Autodesk 2007 Annual Report Download - page 100

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Expanding our geographic coverage is a key element of our growth strategy. We believe that rapidly
growing economies, including those of China, India, Eastern Europe and Latin America, present significant
growth opportunities for us. However, conducting business in these rapidly growing economies presents
significant challenges, including intellectual property protection and software piracy which remains a
substantial problem.
Another significant part of our growth strategy is to improve upon our installed base business
model. A key element of this strategy is our ability to release major products on an annual basis. Strong
annual release cycles have a number of benefits. In particular, they permit us to deliver key performance
and functionality improvements to customers on a regular and timely basis. Annual releases also help
us to increase product maintenance revenues and significantly reduce our reliance on product upgrade
revenues, thereby reducing the volatility of revenues.
We are continually focused on improving productivity and efficiency in all areas of Autodesk in order
to allow us to increase our investment in growth initiatives and improve our profitability. However, our
operating margin declined to 19% during fiscal 2007 compared with 25% during fiscal 2006. This decline
in our operating margin was driven primarily by our adoption of Statement of Financial Accounting
Standards No. 123—revised 2004, “Share-Based Payment” (“SFAS 123R”) in the first quarter of fiscal
2007. As a result of this new accounting pronouncement, we recorded stock-based compensation expense
in fiscal 2007 of $94.3 million which decreased operating margins by 5%. In addition, we experienced
increased amortization expense during fiscal 2007 primarily from our acquisition of Alias in the fourth
fiscal quarter of 2006. Amortization expense of acquisition-related intangibles, primarily related to our
acquisition of Alias, of $14.4 million in fiscal 2007 compared to $0.7 million in fiscal 2006, decreased our
operating margin by 1%. Finally, costs incurred as a result of our stock option review, including a bonus
payment to participants of our Employee Stock Purchase Plan (“ESPP”), reduced our operating margin by
1%. See further discussion of this ESPP bonus payment at “Stock Compensation” within this Item. These
decreases in operating margin were offset by productivity initiatives across our organization. We continue
to invest in growth initiatives and, over the longer term, we intend to continue to balance investments in
revenue growth opportunities with our goal of increasing our operating margins.
We generate significant cash flows. Our uses of cash include share repurchases to offset the
dilutive effect of our employee stock plans as well as investments in acquisitions and investments in
growth initiatives, such as our recent acquisition of Constructware, and our equity investment in Hanna
Strategies during the first quarter of fiscal 2007. See Note 15, “Business Combinations”and Note 16,
“Related Parties,” in the Notes to Consolidated Financial Statements for further discussion. We evaluate
merger and acquisition and divestiture opportunities to the extent they support our strategy. Our
typical acquisitions, which are an integral part of our growth initiatives, are intended to provide specific
technology or expertise, adjacency to our current products and services and rapid product integration.
Additionally, we continue to invest in other growth initiatives including product development and sales,
market and channel development.
Design Solutions Segment
During fiscal 2007, the Design Solutions Segment consisted of the following divisions: Platform
Technology Division and Other, which included our horizontal design products, AutoCAD and AutoCAD
LT, and Autodesk Consulting and Autodesk Collaboration Services; Manufacturing Solutions Division;
Building Solutions Division; and Infrastructure Solutions Division.
For the Platform Technology Division , our focus during fiscal 2007 was on providing CAD design
tools and technologies that allow our customers in multiple markets to create, manage, and share design
data. Our primary product offerings were AutoCAD and AutoCAD LT software and our Autodesk Buzzsaw
service. AutoCAD software is a customizable and extendable computer aided design (CAD) application
for 2D drafting, detailing, functional design documentation and basic 3D model-based design. AutoCAD