Autodesk 2005 Annual Report Download - page 35

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In December 2004, the FASB issued FASB Staff Position No. FSP 109-2, “Accounting and Disclosure Guidance
for the Foreign Earnings Repatriation Provision within the American Jobs Creations Act of 2004 (“FSP 109-2”).”
See “Provision for income taxes” under “Results of Operations” on page 25 and Note 4, “Income Taxes,” in the
Notes to Consolidated Financial Statements for further description of the effects on the financial statements
of FSP 109-2.
In March 2004, the FASB issued Emerging Issues Task Force Issue 03-1 (“EITF 03-1”), “The Meaning of Other-
Than-Temporary Impairment and Its Application to Certain Investments”, which provided new guidance for
assessing impairment losses on investments. Additionally, EITF 03-1 includes new disclosure requirements for
investments that are deemed to be temporarily impaired. In September 2004, the FASB delayed the accounting
provisions of EITF 03-1; however the disclosure requirements remain effective for annual periods ending after
June 15, 2004. The required disclosures are included in Note 3, “Financial Instruments,” in the Notes to
Consolidated Financial Statements. We will evaluate the impact of EITF 03-1 once final guidance is issued.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”), “Share-Based Payment,” which
provides interpretive guidance related to the interaction between SFAS 123R and certain SEC rules and
regulations, as well as provides the SEC staff’s views regarding the valuation of share-based payment
arrangements. Autodesk is currently assessing the impact of SAB 107 on our implementation and adoption of
SFAS 123R.
Overview of Fiscal 2005 Results of Operations
For the
year ended
January 31, 2005
As a %
of Net
Revenues
For the
year ended
January 31, 2004
As a %
of Net
Revenues
(in thousands)
Net Revenues ................................. $1,233,767 100% $ 951,643 100%
Cost of revenues ........................... 169,443 14% 148,128 16%
Operating expenses excluding
restructuring charges .................... 802,751 65% 694,095 73%
Restructuring ............................... 26,700 2% 3,183 —
Income from Operations ..................... $ 234,873 19% $ 106,237 11%
For fiscal 2005 our primary goals were to deliver another series of market-leading products and solutions to our
customers to drive revenue growth and market share gains, while increasing our profitability to an annual operating
margin of 18 to 20% by fiscal 2006. We achieved both goals. Our fiscal 2005 product releases offered continued
advancements in design and authoring productivity as well as project lifecycle management capability. Our operating
margin for fiscal 2005 was 19%. Excluding the impact of our restructuring charge, which was 2% of net revenues, we
exceeded our 18% to 20% target one year ahead of plan. In addition, as a result of planned continued revenue growth
and our commitment to improve productivity, we believe we will continue to expand our operating margins in fiscal
2006, excluding the impact of employee stock compensation expense under SFAS 123R.
Our net revenues were 30% higher in fiscal 2005 as compared to fiscal 2004 primarily due to strong new
seat, subscription and upgrade revenues, coupled with the positive effects of changes in foreign currencies,
principally driven by the strength of the euro. Compared to fiscal 2004, new seat revenues increased 38%,
subscription revenues increased 54%, and upgrade revenues increased 12%. Revenue growth was driven more
by volume growth than price increases due to the strength of our current product releases, particularly the
AutoCAD 2005 family of products and Autodesk Inventor 9 products, and the announcement of our intention
to retire the AutoCAD 2000i-based product series during early calendar 2005. Product retirements generally
result in customer upgrades to a product series still supported by Autodesk.
As a result of our retirement cycle for the AutoCAD product series, which typically occurs during the fourth
quarter of our fiscal year, our fourth quarters have higher than normal levels of product backlog. Product backlog
is comprised of deferred revenue and current software license product orders which have not yet shipped. The
category of current software license product orders which we have not yet shipped consists of orders from
customers with approved credit status for currently available license software products and may include orders
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