Autodesk 2003 Annual Report Download

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www.autodesk.com
BUILDING SOLUTIONS
MANUFACTURING
SOLUTIONS
DIGITAL MEDIA SOLUTIONS
LOCATION
SERVICES
SOLUTIONS
Annual Report 2003
SOLUTIONS
INFRASTRUCTURE

Table of contents

  • Page 1
    www.autodesk.com INFRASTRUCTURE SOLUTIONS BUILDING SOLUTIONS MANUFACTURING SOLUTIONS LOCATION SERVICES SOLUTIONS DIGITAL MEDIA SOLUTIONS Annual Report 2003

  • Page 2
    Mechanical Engineers Design Engineers Manufacturing Engineers Application Developers Sales Representatives Analysts Marketing Managers Application Developers Purchasing Managers Architects Developers Civil Engineers Plumbing Engineers Contractors Owners Land, City, and Environmental Planners ...

  • Page 3
    ... by a challenging global economic environment, Autodesk held its ground. We protected your investment in us by making careful decisions about how to run our business today, and by laying the groundwork for growth and success tomorrow. During fiscal year 2003 the corporate spending environment in...

  • Page 4
    ... robust growth in China, our customers continued to migrate from 2D design to next-generation 3D technology, and our growing Subscription Program showed strong returns. We generated $86 million in cash from operating activities and have $411 million in cash and marketable securities. The investments...

  • Page 5
    ... AutoCAD products in fiscal 2003 decreased to $69 million from $230 million a year ago. Despite the decrease in upgrade revenue, we saw strong growth in the success of our Subscription Program. A new way for existing customers to stay current with our software, the Subscription Program represented...

  • Page 6
    ... has file and data management technology that will provide vaulting capabilities to our existing product line. Significant gains in MSD included over 150 percent growth of the installed base of the Autodesk Inventor Series, the flagship 3D Developer of AutoCAD and AutoCAD LT software, the Platform...

  • Page 7
    ...a strong release of Autodesk Map, made a strategic acquisition of CAiCE Software in the civil engineering and transportation arena, and turned in a solid performance in Asia with the recently localized Autodesk Land Desktop. Our Americas region continued to lead sales in fiscal year 2003, producing...

  • Page 8
    ...Location Services has engaged in several trials with operators in the U.S. and EMEA, whose combined subscriber base is more than 25 million users. • DESKTOP VIDEO: The rapidly increasing number of professionals using video on their desktop makes this a compelling new market. Discreet's fiscal 2003...

  • Page 9
    ... at this year's Annual Meeting. So whether we're helping an inspired engineer design and create an innovative new product or enabling a special-effects artist to bring home an Academy Award for dazzling digital images, Autodesk will be right there supporting our customers in their great work- and...

  • Page 10
    ... offices) 111 McInnis Parkway, San Rafael, California (Zip Code) 94903 Registrant's telephone number, including area code: (415) 507-5000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which registered Title of each class None None Securities registered...

  • Page 11
    ... consulting, training and support for customers seeking maximum benefit and performance from our products. Our Location Services Division offers a technology platform designed to deliver location-based applications to wired, mobile and wireless users. We market our product, LocationLogic, to...

  • Page 12
    ..., engineers, drafters and design-related professionals use AutoCAD to create, view, manage, plot, share, and reuse accurate, information-rich drawings. In March 2003, we introduced a new release of AutoCAD. AutoCAD 2004 includes new features such as productivity tools and presentation graphics...

  • Page 13
    ...ability to handle high location services transaction volume, support for real-time data communication, and support for a variety of end-user devices, including mobile phones, PDAs and laptop computers. LocationLogic aggregates, integrates and manages all information relevant to a user's location and...

  • Page 14
    ... character studio. flame flame, Discreet's flagship on-line visual effects system, is a creative solution that allows artists to craft visual effects for feature films, television commercials, music videos and broadcast promos and IDs at the highest resolutions from film to HD television. It offers...

  • Page 15
    ...objectoriented architecture with extensive caching, multiple views and real-time loop playback. combustion is setting a new standard for interactive performance on the desktop. Autodesk Subscription Program In addition to sales of new software licenses and upgrades, we offer customers a subscription...

  • Page 16
    ... offices. We also 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 web casts, seminars...

  • Page 17
    ... 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...

  • Page 18
    ...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...

  • Page 19
    ... and technical support personnel. Our foreign subsidiaries lease office space for their operations including local sales, product development and technical support personnel. During fiscal 2003 we closed several domestic and international offices in an effort to reduce operating expense levels. We...

  • Page 20
    ...Chief Technical Officer of Ithaca Software from May 1986 to August 1993. Jan Becker joined Autodesk in September 1992 and has served as Senior Vice President, Human Resources and Corporate Real Estate since June 2000 and previously served in other capacities in the Human Resources Department. Alfred...

  • Page 21
    ...Vice President of Autodesk Professional Services. Prior to joining Autodesk, Mr. Vadnais was President and CEO of Mediaplex, Inc., a digital advertising and customer relationship management company, from April 2001 until Mediaplex was acquired by ValueClick, an internet advertising solutions company...

  • Page 22
    ... 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...

  • Page 23
    ... with our audited consolidated financial statements and related notes thereto and with Management's Discussion and Analysis of Financial Condition and Results of Operations, which are included elsewhere in this Form 10-K. The financial data for the years ended January 31, 2003, 2002 and 2001 are...

  • Page 24
    ... the contract periods. Customer consulting and training revenues are recognized as the services are performed. Allowance for Bad Debts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. At January 31, 2003, we...

  • Page 25
    ... are based on estimated channel inventory levels, the timing of new product introductions and other factors. The greater the channel inventory level or the closer the proximity of a major new product release such as AutoCAD 2004, the more product returns we expect. During fiscal year 2003, we...

  • Page 26
    subleasing income amounts were calculated by using information provided by third-party real estate brokers and management judgments 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 ...

  • Page 27
    ... 3ds max, we offer customers strong value while allowing us to reduce our dependence on revenues from customers upgrading when new product cycles occur. While the customer subscription program met our internal growth goals during fiscal 2003, subscription revenues were not yet large enough to offset...

  • Page 28
    ...our operating activities. We finished the year with $411.0 million in cash and marketable securities and a significantly higher deferred revenue balance as compared to the previous year. Over 60 percent of the deferred revenues balance at January 31, 2003 consisted of customer subscription contracts...

  • Page 29
    ... 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. Sales of AutoCAD, AutoCAD upgrades and AutoCAD LT accounted for 46 percent of our...

  • Page 30
    ... 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...

  • Page 31
    ... of location based services and product lifecycle management initiatives. Research and development expenses for fiscal year 2003 were offset by $3.6 million of capitalized development costs mostly associated with AutoCAD 2004, which was released in March 2003. Research and development expenses...

  • Page 32
    ... advance notice pay, medical benefits, and outplacement costs for 184 employees in the U.S. and 210 employees outside the U.S. Office closure costs included losses on operating leases and the write-off of leasehold improvements and equipment. During fiscal year 2003 we also reversed $2.0 million and...

  • Page 33
    ... invested. Provision for income taxes. Absent the impact of the non-recurring tax benefit resulting from the Internal Revenue Service ("IRS") audit resolution for fiscal 1997-1999, our effective income tax rate was 27 percent in fiscal 2003, 30 percent in fiscal 2002 (absent the impact of the...

  • Page 34
    ... project collaboration applications to improve efficiencies and reduce costs for the building industry. Buzzsaw's results are reported in the Platform Technology Division and Other. These acquisitions were all accounted for under the purchase method of accounting pursuant to Statement of Financial...

  • Page 35
    ... activities have historically resulted from sales of our software products, changes in working capital accounts and add-backs of non-cash expense items such as depreciation and amortization. During fiscal 2003 the cash generated, together with cash and securities available at the start of the year...

  • Page 36
    .... Our stock option program is a broad-based, long-term retention program. Essentially all of our employees participate. Approximately 91 percent of the options we granted during fiscal 2003 were awarded to employees other than our CEO and four most highly compensated executive officers. Options...

  • Page 37
    ... software, including products based on AutoCAD that serve specific vertical markets, upgrades to those products and products that are interoperable with AutoCAD. As such, any factor adversely affecting sales of these products, including product life cycle, market acceptance, product performance...

  • Page 38
    ... 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. An example of this type of software is the ACIS geometric solid...

  • Page 39
    ... securities class action litigation. This type of litigation is often expensive and diverts management's attention and resources. Our efforts to develop and introduce new products and service offerings expose us to risks such as limited customer acceptance, costs related to product defects and large...

  • Page 40
    ... returns will continue to be impacted by product update cycles, new product releases such as AutoCAD 2004 and software quality. We establish reserves for stock balancing and product rotation. These reserves are based on historical experience, estimated channel inventory levels and the timing of new...

  • Page 41
    ... on the continued service of highly skilled employees and independent developers. Our ability to attract and retain key personnel is dependent on a number of factors, including our continued ability to grant stock incentive awards. Changes in the accounting rules for stock options, which are...

  • Page 42
    ... $0.6 million as of January 31, 2003 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...

  • Page 43
    ... 15 to the Consolidated Financial Statements. AUTODESK, INC. CONSOLIDATED STATEMENTS OF INCOME Fiscal year ended January 31, 2003 2002 2001 (in thousands, except per share data) Net revenues ...Costs and expenses: Cost of revenues ...Marketing and sales ...Research and development ...General and...

  • Page 44
    ... ...Marketable securities ...Accounts receivable, net ...Inventories ...Deferred income taxes ...Prepaid expenses and other current assets ...Total current assets ...Marketable securities ...Computer equipment, software, furniture and leasehold improvements, at cost: Computer equipment, software and...

  • Page 45
    ... securities ...Sales and maturities of available-for-sale marketable securities ...Business combinations, net of cash acquired ...Capital and other expenditures ...Purchases of software technologies and capitalization of software development costs ...Other investing activities ...Net cash (used...

  • Page 46
    ... stock option and stock purchase plans ...7,099 Tax effect of stock plans ...Shares issued in connection with an acquisition 23 Compensation expense related to stock options Comprehensive income: Net income ...Other comprehensive income, net of tax: Unrealized losses on available-for-sale securities...

  • Page 47
    ... integrated and interoperable design software, Internet services, wireless development platforms and point-of-location applications that empower more than five million users. Autodesk software products are sold in over 160 countries, both directly to customers and through a network of resellers and...

  • Page 48
    ... accounting under SFAS 133. The costs of forwards are amortized on a straight-line basis over the life of the contract to 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...

  • Page 49
    ...of the estimated useful life or the lease term. Depreciation expense was $31.6 million in fiscal 2003, $26.3 million in fiscal 2002 and $26.2 million in fiscal 2001. Costs incurred for computer software developed or obtained for internal use are capitalized for application development activities and...

  • Page 50
    ... capitalized software for each of the fiscal years ended through January 31, 2008 is as follows (in thousands): Year ending January 31, 2004 2005 2006 2007 2008 ... $13,030 11,849 3,851 912 483 $30,125 Total ... Goodwill On February 1, 2002, the Company adopted Statement of Financial Accounting...

  • Page 51
    ... 2003. 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, tax credits, reserves...

  • Page 52
    ... of SFAS 123 to require more prominent disclosures in both the annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The additional disclosure requirements of SFAS 148 are effective for...

  • Page 53
    ... during update cycles. Autodesk establishes reserves for product returns. These reserves are based upon channel inventory levels and the timing of new product introductions and other factors. These reserves are recorded as a direct reduction of revenue and accounts receivable at the time the related...

  • Page 54
    ...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...

  • Page 55
    ... 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...

  • Page 56
    ... 2002. Realized gains and losses on available-for-sale securities were immaterial in fiscal 2001. The cost of securities sold is based on the specific identification method. Proceeds from the sale of marketable securities were $145.9 million in fiscal 2003, $191.0 million in fiscal 2002, and $202...

  • Page 57
    ... Net tax benefit from closure of IRS audit ...(3,824) - - Non-taxable gain on disposition of unconsolidated affiliate ...- (3,311) - Additional taxes provided on prior year foreign earnings ...6,884 - - Extraterritorial income exclusion/Foreign Sales Corporation tax benefit ...(1,632) (2,690) (2,007...

  • Page 58
    ... 31, 2003 2002 (In thousands) Purchased technology and capitalized software ...Reserves for product returns and bad debts ...Tax loss carryforwards ...Accrued compensation and benefits ...Fixed assets ...Research and development credit carryforwards ...Foreign tax credit carryforwards ...Other...

  • Page 59
    ... could be used from time to time for working capital or other business needs. This credit facility expired in January 2003. There were no borrowings outstanding under this agreement at the time it expired. In February 2003, Autodesk entered into a U.S. line of credit agreement that permits short...

  • Page 60
    ... a ten year old development agreement between Spatial and an injunction preventing Autodesk from disclosing source code licensed from Spatial to third parties. The Complaint was later amended to seek a remedy of preventing Autodesk from distributing the licensed code to end users. Autodesk believes...

  • Page 61
    ... 2003. The number of shares acquired and the timing of the purchases are based on several factors, including general market conditions and the trading price of Autodesk common stock. In fiscal 2003 and 2002, Autodesk repurchased its common stock through open market purchases. In fiscal 2001 Autodesk...

  • Page 62
    ... FINANCIAL STATEMENTS-(Continued) Dividends During fiscal 2003, 2002 and 2001 Autodesk paid annual cash dividends of $0.12 per share at a rate of $0.03 each quarter. Note 9. Stock Compensation and Employee Benefit Plans Stock Option Plans Autodesk maintains three active stock option plans...

  • Page 63
    ... at specific dates ranging through January 2013. A total of 44.1 million shares of Autodesk's common stock have been reserved for future issuance under existing stock option and stock purchase programs. 1998 Employee Qualified Stock Purchase Plan Under Autodesk's employee qualified stock purchase...

  • Page 64
    ...applies APB 25 in accounting for its employee stock plans. Accordingly, no compensation expense is recognized in Autodesk's consolidated statement of operations, other than for stock awards that have exercise prices less than the fair market value of Autodesk's common stock at the date of grant. For...

  • Page 65
    ... STATEMENTS-(Continued) The weighted average estimated fair value of shares granted under the employee qualified stock purchase plan was $4.81 per share during fiscal 2003, $4.14 during fiscal 2002 and $4.29 during fiscal 2001. These were estimated using the Black-Scholes option-pricing model, based...

  • Page 66
    ...the purchase method of accounting pursuant to SFAS 141. Management's allocation of the purchase consideration, which is based on valuations of acquired assets performed by a third party, is as follows (in thousands): Fixed assets ...Developed technologies (3 year useful life) ...Deferred stock-based...

  • Page 67
    ...accounting pursuant to SFAS 141. Management's allocation of the purchase price, which is based on valuations of acquired assets performed by a third party, is as follows (in thousands): Inventory and computer hardware ...$ 558 Intangible assets and amounts: Developed technologies (3 year useful life...

  • Page 68
    AUTODESK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The acquisition was accounted for under the purchase method of accounting pursuant to SFAS 141. Management's allocation of the purchase price, which is based on valuations of acquired assets performed by a third party, resulted in...

  • Page 69
    ... employees and the closure of several additional international and domestic offices. This plan was designed to help further reduce operating expense levels as well as redirect resources to product development and other critical areas. During the year ended ended January 31, 2003, Autodesk recognized...

  • Page 70
    ...,247 (29,481) (3,053) $ 18,408 $ Autodesk expects to pay the employee termination costs within one year, and the office closure costs over the remaining lease terms, ranging from one to 5 years. Note 12. Interest and Other Income The following table sets forth the components of Interest and other...

  • Page 71
    ...programs, commercials, music and corporate videos, interactive game production, design visualization, Web design and interactive Web streaming. The Design Solutions Segment derives revenues from the sale of design software products and services to professionals or consumers who design, build, manage...

  • Page 72
    ... activity. Unallocated amounts in fiscal 2001 also include $1.2 million of credits, resulting from fiscal 2000 corporate restructuring accrual reversals. Net revenues attributable to the major divisions within the Design Solutions Segment are as follows: Fiscal year ended January 31, 2003...

  • Page 73
    ... INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Note 14. Comprehensive Income The components of total accumulated other comprehensive loss in the balance sheet are as follows: January 31, 2003 2002 (In thousands) Unrealized gains on available-for-sale securities, net of tax ...Foreign...

  • Page 74
    ...and fourth quarters of fiscal 2003 include restructuring and other charges totaling $1.5 million, $3.8 million, $13.3 million and $7.3 million, respectively, which related to corporate restructuring activities. Results for the fourth quarter of fiscal 2003 also include a non-recurring tax benefit of...

  • Page 75
    ... 31, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of Autodesk's management. Our responsibility is to express an opinion on these financial statements and schedule based on our...

  • Page 76
    ... of the Proxy Statement that specifically address the items set forth herein are incorporated by reference. Such incorporation does not include the Compensation Committee Report or the Performance Graph included in the Proxy Statement. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...

  • Page 77
    ... statement schedule of Autodesk, Inc., for the fiscal years ended January 31, 2003, 2002 and 2001, is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Autodesk, Inc. Schedule II Valuation and Qualifying Accounts ...S-1 Schedules not listed...

  • Page 78
    ... Executive Change in Control Program Agreement between Registrant and Tom Vadnais, dated November 21, 2001 List of Subsidiaries Consent of Ernst & Young LLP, Independent Auditors Power of Attorney (contained in the signature page to this Annual Report) Certification of Chief Executive Officer and...

  • Page 79
    ..., thereunto duly authorized. AUTODESK, INC. By: /s/ CAROL A. BARTZ Carol A. Bartz Chairman of the Board Dated: April 25, 2003 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Carol A. Bartz as his or her attorney-in-fact...

  • Page 80
    Signature Title Date /s/ STEVEN L. SCHEID Steven L. Scheid Director April 25, 2003 /s/ MARY ALICE TAYLOR Mary Alice Taylor Director April 25, 2003 /s/ LARRY W. WANGBERG Larry W. Wangberg Director April 25, 2003 71

  • Page 81
    CERTIFICATIONS I, Carol A. Bartz, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Autodesk, Inc.; Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light...

  • Page 82
    I, Alfred J. Castino, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Autodesk, Inc.; Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the ...

  • Page 83
    ... FINANCIAL STATEMENT SCHEDULE II AUTODESK, INC. VALUATION AND QUALIFYING ACCOUNTS Balance at Beginning of Year Additions Charged to Costs and Expenses Description Deductions Write-Offs Balance at End of Year Fiscal year ended January 31, 2003 Allowance for doubtful accounts ...Product returns...

  • Page 84
    ... Electric Utility Designers Utility, Communications, and Owners Transportation Managers Cartographers Land and City Planners Visual Effects Artists, Designers, and Compositors Broadcast Graphic Artists Nonlinear Editors Animators Encoding Professionals Game Developers Application Developers CG...

  • Page 85
    ... San Rafael, California 94903 USA Autodesk, AutoCAD, AutoCAD LT, Autodesk Inventor, Autodesk Map, Autodesk Streamline, Buzzsaw, Design Web Format, Discreet, DWF, flame, flint, inferno, Mechanical Desktop, and Revit are either registered trademarks or trademarks of Autodesk, Inc., in the USA and...