QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2019
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
ADSK
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 30, 2019, registrant had outstanding 220,033,002 shares of common stock.
Weighted average shares used in computing basic net income (loss) per share
219.7
218.9
219.6
218.7
Weighted average shares used in computing diluted net income (loss) per share
221.9
218.9
222.1
218.7
See accompanying Notes to Condensed Consolidated Financial Statements.
4
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
Three Months Ended October 31,
Nine Months Ended October 31,
2019
2018
2019
2018
Net income (loss)
$
66.7
$
(23.7
)
$
82.7
$
(145.5
)
Other comprehensive income (loss), net of reclassifications:
Net (loss) gain on derivative instruments (net of tax effect of $0.4, ($1.1), ($1.6) and ($2.9), respectively)
(3.3
)
11.5
(4.3
)
29.1
Change in net unrealized gain on available-for-sale debt securities (net of tax effect of ($0.1), ($0.1), ($0.4) and ($0.1), respectively)
0.5
2.4
1.4
1.7
Change in defined benefit pension items (net of tax effect of $0.3, ($1.3), $0.8 and ($2.8), respectively)
(0.1
)
1.6
(2.5
)
11.6
Net change in cumulative foreign currency translation gain (loss) (net of tax effect of $0.1, $0.0, $0.1 and $0.5, respectively)
17.3
(22.1
)
(15.9
)
(76.1
)
Total other comprehensive income (loss)
14.4
(6.6
)
(21.3
)
(33.7
)
Total comprehensive income (loss)
$
81.1
$
(30.3
)
$
61.4
$
(179.2
)
See accompanying Notes to Condensed Consolidated Financial Statements.
5
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
October 31, 2019
January 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
956.2
$
886.0
Marketable securities
68.3
67.6
Accounts receivable, net
520.3
474.3
Prepaid expenses and other current assets
162.0
192.1
Total current assets
1,706.8
1,620.0
Computer equipment, software, furniture and leasehold improvements, net
151.5
149.7
Operating lease right-of-use assets
281.7
—
Developed technologies, net
79.2
105.6
Goodwill
2,443.6
2,450.8
Deferred income taxes, net
39.6
65.3
Other assets
334.2
337.8
Total assets
$
5,036.6
$
4,729.2
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable
$
106.1
$
101.6
Accrued compensation
257.9
280.8
Accrued income taxes
11.1
13.2
Deferred revenue
1,822.0
1,763.3
Operating lease liabilities
64.0
—
Current portion of long-term notes payable, net
449.4
—
Other accrued liabilities
129.7
142.3
Total current liabilities
2,840.2
2,301.2
Long-term deferred revenue
598.0
328.1
Long-term operating lease liabilities
239.8
—
Long-term income taxes payable
19.4
21.5
Long-term deferred income taxes
103.8
79.8
Long-term notes payable, net
1,290.3
2,087.7
Other liabilities
116.6
121.8
Stockholders’ deficit:
Common stock and additional paid-in capital
2,225.1
2,071.5
Accumulated other comprehensive loss
(156.3
)
(135.0
)
Accumulated deficit
(2,240.3
)
(2,147.4
)
Total stockholders’ deficit
(171.5
)
(210.9
)
Total liabilities and stockholders' deficit
$
5,036.6
$
4,729.2
See accompanying Notes to Condensed Consolidated Financial Statements.
6
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended October 31,
2019
2018
Operating activities:
Net income (loss)
$
82.7
$
(145.5
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization and accretion
96.4
69.8
Stock-based compensation expense
257.4
175.5
Deferred income taxes
47.9
16.5
Restructuring and other exit costs, net
0.5
34.5
Other operating activities
10.8
14.8
Changes in operating assets and liabilities
Accounts receivable
(47.2
)
129.4
Prepaid expenses and other current assets
37.6
8.3
Accounts payable and accrued liabilities
(94.2
)
(181.0
)
Deferred revenue
328.8
(73.8
)
Accrued income taxes
(3.8
)
17.1
Net cash provided by operating activities
716.9
65.6
Investing activities:
Purchases of marketable securities
(19.9
)
(135.3
)
Sales of marketable securities
22.4
61.3
Maturities of marketable securities
5.0
194.9
Capital expenditures
(39.2
)
(49.4
)
Acquisitions, net of cash acquired
—
(34.1
)
Other investing activities
(11.0
)
2.3
Net cash (used in) provided by investing activities
(42.7
)
39.7
Financing activities:
Proceeds from issuance of common stock, net of issuance costs
91.8
90.1
Taxes paid related to net share settlement of equity awards
(79.9
)
(120.7
)
Repurchases of common stock
(261.9
)
(261.3
)
Repayment of debt
(350.0
)
—
Net cash used in financing activities
(600.0
)
(291.9
)
Effect of exchange rate changes on cash and cash equivalents
(4.0
)
(15.7
)
Net increase (decrease) in cash and cash equivalents
70.2
(202.3
)
Cash and cash equivalents at beginning of period
886.0
1,078.0
Cash and cash equivalents at end of period
$
956.2
$
875.7
Supplemental cash flow disclosure:
Non-cash investing activities:
Fair value of common stock issued as consideration for business combination
$
—
$
44.8
See accompanying Notes to Condensed Consolidated Financial Statements.
7
AUTODESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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,” “we,” “us,” “our,” or the “Company”) as of October 31, 2019, and for the three and nine months ended October 31, 2019 and 2018, have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") 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 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 statement 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, 2019, are not necessarily indicative of the results for the entire fiscal year ending January 31, 2020, or for any other period. Further, the balance sheet as of January 31, 2019, has been derived from the audited Consolidated Balance Sheet as of this date. There have been no material changes, other than what is discussed herein, to Autodesk's significant accounting policies as compared to the significant accounting policies disclosed in the Annual Report on Form 10-K for the fiscal year ended January 31, 2019. 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, 2019, filed on March 25, 2019.
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, 2019, that are applicable to the Company.
Accounting standards adopted
Autodesk adopted ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" on February 1, 2019. The amendment helps simplify certain aspects of hedge accounting and results in a more accurate portrayal of the economics of an entity’s risk management activities in its financial statements. For cash flow and net investment hedges as of the adoption date, the guidance required a modified retrospective approach. The amended presentation and disclosure guidance is required only prospectively. The transition impact was immaterial and no substantive changes were made to Autodesk’s current processes, accounting, or disclosures for cash flow hedges.
Autodesk adopted ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” on February 1, 2019. The amendment allows entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the U.S. Tax Cuts and Jobs Act (the "Tax Act") to retained earnings. Upon adoption, the amount reclassified from other comprehensive loss to stockholders' deficit was not material.
Leases
FASB issued ASU No. 2016-02, Leases (ASC Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. The new standard requires entities to reflect the net present value of all future fixed lease payments for both operating and finance leases on the balance sheet. It also requires entities to disclose fixed and variable lease payments separately and by lease type (operating vs. finance leases). In addition, FASB issued ASU No. 2018-10 and 2018-11 and ASU No. 2018-20 to help provide accommodations and interpretive clarifications on various issues raised by stakeholders. ASU No. 2018-10 clarifies ambiguous or potentially conflicting guidance in ASU No. 2016-02. ASU No. 2018-11 provides an additional transition option to apply ASU No. 2016-02 upon adoption of the new standard.
8
Adoption and policy elections
Autodesk adopted ASU No. 2016-02 as of February 1, 2019, using the modified retrospective method permitted under ASU No. 2018-11 for all existing leases which does not include retrospectively adjusting prior periods presented in the financial statements. Under ASU No. 2016-02, as the lessee, Autodesk recognized a right-of-use ("ROU") asset and offsetting lease liability for leases that existed on adoption. The asset and liability were measured at present value of all future fixed lease payments, discounted using the Company’s incremental borrowing rate. Autodesk has elected to opt for the practical expedients: to not reassess whether any existing contracts are leases or contain a lease; to not reassess the lease classification of existing leases; and to not reassess initial direct costs for existing leases. Autodesk has elected to combine lease and non-lease components for new leases post adoption for all lease assets.
Autodesk determines if an arrangement is a lease at inception. Operating leases are included in “Operating lease right-of-use assets”, “Operating lease liabilities”, and “Long-term operating lease liabilities” in the Condensed Consolidated Balance Sheets.
Operating lease ROU assets represent Autodesk’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, Autodesk uses its incremental borrowing rate, adjusted for local country-specific borrowing rates as applicable, based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU assets include any adjustments for prepayments and any lease incentives. Options to extend or terminate the lease are considered in determining the lease term when it is reasonably certain that the option will be exercised. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Autodesk has lease agreements with lease and non-lease components. Autodesk accounts for the lease and non-lease components as a single lease component.
Quantitative effect of ASC Topic 842 adoption
Under the modified retrospective method, Autodesk recorded $(0.7) million to the opening balance of "Accumulated deficit" as of February 1, 2019. The comparative information has not been adjusted and continues to be reported as under previous accounting guidance. The adoption of ASU No. 2016-02 did not have a material impact to the Company’s condensed consolidated statement of operations or net cash provided by operating activities as of February 1, 2019.
9
The following table shows line items that were materially impacted by the adoption of ASC Topic 842 on February 1, 2019, on Autodesk’s Condensed Consolidated Balance Sheet:
As reported January 31, 2019
Impact from the adoption (1)
As adjusted
ASSETS
Prepaid expenses and other current assets
$
192.1
$
(5.9
)
$
186.2
Total current assets
1,620.0
(5.9
)
1,614.1
Operating lease right-of-use assets
—
283.4
283.4
Total assets
4,729.2
277.5
5,006.7
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Other accrued liabilities
142.3
(4.9
)
137.4
Operating lease liabilities
—
54.1
54.1
Long-term operating lease liabilities
—
245.9
245.9
Other liabilities
121.8
(16.9
)
104.9
Accumulated deficit
$
(2,147.4
)
$
(0.7
)
$
(2,148.1
)
____________________
(1)
Adoption of ASC Topic 842 did not have any other material impacts on Autodesk's condensed consolidated financial statements.
See Note 13, "Leases" for disclosures under ASC Topic 842.
Recently issued accounting standards not yet adopted
In June 2016, FASB issued ASU No. 2016-13 regarding ASC Topic 326, "Financial Instruments - Credit Losses," which modifies the measurement of expected credit losses of certain financial instruments. Autodesk plans to adopt ASU 2016-13 as of the effective date which represents Autodesk’s fiscal year beginning February 1, 2020. Autodesk does not believe the ASU will have a material impact on its consolidated financial statements.
3. Revenue Recognition
Revenue Recognition
Autodesk’s revenue is divided into three categories: subscription revenue, maintenance revenue, and other revenue. Revenue is recognized when control for these offerings is transferred to our customers and in an amount that reflects the consideration we expect to be entitled to in exchange for products and services.
Our contracts with customers may include promises to transfer multiple products and services to a customer. Determining whether the products and services are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation may require significant judgment. Judgment is required to determine the level of integration and interdependency between individual components of software and cloud functionality. This determination influences whether the software is considered distinct and accounted for separately as a license performance obligation, or not distinct and accounted for together with the cloud functionality as a single subscription performance obligation recognized over time.
For product subscriptions and enterprise business agreement ("EBA") subscriptions in which the desktop software and related cloud functionality are highly interrelated, the combined performance obligation is recognized ratably over the contract term as the obligation is delivered. For contracts involving distinct software licenses, the license performance obligation is satisfied at a point in time when control is transferred to the customer. For standalone maintenance subscriptions, cloud subscriptions, and technical support services, the performance obligation is satisfied ratably over the contract term as those services are delivered. For consulting services, the performance obligation is satisfied over a period of time as those services are delivered.
10
When an arrangement includes multiple performance obligations, which are concurrently delivered and have the same pattern of transfer to the customer (the services transfer to the customer over the contract period), we account for those performance obligations as a single performance obligation.
For contracts with more than one performance obligation, the transaction price is allocated among the performance obligations in an amount that depicts the relative standalone selling price ("SSP") of each obligation. Judgment is required to determine the SSP for each distinct performance obligation. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount that should be allocated based on the relative SSP of the various products and services.
In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that includes market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customer and circumstance. In these instances, we use relevant information such as the sales channel and geographic region to determine the SSP.
Our indirect channel model includes both a two-tiered distribution structure, where Autodesk sells to distributors that subsequently sell to resellers, and a one-tiered structure where Autodesk sells directly to resellers. For these arrangements, transfer of control begins at the time access to our subscriptions is made available electronically to our customer, provided all other criteria for revenue recognition are met. Judgment is required to determine whether our distributors and resellers have the ability to honor their commitment to pay, regardless of whether they collect payment from their customers. If we were to change this assessment, it could cause a material increase or decrease in the amount of revenue that we report in a particular period.
As part of the indirect channel model, we have a partner incentive program that uses quarterly attainment of monetary rewards to motivate distributors and resellers to achieve mutually agreed upon business goals in a specified time period. Incentives related to our subscription program are recorded as a reduction to deferred revenue in the period the subscription transaction is billed, and are subsequently recognized as a reduction to subscription revenue over the contract period. A small portion of partner incentives reduce maintenance revenue in the current period. These incentive balances do not require significant assumptions or judgments. Depending on how the payments are made, the reserves associated with the partner incentive program are recorded on the balance sheet as either contra accounts receivable or accounts payable.
Revenue Disaggregation
Autodesk recognizes revenue from the sale of (1) product subscriptions, cloud service offerings, and EBAs, (2) renewal fees for existing maintenance plan agreements that were initially purchased with a perpetual software license, and (3) consulting, training and other goods and services. The three categories are presented as line items on Autodesk's unaudited Condensed Consolidated Statements of Operations.
11
Information regarding the components of Autodesk's net revenue from contracts with customers by geographic location, product family, and sales channel is as follows:
Three Months Ended October 31,
Nine Months Ended October 31,
2019
2018
2019
2018
Net revenue by product family:
Architecture, Engineering and Construction
358.0
$
263.8
$
996.5
$
728.7
AutoCAD and AutoCAD LT
245.4
190.6
689.9
522.8
Manufacturing
182.2
158.5
524.3
440.0
Media and Entertainment
50.6
43.6
146.9
127.1
Other
6.5
4.4
17.4
13.9
Total net revenue
$
842.7
$
660.9
$
2,375.0
$
1,832.5
Net revenue by geographic area:
Americas
U.S.
$
287.3
$
225.0
$
804.3
$
626.1
Other Americas
62.0
43.5
166.7
123.4
Total Americas
349.3
268.5
971.0
749.5
Europe, Middle East and Africa
329.6
266.5
943.0
735.7
Asia Pacific
163.8
125.9
461.0
347.3
Total net revenue
$
842.7
$
660.9
$
2,375.0
$
1,832.5
Net revenue by sales channel:
Indirect
$
586.6
$
477.0
$
1,663.2
$
1,315.5
Direct
256.1
183.9
711.8
517.0
Total net revenue
$
842.7
$
660.9
$
2,375.0
$
1,832.5
Payments for product subscriptions, industry collections, cloud subscriptions, and maintenance subscriptions are typically due up front with payment terms of 30 to 45 days. Payments on EBAs are typically due in annual installments over the contract term, with payment terms of 30 to 60 days. Autodesk does not have any material variable consideration, such as obligations for returns, refunds, warranties or amounts due to customers for which significant estimation or judgment is required as of the reporting date.
Remaining performance obligations consist of total billed and unbilled deferred revenue. As of October 31, 2019, Autodesk had remaining performance obligations of $2.97 billion, which represents the total contract price allocated to remaining performance obligations, which are recognized over the next three years. We expect to recognize $2.05 billion or 69% of our remaining performance obligations as revenue during the next 12 months. We expect to recognize the remaining $918.9 million or 31% of our remaining performance obligations as revenue thereafter.
We expect that the amount of remaining performance obligations will change from quarter to quarter for several reasons, including the specific timing, duration and size of customer subscription and support agreements, varying billing cycles of such agreements, the specific timing of customer renewals, and foreign currency fluctuations.
Contract Balances
We receive payments from customers based on a billing schedule as established in our contracts. Contract assets relate to performance completed in advance of scheduled billings. Contract assets were not material as of October 31, 2019. Deferred revenue relates to billings in advance of performance under the contract. The primary changes in our contract assets and deferred revenues are due to our performance under the contracts and billings.
Revenue recognized during the nine months ended October 31, 2019, that was included in the deferred revenue balances at January 31, 2019, was $1.58 billion. The satisfaction of performance obligations typically lags behind payments received under revenue contracts from customers, which may lead to an increase in our deferred revenue balance over time.
12
4. Concentration of Credit Risk
Autodesk places its cash, cash equivalents and marketable securities in highly liquid instruments with, and in the custody of, multiple 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 $650.0 million line of credit facility as well as our Term Loan Agreement. See Note 12, "Borrowing Arrangements," in the Notes to Condensed Consolidated Financial Statements for further discussion.
Total sales to the Company's largest distributor Tech Data Corporation and its global affiliates (“Tech Data”) accounted for 35% of Autodesk’s total net revenue for both the three and nine months ended October 31, 2019 and 2018. The majority of the net revenue from sales to Tech Data is for sales made outside of the United States. In addition, Tech Data accounted for 29% of trade accounts receivable at both October 31, 2019, and January 31, 2019, respectively. During the three and nine months ended October 31, 2019 and 2018, Ingram Micro Inc. ("Ingram Micro") accounted for 10% and 11% of Autodesk's total net revenue, respectively. No other customer accounted for more than 10% of Autodesk's total net revenue or trade accounts receivable for each of the respective periods.
13
5. 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, 2019 and January 31, 2019:
October 31, 2019
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Level 1
Level 2
Level 3
Cash equivalents (1):
Commercial paper
$
42.7
$
—
$
—
$
42.7
$
—
$
42.7
$
—
Money market funds
377.3
—
—
377.3
377.3
—
—
Other (2)
1.9
—
—
1.9
0.9
1.0
—
Marketable securities:
Short-term trading securities
Mutual funds
59.8
8.5
—
68.3
68.3
—
—
Derivative contract assets (3)
2.3
6.7
(2.6
)
6.4
—
5.8
0.6
Derivative contract liabilities (4)
—
—
(7.2
)
(7.2
)
—
(7.2
)
—
Total
$
484.0
$
15.2
$
(9.8
)
$
489.4
$
446.5
$
42.3
$
0.6
____________________
(1)
Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets.
(2)
Consists of custody cash deposits and certificates of deposit.
(3)
Included in “Prepaid expenses and other current assets” or “Other assets” in the accompanying Condensed Consolidated Balance Sheets.
(4)
Included in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.
January 31, 2019
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Level 1
Level 2
Level 3
Cash equivalents (1):
Certificates of deposit
$
1.0
$
—
$
—
$
1.0
$
—
$
1.0
$
—
Commercial paper
87.9
—
—
87.9
—
87.9
—
Corporate debt securities
5.0
—
—
5.0
—
5.0
—
Custody cash deposit
0.8
—
—
0.8
0.8
—
—
Money market funds
281.4
—
—
281.4
281.4
—
—
Marketable securities:
Short-term
Other (2)
6.2
1.1
—
7.3
2.7
4.6
—
Short-term trading securities
Mutual funds
56.6
3.7
—
60.3
60.3
—
—
Convertible debt securities (3)
4.6
1.9
(2.1
)
4.4
—
—
4.4
Derivative contract assets (4)
1.7
8.6
(1.8
)
8.5
—
7.7
0.8
Derivative contract liabilities (5)
—
—
(7.4
)
(7.4
)
—
(7.4
)
—
Total
$
445.2
$
15.3
$
(11.3
)
$
449.2
$
345.2
$
98.8
$
5.2
____________________
(1)
Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets.
(2)
Consists of corporate bonds, commercial paper, and common stock.
(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.
(5)
Included in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.
14
Autodesk classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Generally, marketable securities with remaining maturities of up to 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 data and relies on unobservable inputs only when observable market data is not available. Key inputs for currency derivatives are spot rates, forward rates, interest rates, volatility, and credit default rates. The spot rate for each currency is the same spot rate used for all balance sheet translations at the measurement date. Autodesk reviews for any potential changes on a quarterly basis, in conjunction with our fiscal quarter-end close. It is Autodesk's assessment that the leveling best reflects current market activity when observing the pricing information for these assets.
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 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 and derivatives are valued primarily using observable inputs other than quoted prices in active markets for identical assets and liabilities. The Company has elected to use the income approach to value derivatives using the observable Level 2 market expectations at measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted). Mid-market pricing is used as a practical expedient and when required, rates are interpolated from commonly quoted intervals published by market sources. Autodesk's Level 3 securities consist of derivative contracts and convertible debt securities.
A reconciliation of the change in Autodesk’s Level 3 items for the nine months ended October 31, 2019, was as follows: