ADSK-10-31-2013-10Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2013
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
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)
(415) 507-5000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
  
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 29, 2013, registrant had outstanding approximately 225.6 million shares of common stock.
 




AUTODESK, INC. FORM 10-Q
TABLE OF CONTENTS

 
 
Page No.
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 





PART I. FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS

AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2013
 
2012
 
2013
 
2012
Net revenue:
 
 
 
 
 
 
 
License and other
$
297.5

 
$
310.2

 
$
934.2

 
$
999.4

Subscription
257.7

 
237.8

 
753.1

 
705.9

Total net revenue
555.2

 
548.0

 
1,687.3

 
1,705.3

Cost of revenue:
 
 
 
 
 
 
 
Cost of license and other revenue
43.4

 
41.3

 
130.6

 
124.6

Cost of subscription revenue
23.7

 
16.6

 
71.8

 
51.9

Total cost of revenue
67.1

 
57.9

 
202.4

 
176.5

Gross profit
488.1

 
490.1

 
1,484.9

 
1,528.8

Operating expenses:
 
 
 
 
 
 
 
Marketing and sales
203.4

 
203.9

 
610.3

 
639.5

Research and development
149.0

 
153.0

 
448.7

 
450.6

General and administrative
63.2

 
62.1

 
186.3

 
180.7

Restructuring charges, net
4.4

 
36.7

 
6.5

 
36.7

Total operating expenses
420.0

 
455.7

 
1,251.8

 
1,307.5

Income from operations
68.1

 
34.4

 
233.1

 
221.3

Interest and other income (expense), net
1.1

 
(0.1
)
 
(9.5
)
 
2.6

Income before income taxes
69.2

 
34.3

 
223.6

 
223.9

Provision for income taxes
(11.6
)
 
(4.9
)
 
(48.7
)
 
(51.0
)
Net income
$
57.6

 
$
29.4

 
$
174.9

 
$
172.9

Basic net income per share
$
0.26

 
$
0.13

 
$
0.78

 
$
0.76

Diluted net income per share
$
0.25

 
$
0.13

 
$
0.77

 
$
0.75

Weighted average shares used in computing basic net income per share
223.1

 
225.5

 
223.4

 
227.1

Weighted average shares used in computing diluted net income per share
227.7

 
229.9

 
228.6

 
231.4


See accompanying Notes to Condensed Consolidated Financial Statements.



3



AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)

 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2013
 
2012
 
2013
 
2012
Net income
$
57.6

 
$
29.4

 
$
174.9

 
$
172.9

Other comprehensive income (loss), net of reclassifications:
 
 
 
 
 
 
 
Net (loss) on derivative instruments (net of tax effect of $0.3, ($0.2), $0.5 and ($0.5))
(6.5
)
 
(12.1
)
 
(1.6
)
 
(8.6
)
Change in net unrealized gain (loss) on available-for-sale securities (net of tax effect of ($0.2), ($1.4), ($0.2) and ($1.3))
0.6

 
(1.2
)
 
(0.3
)
 
(0.8
)
Net change in cumulative foreign currency translation gain (loss) (net of tax effect of ($1.0), ($0.4), $1.0 and $0.4)
9.3

 
6.3

 
3.5

 
(2.9
)
Total other comprehensive gain (loss)
3.4

 
(7.0
)
 
1.6

 
(12.3
)
Total comprehensive income
$
61.0

 
$
22.4

 
$
176.5

 
$
160.6


See accompanying Notes to Condensed Consolidated Financial Statements.

4





AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 
October 31, 2013
 
January 31, 2013
ASSETS
 
 
 
Current assets:



Cash and cash equivalents
$
1,473.4


$
1,612.2

Marketable securities
587.1


342.1

Accounts receivable, net
304.1


495.1

Deferred income taxes
53.5


42.2

Prepaid expenses and other current assets
99.8


60.8

Total current assets
2,517.9


2,552.4

Marketable securities
418.5


411.1

Computer equipment, software, furniture and leasehold improvements, net
134.1


114.9

Purchased technologies, net
54.3


76.0

Goodwill
922.3


871.5

Deferred income taxes, net
118.3


122.8

Other assets
156.1


159.7


$
4,321.5


$
4,308.4

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:



Accounts payable
$
75.3


$
94.2

Accrued compensation
154.7


189.6

Accrued income taxes
37.2


13.9

Deferred revenue
610.8


647.0

Other accrued liabilities
70.1


99.0

Total current liabilities
948.1


1,043.7

Deferred revenue
154.9


187.6

Long term income taxes payable
209.0


194.2

Long term notes payable, net of discount
746.2

 
745.6

Other liabilities
101.4


94.1

Commitments and contingencies



Stockholders’ equity:



Preferred stock



Common stock and additional paid-in capital
1,535.1


1,449.8

Accumulated other comprehensive loss
(4.1
)

(5.7
)
Retained earnings
630.9


599.1

Total stockholders’ equity
2,161.9


2,043.2


$
4,321.5


$
4,308.4


See accompanying Notes to Condensed Consolidated Financial Statements.


5



AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
 
Nine Months Ended October 31,
 
2013
 
2012
Operating activities:



Net income
$
174.9


$
172.9

Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation, amortization and accretion
95.7


93.1

Stock-based compensation expense
96.1


118.8

Excess tax benefits from stock-based compensation
0.8


(27.4
)
Restructuring charges, net
6.5


36.7

Other operating activities
(3.1
)

4.4

Changes in operating assets and liabilities, net of business combinations
9.1


5.0

Net cash provided by operating activities
380.0


403.5

Investing activities:



Purchases of marketable securities
(969.8
)

(1,103.1
)
Sales of marketable securities
329.9


207.0

Maturities of marketable securities
395.1


436.6

Capital expenditures
(55.0
)

(44.7
)
Acquisitions, net of cash acquired
(68.0
)

(204.2
)
Other investing activities
(15.7
)

(22.1
)
Net cash (used in) investing activities
(383.5
)

(730.5
)
Financing activities:



Proceeds from issuance of common stock, net of issuance costs
183.4


199.6

Repurchases of common stock
(318.7
)

(340.5
)
Draws on line of credit

 
110.0

Excess tax benefits from stock-based compensation
(0.8
)

27.4

Net cash (used in) financing activities
(136.1
)

(3.5
)
Effect of exchange rate changes on cash and cash equivalents
0.8


0.6

Net (decrease) in cash and cash equivalents
(138.8
)

(329.9
)
Cash and cash equivalents at beginning of fiscal year
1,612.2


1,156.9

Cash and cash equivalents at end of period
$
1,473.4


$
827.0


See accompanying Notes to Condensed Consolidated Financial Statements.


6



AUTODESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except share and per share data, or as otherwise noted)
 
1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Autodesk, Inc. (“Autodesk” or the “Company”) as of October 31, 2013, and for the three and nine months ended October 31, 2013, have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information along with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles (“GAAP”) for annual financial statements. In management’s opinion, Autodesk made all adjustments (consisting of normal, recurring and non-recurring adjustments) during the quarter that were considered necessary for the fair presentation of the financial position and operating results of the Company. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. In addition, the results of operations for the three and nine months ended October 31, 2013 are not necessarily indicative of the results for the entire fiscal year ending January 31, 2014, or for any other period. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes, together with management’s discussion and analysis of financial position and results of operations contained in Autodesk’s Annual Report on Form 10-K for the fiscal year ended January 31, 2013, filed on March 18, 2013.

Reclassifications

During the first quarter of fiscal 2014, Autodesk combined maintenance revenue and cloud services offering-related revenue into one category named “Subscription.” As a result, revenue and cost of revenue related to cloud service offerings previously reflected in “License and other revenue” and “Cost of license and other revenue” were reclassified to “Subscription revenue” and “Cost of subscription revenue.” These revenues and expenses have been reclassified in the Consolidated Statements of Operations for the three and nine months ended October 31, 2012 to conform to the current period presentation as follows:

 
 
Three Months Ended
 
Nine Months Ended
 
 
October 31, 2012
 
October 31, 2012
Reclassifications within revenue:
 
 
 
 
(Decrease) to License and other revenue
 
$
(6.9
)
 
$
(19.2
)
Increase to Subscription revenue
 
6.9

 
19.2

Reclassifications within cost of revenue:
 
 
 
 
(Decrease) to Cost of license and other revenue
 
$
(8.2
)
 
$
(21.1
)
Increase to Cost of subscription revenue
 
8.2

 
21.1


2. Recently Issued Accounting Standards

With the exception of those discussed below, there have been no recent changes in accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) or adopted by the Company during the nine months ended October 31, 2013, that are of significance, or potential significance, to the Company.

Accounting Standards Adopted in the Nine Months Ended October 31, 2013

Effective February 1, 2013, Autodesk adopted FASB's Accounting Standards Update (“ASU”) 2013-02, Comprehensive Income (Topic 220) - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  This ASU requires additional disclosure about the changes in the components of accumulated other comprehensive income, including amounts reclassified and amounts due to current period other comprehensive income. The adoption of this standard did not impact the Company's financial condition, results of operations or cash flows.

Effective February 1, 2013, Autodesk adopted FASB's ASU 2011-11 and ASU 2013-01 regarding ASC Topic 210 “Balance Sheet: Disclosure about Offsetting Assets and Liabilities.” This ASU requires that entities disclose additional information about offsetting and related arrangements to enable users of the financial statements to understand the effect of

7



those arrangements on the financial position. The adoption of this standard did not impact the Company's financial condition, results of operations or cash flows.

Recently Issued Accounting Standards

In July 2013, the FASB issued ASU 2013-11 regarding ASC Topic 740 “Income Tax.” This ASU clarifies the guidance on the presentation of an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. This ASU will be effective for Autodesk's fiscal year beginning February 1, 2014. Early adoption is permitted. At this time, Autodesk expects that the adoption of this ASU will impact the presentation of tax assets and liabilities on the statement of financial position, but will not impact its consolidated financial position, results of operations or cash flows.

3. Concentration of Credit Risk
    
Autodesk places its cash, cash equivalents and marketable securities in highly liquid instruments with, and in the custody of, diversified financial institutions globally with high credit ratings and limits the amounts invested with any one institution, type of security and issuer. Autodesk’s primary commercial banking relationship is with Citigroup Inc. and its global affiliates. Citibank, N.A., an affiliate of Citigroup, is one of the lead lenders and an agent in the syndicate of Autodesk’s $400.0 million line of credit facility. It is Autodesk’s policy to limit the amounts invested with any one institution by type of security and issuer.

Total sales to the distributor Tech Data Corporation, and its global affiliates (“Tech Data”), accounted for 24% and 25% of Autodesk’s total net revenue for the three and nine months ended October 31, 2013, respectively, and 24% and 23% of Autodesk's total net revenue for the three and nine months ended October 31, 2012, respectively. The majority of the net revenue from sales to Tech Data relates to Autodesk’s Platform Solutions and Emerging Business (“PSEB”) segment and is for sales made outside of the United States. In addition, Tech Data accounted for 25% and 23% of trade accounts receivable at October 31, 2013 and January 31, 2013, respectively.


8



4. Financial Instruments

The following tables summarize the Company's financial instruments' amortized cost, gross unrealized gains, gross unrealized losses, and fair value by significant investment category as of October 31, 2013 and January 31, 2013:
 
 
 
 
October 31, 2013
 
 
 
Amortized Cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit and time deposits
$
277.2

 
$

 
$

 
$
277.2

 
$
21.2

 
$
256.0

 
$

 
Commercial paper
289.6

 

 

 
289.6

 

 
289.6

 

 
Money market funds
248.3

 

 

 
248.3

 

 
248.3

 

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term available for sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper and corporate debt securities
280.0

 

 

 
280.0

 
98.0

 
182.0

 

 
 
Certificates of deposit and time deposits
131.7

 

 

 
131.7

 

 
131.7

 

 
 
U.S. treasury securities
41.2

 

 

 
41.2

 
41.2

 

 

 
 
U.S. government agency securities
68.8

 

 

 
68.8

 
68.8

 

 

 
 
Municipal securities
21.7

 

 

 
21.7

 
21.7

 

 

 
 
Other (2)
1.4

 

 

 
1.4

 
0.5

 
0.9

 

 
Short-term trading securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
35.9

 
6.4

 

 
42.3

 
42.3

 

 

 
Long-term available for sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
205.1

 
0.9

 
(0.1
)
 
205.9

 
205.9

 

 

 
 
U.S. treasury securities
123.3

 
0.2

 

 
123.5

 
123.5

 

 

 
 
U.S. government agency securities
37.1

 
0.1

 

 
37.2

 
37.2

 

 

 
 
Municipal securities
50.8

 
0.1

 

 
50.9

 
50.9

 

 

 
 
Sovereign debt
1.0

 

 

 
1.0

 

 
1.0

 

Convertible debt securities (3)
21.4

 
3.3

 
(3.1
)
 
21.6

 

 

 
21.6

Derivative contracts (4)
11.0

 
6.0

 
(7.1
)
 
9.9

 

 
0.1

 
9.8

 
 
Total
$
1,845.5

 
$
17.0

 
$
(10.3
)
 
$
1,852.2

 
$
711.2

 
$
1,109.6

 
$
31.4

____________________ 
(1)
Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets.
(2)
Consists of sovereign debt and other short-term securities.
(3)
Considered “available for sale” and included in “Other assets” in the accompanying Condensed Consolidated Balance Sheets.
(4)
Included in “Prepaid expenses and other current assets,” “Other assets,” or “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.

9



 
 
 
 
January 31, 2013
 
 
 
Amortized Cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit and time deposits
$
392.4

 
$

 
$

 
$
392.4

 
$
17.2

 
$
375.2

 
$

 
Corporate bond
1.8

 

 

 
1.8

 
1.8

 

 

 
Commercial paper
263.3

 

 

 
263.3

 

 
263.3

 

 
Money market funds
596.3

 

 

 
596.3

 

 
596.3

 

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term available for sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper and corporate debt securities
122.9

 
0.1

 

 
123.0

 
40.4

 
82.6

 

 
 
Certificates of deposit and time deposits
15.1

 

 

 
15.1

 
10.0

 
5.1

 

 
 
U.S. treasury securities
83.3

 

 

 
83.3

 
83.3

 

 

 
 
U.S. government agency securities
79.5

 

 

 
79.5

 
79.5

 

 

 
 
Sovereign debt
1.0

 

 

 
1.0

 

 
1.0

 

 
 
Municipal securities
4.6

 

 

 
4.6

 
4.6

 

 

 
 
Other
0.3

 

 

 
0.3

 
0.3

 

 

 
Short-term trading securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
31.1

 
4.2

 

 
35.3

 
35.3

 

 

 
Long-term available for sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
172.1

 
1.4

 

 
173.5

 
173.5

 

 

 
 
U.S. treasury securities
145.2

 
0.1

 

 
145.3

 
145.3

 

 

 
 
U.S. government agency securities
50.8

 
0.2

 

 
51.0

 
51.0

 

 

 
 
Municipal securities
36.0

 
0.1

 

 
36.1

 
36.1

 

 

 
 
Sovereign debt
1.0

 

 

 
1.0

 

 
1.0

 

 
 
Taxable auction-rate securities
4.2

 

 

 
4.2

 

 

 
4.2

Convertible debt securities (2)
18.1

 
1.6

 
(2.2
)
 
17.5

 

 

 
17.5

Derivative contracts (3)
10.2

 
9.2

 
(5.9
)
 
13.5

 

 
2.8

 
10.7

 
 
Total
$
2,029.2

 
$
16.9

 
$
(8.1
)
 
$
2,038.0

 
$
678.3

 
$
1,327.3

 
$
32.4

____________________ 
(1)
Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets.
(2)
Considered “available for sale” and included in “Other assets” in the accompanying Condensed Consolidated Balance Sheets.
(3)
Included in “Prepaid expenses and other current assets,” “Other assets,” or “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.
    
Autodesk classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable securities with remaining maturities of less than 12 months are classified as short-term and marketable securities with remaining maturities greater than 12 months are classified as long-term. Autodesk may sell certain of its marketable securities prior to their stated maturities for strategic purposes or in anticipation of credit deterioration.

Autodesk applies fair value accounting for certain financial assets and liabilities, which consist of cash equivalents, marketable securities and other financial instruments, on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and (Level 3) unobservable inputs for which there is little or no market data, which require Autodesk to develop its own assumptions. When determining fair value, Autodesk uses observable market

10



data and relies on unobservable inputs only when observable market data is not available. There have been no transfers between fair value measurement levels during the three and nine months ended October 31, 2013.

Autodesk's cash equivalents, marketable securities and financial instruments are primarily classified within Level 1 or Level 2 of the fair value hierarchy. Autodesk values its available for sale securities on pricing from pricing vendors, who may use quoted prices in active markets for identical assets (Level 1) or inputs other than quoted prices that are observable either directly or indirectly in determining fair value (Level 2). Autodesk's Level 2 securities are valued primarily using observable inputs other than quoted prices in active markets for identical assets and liabilities. Autodesk's Level 3 securities consist of investments held in auction rate securities, convertible debt securities and derivative contracts which are valued using probability weighted discounted cash flow models, in which some of the inputs are unobservable in the market.

A reconciliation of the change in Autodesk’s Level 3 items for the nine months ended October 31, 2013 was as follows:

 
Fair Value Measurements Using
Significant Unobservable Inputs
 
(Level 3)
 
 
Derivative Contracts
 
Convertible Debt Securities
 
Taxable
Auction-Rate
Securities
 
Total
Balance at January 31, 2013
 
$
10.7

 
$
17.5

 
$
4.2

 
$
32.4

Purchases
 
1.3

 
3.1

 

 
4.4

Settlements
 

 

 
(4.0
)
 
(4.0
)
Net realized losses
 

 

 
(0.2
)
 
(0.2
)
Net unrealized (losses) gains
 
(2.2
)
 
1.0

 

 
(1.2
)
Balance at October 31, 2013
 
$
9.8

 
$
21.6

 
$

 
$
31.4


The following table summarizes the estimated fair value of Autodesk's “available-for-sale securities” classified by the contractual maturity date of the security:

 
October 31, 2013
 
Cost
 
Fair Value
Due in 1 year
$
544.8

 
$
544.8

Due in 1 year through 5 years
438.7

 
440.1

Due in 5 years through 10 years

 

Due after 10 years

 

Total
$
983.5

 
$
984.9


As of October 31, 2013 and January 31, 2013, Autodesk did not have any securities in a continuous unrealized loss position for greater than twelve months.

Autodesk also has direct investments in privately held companies accounted for under the cost method, which are periodically assessed for other-than-temporary impairment. If Autodesk determines that an other-than-temporary impairment has occurred, Autodesk writes down the investment to its fair value. Autodesk estimates fair value of its cost method investments considering available information such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts, recent operational performance and any other readily available market data. During the nine months ended October 31, 2013, Autodesk recorded no other-than-temporary impairment on its privately held equity investments. During the nine months ended October 31, 2012, Autodesk recorded $10.5 million other-than-temporary impairments on its privately held equity investments.

The sale or settlement of “available-for-sale securities during the nine months ended October 31, 2013 and 2012 resulted in a loss of $0.2 million and a gain of $5.0 million, respectively. The losses and gains were recorded in “Interest and other income (expense), net” on the Company's Condensed Consolidated Statement of Operations.

Proceeds from the sale and maturity of marketable securities for the nine months ended October 31, 2013 and 2012 were $725.0 million and $643.6 million, respectively.


11



Derivative Financial Instruments

Under its risk management strategy, Autodesk uses derivative instruments to manage its short-term exposures to fluctuations in foreign currency exchange rates which exist as part of ongoing business operations. Autodesk's general practice is to hedge a majority of transaction exposures denominated in euros, Japanese yen, Swiss francs, British pounds, Canadian dollars and Australian dollars. These instruments have maturities between one to twelve months in the future. Autodesk does not enter into derivative instrument transactions for trading or speculative purposes.

The bank counterparties in all contracts expose Autodesk to credit-related losses in the event of their nonperformance. However, to mitigate that risk, Autodesk only contracts with counterparties who meet the Company's minimum requirements under its counterparty risk assessment process. Autodesk monitors ratings, credit spreads and potential downgrades on at least a quarterly basis. Based on Autodesk's ongoing assessment of counterparty risk, the Company will adjust its exposure to various counterparties. Autodesk generally enters into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. However, Autodesk does not have any master netting arrangements in place with collateral features.

Foreign currency contracts designated as cash flow hedges

Autodesk utilizes foreign currency contracts to reduce the exchange rate impact on a portion of the net revenue or operating expense of certain anticipated transactions. These contracts are designated and documented as cash flow hedges. The effectiveness of the cash flow hedge contracts is assessed monthly using regression analysis as well as other timing and probability criteria. To receive cash flow hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge and the hedges are expected to be highly effective in offsetting changes to future cash flows on hedged transactions. The gross gains and losses on these hedges are included in “Accumulated other comprehensive loss” and are reclassified into earnings at the time the forecasted revenue or expense is recognized. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, Autodesk reclassifies the gain or loss on the related cash flow hedge from “Accumulated other comprehensive loss” to “Interest and other income (expense), net” in the Company's Condensed Consolidated Financial Statements at that time.

The net notional amounts of these contracts are presented net settled and were $410.2 million at October 31, 2013 and $359.8 million at January 31, 2013. Outstanding contracts are recognized as either assets or liabilities on the balance sheet at fair value. The majority of the net gain of $1.2 million remaining in “Accumulated other comprehensive loss” as of October 31, 2013 is expected to be recognized into earnings within the next twelve months.

Derivatives not designated as hedging instruments

Autodesk uses foreign currency contracts which are not designated as hedging instruments to reduce the exchange rate risk associated primarily with foreign currency denominated receivables and payables. These forward contracts are marked-to-market on a monthly basis with gains and losses recognized as “Interest and other income (expense), net.” These derivative instruments do not subject the Company to material balance sheet risk due to exchange rate movements because gains and losses on these derivative instruments are intended to offset the gains or losses resulting from the settlement of the underlying foreign currency denominated receivables and payables. The net notional amounts of these foreign currency contracts are presented net settled and were $4.7 million at October 31, 2013 and $78.4 million at January 31, 2013.

In addition to these foreign currency contracts, Autodesk holds derivative instruments issued by privately held companies, which are not designated as hedging instruments. These derivatives consist of certain conversion options on the convertible debt securities held by Autodesk and an option to acquire a privately held company. These derivatives are recorded at fair value as of each balance sheet date and are recorded in “Other assets.” Changes in the fair values of these instruments are recognized in income as “Interest and other income (expense), net.”


12



Fair Value of Derivative Instruments

The fair value of derivative instruments in Autodesk’s Condensed Consolidated Balance Sheets were as follows as of October 31, 2013 and January 31, 2013:

 
Balance Sheet Location
 
Fair Value at
 
October 31, 2013
 
January 31, 2013
Derivative Assets
 
 
 
 
 
Foreign currency contracts designated as cash flow hedges
Prepaid expenses and other current assets (1)
 
$
2.3

 
$
6.7

Derivatives not designated as hedging instruments
Other assets
 
9.8

 
10.7

Total derivative assets
 
 
$
12.1

 
$
17.4

Derivative Liabilities
 
 
 
 
 
Foreign currency contracts designated as cash flow hedges
Other accrued liabilities (2)
 
$
2.2

 
$
3.9

Total derivative liabilities
 
 
$
2.2

 
$
3.9

____________________ 
(1)
Considering Autodesk's master netting arrangements, these contracts are presented net settled. The gross balance is $4.0 million and $8.2 million at October 31, 2013 and January 31, 2013, respectively.
(2)
Considering Autodesk's master netting arrangements, these contracts are presented net settled. The gross balance is $3.9 million and $5.4 million at October 31, 2013 and January 31, 2013, respectively.

The effects of derivatives designated as hedging instruments on Autodesk’s Condensed Consolidated Statements of Operations were as follows for the three and nine months ended October 31, 2013 and 2012, respectively (amounts presented include any income tax effects):

 
Foreign Currency 
Contracts
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2013
 
2012
 
2013
 
2012
Amount of (loss) gain recognized in accumulated other comprehensive income on derivatives (effective portion)
$
(4.6
)
 
$
(9.4
)
 
$
8.0

 
$
2.7

Amount and location of gain (loss) reclassified from accumulated other comprehensive income into income (effective portion)
 
 
 
 
 
 
 
Net revenue
$
2.3

 
$
3.2

 
$
11.0

 
$
15.6

Operating expenses
(0.3
)
 
(0.7
)
 
(1.3
)
 
(4.6
)
Total
$
2.0

 
$
2.5

 
$
9.7

 
$
11.0

Amount and location of (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)
 
 
 
 
 
 
 
Interest and other income (expense), net
$
(0.1
)
 
$
(0.1
)
 
$
(0.1
)
 
$


The effects of derivatives not designated as hedging instruments on Autodesk’s Condensed Consolidated Statements of Operations were as follows for the three and nine months ended October 31, 2013 and 2012, respectively (amounts presented include any income tax effects):

 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2013
 
2012
 
2013
 
2012
Amount and location of gain recognized in income on derivatives
 
 
 
 
 
 
 
Interest and other income (expense), net
$
2.9

 
$
1.6

 
$
4.9

 
$
2.6



13



5. Stock-based Compensation Expense

Stock Plans

As of October 31, 2013, Autodesk maintained two active stock plans for the purpose of granting equity awards to employees and to non-employee members of Autodesk’s Board of Directors: the 2012 Employee Stock Plan (“2012 Employee Plan”), which is available only to employees, and the Autodesk 2012 Outside Directors’ Plan (“2012 Directors' Plan”), which is available only to non-employee directors. Additionally, there are eight expired or terminated plans with options outstanding. The exercise price of all stock options granted under these plans was equal to the fair market value of the stock on the grant date.

The 2012 Employee Plan was approved by Autodesk's stockholders and became effective in January 2012. The 2012 Employee Plan reserves up to 21.2 million shares which includes 15.2 million shares reserved upon the effectiveness of the 2012 Employee Plan as well as up to 6.0 million shares forfeited under certain prior employee stock plans during the life of the 2012 Employee Plan. The 2012 Employee Plan permits the grant of stock options, restricted stock units and restricted stock awards. Each restricted stock unit or restricted stock award granted will be counted against the shares authorized for issuance under the 2012 Employee Plan as 1.79 shares. If a granted option, restricted stock unit or restricted stock award expires or becomes unexercisable for any reason, the unpurchased or forfeited shares that were granted may be returned to the 2012 Employee Plan and may become available for future grant under the 2012 Employee Plan. As of October 31, 2013, 12.7 million shares subject to options and restricted stock units have been granted under the 2012 Employee Plan. Options and restricted stock units that were granted under the 2012 Stock Plan vest over periods ranging from immediately upon grant to over a three-year period and options expire 10 years from the date of grant. The 2012 Employee Plan will expire on June 30, 2022. At October 31, 2013, 9.3 million shares were available for future issuance under the 2012 Employee Plan.

The 2012 Directors' Plan was approved by Autodesk's stockholders in January 2012. The 2012 Directors' Plan permits the grant of stock options, restricted stock units and restricted stock awards to non-employee members of Autodesk’s Board of Directors. Each restricted stock unit or restricted stock award granted will be counted against the shares authorized for issuance under the 2012 Directors' Plan as 2.11 shares. As of October 31, 2013, 0.4 million restricted stock units have been granted under the 2012 Directors' Plan. Restricted stock units that were granted under the 2012 Directors' Plan vest over one to three years from the date of grant. The 2012 Directors' Plan reserved 2.6 million shares of Autodesk common stock. The 2012 Directors' Plan will expire on June 30, 2022. At October 31, 2013, 2.2 million shares were available for future issuance under the 2012 Directors' Plan.

At a special meeting to be held on January 14, 2014, Autodesk is requesting that its stockholders approve an amendment to the 2012 Employee Stock Plan to increase the number of shares, which may be issued under the 2012 Employee Plan by approximately 11.4 million shares and to add new performance goals related to executive share based awards.

The following sections summarize activity under Autodesk’s stock plans.


14



Stock Options:

A summary of stock option activity for the nine months ended October 31, 2013 is as follows:
 
 
Number of
Shares
 
Weighted average exercise price per share
 
Weighted
average remaining contractual term
 
Aggregate Intrinsic Value (3)
 
(in millions)
 
 
 
(in years)
 
(in millions)
Options outstanding at January 31, 2013
19.0

 
$
32.69

 
 
 
 
Granted (1)

 

 
 
 
 
Exercised
(5.4
)
 
25.06

 
 
 
 
Canceled
(3.7
)
 
44.57

 
 
 
 
Options outstanding at October 31, 2013
9.9

 
$
32.36

 
4.6
 
$
83.8

Options vested and exercisable at October 31, 2013
7.8

 
$
30.69

 
4.0
 
$
77.9

Options vested as of October 31, 2013 and expected to vest thereafter (2)
9.9

 
$
32.33

 
4.6
 
$
83.7

Options available for grant at October 31, 2013
11.5

 
 
 
 
 
 
 _______________
(1)
Autodesk did not grant stock options in the nine months ended October 31, 2013.
(2)
Options expected to vest reflect an estimated forfeiture rate.
(3)
Represents the total pre-tax intrinsic value, based on Autodesk’s closing stock price of $39.90 per share as of October 31, 2013, which would have been received by the option holders had all option holders exercised their options as of that date.

As of October 31, 2013, compensation cost of $14.5 million related to non-vested options is expected to be recognized over a weighted average period of 0.7 year.

The following table summarizes information about the pre-tax intrinsic value of options exercised, and the weighted average grant date fair value per share of options granted, during the three and nine months ended October 31, 2013 and 2012.
 
 
Three Months Ended
 
Nine Months Ended
 
October 31, 2013
 
October 31, 2012
 
October 31, 2013
 
October 31, 2012
Pre-tax intrinsic value of options exercised (1)
$
37.4

 
$
7.6

 
$
80.2

 
$
73.5

 _______________
(1)
The intrinsic value of options exercised is calculated as the difference between the exercise price of the option and the market value of the stock on the date of exercise.

The following table summarizes information about options outstanding and exercisable at October 31, 2013:

 
Options Vested and Exercisable
 
Options Outstanding
 
Number of
Shares
(in millions)
 
Weighted
average
contractual
life
(in years)
 
Weighted
average
exercise
price
 
Aggregate
intrinsic
value (1)
(in millions)
 
Number of
Shares
(in millions)
 
Weighted
average
contractual
life
(in years)
 
Weighted
average
exercise
price
 
Aggregate
intrinsic
value (1)
(in millions)
Range of per-share exercise prices:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$2.28 - $23.74
2.0

 
 
 
$
15.62

 
 
 
2.0

 
 
 
$
15.62

 
 
$24.97 - $29.50
2.0

 
 
 
29.29

 
 
 
2.5

 
 
 
29.30

 
 
$29.56 - $38.55
1.3

 
 
 
33.87

 
 
 
1.5

 
 
 
34.18

 
 
$41.62 - $42.32
2.0

 
 
 
41.62

 
 
 
3.1

 
 
 
41.62

 
 
$42.39 - $48.72
0.5

 
 
 
45.12

 
 
 
0.8

 
 
 
44.58

 
 
 
7.8

 
4.0
 
$
30.69

 
$
77.9

 
9.9

 
4.6
 
$
32.36

 
$
83.8

 _______________
(1)
Represents the total pre-tax intrinsic value, based on Autodesk’s closing stock price of $39.90 per share as of October 31, 2013, which would have been received by the option holders had all option holders exercised their options as of that date.


15



These options will expire if not exercised at specific dates ranging through September 2022.

Restricted Stock Units:

A summary of restricted stock unit activity for the nine months ended October 31, 2013 is as follows:
 
 
Unreleased
Restricted
Stock Units
 
Weighted
average grant
date fair value
per share
 
(in thousands)
 
 
Unreleased restricted stock units at January 31, 2013
5,020.8

 
$
33.89

Granted
3,309.4

 
40.64

Released
(1,434.6
)
 
34.16

Canceled
(341.8
)
 
35.17

        Performance Adjustment (1)
(14.0
)
 
35.94

Unreleased restricted stock units at October 31, 2013
6,539.8

 
$
37.39

 _______________
(1)
Based on Autodesk's financial results for the performance period, the fiscal 2013 performance stock units were earned at 92.3% of the target award. The vesting of the performance stock units is subject to the holders satisfying the remaining service condition of the awards.

During the nine months ended October 31, 2013, Autodesk granted 2.8 million restricted stock units. The restricted stock units vest over periods ranging from immediately upon grant to a pre-determined date that is typically within three years from the date of grant. Restricted stock units are not considered outstanding stock at the time of grant, as the holders of these units are not entitled to any of the rights of a stockholder, including voting rights. The fair value of the restricted stock units is primarily expensed ratably over the vesting period. Autodesk recorded stock-based compensation expense related to restricted stock units of $18.8 million and $52.4 million during the three and nine months ended October 31, 2013, respectively. Autodesk recorded stock-based compensation expense related to restricted stock units of $31.8 million and $55.1 million during the three and nine months ended October 31, 2012, respectively. As of October 31, 2013, total compensation cost not yet recognized of $141.9 million related to non-vested restricted stock units, is expected to be recognized over a weighted average period of 1.9 years. At October 31, 2013, the number of restricted stock units granted but unreleased was 5.7 million.

During the nine months ended October 31, 2013, Autodesk granted 0.5 million performance restricted stock units (“PSUs”) for which the ultimate number of shares earned is determined based on the achievement of performance criteria at the end of the stated performance period. The performance criteria is based upon annual revenue and non-GAAP operating margin goals adopted by the Compensation and Human Resource Committee (the “Annual Financial Results”), as well as total stockholder return compared against the S&P Computer Software Select Index (“Relative TSR”). Each PSU covers a three year period:

Up to one third of the PSU may vest following year one depending upon the achievement of Annual Financial Results for year one as well as 1 year Relative TSR (covering year one).

Up to one third of the PSU may vest following year two depending upon the achievement of Annual Financial Results for year two as well as 2 year Relative TSR (covering years one and two).

Up to one third of the PSU may vest following year three depending upon the achievement of Annual Financial Results for year three as well as 3 year Relative TSR (covering years one, two and three).

PSUs are not considered outstanding stock at the time of grant, as the holders of these units are not entitled to any of the rights of a stockholder, including voting rights. Autodesk has determined the grant-date fair value for these awards using a Monte Carlo simulation model since the awards are subject to a market condition. The fair value of the PSUs is expensed using the straight-line method over the vesting period. Autodesk recorded stock-based compensation expense related to PSUs of $2.1 million and $6.9 million for the three and nine months ended October 31, 2013, respectively. Autodesk recorded stock-based compensation expense related to PSUs of $1.9 million and $5.2 million during the three and nine months ended October 31, 2012, respectively. As of October 31, 2013, total compensation cost not yet recognized of $4.6 million related to non-vested performance restricted stock units, is expected to be recognized over a weighted average period of 1.2 years. At October 31, 2013, the number of PSUs granted but not vested was 0.8 million.

16




1998 Employee Qualified Stock Purchase Plan (“ESP Plan”)

Under Autodesk’s ESP Plan, which was approved by stockholders in 1998, eligible employees may purchase shares of Autodesk’s common stock at their discretion using up to 15% of their eligible compensation subject to certain limitations, at not less than 85% of fair market value as defined in the ESP Plan. At October 31, 2013, a total of 33.3 million shares were available for future issuance. This amount automatically increases on the first trading day of each fiscal year by an amount equal to the lesser of 10.0 million shares or 2% of the total of (1) outstanding shares plus (2) any shares repurchased by Autodesk during the prior fiscal year. Under the ESP Plan, the Company issues shares on the first trading day following March 31 and September 30 of each fiscal year. The ESP Plan expires during fiscal 2018.

Autodesk issued 1.4 million and 2.9 million shares under the ESP Plan during the three and nine months ended October 31, 2013, respectively, with an average price of $22.95 and $22.61 per share, respectively. During the nine months ended October 31, 2012, Autodesk issued 1.3 million and 2.9 million shares, respectively, under the ESP Plan, at average prices of $21.98 and $21.79 per share, respectively. The weighted average grant date fair value of awards granted under the ESP Plan was $11.80 during both the three and nine months ended October 31, 2013, calculated as of the award grant date using the Black-Scholes-Merton option pricing model. The weighted average grant date fair value of awards granted under the ESP Plan during the three and nine months ended October 31, 2012, calculated as of the award grant date using the Black-Scholes-Merton option pricing model, was $11.57 and $11.02 per share, respectively.

Stock-based Compensation Expense

The following table summarizes stock-based compensation expense for the three and nine months ended October 31, 2013 and 2012, respectively, as follows:
 
 
Three Months Ended October 31, 2013
 
Three Months Ended October 31, 2012
Cost of license and other revenue
$
0.9

 
$
1.0

Cost of subscription
0.5

 
0.3

Marketing and sales
14.5

 
16.7

Research and development
10.2

 
28.1

General and administrative
5.5

 
5.8

Stock-based compensation expense related to stock awards and ESP Plan purchases
31.6

 
51.9

Tax benefit
(9.6
)
 
(10.7
)
Stock-based compensation expense related to stock awards and ESP Plan purchases, net of tax
$
22.0

 
$
41.2

 
Nine Months Ended October 31, 2013
 
Nine Months Ended October 31, 2012
Cost of license and other revenue
$
2.7

 
$
2.7

Cost of subscription
1.6

 
1.1

Marketing and sales
42.5

 
47.4

Research and development
31.3

 
49.6

General and administrative
18.0

 
18.0

Stock-based compensation expense related to stock awards and ESP Plan purchases
96.1

 
118.8

Tax benefit
(27.0
)
 
(26.7
)
Stock-based compensation expense related to stock awards and ESP Plan purchases, net of tax
$
69.1

 
$
92.1


17




Stock-based Compensation Expense Assumptions

Autodesk determines the grant-date fair value of its share-based payment awards using a Black-Scholes model or the quoted stock price on the date of grant, unless the awards are subject to market conditions, in which case Autodesk uses a binomial-lattice model (e.g., Monte Carlo simulation model). The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that market conditions will be achieved. Autodesk uses the following assumptions to estimate the fair value of stock-based awards:
 
 
Three Months Ended October 31, 2013
 
Three Months Ended October 31, 2012
 
Performance Stock Unit (1)
 
ESP Plan
 
Stock Option (2)
 
ESP Plan
Range of expected volatilities
N/A
 
30 - 35%
 
42 - 45%
 
42 - 44%
Range of expected lives (in years)
N/A
 
0.5 - 2.0
 
3.6 - 4.2
 
0.5 - 2.0
Expected dividends
N/A
 
—%
 
—%
 
—%
Range of risk-free interest rates
N/A
 
0.1 - 0.4%
 
0.5%
 
0.1 - 0.3%
Expected forfeitures
N/A
 
7.2%
 
7.7%
 
7.7%
 
Nine Months Ended October 31, 2013
 
Nine Months Ended October 31, 2012
 
Performance Stock Unit (1)
 
ESP Plan
 
Stock Option (2)
 
ESP Plan
Range of expected volatilities
34%
 
27 - 36%
 
41 - 45%
 
41 - 44%
Range of expected lives (in years)
N/A
 
0.5 - 2.0
 
3.6 - 4.6
 
0.5 - 2.0
Expected dividends
—%
 
—%
 
—%
 
—%
Range of risk-free interest rates
0.1%
 
0.1 - 0.4%
 
0.5 - 0.8%
 
0.1 - 0.3%
Expected forfeitures
7.2 - 7.7%
 
7.2 - 7.7%
 
7.7 - 7.8%
 
7.7 - 7.8%
 _______________
(1)
Autodesk did not grant PSUs in the three and nine months ended October 31, 2012 that were subject to market conditions. In addition, Autodesk did not grant PSUs in the three months ended October 31, 2013 that were subject to market conditions.
(2)
Autodesk did not grant stock options in the three and nine months ended October 31, 2013.

Autodesk estimates expected volatility for stock-based awards based on the average of the following two measures. The first is a measure of historical volatility in the trading market for the Company’s common stock, and the second is the implied volatility of traded forward call options to purchase shares of the Company’s common stock. The expected volatility for PSUs subject to market conditions includes the expected volatility of Autodesk's peer companies within the S&P computer software select index.

Autodesk estimates the expected life of stock-based awards using both exercise behavior and post-vesting termination behavior as well as consideration of outstanding options.

Autodesk does not currently pay, and does not anticipate paying in the foreseeable future, any cash dividends. Consequently, an expected dividend yield of zero is used in the Black-Scholes-Merton option pricing model and the Monte Carlo simulation model.

The risk-free interest rate used in the Black-Scholes-Merton option pricing model and the Monte Carlo simulation model for stock-based awards is the historical yield on U.S. Treasury securities with equivalent remaining lives.

Autodesk recognizes expense only for the stock-based awards that are ultimately expected to vest. Therefore, Autodesk has developed an estimate of the number of awards expected to cancel prior to vesting (“forfeiture rate”). The forfeiture rate is estimated based on historical pre-vest cancellation experience and is applied to all stock-based awards. The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates.

6. Income Tax

Autodesk’s effective tax rate was 17% and 22% during the three and nine months ended October 31, 2013, respectively, compared to 14% and 23% during the three and nine months ended October 31, 2012, respectively. Autodesk's effective tax rate increased 3% during the three months ended October 31, 2013 as compared to the same period in the prior fiscal year primarily due to adjustments related to tax return filings partially offset by stock-based compensation expense. Autodesk's effective tax

18



rate decreased 1% during the nine months ended October 31, 2013 as compared to the same period in the prior fiscal year primarily due to foreign income taxed at lower rates and tax benefits from the reinstated federal research credit. Excluding the impact of discrete tax items, the effective tax rate for each of the three and nine month periods ended October 31, 2013 was 22% and was lower than the Federal statutory tax rate of 35% primarily due to foreign income taxed at lower rates partially offset by the impact of non-deductible stock based compensation expense.

As of October 31, 2013, the Company had $221.7 million of gross unrecognized tax benefits, excluding interest, of which approximately $214.0 million represents the amount of unrecognized tax benefits that would impact the effective tax rate, if recognized. It is possible that the amount of unrecognized tax benefits will change in the next twelve months; however, an estimate of the range of the possible change cannot be made at this time.

At October 31, 2013, Autodesk had net deferred tax assets of $171.8 million. The Company believes that it will generate sufficient future taxable income in appropriate tax jurisdictions to realize these assets.

7.    Acquisitions

During the nine months ended October 31, 2013, Autodesk completed a total of ten business combinations and technology acquisitions for total cash consideration of approximately $68.3 million. The results of operations for the following acquisitions are included in the accompanying Condensed Consolidated Statement of Operations since their respective acquisition dates. Pro forma results of operations have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to Autodesk’s Condensed Consolidated Financial Statements.

For acquisitions accounted for as business combinations, Autodesk recorded the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The fair values assigned to the identifiable intangible assets acquired were based on estimates and assumptions determined by management. Autodesk recorded the excess of consideration transferred over the aggregate fair values as goodwill.

The following table summarizes the fair value of the assets acquired and liabilities assumed by major class for the business combinations and technology acquisitions completed during the nine months ended October 31, 2013:
Developed technologies
 
$
11.3

Customer relationships
 
2.6

Trade name
 
1.5

Goodwill
 
50.7

Deferred tax asset
 
0.7

Net tangible assets
 
1.5

Total
 
$
68.3


8. Other Intangible Assets, Net

Other intangible assets that include purchased technologies, customer relationships, trade names, patents, user lists and the related accumulated amortization were as follows:

 
October 31, 2013
 
January 31, 2013
Purchased technologies, at cost
$
442.0

 
$
431.0

Customer relationships, trade names, patents, and user list, at cost (1)
264.0

 
259.5

 
706.0

 
690.5

Less: Accumulated amortization
(605.9
)
 
(546.3
)
Other intangible assets, net
$
100.1

 
$
144.2

_______________ 
(1)
Included in “Other assets” in the accompanying Condensed Consolidated Balance Sheets. Customer relationships and trade names include the effects of foreign currency translation.


19



9. Goodwill

The change in the carrying amount of goodwill during the nine months ended October 31, 2013, is as follows:
 
 
Platform
Solutions and
Emerging
Business
 
Architecture,
Engineering
and
Construction
 
Manufacturing
 
Media and
Entertainment
 
Total
Balances as of January 31, 2013
 
 
 
 
 
 
 
 
 
Goodwill
$
129.5

 
$
310.3

 
$
389.9

 
$
191.0

 
$
1,020.7

Accumulated impairment losses

 

 

 
(149.2
)
 
(149.2
)
 
129.5

 
310.3

 
389.9

 
41.8

 
871.5

Addition arising from other acquisitions
11.4

 
29.1

 
10.2

 

 
50.7

Effect of foreign currency translation and purchase accounting adjustments
(0.1
)
 

 
0.2

 

 
0.1

Balance as of October 31, 2013
 
 
 
 
 
 
 
 
 
Goodwill
140.8

 
339.4


400.3


191.0


1,071.5

Accumulated impairment losses

 

 

 
(149.2
)
 
(149.2
)
 
$
140.8

 
$
339.4

 
$
400.3

 
$
41.8

 
$
922.3


Goodwill consists of the excess of cost over the fair value of net assets acquired in business combinations. Autodesk assigns goodwill to the reportable segment associated with each business combination, and tests goodwill for impairment annually in its fourth fiscal quarter or more often if circumstances indicate a potential impairment. For purposes of the goodwill impairment test, a reporting unit is an operating segment or one level below. Autodesk's operating segments are aligned with the management principles of Autodesk's business.

When assessing goodwill for impairment, Autodesk first assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Qualitative factors considered in this assessment include cost factors; financial performance; legal, regulatory, contractual, political, business, or other factors; entity specific factors; industry and market considerations, macroeconomic conditions, and other relevant events and factors affecting the reporting unit. If, after assessing the totality of events or circumstances, it is more likely than not that the fair value of the reporting unit is greater than its carrying value, then performing a two-step quantitative impairment test is unnecessary. If a two-step quantitative impairment test is necessary, Autodesk uses discounted cash flow models which include assumptions regarding projected cash flows. Variances in these assumptions could have a significant impact on Autodesk's conclusion as to whether goodwill is impaired, or the amount of any impairment charge. Impairment charges, if any, result from instances where the fair values of net assets associated with goodwill are less than their carrying values. As changes in business conditions and assumptions occur, Autodesk may be required to record impairment charges. The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis. The value of Autodesk’s goodwill could also be impacted by future adverse changes such as: (i) declines in Autodesk’s actual financial results, (ii) a sustained decline in Autodesk’s market capitalization, (iii) significant slowdown in the worldwide economy or the industries Autodesk serves, or (iv) changes in Autodesk’s business strategy or internal financial results forecasts.

10. Deferred Compensation

At October 31, 2013, Autodesk had marketable securities totaling $1,005.6 million, of which $42.3 million related to investments in debt and equity securities that are held in a rabbi trust under non-qualified deferred compensation plans. The total related deferred compensation liability was $42.3 million at October 31, 2013, of which $4.6 million was classified as current and $37.7 million was classified as non-current liabilities. The value of debt and equity securities held in the rabbi trust at January 31, 2013 was $35.3 million. The total related deferred compensation liability at January 31, 2013 was $35.3 million, of which $3.9 million was classified as current and $31.4 million was classified as non-current liabilities. The current and non-current portions of the liability are recorded in the Condensed Consolidated Balance Sheets under “Accrued compensation” and “Other liabilities,” respectively.


20



11. Computer Equipment, Software, Furniture and Leasehold Improvements, Net

Computer equipment, software, furniture, leasehold improvements and the related accumulated depreciation were as follows:
 
 
October 31, 2013
 
January 31, 2013
Computer software, at cost
$
79.4

 
$
95.1

Computer hardware, at cost
159.1

 
152.3

Leasehold improvements, land and buildings, at cost
162.3

 
152.4

Furniture and equipment, at cost
50.9

 
46.0

 
451.7

 
445.8

Less: Accumulated depreciation
(317.6
)
 
(330.9
)
Computer software, hardware, leasehold improvements, furniture
and equipment, net
$
134.1

 
$
114.9


12. Borrowing Arrangements

In December 2012, Autodesk issued $400.0 million aggregate principal amount of 1.95% senior notes due December 15, 2017 and $350.0 million aggregate principal amount of 3.6% senior notes due December 15, 2022, (collectively, the “Senior Notes”). Autodesk received net proceeds of $739.3 million from issuance of the Senior Notes, net of a discount of $4.5 million and issuance costs of $6.1 million. Both the discount and issuance costs are being amortized to interest expense over the respective terms of the Senior Notes using the effective interest method. The proceeds of the Senior Notes are available for general corporate purposes. Autodesk may redeem the Senior Notes at any time, subject to a make whole premium. In addition, upon the occurrence of certain change of control triggering events, Autodesk may be required to repurchase the Senior Notes, at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. The Senior Notes contain restrictive covenants that limit Autodesk's ability to create certain liens, to enter into certain sale and leaseback transactions and to consolidate or merge with, or convey, transfer or lease all or substantially all of its assets, subject to significant qualifications and exceptions. Based on quoted market prices, the fair value of the Senior Notes was approximately $730.7 million as of October 31, 2013.

Autodesk’s line of credit facility permits unsecured short-term borrowings of up to $400.0 million, with an option to request an increase in the amount of the credit facility by up to an additional $100.0 million, and is available for working capital or other business needs. This credit agreement contains customary covenants that could restrict the imposition of liens on Autodesk’s assets, and restrict the Company’s ability to incur additional indebtedness or make dispositions of assets if Autodesk fails to maintain the financial covenants. The line of credit is syndicated with various financial institutions, including Citibank, N.A., an affiliate of Citigroup, which is one of the lead lenders and an agent. In May 2013, Autodesk amended and restated the credit agreement extending the facility's maturity date from May 2016 to May 2018 and reducing facility fees and lowering borrowing costs by aligning margins with our recent public investment grade credit ratings. At October 31, 2013, Autodesk had no outstanding borrowings on this line of credit.

13. Restructuring

During the third quarter of fiscal 2014, the Board of Directors of the Company approved a world-wide restructuring plan in order to re-balance staffing levels to better align them with the evolving needs of the business. The Company authorized plan included a reduction of approximately 85 positions and the consolidation of four leased facilities, with a total cost of approximately $15.0 million ("Fiscal 2014 Plan"). The Company expects to substantially pay the one-time termination benefits and facility related liabilities related to the Fiscal 2014 Plan by the end of its first quarter of fiscal 2015.

During the third quarter of fiscal 2013, the Board of Directors of the Company approved a world-wide restructuring plan in line with the Company's strategy, including its continuing shift to cloud and mobile computing ("Fiscal 2013 Plan"). The approved plan resulted in a reduction of approximately 500 positions and the consolidation of eight leased facilities, with an aggregate charge of $46.2 million to date. As of October 31, 2013, the personnel and facilities related actions included in this restructuring plan were substantially complete.

During the three and nine months ended October 31, 2013, Autodesk recorded restructuring charges of $4.4 million and $6.5 million, respectively.


21



The following table sets forth the restructuring activities during the nine months ended October 31, 2013:

 
Balance at January 31, 2013
 
Additions
 
Payments
 
Adjustments (1)
 
Balance at October 31, 2013
Fiscal 2013 Plan
 
 
 
 
 
 
 
 
 
Employee termination costs
$
4.5

 
$
0.8

 
$
(5.0
)
 
$
(0.2
)
 
$
0.1

Lease termination and asset costs
2.8

 
1.5

 
(4.2
)
 
0.1

 
0.2

Fiscal 2014 Plan
 
 
 
 
 
 
 
 
 
Employee termination costs

 
4.2

 
(1.0
)
 

 
3.2

Lease termination and asset costs

 

 

 

 

Total
$
7.3

 
$
6.5

 
$
(10.2
)
 
$
(0.1
)
 
$
3.5

Current portion (2)
$
5.8

 
 
 
 
 
 
 
$
3.4

Non-current portion (2)
1.5

 
 
 
 
 
 
 
0.1

Total
$
7.3

 
 
 
 
 
 
 
$
3.5

____________________
(1)
Adjustments include the impact of foreign currency translation.
(2)
The current and non-current portions of the reserve are recorded in the Condensed Consolidated Balance Sheets under “Other accrued liabilities” and “Other liabilities,” respectively.

14. Commitments and Contingencies

Guarantees and Indemnifications

In the normal course of business, Autodesk provides indemnifications of varying scopes, including limited product warranties and indemnification of customers against claims of intellectual property infringement made by third parties arising from the use of its products or services. Autodesk accrues for known indemnification issues if a loss is probable and can be reasonably estimated. Historically, costs related to these indemnifications have not been significant, and because potential future costs are highly variable, Autodesk is unable to estimate the maximum potential impact of these indemnifications on its future results of operations.

In connection with the purchase, sale or license of assets or businesses with third parties, Autodesk has entered into or assumed customary indemnification agreements related to the assets or businesses purchased, sold or licensed. Historically, costs related to these indemnifications have not been significant, and because potential future costs are highly variable, Autodesk is unable to estimate the maximum potential impact of these indemnifications on its future results of operations.

As permitted under Delaware law, Autodesk has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at Autodesk’s request in such capacity. The maximum potential amount of future payments Autodesk could be required to make under these indemnification agreements is unlimited; however, Autodesk has directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and may enable Autodesk to recover a portion of any future amounts paid. Autodesk believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

Legal Proceedings

Autodesk is involved in a variety of claims, suits, investigations and proceedings in the normal course of business activities including claims of alleged infringement of intellectual property rights, commercial, employment, piracy prosecution, business practices and other matters. In the Company’s opinion, resolution of pending matters is not expected to have a material adverse impact on its consolidated results of operations, cash flows or its financial position. Given the unpredictable nature of legal proceedings, there is a reasonable possibility that an unfavorable resolution of one or more such proceedings could in the future materially affect the Company’s results of operations, cash flows or financial position in a particular period, however, based on the information known by the Company as of the date of this filing and the rules and regulations applicable to the preparation of the Company’s financial statements, any such amount is either immaterial or it is not possible to provide an estimated amount of any such potential loss.


22



15. Common Stock Repurchase Program

Autodesk has a stock repurchase program that is used to offset dilution from the issuance of stock under the Company’s employee stock plans and for such other purposes as may be in the interests of Autodesk and its stockholders, which has the effect of returning excess cash generated from the Company’s business to stockholders. During the three and nine months ended October 31, 2013, Autodesk repurchased and retired 2.0 million and 8.3 million shares at an average repurchase price of $39.37 and $38.58 per share, respectively. Common stock and additional paid-in capital and retained earnings were reduced by $49.4 million and $29.5 million, respectively, during the three months ended October 31, 2013. Common stock and additional paid-in capital and retained earnings were reduced by $175.6 million and $143.1 million, respectively, during the nine months ended October 31, 2013.

At October 31, 2013, 24.0 million shares remained available for repurchase under the repurchase program approved by the Board of Directors. During the nine months ended October 31, 2013, Autodesk repurchased its common stock through open market purchases. The number of shares acquired and the timing of the purchases are based on several factors, including general market and economic conditions, the number of employee stock option exercises and stock issuances, the trading price of Autodesk common stock, cash on hand and available in the United States, cash requirements for acquisitions, and Company defined trading windows.

16. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss, net of taxes, consisted of the following at October 31, 2013 and January 31, 2013:
 
 
October 31, 2013
 
January 31, 2013
Net gain on derivative instruments
$
1.2

 
$
2.8

Net unrealized gain on available-for-sale securities (1)
2.6

 
2.9

Unfunded portion of pension plans (1)
(13.1
)
 
(13.1
)
Foreign currency translation adjustments (1)
5.2

 
1.7

Accumulated other comprehensive loss
$
(4.1
)
 
$
(5.7
)
                                         
(1) For comparability, the presentation of the balances at January 31, 2013 was adjusted to align with current year presentation.

Reclassifications from Accumulated other comprehensive loss to Net income for the nine months ended October 31, 2013 were not significant. 


23



17. Net Income Per Share

Basic net income per share is computed using the weighted average number of shares of common stock outstanding for the period, excluding stock options and restricted stock units. Diluted net income per share is based upon the weighted average number of shares of common stock outstanding for the period and potentially dilutive common shares, including the effect of stock options and restricted stock units under the treasury stock method. The following table sets forth the computation of the numerators and denominators used in the basic and diluted net income per share amounts:

 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2013
 
2012
 
2013
 
2012
Numerator:
 
 
 
 
 
 
 
Net income
$
57.6

 
$
29.4

 
$
174.9

 
$
172.9

Denominator:
 
 
 
 
 
 
 
Denominator for basic net income per share—weighted average shares
223.1

 
225.5

 
223.4

 
227.1

Effect of dilutive securities
4.6

 
4.4

 
5.2

 
4.3

Denominator for dilutive net income per share
227.7

 
229.9

 
228.6

 
231.4

Basic net income per share
$
0.26

 
$
0.13

 
$
0.78

 
$
0.76

Diluted net income per share
$
0.25

 
$
0.13

 
$
0.77

 
$
0.75


The computation of diluted net income per share does not include shares that are anti-dilutive under the treasury stock method because their exercise prices are higher than the average market value of Autodesk’s stock during the period. For the three and nine months ended October 31, 2013, 5.5 million and 6.7 million potentially anti-dilutive shares, respectively, were excluded from the computation of diluted net income per share. For the three and nine months ended October 31, 2012, 11.8 million and 9.8 million potentially anti-dilutive shares, respectively, were excluded from the computation of diluted net income per share.

18. Segments

Autodesk reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. Autodesk has four reportable segments: PSEB, Architecture, Engineering and Construction (“AEC”), Manufacturing (“MFG”) and Media and Entertainment (“M&E”). Autodesk has no material inter-segment revenue.

The PSEB, AEC and MFG segments derive revenue from the sale of licenses for software products and services to customers who design, build, manage or own building, manufacturing and infrastructure projects. Autodesk's M&E segment derives revenue from the sale of products to creative professionals, post-production facilities and broadcasters for a variety of applications, including feature films, television programs, commercials, music and corporate videos, interactive game production, web design and interactive web streaming.

PSEB includes Autodesk’s design product, AutoCAD. Autodesk’s AutoCAD product is a platform product that underpins the Company’s design product offerings for the industries it serves. For example, AEC and MFG offer tailored versions of AutoCAD software for the industries they serve. Autodesk’s AutoCAD product also provides a platform for Autodesk’s developer partners to build custom solutions for a range of diverse design-oriented markets. PSEB's revenue primarily includes revenue from sales of AutoCAD and AutoCAD LT, the Autodesk Design Suite and many other design products, including consumer design products, as well as from sales of licenses of other Autodesk's design products.

AEC software products help to improve the way building, civil infrastructure, process plant and construction projects are designed, built and managed. A broad portfolio of solutions enables greater efficiency, accuracy and sustainability across the entire project lifecycle. Autodesk AEC solutions include advanced technology for building information modeling (“BIM”), AutoCAD-based design and documentation productivity software, sustainable design analysis applications, and collaborative project management solutions. BIM, an integrated process for building and infrastructure design, analysis, documentation and construction, uses consistent, coordination information to improve communication and collaboration between the extended project team. AEC provides a comprehensive portfolio of BIM solutions that help customers deliver projects faster and more economically, while minimizing environmental impact. AEC’s revenue primarily includes revenue from the sales of licenses of Autodesk Building Design Suites, AutoCAD Civil 3D, AutoCAD Map, and Autodesk Infrastructure Design Suites.

24




MFG provides the manufacturers in automotive and transportation, industrial machinery, consumer products and building products with comprehensive digital prototyping solutions that bring together design data from all phases of the product development process to develop a single digital model created in Autodesk Inventor software. Autodesk’s solutions for digital prototyping enable a broad group of manufacturers to realize benefits with minimal disruption to existing workflows. MFG’s revenue primarily includes revenue from the sales of licenses of Autodesk Product Design Suites, AutoCAD Mechanical, and Autodesk Moldflow products.

M&E consists of two product groups: Animation, including design visualization, and Creative Finishing. Animation products, such as Autodesk Maya, Autodesk 3ds Max, and the Autodesk Entertainment Creation Suites, provide tools for digital sculpting, modeling, animation, effects, rendering and compositing, for design visualization, visual effects and games production. M&E products are also included in a number of PSEB, AEC, and MFG focused suites. Creative Finishing products provide editing, finishing and visual effects design and color grading.

All of Autodesk’s reportable segments distribute their respective products primarily through authorized resellers and distributors and, to a lesser extent, through direct sales to end-users.

The accounting policies of the reportable segments are the same as those described in Note 1, “Business and Summary of Significant Accounting Policies” of Autodesk's Annual Report on Form 10-K for the fiscal year ended January 31, 2013. Autodesk evaluates each segment’s performance on the basis of gross profit. Autodesk currently does not separately accumulate and report asset information by segment, except for goodwill, which is disclosed in Note 9, “Goodwill.”

Information concerning the operations of Autodesk’s reportable segments is as follows:
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2013
 
2012
 
2013
 
2012
Net revenue: