, the availability of third-party application software is a competitive factor within the CAD market. 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 net revenues and profit margins and loss of market share, any of which could harm our business. Furthermore, 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 new products, and to continue to provide existing product offerings, that compete favorably with respect to reliability, performance, ease of use, range of useful features, continuing product enhancements, reputation, price and training.

6

 
INTELLECTUAL PROPERTY AND LICENSES
 
We protect our intellectual property through a combination of patents, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions. Nonetheless, our intellectual property rights may not be successfully asserted in the future or may be invalidated, circumvented or challenged. In addition, the laws of various foreign countries where our products are distributed do not protect our intellectual property rights to the same extent as U.S. laws. Our inability to protect our proprietary information could harm our business.
 
From time to time, we receive claims alleging infringement of a third party’s intellectual property rights, including patents. Any disputes involving our intellectual property rights or those of another party could lead to, among other things, costly litigation or cause product shipment delays, which could harm our business.
 
We retain ownership of software we develop. All software is licensed to users and provided in object code pursuant to either shrink-wrap, embedded or on-line licenses, or executed license agreements. These agreements contain restrictions on duplication, disclosure and transfer.
 
We believe that because of the limitations of laws protecting our intellectual property and the rapid, ongoing technological changes in both the computer hardware and software industries, we must rely principally upon software engineering and marketing skills to maintain and enhance our competitive market position.
 
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. Software piracy can be expected to be a persistent problem.
 
PRODUCTION AND SUPPLIERS
 
Production of our Design Solutions software products involves duplication of the software media and the printing of user manuals. The purchase of media and the transfer of the software programs onto media for distribution to customers are performed by us and by licensed subcontractors. Media for our products include CD-ROMs and diskettes, which are available from multiple sources. User manuals for our products and packaging materials are produced to our specifications by outside sources. Production is generally performed in leased facilities operated by us. Some product assembly is also performed by independent third-party contractors. To date, we have not experienced any material difficulties or delays in the production of our software and documentation.
 
The Discreet Division has historically relied on third-party vendors to manufacture and supply all of the hardware components used in its systems. Manufacturing consists of assembly (including disk array assembly), testing, and value added systems integration. Many of the Discreet Division’s software products currently run on workstations manufactured by Silicon Graphics. There are significant risks associated with this reliance on Silicon Graphics and the Discreet Division may be impacted by unforeseen difficulties associated with adapting their products to future Silicon Graphics products and the timing of the development and release of Silicon Graphics products.
 
EMPLOYEES
 
As of January 31, 2002, we had 3,646 full-time employees. Our continued growth and future success is highly dependent on the ability to attract, retain and motivate highly skilled employees.

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ITEM 2.    PROPERTIES
 
Our executive offices and the principal offices for product development, domestic marketing and sales and production are located in leased office space in northern California. We also lease office space in various locations throughout the U.S. for local sales, development and technical support personnel. Our foreign subsidiaries lease office space for their operations. During fiscal 2002, we closed several domestic and international offices in an effort to reduce operating expense levels.
 
We continue to believe that our existing facilities and offices are adequate to meet our requirements for the foreseeable future.
 
ITEM 3.    LEGAL PROCEEDINGS
 
We are involved in various legal proceedings arising from the normal course of business activities. In our opinion, resolution of these matters is not expected to have a material adverse impact on our consolidated results of operations, cash flows 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, cash flows or financial position in a particular period.
 
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2002.
 
Executive Officers of the Registrant
 
The following sets forth certain information as of January 31, 2002 regarding our executive officers:
 
Name
   
Age
   
Position
Carol A. Bartz
   
53
   
Chairman of the Board, Chief Executive Officer and President
Joseph H. Astroth
   
46
   
Executive Vice President, Location Services Division
Carl Bass
   
44
   
Executive Vice President, Design Solutions Division
Jan Becker
   
48
   
Senior Vice President, Human Resources and Corporate Real Estate
Steve Cakebread
   
50
   
Senior Vice President and Chief Financial Officer
Paul Lypaczewski
   
44
   
Executive Vice President, Discreet Division
John G. Sanders
   
49
   
Vice President, Platform Technology Group
Marcia K. Sterling
   
58
   
Senior Vice President for Law and Corporate Affairs, General Counsel, and Secretary
Michael E. Sutton
   
56
   
Executive Vice President, Business Operations
Tom Vadnais
   
54
   
Executive Vice President, Worldwide Consulting and Support Services
 
Carol A. Bartz joined Autodesk in April 1992 and serves as Chairman of the Board, Chief Executive Officer and President. Ms. Bartz is a director of Network Appliance, Inc., BEA Systems, Inc., and Cisco Systems, Inc.
 
Joseph H. Astroth joined Autodesk in January 1996 and serves as Executive Vice President, Location Services Division. Previously, he was Executive Vice President, GIS Solutions Division from January 1996 to December 2000.

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Carl Bass joined Autodesk in September 1993 and serves as Executive Vice President, Design Solutions Division. From August 2001 to February 2002, Mr. Bass served as Executive Vice President, Emerging Business and Chief Strategy Officer. From June 1999 to July 2001, he served as President and Chief Executive Officer of Buzzsaw.com, Inc., a spin-off of Autodesk. Prior to this, he held other executive positions within Autodesk.
 
Jan Becker joined Autodesk in September 1992 and has served as Senior Vice President, Human Resources and Corporate Real Estate since June 2000.
 
Steve Cakebread joined Autodesk in April 1997 and serves as Senior Vice President and Chief Financial Officer. From April 1993 through March 1997 he served as Vice President, Finance, World Trade Corporation at Silicon Graphics. Mr. Cakebread is a director of Caldera International. Inc.
 
Paul Lypaczewski joined Autodesk in August 2000 as Executive Vice President, Discreet Division. Prior to joining Autodesk, Mr. Lypaczewski was Chief Operating Officer for Cyberwold, Inc. from October 1999 to August 2000 and from 1998 to October 1999 he served as President and CEO of TrueSpectra Inc. From 1995 to 1998 he held various positions with Alias/Wavefront.
 
John G. Sanders joined Autodesk in October 1993 and serves as Vice President, Platform Technology Group. Previously, Mr. Sanders served as Executive Vice President, Design Solutions Division. From October 1999 to December 2000 he was Vice President, Internet and from March 1996 to October 1999 he served as Vice President of Worldwide Support & Services.
 
Marcia K. Sterling joined Autodesk in October 1995 and serves as Senior Vice President for Law and Corporate Affairs, General Counsel, and Secretary.
 
Michael E. Sutton joined Autodesk in October 1986 and serves as Executive Vice President, Business Operations. Previously, Mr. Sutton served as Executive Vice President, Worldwide Field Organization. From June 1993 through September 1998, Mr. Sutton served as Vice President, Europe/Middle East/Africa.
 
Tom Vadnais joined Autodesk in January 2002 and serves as Executive Vice President, Worldwide Consulting and Support Services. Prior to joining Autodesk, Mr. Vadnais was president and CEO of Mediaplex, Inc. from April 2001 until Mediaplex was acquired by Value Click during January 2002, and from May 1999 to January 2001, he served as Executive Vice President, Professional Services of Compuware Corporation. Mr. Vadnais served as President and COO at DPRC and Tascor, Inc. from 1992 to 1999. Mr. Vadnais is a director of ValueClick, Inc.
 
There is no family relationship among any of our directors or executive officers.

9

PART II
 
ITEM 5.    MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
Our common stock is traded on the Nasdaq National Market under the symbol ADSK. The following table lists the high and low sales prices for each quarter in the last two fiscal years. These share prices were adjusted for the two-for-one stock split that was effective for record holders on April 4, 2002.
 
    
High
   
Low
Fiscal 2002
              
First Quarter
   
$
19.72
   
$
12.59
Second Quarter
   
$
19.40
   
$
15.27
Third Quarter
   
$
19.42
   
$
14.80
Fourth Quarter
   
$
20.79
   
$
16.59
 
    
High
   
Low
Fiscal 2001
              
First Quarter
   
$
27.44
   
$
15.85
Second Quarter
   
$
20.60
   
$
9.97
Third Quarter
   
$
14.85
   
$
10.00
Fourth Quarter
   
$
19.82
   
$
10.19
 
Dividends
 
We paid quarterly dividends of $0.03 per share in fiscal 2002 and 2001 to Autodesk stockholders. We currently intend to continue paying regular cash dividends on a quarterly basis.
 
Stockholders
 
As of January 31, 2002 the number of common stockholders of record was 944. Because many of our shares of common stock are held by brokers or other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by the record holders.
 
ITEM 6.    SELECTED FINANCIAL DATA
 
    
Fiscal year ended January 31,
    
2002
   
2001
   
2000
   
1999
   
1998
    
(In thousands, except per share data)
For the Fiscal Year
                                   
Net revenues
   
$
947,491
   
$
936,324
   
$
848,051
   
$
893,832
   
$
786,121
Income from operations(1)
   
 
98,174
   
 
140,014
   
 
763
   
 
142,087
   
 
94,994
Net income(1)(2)
   
 
90,313
   
 
93,233
   
 
9,808
   
 
97,132
   
 
56,215
At Year End
                                   
Total assets
   
 
902,444
   
 
807,759
   
 
902,946
   
 
819,927
   
 
697,191
Long-term liabilities
   
 
2,479
   
 
1,208
   
 
1,255
   
 
3,486
   
 
30,583
Common stock data
                                   
Basic net income per share
   
$
0.83
   
$
0.82
   
$
0.08
   
$
0.86
   
$
0.50
Diluted net income per share
   
 
0.80
   
 
0.80
   
 
0.08
   
 
0.82
   
 
0.47
Dividends paid per share
   
 
0.12
   
 
0.12
   
 
0.12
   
 
0.10
   
 
0.10
(1)
 
Fiscal 2002 and 2000 results were impacted by restructuring and other charges. See Note 11, Restructuring and Other in the Notes to Consolidated Financial Statements for further discussion.
(2)
 
Fiscal 2002 results were also impacted by a one-time non-cash gain of $9.5 million related to the dissolution of an affiliate.

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                   RESULTS OF OPERATIONS
 
The discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains trend analyses and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements consist of, among other things, statements regarding net revenues, revenue mix, level of product returns, gross margins, costs and expenses and restructuring activity, as well as statements involving trend analyses and statements including such words as “we believe” and similar expressions. These forward-looking statements are subject to business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors set forth elsewhere herein, including “Risk Factors Which May Impact Future Operating Results.”
 
Recent Acquisitions
 
In August 2001, we acquired the remaining outstanding stock of Buzzsaw.com, Inc. (“Buzzsaw”) that we did not own. Additionally, in October 2001, Autodesk acquired the software division of Media 100, Inc. (“Media 100”). The acquisition of Buzzsaw is part of Autodesk’s strategy to extend its business to complementary new markets and the acquisition of Media 100 provides Autodesk with streaming media technology for, among other things, the immediate playback of content over the Internet. Both acquisitions were accounted for as purchases. Accordingly, Autodesk’s fiscal 2002 consolidated results include Buzzsaw’s and Media 100’s results of operations from the respective dates of the acquisitions.
 
Critical Accounting Policies
 
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, net revenues, costs and expenses and related disclosures. We regularly evaluate our estimates and assumptions. Actual results may differ from these estimates under different assumptions or conditions.
 
We believe that of our significant accounting policies, which are described in Note 1 to the consolidated financial statements, the following policies involve a higher degree of judgment and complexity.
 
Revenue Recognition.    Our accounting policies and practices are in compliance with Statement of Position 97-2, “Software Revenue Recognition,” as amended, and Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.”
 
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectibility is probable.
 
Based on whether the sale is product or service related, we recognize revenue as follows. Product sales are recognized at the time of shipment. Subscription, customer support and hosted service revenues are recognized ratably over the contract periods. Customer consulting and training revenues are recognized as the services are performed.

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Allowance for Bad Debts.    We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. No single customer is significant to Autodesk, and as such, our exposure to uncollectible trade receivables is generally limited.
 
Estimated reserves are determined based upon historical loss patterns, the number of days that billings are past due and an evaluation of the potential risk of loss associated with specific problem accounts. While we believe our existing reserve for doubtful accounts is adequate and proper, additional reserves may be required should the financial condition of our customers deteriorate or as unusual circumstances arise.
 
Product Return Reserves.    With the exception of contracts with certain distributors, our sales contracts do not contain specific product-return privileges. However, we permit our distributors and resellers to return product in certain instances, generally when new product releases supercede older versions.
 
Over the past three years, product returns as a percentage of revenues have ranged from 3 to 5 percent annually. The product return reserves are based on estimated channel inventory levels and the timing of new product introductions and other factors. While we believe our accounting practice for establishing and monitoring product returns reserves is proper, any adverse activity or unusual circumstances could result in an increase in reserve levels in the period in which such determinations are made.
 
Realizability of Long-Lived Assets.    We review the realizability of our long-lived assets and related intangible assets annually or sooner whenever events or changes in circumstances indicate the carrying values of such assets may not be recoverable. We consider some of the following factors important in deciding when to perform an impairment review: significant under-performance of a business or product line relative to budget; shifts in business strategies, which impact the continued uses of the assets; significant negative industry or economic trends; and the results of past impairment reviews.
 
In assessing the recoverability of these long-lived assets, we first determine their fair values, which are based on assumptions regarding the estimated future undiscounted cash flows that could reasonably be generated by these assets. Impairment charges, if any, result in situations when the fair values of these assets are less than their carrying values. During fiscal 2002, we recognized a goodwill impairment charge of $2.3 million. The write-off of goodwill primarily related to an acquired GIS business and resulted from a strategic decision to abandon the underlying product line.
 
We will continue to evaluate the values of our long-lived assets in accordance with applicable accounting rules. As changes in business conditions and our assumptions occur, we may be required to record impairment charges.
 
Deferred Tax Assets.    We currently have $60.9 million of deferred tax assets, mostly arising from net operating losses, reserves and timing differences for purchased technologies and capitalized software. We perform a quarterly assessment of the recoverability of these deferred tax assets, which is principally dependent upon our achievement of projected future taxable income in specific geographies. Our judgments regarding future profitability may change due to future market conditions and other factors. These changes, if any, may require possible material adjustments to these deferred tax assets, resulting in a reduction in net income in the period when such determinations are made.
 
Restructuring Expenses Associated with Office Closures.    During the year ended January 31, 2002, we recorded restructuring charges of $19.2 million related to the closure of several domestic and international offices. These charges were based upon the projected rental payments through the remaining terms of the underlying operating leases, offset by projected subleasing income. The projected subleasing income amounts were provided by third-party real estate brokers and were based on assumptions for each of the real estate markets where the leased offices were located. Should real estate markets worsen and we are not able to sublease the properties as expected, we will record additional expenses in the quarterly period when such determinations

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are made. This situation occurred during fiscal 2002. During the fourth quarter of fiscal 2002, we recorded additional charges as a result of the inability to sublease offices abandoned earlier in the fiscal year. If the real estate markets subsequently improve, and we are able to sublease the properties earlier or at more favorable rates than projected, we will reverse some of the underlying restructuring accruals, which will result in increased net income in the period when such determinations are made.
 
Results of Operations
 
Net Revenues.    Our net revenues for fiscal 2002 were $947.5 million as compared to $936.3 million in fiscal 2001. Increased net revenues in Asia/Pacific and the Americas were partially offset by lower sales in Europe.
 
Net revenues for the Discreet Segment were $156.1 million in fiscal 2002 as compared to $193.2 million in the prior fiscal year as advanced system sales were significantly affected by a slowdown in the media, advertising and entertainment sectors. Should this slowdown continue, the Discreet Segment net revenues in fiscal 2003 will be adversely affected.
 
Net revenues for the Design Solutions Segment were $791.4 million in fiscal 2002 as compared to $743.1 million in the prior fiscal year. The Design Solutions Segment consists primarily of the Geographic Information Services (“GIS”), Building Industry, Manufacturing and Platform Technology divisions. These divisions have industry-specific focuses.
 
Net revenues from sales of GIS products increased to $116.4 million in fiscal 2002 from $97.5 million in fiscal 2001. Net revenues from sales of Building Industry products increased to $82.9 million in fiscal 2002 from $57.6 million in fiscal 2001. Net revenues from sales of Platform Technology products increased to $461.9 million in fiscal 2002 from $454.0 million in fiscal 2001. These increases were partially offset by lower net revenues from sales of Manufacturing products, which were $130.2 million in fiscal 2002 as compared to $134.0 million in fiscal 2001. The overall increase in segment revenues was attributable to a stronger portfolio of product offerings, such as Autodesk Inventor, Autodesk Architectural Desktop, Autodesk Map, Autodesk Land Desktop and AutoCAD 2002, and increased customer demand for greater productivity tools. Although we have been reducing our dependence on AutoCAD, sales of AutoCAD and AutoCAD upgrades continue to be a significant portion of our net revenues. Such sales, which are reflected in the net revenues for the Platform Technology division, accounted for approximately 32 percent of our consolidated net revenues in fiscal 2002 and 33 percent of our consolidated net revenues in fiscal 2001.
 
The stronger value of the U.S. dollar, relative to international currencies, had a negative impact on net revenues in fiscal 2002. Had exchange rates from the prior year been in effect in fiscal 2002, translated international revenue billed in local currencies would have been $23.2 million higher. Continued strength of the U.S. dollar would have a negative impact on net revenues in fiscal 2003.
 
International sales accounted for approximately 65 percent of our net revenues in fiscal 2002 as compared to 64 percent in the prior fiscal year. We believe that international sales will continue to be a significant portion of total revenues. Many world economies are in the midst of current economic slowdowns. Economic weakness in any of the countries which contribute a significant portion of our net revenues would have a material adverse effect on our business.
 
Our net revenues for fiscal 2001 were $936.3 million, as compared to $848.1 million in fiscal 2000. The 10 percent growth reflected increased net revenues of 14 percent in the Americas and 22 percent in Asia/Pacific as compared to the prior fiscal year. Despite unfavorable exchange rate movements, net revenues in Europe remained flat compared to the prior fiscal year.
 
Net revenues for the Discreet Segment increased 11 percent in fiscal 2001 as compared to the prior fiscal year. This was due to increased demand for our high-end special effects, post-production and broadcast products.

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Net revenues for the Design Solutions Segment increased 10 percent in fiscal 2001 as compared to the prior fiscal year. Net revenues from sales of GIS products increased to $97.5 million in fiscal 2001 from $71.0 million in fiscal 2000. Net revenues from sales of Building Industry products increased to $57.6 million in fiscal 2001 as compared to $51.2 million in fiscal 2000. Net revenues from sales of Manufacturing products increased to $134.0 million in fiscal 2001 from $112.0 million in fiscal 2000. Net revenues from sales of Platform Technology products increased to $454.0 million in fiscal 2001 from $440.2 million in fiscal 2000. These increases resulted from greater demand for our products, especially Autodesk Inventor and primarily all GIS product offerings. Sales of AutoCAD and AutoCAD upgrades, which are reflected in the net revenues for the Platform Technology division, accounted for approximately 33 percent of our consolidated net revenues in fiscal 2001 and 37 percent of our consolidated net revenues in fiscal 2000.
 
The value of the U.S. dollar, relative to international currencies, had a negative impact on net revenues in fiscal 2001 compared to fiscal 2000. International sales, including exports from the U.S., accounted for approximately 64 percent of our net revenues in fiscal 2001 as compared to 65 percent in fiscal 2000.
 
Product returns, consisting principally of stock rotation, are recorded as a reduction of revenues. Over the past three years, product returns as a percentage of revenues have ranged from 3 to 5 percent annually. We anticipate that the level of product returns in future periods will continue to be impacted by channel inventory levels, the timing of new product releases, as well as the quality and market acceptance of new products.
 
Cost of Revenues.    Cost of revenues includes the cost of compact discs, cost of hardware sold (mainly workstations manufactured by Silicon Graphics), costs associated with transferring Autodesk’s software to electronic media, printing of user manuals and packaging materials, shipping and handling costs, royalties, amortization of purchased technology and capitalized software, and cost of service contracts.
 
When expressed as a percentage of net revenues, cost of revenues was 16 percent in fiscal 2002 and fiscal 2001. Lower material costs, as a result of product mix, and lower software amortization costs were offset by higher royalty expenses.
 
Cost of revenues were 16 percent of net revenues in fiscal 2001 as compared to 17 percent of net revenues in fiscal 2000. This lower percentage in fiscal 2001 was primarily due to reduced royalty costs of $4.1 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.
 
In the future, cost of revenues as a percentage of net revenues is likely to continue to be impacted by the mix of product sales, increased consulting and hosted service costs, software amortization costs, royalty rates for licensed technology embedded in our products and the geographic distribution of sales. However, we expect future cost of revenues as a percentage of net revenues to remain within an historical range of 16 to 20 percent.
 
Marketing and Sales.    Marketing and sales expenses include salaries, dealer and sales commissions, and travel and facility costs for our marketing, sales, dealer training and support personnel. These expenses also include programs aimed at increasing revenues, such as advertising, trade shows and expositions, as well as various sales and promotional programs designed for specific sales channels and end users.
 
Marketing and sales expenses were 36 percent of net revenues in fiscal 2002 compared to 34 percent of net revenues in the prior fiscal year. This difference was primarily due to higher employee-related expenses, resulting from an increasing focus on direct sales to major accounts.
 
Marketing and sales expenses were 34 percent of net revenues in fiscal 2001 compared to 40 percent of net revenues in fiscal 2000. This lower percentage in fiscal 2001 was partially due to lower employee-related expenses of approximately $2.8 million and some $16.0 million less in advertising and promotion costs.

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We expect to continue to invest in marketing and sales of our products, to develop market opportunities and to promote our competitive position. Accordingly, we expect marketing and sales expenses to continue to be significant, both in absolute dollars and as a percentage of net revenues.
 
Research and Development.    Research and development expenses consist primarily of salaries and benefits for software engineers, contract development fees and depreciation of computer equipment used in software development. Research and development expenses were $168.6 million in fiscal 2002 compared to $170.5 million in the prior fiscal year. General reductions in spending were partially offset by higher employee related costs, efforts associated with our location services initiatives and research and development costs incurred by RedSpark, prior to its dissolution in October 2001.
 
Research and development costs were $170.5 million in fiscal 2001 compared to $164.0 million in fiscal 2000. The higher expenditures in fiscal 2001 were primarily due to additional spending by acquired businesses, offset in part by lower facilities costs.
 
We expect that research and development spending will continue to be significant in fiscal 2003 as we continue to support product development efforts by our market groups.
 
General and Administrative.    General and administrative expenses include our information systems, finance, human resources, legal and other administrative operations. General and administrative expenses were 14 percent of net revenues in fiscal 2002 and fiscal 2001. Higher employee-related costs were offset by lower professional fees and depreciation costs.
 
General and administrative expenses were 14 percent in fiscal 2001 compared to 16 percent in fiscal 2000. The lower percentage in fiscal 2001 was primarily due to lower employee-related spending and lower spending related to information systems.
 
We currently expect that in the coming year general and administrative expenses, as a percentage of net revenues, will remain generally consistent with the level experienced in fiscal 2002.
 
Amortization of goodwill and purchased intangibles.    Amortization of goodwill and purchased intangibles was $20.9 million in fiscal 2002, $26.5 million in fiscal 2001 and $30.6 million in fiscal 2000. The steady decline between years was due to some intangibles becoming fully amortized. Of the $20.9 million fiscal 2002 amortization expense, $19.9 million related to goodwill amortization. Beginning in fiscal 2003, goodwill will no longer be amortized. See “Recently Issued Accounting Standards” for further discussion.
 
Restructuring and other.    During fiscal 2002 Autodesk recognized $33.6 million of restructuring and other charges. These charges resulted from restructuring activities ($24.5 million), in-process research and development expenses related to the acquisition of Media 100 ($3.2 million), the wind-down costs associated with the dissolution of RedSpark ($3.6 million), and a goodwill write-off of $2.3 million. The write-off of goodwill primarily related to an acquired GIS business and resulted from a strategic decision to abandon the underlying product line.
 
The restructuring costs, which were part of a formal exit plan approved by our Board of Directors during the second quarter of fiscal 2002, were in connection with our effort to reduce operating expense levels. During that same quarter, we reduced our revenue estimates for the remainder of fiscal 2002. As a result of the restructuring we expect to realize immediate pretax savings of $6.0 million per quarter and increased cash flows of $4.0 million per quarter. These savings are expected to last for the next several quarters and the pretax savings will be reflected in each on-going cost and expense line item in the consolidated statements of income. Both the pretax and cash flow savings will be re-invested in other parts of the business.

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We plan to record restructuring costs of approximately $1.0 million during the first quarter of fiscal 2003 related to the consolidation of additional European offices. Also, we may need to record additional restructuring charges in fiscal 2003 associated with previously abandoned offices. The reserves established during fiscal 2002 were in part based on subleasing assumptions. Should we be unable to sublease the office spaces as expected, we will record additional expenses in the quarterly period when such determinations are made.
 
During fiscal 2001 we reversed $1.2 million of accruals, $1.0 million of which related to a restructuring reserve established in fiscal 2000. The accruals were settled for less than originally estimated.
 
Restructuring and other charges in fiscal 2000 of $34.7 million consisted primarily of Discreet Logic Inc. and VISION acquisition-related charges and a corporate restructuring that occurred in that year.
 
For additional information regarding the restructuring and other charges recorded over the past three fiscal years, see Note 11, Restructuring and Other in the Notes to Consolidated Financial Statements.
 
Interest and Other Income.    Interest and other income, which consists primarily of investment income and gains and losses on foreign currency transactions, was $19.1 million in fiscal 2002, $21.0 million in fiscal 2001 and $23.2 million in fiscal 2000. Investment income fluctuates based on average cash and marketable securities balances, average maturities and interest rates. The decrease in interest and other income between fiscal 2002, 2001 and 2000 was primarily due to a trend of declining interest rates on the investment of cash and marketable securities balances.
 
Gain on disposal of affiliate.    During the third quarter of fiscal 2002, we recognized a one-time non-cash gain of $9.5 million related to the dissolution of RedSpark, a development stage company. Because we owned greater than 50 percent of the voting stock, we had been consolidating RedSpark’s operating losses since RedSpark was formed in April 2000. RedSpark’s expenses, which were primarily research and development related, were included within the operating expense categories of our statement of income. The gain, which resulted from the reversal of the minority interest liability balance, represents the reversal of cumulative losses recognized in excess of the $3.2 million we originally invested.
 
Provision for income taxes.    Absent the impact of the gain on disposal of affiliate, our effective income tax rate was 30 percent in fiscal 2002 and 32 percent in both fiscal 2001 and 2000. There was no tax expense from the one-time gain on disposal of affiliate since we had never recognized any tax benefits from our allocable share of RedSpark’s accumulated losses. Consistent with previous years, the effective tax rate for fiscal 2002 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. The fiscal 2002 tax rate was lower than the fiscal 2001 and 2000 tax rates due to a relatively higher impact of these permanent items.
 
Our future effective tax rate may be impacted by the amount of benefits associated with our foreign earnings, which are taxed at rates different from the federal statutory rate, research credits, and tax-exempt interest. We believe that our fiscal 2003 effective tax rate will be less than 30 percent primarily due to the adoption of new accounting rules that result in the discontinuation of goodwill amortization. See “Recently Issued Accounting Standards” for further discussion.
 
At January 31, 2002, we had net deferred tax assets of $60.9 million. Realization of these assets is dependent on our ability to generate approximately $150.0 million of future taxable income in appropriate tax jurisdictions. We believe that sufficient income will be earned in the future to realize these assets.
 
Equity in net loss of affiliate.    In August 2001, we acquired the remaining 60 percent interest in Buzzsaw that we did not own. Consequently, from the date of the acquisition Buzzsaw’s on-going revenues and costs and expenses have been included in each of the respective line items in our consolidated statements of income.

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We recognized equity in net losses of $1.2 million in fiscal 2002 and $16.3 million in fiscal 2001, representing our proportionate share of Buzzsaw’s losses during those periods. In April 2000, we invested $17.5 million in Buzzsaw and maintained a 40 percent interest. Loss recognition was suspended during the first quarter of 2002, after we fully expensed all previous investments in Buzzsaw.
 
Business Combinations
 
Buzzsaw
 
In August 2001, we acquired the remaining outstanding stock of Buzzsaw that we did not own for $15.0 million in cash plus the assumption of $13.3 million of liabilities. Prior to the acquisition, we held a 40 percent interest in Buzzsaw, a privately held company that provides leading online collaboration applications to improve efficiencies and reduce costs for the building industry.
 
We accounted for this acquisition under Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). The purchase consideration was allocated principally to a deferred tax asset in recognition of a significant amount of Buzzsaw net operating loss and credit carryforwards that we expect to utilize to reduce our future tax obligations.
 
Software Division of Media 100, Inc. (“Media 100”)
 
In October 2001, we acquired the software division of Media 100 for $16.0 million in cash. We accounted for this acquisition under the provisions of SFAS 141. Of the total purchase price, we allocated $3.2 million to in-process research and development (“IPR&D”); $7.4 million to developed technology; $0.6 million to brand names that have an estimated useful life of 5 years; and $4.3 million to goodwill. The IPR&D was expensed immediately since the technology had not yet reached technological feasibility and no alternative future uses could be identified.
 
As of the acquisition date, the IPR&D substantially consisted of the Hitman product, an enterprise encoding system that automates the encoding process and allows for the encoding of multiple jobs at the same time. The Hitman product was 75 percent complete at the time, with $0.4 million of estimated remaining costs to reach technological feasibility. We recently released this product with actual costs to complete that approximated the initial $0.4 million estimate.
 
In valuing the developed and in-process technologies, we used a discounted cash flow analysis based on projected net revenues, cost of revenues, operating expenses and income taxes resulting from such technologies over a 6-year period. The projected financial results, which were discounted using a 40 percent rate for the developed technology and a 50 percent rate for the IPR&D, were based on expectations of Media 100 on a stand-alone basis.
 
The revenue projections for developed technologies, which considered the release dates of new products, assumed a gradual decline. We based the revenue projections for the IPR&D on expected trends in technology and the timing of new product introductions.
 
VISION* Solutions (“VISION”)
 
On April 22, 1999, we acquired VISION, a vendor of enterprise automated mapping/facilities management/geographic information systems (AM/FM/GIS) solutions. Of the $26.0 million purchase price, which was paid in cash, $3.3 million represented the value of IPR&D that had not yet reached technological feasibility and had no alternative future use, and as such, was expensed during fiscal 2000. Of the remaining purchase price, $17.6 million was allocated to goodwill and $2.1 million was allocated to other identified intangibles.
 
As of the acquisition date, the IPR&D consisted of the development of two products, VISION 5.3, which was 60 percent complete at the time, and VISION Electric 2.3, which was 39 percent complete. Both projects, which were originally expected to be completed in late fiscal 2000, were released two years ago. The projects were completed at an amount approximately equal to the original estimate of $1.4 million.

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In valuing the developed and in-process technologies at the acquisition date, we used a discounted cash flow analysis based on projected net revenues, cost of revenues, operating expenses and income taxes resulting from such technologies over a 4-year period. The projected financial results, which were discounted using a 20 percent rate for the developed technology and a 25 percent rate for the in-process technology, were based on expectations for VISION on a stand-alone basis and excluded any synergistic benefits that we expected to achieve after the acquisition.
 
The revenue projections for the developed technologies, which considered the release dates of new products, assumed a gradual decline. We based the revenue projections for the IPR&D on expected trends in technology and the timing of our new product introductions.
 
Although actual financial results to date have been lower than originally forecasted, Autodesk has successfully integrated the VISION technology with GIS applications and products that were released in fiscal 2002. These GIS applications and products generate sufficient cash flows to realize the remaining value of goodwill and identifiable intangible assets.
 
Discreet Logic Inc. (“Discreet”)
 
In March 1999, we acquired Discreet in a business combination accounted for as a pooling of interests. The transaction resulted in the issuance of an aggregate of approximately 20.0 million shares of Autodesk common stock in exchange for Discreet’s outstanding common stock. Accordingly, all prior period consolidated financial statements were restated to include the combined results of operations of Discreet as though it had always been a part of Autodesk.
 
Prior to the acquisition, Discreet’s fiscal year ended on June 30. In conforming Discreet’s fiscal year end to ours, we recorded a $5.0 million adjustment to retained earnings during fiscal 2000.
 
Recent Events
 
Revit Technology Corporation (“Revit”)
 
In April 2002, we acquired Revit for $133.0 million in cash. The acquisition will be accounted for as a purchase under SFAS 141. The addition of Revit complements our existing family of building industry applications with a parametric building modeler for customers to design, coordinate and integrate information about the entire building.
 
Recently Issued Accounting Standards
 
During July 2001, the Financial Accounting Standards Board issued SFAS 141. This Statement requires all business combinations to be accounted for using the purchase method of accounting and redefines goodwill and other intangibles that should be recognized separate from goodwill. SFAS 141 was effective for all business combinations initiated after June 30, 2001. Both the acquisitions of Buzzsaw and Media 100 were accounted for under SFAS 141.
 
During July 2001, the Financial Accounting Standards Board also issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). This Statement requires, among other things, that goodwill not be amortized, but be tested for impairment at least annually. Application of SFAS 142 is required immediately for business combinations completed after June 30, 2001; however, for transactions completed prior to this date, we plan to adopt the provisions of SFAS 142 on February 1, 2002. We recently completed an assessment of the annual goodwill impairment test pursuant to SFAS 142 and believe that none of the goodwill balances as of January 31, 2002 are impaired.

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During August 2001, the Financial Accounting Standards Board also issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 is effective at the start of fiscal 2003 and supercedes Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 relating to the disposal of a segment of business. We are currently assessing the impact of SFAS 144 on our consolidated financial position, results of operations and cash flows.
 
Liquidity and Capital Resources
 
At January 31, 2002, our principal sources of liquidity were cash and marketable securities totaling $504.6 million, accounts receivable of $140.5 million and a $75.0 million line of credit with a financial institution. Other than operating leases, we do not engage in off-balance sheet financing arrangements nor any special purpose entities.
 
During fiscal 2002, we generated $210.2 million of cash from operating activities as compared to $196.1 million in fiscal 2001. Cash flows from operating activities, together with the proceeds from stock issuances resulting from our employee stock plans, continue to be our principal means of generating cash. During fiscal 2002 the cash generated was used to fund the repurchase of 5.3 million shares of our common stock for $97.3 million, the acquisition of businesses for $34.3 million, capital and other expenditures of $45.1 million, and dividend payments totaling $13.1 million.
 
Between November 1999 and March 2001, the Board of Directors approved plans to repurchase up to 44.0 million shares of our common stock. Of these 44.0 million shares, 29.5 million have been repurchased as of January 31, 2002. The purpose of the stock repurchase program is, among other things, 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 $75.0 million, which may be used from time to time for working capital or other business needs. This credit facility contains restrictive covenants that, among other provisions, require Autodesk to maintain certain financial ratios. During fiscal 2002 and at January 31, 2002, we were in compliance with these restrictive covenants. As of January 31, 2002, there were no borrowings outstanding under this agreement, which expires in January 2003.
 
We generally do not enter into binding purchase commitments. Principal commitments at January 31, 2002, consisted of obligations under operating leases for facilities and some computer equipment. At January 31, 2002, the future minimum lease payments under these lease commitments were as follows: $35.1 million in 2003, $31.1 million in 2004, $25.0 million in 2005, $19.0 million in 2006, $8.6 million in 2007, and $14.1 million thereafter. Of these amounts, $17.5 million has been included in our restructuring accruals at January 31, 2002.
 
In April 2002, we acquired Revit Technology Corporation for $133.0 million in cash. The addition of Revit complements our existing family of building industry applications with a parametric building modeler for customers to design, coordinate, and integrate information about an entire building.
 
We believe 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 long-term cash requirements. Long-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; the acquisition of businesses, software products, or technologies complementary to our business; and capital expenditures. Capital expenditures for fiscal 2003 are currently anticipated to approximate what was incurred during fiscal 2002, but could be reduced if our growth is less than anticipated.

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Our international operations are subject to currency fluctuations. To minimize the impact of these fluctuations, we use foreign currency option contracts and forward 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 by policy have maturities of less than three months and settle before the end of each quarterly period. The principal currencies hedged during fiscal 2002 were the Euro, British pound, Canadian dollar and Japanese yen. We monitor our foreign exchange exposures to ensure the overall effectiveness of our foreign currency hedge positions.
 
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. If any of the following risks actually occur, our business, financial condition or results of operations may be adversely impacted, causing the trading price of our common stock to decline.
 
General economic conditions may reduce our net revenues and harm our business.
 
As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions. Because of the recent slowdown in the U.S. and other countries’ economies, many customers are delaying or reducing technology purchases. The impact of this slowdown on us, particularly in countries that contribute a significant portion of our net revenues, is difficult to predict, but it may result in reductions in sales of our products, longer sales cycles, slower adoption of new technologies, and increased price competition. In addition, weakness in the end-user market could negatively affect the cash flow of our distributors and resellers who could, in turn, delay paying their obligations to us, which would increase our credit risk exposure. Any of these events would likely harm our business, results of operations and financial condition.
 
Our operating results fluctuate within each quarter and from quarter to quarter making our future revenues and operating results difficult to predict.
 
Our quarterly operating results have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our stock price to change significantly or experience declines. Some of the factors that could cause our operating results to fluctuate include, 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, distribution channel management, changes in compensation practices, the timing of large systems sales, and general economic conditions, particularly in countries where we derive a significant portion of our net revenues.
 
We have also 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 profitability. Further, gross margins may be adversely affected if our sales of low-end computer aided design products and AutoCAD upgrades, which historically have had lower margins, grow at a faster rate than sales of our higher-margin products.
 
Existing and increased competition in the design software market may reduce our net revenues and profits.
 
The software industry has limited barriers to entry, and the availability of desktop computers with continually expanding capacity at progressively lower prices contributes to the ease of market entry. The design

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software market in particular is fairly mature and 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. In addition, some of our competitors have greater financial, technical, sales and marketing and other resources. Furthermore,the availability of third-party application software is a competitive factor within the computer aided design market. 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 net revenues and profit margins and loss of market share, any of which would likely harm our business.
 
We believe that our future results depend largely upon our ability to offer new products, and to continue to provide existing product offerings, that compete favorably with respect to reliability, performance, ease of use, range of useful features, continuing product enhancements, reputation, price and training.
 
Because we derive a substantial portion of our net revenues from a limited number of products, if these products are not successful, our net revenues will be adversely affected.
 
We derive a substantial portion of our net 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 operating results.
 
Net revenues or earnings shortfalls or the volatility of the market generally may cause the market price of our stock to decline, which could harm our business.
 
The market price for our common stock has experienced significant fluctuations and may continue to fluctuate significantly. The market price for our common stock may be affected by a number of factors, including the following: net revenues or earnings shortfalls and changes in estimates or recommendations by securities analysts; the announcement of new products or product enhancements by us or our competitors; quarterly variations in our or our competitors’ results of operations; developments in our industry; and general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
 
In addition, stock prices for many companies in the technology sector have experienced wide fluctuations that have often been unrelated to the operating performance of such companies. After periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. This type of litigation is often expensive and diverts management’s attention and resources, which could adversely affect our financial condition or results of operations.
 
Our efforts to develop and introduce new products and service offerings expose us to risks such as costs related to product defects and large expenditures that may not result in additional net revenues.
 
Rapid technological change as well as changes in customer requirements and preferences characterize the software industry. The software products we offer are 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 would likely harm our business.
 
Additionally, we are devoting significant resources to the development of technologies and service offerings to address demands in the marketplace for increased connectivity and use of digital data created by computer-

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aided design software. As a result, we are transitioning to new business models, requiring a considerable investment of technical and financial resources. Such investments may not result in sufficient revenue generation to justify their costs, or competitors may introduce new products and services that will achieve acceptance among our current customers, adversely affecting our competitive position.
 
Disruptions with third party developer and licensing relationships could adversely impact our business.
 
Independent firms and contractors perform 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 currently develop products for us, 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 may 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.
 
Our international operations expose us to significant regulatory, intellectual property, collections, exchange fluctuations and other risks, which could adversely impact our future net revenues.
 
We anticipate that international operations will continue to account for a significant portion of our consolidated net 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 and laws regarding the management of data, 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 international results may also be impacted by general economic and political conditions in these foreign markets or in specific large foreign markets. These and other factors may adversely impact our future international operations and consequently our business as a whole.
 
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.
 
If we do not maintain our relationship with the members of our distribution channel, our ability to generate net revenues will be adversely affected.
 
We sell our software products primarily to distributors and resellers. Our ability to effectively distribute our products depends in part upon the financial and business condition of our reseller network. Computer software dealers and distributors are typically not highly capitalized and 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, from increased focus on direct sales to major accounts or from two-tiered distribution may impact our reseller network in the future. While no single customer accounted for more than 10 percent of our consolidated net revenues in fiscal 2002, 2001 or 2000, 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.

22

 
Product returns could exceed our estimates and harm our net revenues.
 
With the exception of contracts with some distributors, our sales contracts do not contain specific product-return privileges. However, we permit our distributors and resellers to return product in certain instances, generally when new product releases supercede older versions. 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 for stock balancing and product rotation. These reserves are based on estimated channel inventory levels and the timing of new product introductions and other factors. While we maintain strict measures to monitor these reserves, actual product returns may differ from our reserve estimates, and such differences could harm our business.
 
If we are not able to adequately protect our proprietary rights, our business could be harmed.
 
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. Furthermore, our means of protecting our proprietary rights may not be adequate, and our competitors may independently develop similar technology.
 
We may face intellectual property infringement claims that could be costly to defend and result in our loss of significant rights.
 
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 to defend, 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 rely on third party technologies and if we are unable to use or integrate these technologies, our product and service development may be delayed.
 
We 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 would likely harm our business.
 
In addition, for certain of our on-line collaboration applications and services, we rely on third party hardware and services. Financial difficulties or even failure of these third parties may impact our ability to deliver such on-line collaboration applications and, as a result, may adversely impact our business.
 
The loss of key personnel or the inability to attract and retain additional personnel could harm our business.
 
Our continued growth and success depends significantly on the continued service of highly skilled employees. Our ability to attract and retain employees is dependent on a number of factors, including our

23

continued ability to grant stock incentive awards. 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.
 
Our business could suffer as a result of risks associated with strategic 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. For example, in April 2002 we acquired Revit. 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 a consistent increase quarter to quarter in our operating results.
 
ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
Foreign currency exchange risk
 
Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Our risk management strategy utilizes foreign currency forward and option contracts to manage our foreign currency exposures that exist as part of our ongoing business operations. Contracts are primarily denominated in Euro, Swiss francs, Canadian dollars, British pounds and Japanese yen. We do not enter into any foreign exchange derivative instruments for trading or speculative purposes.
 
A sensitivity analysis was performed on our hedging portfolio as of January 31, 2002. This analysis indicated that a hypothetical 10 percent appreciation of the U.S. dollar from January 31, 2002 would increase the fair value of our forward exchange/option contracts by $7.7 million. Conversely, a hypothetical 10 percent depreciation of the dollar from January 31, 2002 would decrease the fair value of our forward exchange/option contracts by $6.4 million. We do not anticipate any material adverse impact to our consolidated financial position, results of operations or cash flows as a result of these foreign currency forward and option contracts.
 
Interest rate sensitivity
 
We had an investment portfolio of fixed income securities, including those classified as security deposits, of $367.8 million at January 31, 2002. These securities are subject to interest rate fluctuations and will decrease in market value if interest rates increase.
 
A sensitivity analysis was performed on our investment portfolio as of January 31, 2002. This sensitivity analysis is based on a modeling technique that measures the hypothetical market value changes that would result from a parallel shift in the yield curve of plus 50, plus 100 or plus 150 basis points over 6-month and 12-month time horizons. For the 6-month time horizon the market value changes for a 50, 100, or 150 basis point increase were reductions of $1.8 million, $3.6 million and $5.3 million, respectively. For the 12-month time horizon the market value changes for a 50, 100 or 150 basis point increase were reductions of $1.5 million, $3.1 million and $4.6 million, respectively.
 
We do not use derivative financial instruments in our investment portfolio to manage interest rate risk. We place our investments in instruments that meet high credit quality standards, as specified in our investment policy guidelines, which limits the amount of credit exposure to any one issue, issuer or type of instrument.

24

 
Investments in privately-held businesses
 
We have an investment portfolio with a net book value of approximately $4.1 million as of January 31, 2002 that includes minority equity investments in several privately-held technology companies, many of which are in the development stage. We account for these minority equity investments using the cost method of accounting because our ownership interests are less than 20 percent and we do not have the ability to exert significant influence on the investees.
 
These investments are inherently risky because the markets for the technologies or products they have under development are typically in the early stages and may never develop into commercially viable businesses. We assess the value of these investments on a regular basis and when we identify other than temporary declines in the values of these investments, we write down the carrying values to their fair values. Write downs totaled $2.9 million in fiscal 2002, $2.6 million in fiscal 2001 and $0 in fiscal 2000. Due to the inherently risky nature of these investments, we may incur additional losses in the future.

25

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
AUTODESK, INC.
 
CONSOLIDATED STATEMENTS OF INCOME
 
    
Fiscal year ended January 31,
  
    
2002
     
2001
     
2000
  
    
(in thousands, except per share data)
  
Net revenues
   
$
947,491
 
   
$
936,324
 
   
$
848,051
 
    
  
  
Costs and expenses:
                           
Cost of revenues
   
 
151,203
 
   
 
150,198
 
   
 
146,315
 
Marketing and sales
   
 
343,508
 
   
 
317,806
 
   
 
337,549
 
Research and development
   
 
168,574
 
   
 
170,487
 
   
 
163,985
 
General and administrative
   
 
131,499
 
   
 
132,524
 
   
 
134,066
 
Amortization of goodwill and purchased intangibles
   
 
20,903
 
   
 
26,529
 
   
 
30,625
 
Restructuring and other
   
 
33,630
 
   
 
(1,234
)
   
 
34,748
 
    
  
  
    
 
849,317
 
   
 
796,310
 
   
 
847,288
 
    
  
  
Income from operations
   
 
98,174
 
   
 
140,014
 
   
 
763
 
Interest and other income, net
   
 
19,058
 
   
 
21,048
 
   
 
23,157
 
Gain on disposal of affiliate
   
 
9,461
 
   
 
—  
 
   
 
—  
 
    
  
  
Income before income taxes
   
 
126,693
 
   
 
161,062
 
   
 
23,920
 
Provision for income taxes
   
 
(35,169
)
   
 
(51,540
)
   
 
(14,112
)
Equity in net loss of affiliate
   
 
(1,211
)
   
 
(16,289
)
   
 
—  
 
    
  
  
Net income
   
$
90,313
 
   
$
93,233
 
   
$
9,808
 
    
  
  
Basic net income per share
   
$
0.83
 
   
$
0.82
 
   
$
0.08
 
    
  
  
Diluted net income per share
   
$
0.80
 
   
$
0.80
 
   
$
0.08
 
    
  
  
Shares used in computing basic net income per share
   
 
108,815
 
   
 
114,375
 
   
 
120,657
 
    
  
  
Shares used in computing diluted net income per share
   
 
112,275
 
   
 
117,028
 
   
 
122,811
 
    
  
  
 
 
 
See accompanying notes.

26

AUTODESK, INC.
 
CONSOLIDATED BALANCE SHEETS
 
    
January 31, 2002
     
January 31, 2001
  
    
(in thousands)
  
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
136,781
 
   
$
116,391
 
Marketable securities
   
 
201,030
 
   
 
142,961
 
Accounts receivable, net of allowance for doubtful accounts of $13,181 ($11,611 in 2001)
   
 
140,465
 
   
 
157,422
 
Inventories
   
 
17,999
 
   
 
17,255
 
Deferred income taxes
   
 
31,477
 
   
 
26,696
 
Prepaid expenses and other current assets
   
 
36,118
 
   
 
30,596
 
    
  
Total current assets
   
 
563,870
 
   
 
491,321
 
    
  
Marketable securities
   
 
166,800
 
   
 
163,148
 
Computer equipment, software, furniture and leasehold improvements, at cost:
                  
Computer equipment, software and furniture
   
 
200,568
 
   
 
171,176
 
Leasehold improvements
   
 
29,652
 
   
 
27,145
 
Less accumulated depreciation
   
 
(157,400
)
   
 
(144,325
)
    
  
Net computer equipment, software, furniture and leasehold improvements
   
 
72,820
 
   
 
53,996
 
Purchased technologies and capitalized software, net of accumulated amortization of $104,457 ($84,747 in 2001)
   
 
19,336
 
   
 
16,403
 
Goodwill, net
   
 
39,987
 
   
 
54,273
 
Deferred income taxes
   
 
29,459
 
   
 
18,242
 
Other assets
   
 
10,172
 
   
 
10,376
 
    
  
    
$
902,444
 
   
$
807,759
 
    
  
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
53,769
 
   
$
47,962
 
Accrued compensation
   
 
57,540
 
   
 
55,907
 
Accrued income taxes
   
 
91,922
 
   
 
97,109
 
Deferred revenues
   
 
65,474
 
   
 
50,993
 
Other accrued liabilities
   
 
101,946
 
   
 
81,942
 
    
  
Total current liabilities
   
 
370,651
 
   
 
333,913
 
    
  
Other liabilities
   
 
2,479
 
   
 
1,208
 
Commitments and contingencies
                  
Minority interest
   
 
—  
 
   
 
12,964
 
Stockholders’ equity:
                  
Common stock and additional paid-in capital, $0.01 par value; 250,000 shares authorized; 111,287 shares outstanding at January 31, 2002 (109,428 shares in 2001)
   
 
458,135
 
   
 
424,652
 
Accumulated other comprehensive loss
   
 
(19,972
)
   
 
(16,104
)
Deferred compensation
   
 
(713
)
   
 
(1,172
)
Retained earnings
   
 
91,864
 
   
 
52,298
 
    
  
Total stockholders’ equity
   
 
529,314
 
   
 
459,674
 
    
  
    
$
902,444
 
   
$
807,759
 
    
  
 
See accompanying notes.

27

 
AUTODESK, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
    
Fiscal year ended January 31,
  
    
2002
     
2001
     
2000
  
    
(in thousands)
  
Operating activities
                           
Net income
   
$
90,313
 
   
$
93,233
 
   
$
9,808
 
Adjustments to reconcile net income to net cash provided by operating activities:
                           
Charge for acquired in-process research and development
   
 
3,180
 
   
 
—  
 
   
 
4,170
 
Depreciation and amortization
   
 
62,907
 
   
 
68,844
 
   
 
79,748
 
Gain on disposal of affiliate
   
 
(9,461
)
   
 
—  
 
   
 
—  
 
Write-downs of cost-method and other investments
   
 
2,861
 
   
 
2,553
 
   
 
4,776
 
Equity in net loss of affiliate
   
 
1,211
 
   
 
16,289
 
   
 
—  
 
Net loss on fixed asset disposals
   
 
2,016
 
   
 
—  
 
   
 
5,894
 
Tax benefits from employee stock plans
   
 
12,176
 
   
 
21,055
 
   
 
4,642
 
Restructuring related reserve additions (reversals), net
   
 
26,816
 
   
 
(1,034
)
   
 
(1,630
)
Changes in operating assets and liabilities, net of business combinations:
                           
Accounts receivable
   
 
18,383
 
   
 
(46,583
)
   
 
4,985
 
Inventories
   
 
(357
)
   
 
2,009
 
   
 
1,980
 
Deferred income taxes
   
 
7,789
 
   
 
6,170
 
   
 
(21,264
)
Prepaid expenses and other current assets
   
 
(5,771
)
   
 
(725
)
   
 
(4,167
)
Accounts payable and accrued liabilities
   
 
(8,576
)
   
 
8,016
 
   
 
19,316
 
Deferred revenues
   
 
11,856
 
   
 
17,189
 
   
 
8,087
 
Accrued income taxes
   
 
(5,187
)
   
 
9,103
 
   
 
(8,418
)
    
  
  
Net cash provided by operating activities
   
 
210,156
 
   
 
196,119
 
   
 
107,927
 
    
  
  
Investing activities
                           
Investments in unconsolidated companies
   
 
—  
 
   
 
(25,799
)
   
 
—  
 
Purchases of available-for-sale marketable securities
   
 
(1,803,753
)
   
 
(2,578,504
)
   
 
(3,791,568
)
Maturities of available-for-sale marketable securities
   
 
1,741,921
 
   
 
2,708,404
 
   
 
3,528,305
 
Business combinations, net of cash acquired
   
 
(34,271
)
   
 
—  
 
   
 
(26,596
)
Capital and other expenditures
   
 
(45,068
)
   
 
(32,412
)
   
 
(14,932
)
Proceeds from disposition of fixed assets
   
 
—  
 
   
 
—  
 
   
 
5,587
 
Purchases of software technologies and capitalization of software development costs
   
 
(12,365
)
   
 
(3,094
)
   
 
(5,150
)
Other investing activities
   
 
2,970
 
   
 
—  
 
   
 
—  
 
    
  
  
Net cash (used in) provided by investing activities
   
 
(150,566
)
   
 
68,595
 
   
 
(304,354
)
    
  
  
Financing activities
                           
Proceeds from issuance of common stock, net of issuance costs
   
 
80,495
 
   
 
114,036
 
   
 
160,580
 
Repurchase of common stock
   
 
(97,293
)
   
 
(359,293
)
   
 
(90,072
)
Dividends paid
   
 
(13,092
)
   
 
(13,580
)
   
 
(14,581
)
(Decrease) increase in credit line
   
 
—  
 
   
 
—  
 
   
 
(1,921
)
(Repayments) borrowings
   
 
(486
)
   
 
(427
)
   
 
(704
)
Minority interest
   
 
(2,656
)
   
 
13,957
 
   
 
—  
 
    
  
  
Net cash (used in) provided by financing activities
   
 
(33,032
)
   
 
(245,307
)
   
 
53,302
 
    
  
  
Effect of exchange rate changes on cash and cash equivalents
   
 
(6,168
)
   
 
(11,657
)
   
 
(7,495
)
Adjustment to conform fiscal year of Discreet Logic
   
 
—  
 
   
 
—  
 
   
 
320
 
    
  
  
Net increase (decrease) in cash and cash equivalents
   
 
20,390
 
   
 
7,750
 
   
 
(150,300
)
Cash and cash equivalents at beginning of year
   
 
116,391
 
   
 
108,641
 
   
 
258,941
 
    
  
  
Cash and cash equivalents at end of year
   
$
136,781
 
   
$
116,391
 
   
$
108,641
 
    
  
  
Supplemental noncash information:
                           
Shares issued in connection with an acquisition
   
$
450
 
   
$
2,780
 
   
$
—  
 
    
  
  
 
See accompanying notes.

28

AUTODESK, INC.
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
   
Common stock and additional paid-in capital
     
Comprehensive income
     
Accumulated other comprehensive income (loss)
     
Deferred compensation
    
Retained earnings
     
Total stockholders’ equity
  
   
Shares
    
Amount
                
   
(in thousands)
  
Balances, January 31, 1999
  
114,441
 
  
$
470,801
 
            
$
(14,132
)
   
$
(551
)
  
$
81,209
 
   
$
537,327
 
Common shares issued under stock option and stock purchase plans
  
3,830
 
  
 
42,819
 
                                      
 
42,819
 
Tax effect of stock plans
        
 
4,642
 
                                      
 
4,642
 
Shares issued
  
6,000
 
  
 
117,467
 
                                      
 
117,467
 
Compensation expense related to stock
options
        
 
1,400
 
                     
 
(787
)
           
 
613
 
Comprehensive income:
                                                          
Net income
                 
$
9,808
 
                    
 
9,808
 
   
 
9,808
 
Other comprehensive income, net of tax:
                                                          
Unrealized losses on available-for-sale securities, net of reclassification adjustments
                 
 
(2,145
)
                                   
Foreign currency translation adjustment
                 
 
1,455
 
                                   
                  
                                  
Other comprehensive income
                 
 
(690
)
   
 
(690
)
                    
 
(690
)
                  
                                  
Comprehensive income
                 
$
9,118
 
                                   
                  
                                  
Adjustment to conform fiscal year of Discreet Logic
                                           
 
(5,034
)
   
 
(5,034
)
Dividends paid
                                           
 
(14,581
)
   
 
(14,581
)
Repurchase of common shares
  
(5,790
)
  
 
(75,315
)
                             
 
(14,757
)
   
 
(90,072
)
   
 
           
  
 
  
Balances, January 31, 2000
  
118,481
 
  
 
561,814
 
            
 
(14,822
)
   
 
(1,338
)
  
 
56,645
 
   
 
602,299
 
Common shares issued under stock option and stock purchase plans
  
9,236
 
  
 
114,036
 
                                      
 
114,036
 
Tax effect of stock plans
        
 
21,055
 
                                      
 
21,055
 
Shares issued in connection with an
acquisition
  
156
 
  
 
2,780
 
                                      
 
2,780
 
Compensation expense related to stock
options
        
 
260
 
                     
 
166
 
           
 
426
 
Comprehensive income:
                                                          
Net income
                 
$
93,233
 
                    
 
93,233
 
   
 
93,233
 
Other comprehensive income, net of tax:
                                                          
Unrealized gains on available-for-sale securities, net of reclassification adjustments
                 
 
3,727
 
                                   
Foreign currency translation adjustment
                 
 
(5,009
)
                                   
                  
                                  
Other comprehensive income
                 
 
(1,282
)
   
 
(1,282
)
                    
 
(1,282
)
                  
                                  
Comprehensive income
                 
$
91,951
 
                                   
                  
                                  
Dividends paid
        
 
(2,053
)
                             
 
(11,527
)
   
 
(13,580
)
Repurchase of common shares
  
(18,445
)
  
 
(273,240
)
                             
 
(86,053
)
   
 
(359,293
)
   
 
           
  
 
  
Balances, January 31, 2001
  
109,428
 
  
 
424,652
 
            
 
(16,104
)
   
 
(1,172
)
  
 
52,298
 
   
 
459,674
 
Common shares issued under stock option and stock purchase plans
  
7,099
 
  
 
80,185
 
                                      
 
80,185
 
Tax effect of stock plans
        
 
12,176
 
                                      
 
12,176
 
Shares issued in connection with an
acquisition
  
23
 
  
 
450
 
                                      
 
450
 
Compensation expense related to stock
options
        
 
310
 
                     
 
459
 
           
 
769
 
Comprehensive income:
                                                          
Net income
                 
$
90,313
 
                    
 
90,313
 
   
 
90,313
 
Other comprehensive income, net of tax:
                                                          
Unrealized losses on available-for-sale securities, net of reclassification adjustments
                 
 
(111
)
                                   
Foreign currency translation adjustment
                 
 
(3,757
)
                                   
                  
                                  
Other comprehensive income
                 
 
(3,868
)
   
 
(3,868
)
                    
 
(3,868
)
                  
                                  
Comprehensive income
                 
$
86,445
 
                                   
                  
                                  
Dividends paid
                                           
 
(13,092
)
   
 
(13,092
)
Repurchase of common shares
  
(5,263
)
  
 
(59,638
)
                             
 
(37,655
)
   
 
(97,293
)
   
 
           
  
 
  
Balances, January 31, 2002
  
111,287
 
  
$
458,135
 
            
$
(19,972
)
   
$
(713
)
  
$
91,864
 
   
$
529,314
 
   
 
           
  
 
  
 
See accompanying notes.

29

AUTODESK, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
January 31, 2002
 
Note 1.    Autodesk and Summary of Significant Accounting Policies
 
About Autodesk
 
Founded in 1982, Autodesk, Inc. (“Autodesk”) is a leading design software and digital media company. Autodesk serves a diverse portfolio of markets, including building design, geographic information systems, manufacturing, digital media and wireless data services.
 
In August 2001, Autodesk acquired the remaining outstanding stock of Buzzsaw.com, Inc. (“Buzzsaw”). Additionally, in October 2001, Autodesk acquired the software division of Media 100, Inc. (“Media 100”). The acquisition of Buzzsaw is part of Autodesk’s strategy to extend its business to complementary new markets and the acquisition of Media 100 provides Autodesk with streaming media technology for, among other things, the immediate playback of content over the Internet. Both acquisitions were accounted for as purchases. Accordingly, Autodesk’s fiscal 2002 consolidated results include Buzzsaw’s and Media 100’s results of operations from the respective dates of the acquisitions.
 
Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of Autodesk and its wholly and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The equity method of accounting is used for investments in companies in which Autodesk has significant influence, which is generally represented by stock ownership of at least 20 percent but not more than 50 percent. As of January 31, 2002, Autodesk no longer had any investments accounted for under the equity method of accounting. For additional information regarding investments accounted for under the equity method, see Note 10, Business Combinations.
 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in Autodesk’s consolidated financial statements and notes thereto. On a regular basis, management evaluates these estimates and assumptions. Actual results may differ materially from these estimates.
 
Significant estimates and assumptions made by management involve the establishment of provisions for bad debts, product returns and excess and obsolete inventory reserves, the determination of the fair value of stock awards to employees for purposes of the pro forma disclosures in Note 9, Stock Compensation and Employee Benefit Plans, realizability of deferred tax assets and long-lived assets, and the adequacy of office closure related restructuring accruals.
 
Foreign Currency Translation
 
The assets and liabilities of foreign subsidiaries are translated from their respective functional currencies into U.S. dollars at the rates in effect at the balance sheet date, and revenue and expense amounts are translated at weighted average rates during the period. Foreign currency translation adjustments are recorded as other comprehensive income.
 
Gains and losses realized from foreign currency transactions, those transactions denominated in currencies other than the subsidiary’s functional currency, are included in interest and other income. These amounts have been immaterial.

30

AUTODESK, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Forward Foreign Exchange Contracts (“Forwards”) and Option Contracts (“Options”)
 
Autodesk hedges a portion of its European, Asian and Canadian exposures in certain receivables and payables as well as certain anticipated cash flows denominated in foreign currencies using forwards and options. These foreign currency instruments by policy have maturities of less than three months and settle before the end of each quarterly period.
 
During fiscal 2001 and 2000, gains and losses associated with exchange rate fluctuations on forwards and options were recorded in interest and other income and offset corresponding gains and losses on the underlying assets, liabilities and anticipated cash flows being hedged.
 
At the start of fiscal 2002, Autodesk adopted the provisions of Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), which required Autodesk to recognize all derivative instruments on the balance sheet at fair value. Gains and losses resulting from changes in fair value are accounted for depending upon the use of the derivative and whether it is designated and qualifies for hedge accounting under SFAS 133. The adoption of SFAS 133 did not have a material impact on Autodesk’s financial position and results of operations.
 
The costs of forwards are amortized on a straight-line basis over the life of the contract as interest and other income, while option premiums are expensed entirely on the date of purchase because of the short-term life of the options.
 
Cash and Cash Equivalents
 
Autodesk considers all highly liquid investments with insignificant interest rate risk and original maturities of three months or less to be cash equivalents. Cash equivalents are recorded at cost, which approximates fair value.
 
Marketable Securities
 
Marketable securities are stated at fair value. Marketable securities maturing within one year that are not restricted are classified as current assets.
 
Autodesk determines the appropriate classification of its marketable securities at the time of purchase and reevaluates such classification as of each balance sheet date. Autodesk has classified all of its marketable securities as available-for-sale and carries such securities at fair value, with unrealized gains and losses, net of tax, reported in stockholders’ equity until disposition or maturity.
 
Concentration of Credit Risk
 
Autodesk places its cash, cash equivalents and marketable securities with and in the custody of financial institutions with high credit standing and, by policy, limits the amounts invested with any one institution, type of security and issuer.
 
Autodesk’s accounts receivable are derived from sales to a large number of direct customers, resellers and distributors in the Americas, Europe and the Asia Pacific region. Autodesk performs ongoing evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral. No single customer accounted for more than 10 percent of consolidated net revenues in fiscal 2002, 2001 or 2000.

31

AUTODESK, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Estimated reserves for uncollectible trade receivables are based upon historical loss patterns, the number of days that billings are past due and an evaluation of the potential risk of loss associated with problem accounts.
 
Inventories
 
Inventories consisted of the following as of January 31:
 
    
2002
   
2001
    
(in thousands)
Raw materials and finished goods
   
$
14,511
   
$
13,638
Demonstration inventory, net
   
 
3,488
   
 
3,617
    
  
    
$
17,999
   
$
17,255
    
  
 
Inventories are stated at the lower of standard cost (determined on the first-in, first-out method) or market. Appropriate consideration is given to excess and obsolete inventory levels in evaluating lower of cost or market.
 
Computer Equipment, Software, Furniture and Leasehold Improvements
 
Computer equipment, software and furniture are depreciated using the straight-line method over the estimated useful lives of the assets, which range from two to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful life or the lease term. Depreciation expense was $26.3 million in fiscal 2002, $26.2 million in fiscal 2001 and $30.2 million in fiscal 2000.
 
Costs incurred for computer software developed or obtained for internal use are capitalized for application development activities and immediately expensed for preliminary project activities and post-implementation activities.
 
Purchased Technologies and Capitalized Software
 
Costs incurred in the initial design phase of software development are expensed as incurred. Once the point of technological feasibility is reached, production costs (programming and testing) are capitalized. Certain acquired software-technology rights are also capitalized. Capitalized software costs are amortized ratably, as revenues are recognized, but not less than on a straight-line basis over 18-month to five-year periods. Amortization expense, which is included as a component of cost of revenues, was $15.7 million in fiscal 2002, $16.1 million in fiscal 2001 and $18.9 million in fiscal 2000. The actual lives of Autodesk’s purchased technologies or capitalized software may differ from management’s estimates, and such differences could cause carrying amounts of these assets to be reduced materially.
 
Other Intangible Assets
 
Amortization of purchased intangibles and goodwill is provided on a straight-line basis over the respective useful lives of the assets, which range from three to seven years. Amortization expense was $20.9 million in fiscal 2002, $26.5 million in fiscal 2001 and $30.6 million in fiscal 2000.
 
Impairment of Long-Lived Assets
 
Annually or sooner as circumstances dictate, Autodesk assesses the recoverability of its long-lived assets by comparing the undiscounted net cash flows associated with such assets against their respective carrying values. Impairment, if any, is based on the excess of the carrying value over the fair value.

32

AUTODESK, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Web Site Development Costs
 
During the third quarter of fiscal 2001, Autodesk adopted the provisions of the Emerging Issues Task Force (“EITF”) consensus No. 00-2, “Accounting for Web Site Development Costs.” This consensus provides guidance on what types of costs associated with Web site development should be capitalized or expensed. Autodesk capitalized Web site development costs totaling $0.6 million in fiscal 2002 and $1.7 million in fiscal 2001. Such capitalized amounts are being amortized over a two-year period.
 
Deferred Tax Assets
 
Deferred tax assets arise primarily from net operating losses, reserves and timing differences for purchased technologies and capitalized software. They are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are recorded. Valuation allowances are established when necessary to reduce the deferred tax assets to the amount expected to be realized.
 
Investments in Privately-held Businesses
 
Autodesk has several minority investments in privately-held technology companies, many of which are in the development stage. As of January 31, 2002, the carrying value of these investments totaled $4.1 million. These investments are accounted for using the cost method of accounting because Autodesk’s ownership interest in the investees is less than 20 percent and Autodesk does not have the ability to exercise significant influence on the investees. The value of these investments is included in other assets in the accompanying consolidated balance sheets. Autodesk monitors these investments for impairment and makes appropriate reductions in carrying values when declines in their fair value are determined to be other-than-temporary.
 
Employee Stock Compensation
 
As permitted by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), Autodesk measures compensation expense for its stock-based employee compensation plans using the intrinsic method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). In accordance with SFAS 123, Autodesk has provided in Note 9 the pro forma disclosures of the effect on net income and earnings per share if SFAS 123 had been applied in measuring compensation expense for all periods presented.
 
In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB 25” (“FIN 44”). The application of FIN 44 did not have a material impact on Autodesk’s financial statements.
 
Revenue Recognition
 
Autodesk recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectibility is probable. Autodesk’s revenue recognition policies are in compliance with the provisions of the American Institute of Certified Public Accountants’ Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended, and Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.”
 
Autodesk recognizes revenue as follows. Product sales, which include software licenses and the related hardware and peripherals, are recognized at the time of shipment. In addition to product sales, Autodesk recognizes subscription and hosted service revenues ratably over the contract periods. Customer consulting and

33

AUTODESK, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

training revenues are recognized as the services are performed, and revenues from post contract customer support and other related services are recognized ratably as the obligations are fulfilled, or when the related services are performed. Vendor specific objective evidence of the fair value of the elements contained in our software license, subscription and hosting arrangements are based on the price determined by management having the relevant authority.
 
With the exception of contracts with certain distributors, sales contracts do not contain specific product-return privileges. However, Autodesk permits its distributors and resellers to return product in certain instances, generally during periods of product transition and during update cycles.
 
Autodesk establishes allowances for product returns, including allowances for stock balancing and product rotation. These reserves are based upon channel inventory levels and the timing of new product introductions and other factors. These allowances are recorded as direct reductions of revenue and accounts receivable at the time the related revenue is recognized. Product return reserves were $20.6 million at January 31, 2002 and $17.8 million at January 31, 2001.
 
Advertising Expenses
 
Advertising costs are expensed as incurred. Total advertising expenses incurred were $13.8 million in fiscal 2002, $15.3 million in fiscal 2001 and $18.3 million in fiscal 2000.
 
Net Income Per Share
 
Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the combination of the dilutive effect of stock options and the weighted average number of common shares outstanding. Autodesk has no potentially dilutive securities other than stock options.
 
Recently Issued Accounting Standards
 
During July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). This Statement requires all business combinations be accounted for using the purchase method accounting and redefines goodwill and other intangibles that should be recognized separate from goodwill. SFAS 141 is effective for all business combinations initiated after June 30, 2001. Both the Buzzsaw and Media 100 acquisitions were accounted for pursuant to SFAS 141.
 
During July 2001, the Financial Accounting Standards Board also issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). This Statement requires, among other things, that goodwill not be amortized, but be tested for impairment at least annually. Application of SFAS 142 is required immediately for business combinations completed after June 30, 2001; however, for transactions completed prior to this date, Autodesk plans to adopt the provisions of SFAS 142 on February 1, 2002. The beneficial pre-tax impact resulting from the adoption of the goodwill non-amortization provision of SFAS 142 will be less than $5.0 million per quarter. Autodesk recently completed an assessment of the annual goodwill impairment test pursuant to SFAS 142 and believes that none of the goodwill balances as of January 31, 2002 are impaired.
 
During August 2001, the Financial Accounting Standards Board also issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 is effective at the start of fiscal 2003 and supercedes Statement of Financial Accounting

34

AUTODESK, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Standards No. 121, “Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 relating to the disposal of a segment of business. Autodesk is currently assessing the impact of SFAS 144 on its consolidated financial position, results of operations and cash flows.
 
Stock Split
 
On March 14, 2002, the Board of Directors authorized a two-for-one stock split in the form of a stock dividend to stockholders of record as of April 4, 2002. All references in the consolidated financial statements and notes thereto with respect to the number of shares, per share amounts and market prices of Autodesk’s common stock have been restated to reflect the effect of the stock split.
 
Reclassifications
 
Certain reclassifications involving the consolidated statements of cash flows have been made to the fiscal 2001 and 2000 balances to conform to the fiscal 2002 presentation.
 
Note 2.    Net Income Per Share
 
A reconciliation of the numerators and denominators used in the basic and diluted net income per share amounts follows:
 
    
Year ended January 31,
    
2002
   
2001
   
2000
    
(In thousands)
Numerator:
                     
Numerator for basic and diluted net income per share—net income
   
$
90,313
   
$
93,233
   
$
9,808
    
  
  
Denominator:
                     
Denominator for basic net income per share—weighted average shares
   
 
108,815
   
 
114,375
   
 
120,657
Effect of dilutive common stock options
   
 
3,460
   
 
2,653
   
 
2,154
    
  
  
Denominator for diluted net income per share
   
 
112,275
   
 
117,028
   
 
122,811
    
  
  
 
The computation of diluted net income per share does not include 8.0 million options for fiscal 2002, 11.9 million options for fiscal 2001 and 16.6 million options for fiscal 2000. Such options were excluded because the options had exercise prices greater than the average market prices of common stock during the respective periods, and, therefore were not dilutive.
 
Note 3.    Financial Instruments
 
Fair Values of Financial Instruments
 
Estimated fair values of financial instruments are based on quoted market prices. The carrying amounts and fair value of Autodesk’s financial instruments are as follows:
 
    
January 31, 2002
   
January 31, 2001
    
Cost
   
Fair value
   
Cost
   
Fair value
    
(In thousands)
Cash and cash equivalents
   
$
136,781
   
$
136,781
   
$
116,391
   
$
116,391
Marketable securities
   
 
364,527
   
 
367,830
   
 
302,761
   
 
306,109
Forward foreign currency contracts
   
 
68
   
 
68
   
 
8
   
 
8
Foreign currency option contracts
   
 
199
   
 
199
   
 
218
   
 
218

35

AUTODESK, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Autodesk uses derivative instruments to manage its earnings and cash flow exposures to fluctuations in foreign currency exchange rates. Under its risk management strategy, Autodesk uses foreign currency forward and option contracts to manage its exposures of underlying assets, liabilities and other obligations, which exist as part of the ongoing business operations. These foreign currency instruments by policy have maturities of less than three months and settle before the end of each quarterly period. Generally, Autodesk’s practice is to hedge a majority of its short-term foreign exchange transaction exposures. Contracts are primarily denominated in European and Asian currencies, and Autodesk does not enter into any foreign exchange derivative instruments for trading or speculative purposes.
 
Forwards
 
Autodesk’s forward contracts, which are not designated as hedging instruments under SFAS 133, have average maturities of 90 days or less. The forwards are used to reduce the exchange rate risk associated primarily with receivables and payables. Forward contracts are marked-to-market at the end of each reporting period, with gains and losses recognized as other income or expense to offset the gains or losses resulting from the settlement of the underlying foreign currency denominated receivables and payables.
 
The notional amounts of foreign currency contracts were $45.2 million at January 31, 2002 and $36.6 million at January 31, 2001. While the contract or notional amount is often used to express the volume of foreign exchange contracts, the amounts potentially subject to credit risk are generally limited to the amounts, if any, by which the counterparties’ obligations under the agreements exceed the obligations of Autodesk to the counterparties. Gains resulting from foreign currency transactions were not material in fiscal 2002, 2001 and 2000.
 
Options
 
In addition to the forward contracts, Autodesk utilizes foreign currency option contracts to reduce the exchange rate impact on the net revenue of certain anticipated transactions. These option contracts, which are designated and documented as cash flow hedges and qualify for hedge accounting treatment under SFAS 133, have maturities of less than three months and settle before the end of each fiscal quarter. Autodesk’s financial exposure is generally limited to the amount paid for the options.
 
The notional amounts of foreign currency option contracts were $2.7 million at January 31, 2002 and $2.3 million at January 31, 2001. Gains, if any, from the effective portion of the option contracts, as determinable under SFAS 133, are recognized as net revenues, while the ineffective portion of the gain is recorded as other income. During fiscal 2002, Autodesk recognized net settlement gains of $0.8 million as net revenues. Amounts associated with net settlement gains totaling $0.3 million were recorded as other income during fiscal 2002.

36

AUTODESK, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Marketable Securities
 
Marketable securities include the following available-for-sale securities at January 31, 2002 and 2001:
 
    
January 31, 2002
    
Cost
   
Gross unrealized gains
   
Gross unrealized losses
     
Estimated fair value
    
(In thousands)
Short-term:
                              
Municipal Bonds
   
$
144,285
   
$
261
   
$
(84
)
   
$
144,462
Preferred Stock
   
 
28,975
   
 
33
   
 
—  
 
   
 
29,008
Money Market
   
 
27,560
   
 
—  
   
 
—  
 
   
 
27,560
    
  
  
  
    
 
200,820
   
 
294
   
 
(84
)
   
 
201,030
Long-term:
                              
Municipal Bonds
   
 
163,707
   
 
3,101
   
 
(8
)
   
 
166,800
    
  
  
  
    
$
364,527
   
$
3,395
   
$
(92
)
   
$
367,830
    
  
  
  
 
    
January 31, 2001
    
Cost
   
Gross unrealized gains
   
Gross unrealized losses
   
Estimated fair value
    
(In thousands)
Short-term:
                            
Municipal Bonds
   
$
57,296
   
$
38
   
$
—  
   
$
57,334
Preferred Stock
   
 
10,500
   
 
5
   
 
—  
   
 
10,505
Money Market
   
 
43,737
   
 
84
   
 
—  
   
 
43,821
Commercial Paper and Corporate Bonds
   
 
4,498
   
 
19
   
 
—  
   
 
4,517
Agency Securities
   
 
26,686
   
 
98
   
 
—  
   
 
26,784
    
  
  
  
    
 
142,717
   
 
244
   
 
—  
   
 
142,961
    
  
  
  
Long-term:
                            
Municipal Bonds
   
$
144,411
   
$
2,791
   
$
—  
   
$
147,202
Corporate Bonds
   
 
2,993
   
 
98
   
 
—  
   
 
3,091
Asset Backed Securities
   
 
4,002
   
 
72
   
 
—  
   
 
4,074
Agency Securities
   
 
8,638
   
 
143
   
 
—  
   
 
8,781
    
  
  
  
    
 
160,044
   
 
3,104
   
 
—  
   
 
163,148
    
  
  
  
    
$
302,761
   
$
3,348
   
$
—  
   
$
306,109
    
  
  
  
 
The contractual maturities of Autodesk’s long-term marketable securities at January 31, 2002 were as follows: $73.1 million between one and two years; $50.7 million maturing in three years; $42.5 million maturing in four to five years; and $0.5 million beyond five years. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay or call obligations without prepayment penalties. Realized gains on the sale of available-for-sale securities were $2.8 million in fiscal 2002. Realized gains and losses on available-for-sale securities were immaterial in fiscal 2001 and 2000. The cost of securities sold is based on the specific identification method.

37

AUTODESK, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 4.    Income Taxes
 
The provision for income taxes consists of the following:
 
    
Fiscal year ended January 31,
  
    
2002
     
2001
     
2000
  
    
(In thousands)
  
Federal: