Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AUTODESK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

Fiscal year ended January 31,
202220212020
Net revenue:
Subscription$4,156.4$3,478.9$2,751.9
Maintenance76.3183.3386.6
Total subscription and maintenance revenue4,232.73,662.23,138.5
Other153.7128.2135.8
Total net revenue4,386.43,790.43,274.3
Cost of revenue:
Cost of subscription and maintenance revenue299.1242.1223.9
Cost of other revenue66.664.166.5
Amortization of developed technologies52.830.934.5
Total cost of revenue418.5337.1324.9
Gross profit3,967.93,453.32,949.4
Operating expenses:
Marketing and sales1,623.11,440.31,310.3
Research and development1,114.8932.5851.1
General and administrative571.7413.9405.6
Amortization of purchased intangibles40.737.538.9
Restructuring and other exit costs, net——0.5
Total operating expenses3,350.32,824.22,606.4
Income from operations617.6629.1343.0
Interest and other expense, net(52.9)(82.4)(48.2)
Income before income taxes564.7546.7294.8
(Provision) benefit for income taxes(67.7)661.5(80.3)
Net income$497.0$1,208.2$214.5
Basic net income per share$2.26$5.51$0.98
Diluted net income per share$2.24$5.44$0.96
Weighted average shares used in computing basic net income per share219.7219.4219.7
Weighted average shares used in computing diluted net income per share222.0222.1222.5

See accompanying Notes to Consolidated Financial Statements.

AUTODESK, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

Fiscal year ended January 31,
202220212020
Net income$497.0$1,208.2$214.5
Other comprehensive income (loss), net of reclassifications:
Net gain (loss) on derivative instruments (net of tax effect of $(8.3), $5.0, and $(1.1))48.3(32.5)(6.6)
Change in net unrealized gain on available-for-sale securities (net of tax effect of zero, $0.1, and $(0.4))11.81.71.4
Change in defined benefit pension items (net of tax effect of $(0.7), $(0.3), and $1.6)4.71.5(6.5)
Net change in cumulative foreign currency translation (loss) gain (net of tax effect of $0.3, $(0.6), and $0.1)(62.9)63.7(13.6)
Total other comprehensive income (loss)1.934.4(25.3)
Total comprehensive income$498.9$1,242.6$189.2

See accompanying Notes to Consolidated Financial Statements.

AUTODESK, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except per share data)

January 31, 2022January 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$1,528.4$1,772.2
Marketable securities235.74.0
Accounts receivable, net716.1643.1
Prepaid expenses and other current assets283.6206.2
Total current assets2,763.82,625.5
Long-term marketable securities45.4—
Computer equipment, software, furniture, and leasehold improvements, net162.5192.8
Operating lease right-of-use assets304.5416.7
Intangible assets, net493.8199.3
Goodwill3,603.82,706.5
Deferred income taxes, net740.7763.1
Long-term other assets492.3375.9
Total assets$8,606.8$7,279.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$120.8$122.5
Accrued compensation341.3322.6
Accrued income taxes29.742.6
Deferred revenue2,863.32,500.9
Operating lease liabilities86.671.4
Current portion of long-term notes payable, net349.7—
Other accrued liabilities218.0194.7
Total current liabilities4,009.43,254.7
Long-term deferred revenue926.5859.3
Long-term operating lease liabilities345.8396.0
Long-term income taxes payable19.815.9
Long-term deferred income taxes29.411.4
Long-term notes payable, net2,277.91,637.2
Long-term other liabilities148.9139.8
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; shares authorized 2.0; none issued or outstanding at January 31, 2022 and 2021——
Common stock and additional paid-in capital, $0.01 par value; shares authorized 750.0; 218.2 and 219.6 issued and outstanding at January 31, 2022 and 2021, respectively2,923.12,578.9
Accumulated other comprehensive loss(124.0)(125.9)
Accumulated deficit(1,950.0)(1,487.5)
Total stockholders’ equity849.1965.5
Total liabilities and stockholders' equity$8,606.8$7,279.8

See accompanying Notes to Consolidated Financial Statements.

AUTODESK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

Fiscal year ended January 31,
202220212020
Operating activities:
Net income$497.0$1,208.2$214.5
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion148.1123.8127.3
Stock-based compensation expense555.4398.4362.4
Deferred income taxes(7.8)(778.6)10.3
Lease-related asset impairments103.7——
Restructuring and other exit costs, net——0.5
Other operating activities17.638.8(11.9)
Changes in operating assets and liabilities, net of business combinations:
Accounts receivable(66.2)12.6(178.5)
Prepaid expenses and other assets(133.5)(56.4)58.5
Accounts payable and other liabilities9.9129.6(90.8)
Deferred revenue419.4344.4916.7
Accrued income taxes(12.3)16.46.1
Net cash provided by operating activities1,531.31,437.21,415.1
Investing activities:
Purchases of marketable securities(311.1)(21.0)(19.9)
Sales of marketable securities12.0—22.4
Maturities of marketable securities25.817.05.0
Purchases of developed technologies(10.5)(4.8)—
Business combinations, net of cash acquired(1,250.3)(246.2)—
Capital expenditures(56.0)(91.1)(53.2)
Other investing activities(4.5)(57.8)(11.6)
Net cash used in investing activities(1,594.6)(403.9)(57.3)
Financing activities:
Proceeds from issuance of common stock, net of issuance costs113.7114.193.7
Taxes paid related to net share settlement of equity awards(193.5)(156.7)(112.5)
Repurchase and retirement of common stock(1,078.5)(551.7)(442.5)
Proceeds from debt, net of discount997.0—498.9
Repayments of debt—(450.0)(500.0)
Other financing activities(7.3)(2.5)(4.4)
Net cash used in financing activities(168.6)(1,046.8)(466.8)
Effect of exchange rate changes on cash and cash equivalents(11.9)11.0(2.3)
Net (decrease) increase in cash and cash equivalents(243.8)(2.5)888.7
Cash and cash equivalents at beginning of fiscal year1,772.21,774.7886.0
Cash and cash equivalents at end of fiscal year$1,528.4$1,772.2$1,774.7
Supplemental cash flow disclosure:
Cash paid for interest$57.5$62.7$67.8
Cash paid for income taxes, net of tax refunds$165.2$92.8$60.3
Non-cash investing and financing activities:
Fair value of common stock issued to settle liability-classified restricted stock units$2.7$28.7$23.5
Fair value of common stock issued related to business combination (See Note 6)$6.1$37.9$—

See accompanying Notes to Consolidated Financial Statements.

AUTODESK, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(In millions)

Common stock and additional paid-in capitalAccumulated other comprehensive (loss) incomeAccumulated deficitTotal stockholders' (deficit) equity
SharesAmount
Balances, January 31, 2019219.4$2,071.5$(135.0)$(2,147.4)$(210.9)
Common stock issued under stock plans2.7(18.6)——(18.6)
Stock-based compensation expense—332.7——332.7
Settlement of liability-classified restricted stock units—23.5——23.5
Pre-combination expense related to equity awards assumed—1.2——1.2
Cumulative effect of adoption of accounting standards———(0.7)(0.7)
Net income———214.5214.5
Other comprehensive loss——(25.3)—(25.3)
Repurchase and retirement of common stock(2.7)(93.3)—(362.2)(455.5)
Balances, January 31, 2020219.42,317.0(160.3)(2,295.8)(139.1)
Common stock issued under stock plans2.7(41.2)——(41.2)
Stock-based compensation expense—385.6——385.6
Settlement of liability-classified restricted stock units—28.7——28.7
Post-combination expense related to equity awards assumed—0.4——0.4
Net income———1,208.21,208.2
Other comprehensive income——34.4—34.4
Shares issued related to business combination0.137.9——37.9
Repurchase and retirement of common stock(2.6)(149.5)—(399.9)(549.4)
Balances, January 31, 2021219.62,578.9(125.9)(1,487.5)965.5
Common stock issued under stock plans2.6(79.8)——(79.8)
Stock-based compensation expense544.4——544.4
Settlement of liability-classified restricted stock units2.7——2.7
Post-combination expense related to equity awards assumed0.1——0.1
Net income—497.0497.0
Other comprehensive income1.9—1.9
Shares issued related to business combination—6.1——6.1
Repurchase and retirement of common stock(4.0)(129.3)—(959.5)(1,088.8)
Balances, January 31, 2022218.2$2,923.1$(124.0)$(1,950.0)$849.1

See accompanying Notes to Consolidated Financial Statements.

AUTODESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2022

(Tables in millions of dollars, except per share data, unless otherwise indicated)

1. Business and Summary of Significant Accounting Policies

Business

Autodesk, Inc. (“Autodesk” or the “Company”) is a world leading design software and services company, offering customers productive business solutions through powerful technology products and services. The Company serves customers in the architecture, engineering, and construction; manufacturing; and digital media, consumer, and entertainment industries. The Company’s sophisticated software products, offered through a hybrid of desktop and cloud functionality, enable its customers to experience their ideas before they are real by allowing them to imagine, design, and create their ideas and to visualize, simulate, and analyze real-world performance early in the design process by creating digital prototypes. These capabilities allow Autodesk’s customers to foster innovation, optimize and improve their designs, help save time and money, improve quality, and collaborate with others. Autodesk software products are sold globally, both directly to customers and through a network of resellers and distributors.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Autodesk and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in Autodesk’s consolidated financial statements and notes thereto. These estimates are based on information available as of the date of the consolidated financial statements. On a regular basis, management evaluates these estimates and assumptions. Actual results may differ materially from these estimates. In March 2020, the World Health Organization declared the outbreak of a disease caused by a novel strain of the coronavirus (COVID-19) to be a pandemic. This pandemic has created and may continue to create significant uncertainty in the macroeconomic environment which, in addition to other unforeseen effects of this pandemic, may adversely impact our results of operations. As the COVID-19 pandemic continues to develop, many of our estimates could require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve our estimates may change materially in future periods.

Examples of significant estimates and assumptions made by management involve revenue recognition for product subscriptions and enterprise business arrangements (“EBAs”), the determination of the fair value of acquired assets and liabilities, goodwill, financial instruments including strategic investments, long-lived assets, and intangible assets, the realizability of deferred tax assets, and the fair value of stock awards. The Company also makes assumptions, judgments, and estimates in determining the accruals for uncertain tax positions, variable compensation, partner incentive programs, product returns reserves, allowances for credit losses, asset retirement obligations, legal contingencies, and operating lease liabilities.

Change in presentation and immaterial correction of an error

Autodesk changed its presentation on the Consolidated Balance Sheet for intangible assets during the fiscal year ended January 31, 2022. These amounts were previously presented in “Developed technologies, net” and “Long-term other assets” and are now presented as “Intangible assets, net”. Accordingly, prior period amounts have been reclassified to conform to the current period presentation. This presentation change did not impact “Total assets” on the Consolidated Balance Sheets and had no impact on the Company's Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income, and Consolidated Statements of Cash Flows.

The effects of the change on the Consolidated Balance Sheet as of January 31, 2021, were as follows:

As Reported January 31, 2021Effect of Change in PresentationAs Adjusted January 31, 2021
Intangible assets, net$88.6$110.7$199.3
Long-term other assets486.6(110.7)375.9
Total assets7,279.8—7,279.8

The Company also changed its presentation on the Consolidated Balance Sheets for investments in debt and equity securities that are held in a rabbi trust under non-qualified deferred compensation plans, including correcting the classification as current and non-current assets during fiscal year ended January 31, 2022. These amounts were previously presented as current “Marketable securities” and are now presented as “Prepaid expenses and other current assets” and “Long-term other assets” on the Consolidated Balance Sheets. Accordingly, prior period amounts have been reclassified to conform to the current period presentation. These presentation and classification changes did not impact “Total assets” on the Consolidated Balance Sheets and had no impact on the Company's Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income and Consolidated Statement of Cash Flows.

The effects of the changes on the Consolidated Balance Sheet as of January 31, 2021, were as follows:

As Reported January 31, 2021Effect of Changes in PresentationAs Adjusted January 31, 2021
Marketable securities$85.0$(81.0)$4.0
Prepaid and other current assets198.97.3206.2
Long-term other assets412.973.7486.6
Total current assets2,699.2(73.7)2,625.5
Total assets7,279.8$—7,279.8

Segments

Autodesk operates in one operating segment and accordingly, all required financial segment information is included in the consolidated financial statements. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. Autodesk reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions, allocating resources, and assessing performance as the source of the Company’s reportable segments. The Company's CODM allocates resources and assesses the operating performance of the Company as a whole.

Information regarding Autodesk's long-lived assets by geographic area were as follows:

January 31,
20222021
Long-lived assets (1):
Americas
U.S.$322.7$423.6
Other Americas19.829.5
Total Americas342.5453.1
Europe, Middle East, and Africa92.6109.7
Asia Pacific31.946.7
Total long-lived assets$467.0$609.5

(1)Long-lived assets exclude deferred tax assets, marketable securities, goodwill, and intangible assets.

Revenue Recognition

Autodesk’s revenue is divided into three categories: subscription revenue, maintenance revenue, and other revenue. Subscription revenue consists of our term-based product subscriptions, cloud service offerings, and flexible EBAs. Maintenance revenue consists of renewal fees for existing maintenance plan agreements that were initially purchased with a perpetual software license. Under our maintenance plan, customers are eligible to receive unspecified upgrades, when and if available, and technical support. Other revenue consists of revenue from consulting, training, and other products and services. Revenue is recognized when control for these offerings is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for products and services.

Autodesk’s 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 a single performance obligation may require significant judgment. Judgment is required to determine the level of integration and interdependency between individual components of desktop software applications and cloud functionalities. This determination influences whether the desktop software is considered distinct and accounted for separately as a license performance obligation recognized at the time of delivery, or not distinct and accounted for together with the cloud functionalities as a single subscription performance obligation recognized over time.

For product subscriptions and flexible EBA subscriptions in which the desktop software and related cloud functionalities are highly interrelated, the single performance obligation is recognized ratably over the contract term as the subscription is delivered. For subscriptions involving distinct desktop software licenses, the license performance obligation is satisfied when delivered to our customers. 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.

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.

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.

Costs to Obtain a Contract with a Customer

Sales commissions earned by our internal sales personnel and our reseller partners are considered incremental and recoverable costs of obtaining a contract with a customer. The commission costs are capitalized and included in “Prepaid expenses and other current assets” and “Long-term other assets” on our Consolidated Balance Sheets. The deferred costs are then amortized over the period of benefit. Autodesk determined that sales commissions earned by internal sales personnel that are related to contract renewals are commensurate with sales commissions earned on the initial contracts, and we determined the period of benefit to be the term of the respective customer contract. Commissions paid to our reseller partners that are related to contract renewals are not commensurate with commissions earned on the initial contract, and we determined the estimated period of benefit by taking into consideration customer retention data, customer contracts, our technology, and other factors. Deferred costs are periodically reviewed for impairment. Amortization expense is included in marketing and sales expenses in the Consolidated Statements of Operations.

Fair Value Measurement

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In determining the fair value of our investments, we are sometimes required to use various alternative valuation techniques. Inputs to valuation techniques are either observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs have created the following fair value hierarchy:

Level 1 - Quoted prices for identical instruments in active markets;

Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3 - Unobservable inputs for which there is little or no market data, which require Autodesk to develop its own assumptions.

This hierarchy requires us to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. This is generally true for our cash and cash equivalents and the majority of our marketable securities, which we consider to be Level 1 and Level 2 assets.

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 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. See Note 3, “Financial Instruments” for information.

Cash and Cash Equivalents

Autodesk considers all highly liquid investments with insignificant interest rate risk and remaining maturities of three months or less at the date of purchase to be cash equivalents. Cash equivalents are stated at estimated fair value.

Marketable Securities and Strategic Investments

Autodesk classifies its marketable securities as either short-term or long-term generally based on each instrument’s underlying contractual maturity date. Generally, 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.

Marketable securities are stated at fair value. Marketable securities maturing within one year that are not restricted are classified as current assets.

Autodesk determines the appropriate classification of its marketable securities at the time of purchase and re-evaluates such classification as of each balance sheet date. Autodesk carries all “available-for-sale securities” at fair value, with unrealized gains and losses, net of tax, reported in stockholders’ equity (deficit) until disposition or maturity. Autodesk carries all “trading securities” at fair value, with unrealized gains and losses, recorded in “Interest and other expense, net” in the Company’s Consolidated Statements of Operations. The cost of securities sold is based on the specific-identification method.

The company's strategic investments consist of privately held debt and equity securities.

Under the measurement alternative method, strategic investment equity securities are measured at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer in the current period. The carrying value is not adjusted for the Company’s strategic investment equity securities if there are no observable price changes in a same or similar security from the same issuer or if there are no identified events or changes in circumstances that may indicate impairment, as discussed below. To determine if a transaction is deemed a similar investment, Autodesk considers the rights and obligations between the investments and the extent to which those differences would affect the fair values of those investments with additional consideration for the stage of development of the investee company. The fair value would then be adjusted positively or negatively based on available information such as pricing in recent rounds of financing.

The company’s strategic investment debt and equity securities (Level 3) are valued using significant unobservable inputs or data in an inactive market and the valuation requires the Company’s judgment due to the absence of market prices and inherent lack of liquidity. These assumptions are inherently subjective and involve significant management judgment. Whenever possible, we use observable market data and rely on unobservable inputs only when observable market data is not available, when determining fair value.

In determining the estimated fair value of its strategic investments, the Company utilizes the most recent data available to the Company. In addition, the determination of whether an orderly transaction is for a same or similar investment requires significant management judgment including: the rights and obligations of the investments, the extent to which those differences would affect the fair values of those investments, and the impact of any differences based on the stage of operational development of the investee.

All of Autodesk’s marketable securities and strategic investments are subject to a periodic impairment review. Strategic investments equity securities are assessed based on available information such as current cash positions, earnings, earnings and cash flow forecasts, recent operational performance and any other readily available market data. For any available-for-sale debt securities, if Autodesk does not intend to sell and it is not more likely than not that Autodesk will be required to sell the available-for-sale debt security prior to recovery of its amortized cost basis, Autodesk will determine whether a decline in fair value below the amortized cost basis is due to credit-related factors. The credit loss is measured as the amount by which the debt security’s amortized cost basis exceeds the estimate of the present value of cash flows expected to be collected, up to the difference between the amortized cost basis and the fair value. Impairment will be assessed at the individual security level. Credit-related impairment is recognized as an allowance on the Consolidated Balance Sheets with a corresponding adjustment to “Interest and other expense, net” on the Company’s Consolidated Statements of Operations. Any impairment that is not credit-related is recognized in “Accumulated other comprehensive loss” on the Consolidated Balance Sheets.

Autodesk does not measure an allowance for credit losses on accrued interest receivables on available-for-sale debt securities separately. Autodesk writes off accrued interest receivables by reversing interest income in the period deemed uncollectible in “Interest and other expense, net” on the Company’s Consolidated Statements of Operations. Any accrued interest receivable on available-for-sale debt securities is recorded in “Cash and cash equivalents,” “Prepaid expenses and other current assets,” or “Long-term other assets” in the accompanying Consolidated Balance Sheets, as applicable.

For Autodesk’s quarterly impairment assessment of privately held debt and equity securities strategic investment portfolio, the analysis encompasses an assessment of the severity and duration of the impairment and qualitative and quantitative analysis of other key factors including: the investee’s financial metrics, the investee’s products and technologies meeting or exceeding predefined milestones, market acceptance of the product or technology, other competitive products or technology in the market, general market conditions, management and governance structure of the investee, the investee’s liquidity, debt ratios, and the rate at which the investee is using its cash.

For additional information, see “Concentration of Credit Risk” within this Note 1, “Business and Summary of Significant Accounting Policies” and Note 3, “Financial Instruments.”

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 that exist as part of ongoing business operations. Autodesk’s general practice is to hedge a portion of transaction exposures primarily denominated in euros, Japanese yen, British pounds, Canadian dollars, Australian dollars, Singapore dollars, Swiss francs, Swedish krona, and Czech koruna. These instruments generally have maturities between one and 12 months in the future. Autodesk uses foreign currency contracts not designated as hedging

instruments and foreign currency contracts designated as cash flow hedges but Autodesk does not enter into derivative instrument transactions for trading or speculative purposes.

The bank counterparties to the derivative contracts potentially 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 counterparty risk on at least a quarterly basis and will adjust its exposure to various counterparties as necessary. Autodesk generally enters into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. Autodesk does not have any master netting arrangements in place with collateral features.

Autodesk accounts for these derivative instruments as either assets or liabilities on the balance sheet and carries them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. Derivatives that do not qualify for hedge accounting are adjusted to fair value through earnings.

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 “Long-term other assets.” Changes in the fair values of these instruments are recognized in “Interest and other expense, net.”

Foreign Currency Translation and Transactions

The assets and liabilities of Autodesk’s foreign subsidiaries are translated from their respective functional currencies into U.S. dollars at the rates in effect at the balance sheet date, and revenue and expense amounts are translated at exchange rates that approximate those rates in effect during the period in which the underlying transactions occur. Foreign currency translation adjustments are recorded in other comprehensive income (loss).

Gains and losses realized from foreign currency transactions, those transactions denominated in currencies other than the foreign subsidiary’s functional currency, are included in “Interest and other expense, net.” Monetary assets and liabilities are remeasured using foreign currency exchange rates at the end of the period, and non-monetary assets and liabilities are remeasured based on historical exchange rates.

Foreign Currency Contracts Designated as Cash Flow Hedges

Autodesk uses foreign currency contracts to reduce the exchange rate impact on a portion of the net revenue or operating expense of certain anticipated transactions. These currency collars and forward contracts are designated and documented as cash flow hedges. The effectiveness of the cash flow hedge contracts is assessed quantitatively using regression at inception and thereafter. To receive cash flow hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge relationship and the hedges are expected to be highly effective in offsetting changes to future cash flows on hedged transactions. The 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 and discloses the gain or loss on the related cash flow hedge from “Accumulated other comprehensive loss” to “Interest and other expense, net” in the Company’s Consolidated Financial Statements at that time. Derivative contracts and related gain (loss) are presented within “Net cash provided by operating activities” in the Company’s Consolidated Statements of Cash Flow. See Note 3, “Financial Instruments” for additional information.

Derivatives Not Designated as Hedging Instruments

Autodesk uses foreign currency contracts that are not designated as hedging instruments to reduce the exchange rate risk associated primarily with foreign currency denominated receivables, payables, and cash. These forward contracts are marked-to-market at the end of each fiscal quarter with gains and losses recognized as “Interest and other 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 revaluation and settlement of the underlying foreign currency denominated receivables, payables, and cash.

Accounts Receivable, Net

Accounts receivable, net, consisted of the following as of January 31:

20222021
Trade accounts receivable$779.8$701.3
Less: Allowance for credit losses(4.6)(3.8)
Product returns reserve(0.6)(0.7)
Partner programs and other obligations(58.5)(53.7)
Accounts receivable, net$716.1$643.1

Allowances for uncollectible trade receivables and contract assets are subject to impairment using the expected credit loss model. Allowances for expected credit losses are measured based upon the lifetime expected credit loss which is based on historical experience, the number of days that billings are past due, reasonable economic forecast, including revised forecast data for the current economic environment, customer payment behavior, credit reports, and other customer-specific information. Allowances for credit losses on trade receivables and contract assets were not material as of January 31, 2022.

As part of the indirect channel model, Autodesk has 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. The majority of these incentives are recorded as a reduction to deferred revenue in the period the transaction is billed and subsequently recognized as a reduction to subscription or maintenance revenue over the contract period. The remainder reduces subscription or 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 recognized on the balance sheet as either a reduction to accounts receivable or recorded as accounts payable.

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 $1.5 billion revolving credit facility.

The bank counterparties to the derivative contracts potentially 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 counterparty risk on at least a quarterly basis and will adjust its exposure to various counterparties as necessary. 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.

Autodesk’s accounts receivable are derived from sales to a large number of resellers, distributors, and direct customers in the Americas, EMEA, and APAC geographies. Autodesk performs ongoing evaluations of these partners’ and customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally does not require collateral from such parties. Total sales to the Company’s largest distributor Tech Data Corporation, and its global affiliates (“Tech Data”), accounted for 36%, 37%, and 35% of Autodesk's net revenue for fiscal years ended January 31, 2022, 2021 and 2020, respectively. 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 24% and 26% of trade accounts receivable as of January 31, 2022 and 2021, respectively. Ingram Micro Inc. (“Ingram Micro”), our second largest distributor, accounted for 9% of Autodesk’s total net revenue for the fiscal year ended January 31, 2022 and 10% of Autodesk’s total net revenue for both fiscal years ended January 31, 2021 and 2020. No other customer accounted for more than 10% of Autodesk’s total net revenue or trade accounts receivable for each of the respective periods.

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

Computer equipment, software, and furniture are depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term. Depreciation expense was $52.0 million in fiscal 2022, $51.4 million in fiscal 2021, and $51.0 million in fiscal 2020. During the fiscal year ended January 31, 2022, Autodesk recorded impairment charges to computer equipment, software, furniture, and leasehold improvements related to certain vacated leased office facilities in connection with Autodesk’s move to a more hybrid workforce. See Note 9, “ Leases” for further discussion. Autodesk did not recognize any impairment losses in fiscal years ended January 31, 2021 and 2020.

Computer equipment, software, furniture, leasehold improvements, and the related accumulated depreciation at January 31 were as follows:

20222021
Computer hardware, at cost$137.2$153.3
Computer software, at cost55.057.9
Leasehold improvements, land and buildings, at cost350.5335.9
Furniture and equipment, at cost93.488.4
Computer software, hardware, leasehold improvements, furniture, and equipment, at cost636.1635.5
Less: Accumulated depreciation(473.6)(442.7)
Computer software, hardware, leasehold improvements, furniture, and equipment, net$162.5$192.8

Costs incurred for computer software developed or obtained for internal use are capitalized for application development activities, if material, and immediately expensed for preliminary project activities and post-implementation activities. These capitalized costs are amortized straight-line over the software’s expected useful life, which is generally three years.

Software Development Costs

Software development costs for external use incurred prior to the establishment of technological feasibility are included in research and development expenses. Autodesk defines establishment of technological feasibility as the completion of a working model. Software development costs incurred subsequent to the establishment of technological feasibility through the period of general market availability of the products are capitalized and generally amortized over a three-year period, if material. Autodesk had no material capitalized software development costs at January 31, 2022, and January 31, 2021.

Cloud Computing Arrangements

Autodesk enters into certain cloud-based software hosting arrangements that are accounted for as service contracts. Costs incurred for these arrangements are capitalized for application development activities, if material, and immediately expensed for preliminary project activities and post-implementation activities. Autodesk amortizes the capitalized development costs straight-line over the fixed, non-cancellable term of the associated hosting arrangement plus any reasonably certain renewal periods. The capitalized costs are included in “Prepaid expenses and other current assets” and “Long-term other assets” on our Consolidated Balance Sheets. Capitalized costs were $128.4 million and $72.2 million at January 31, 2022, and January 31, 2021, respectively. Accumulated amortization was $16.7 million and $4.9 million at January 31, 2022, and January 31, 2021, respectively. Amortization expense was $11.8 million, $3.7 million, and $1.2 million at January 31, 2022, January 31, 2021, and January 31, 2020, respectively.

Leases

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 Consolidated Balance Sheets.

Operating lease right-of-use 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 right-of-use assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease right-of-use assets also include any lease payments made and are reduced by any lease incentives. Autodesk uses its incremental borrowing rate, if the Company’s leases do not provide an implicit 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. 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.

Business Combinations

Autodesk records the tangible and intangible assets acquired and liabilities assumed in a business combination based on their estimated fair values at the date of the respective acquisition, with the exception of contract assets and contract liabilities (i.e., deferred revenue) which are recognized and measured on the acquisition date in accordance with Autodesk’s “Revenue Recognition” policy in Note 1 “Business and Summary of Significant Accounting Policies”. 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. During the measurement period, which may be up to one year from the acquisition date, Autodesk may record adjustments to these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Intangible Assets, Net

Intangible assets include customer relationships, developed technologies, trade names and patents, and other, and the related accumulated amortization. These assets are presented as “Intangible assets, net” in the Consolidated Balance Sheets. The majority of Autodesk’s intangible assets are amortized to expense over the estimated economic life of the product, which ranges from 1 to 15 years. Amortization expense for intangible assets was $93.5 million in fiscal 2022, $69.9 million in fiscal 2021, and $73.7 million in fiscal 2020. See Note 1 “Change in Presentation and immaterial correction of error” for a change in the presentation on the Consolidated Balance Sheets related to intangible assets.

Intangible assets and related accumulated amortization at January 31, 2022 were as follows:

Gross Carrying Amount (1)Accumulated AmortizationNet
Customer relationships$666.7$(374.5)$292.2
Developed technologies846.6(660.9)185.7
Trade names and patents116.1(100.2)15.9
Other0.3(0.3)—
Total intangible assets$1,629.7$(1,135.9)$493.8

(1)Includes the effects of foreign currency translation.

Intangible assets and related accumulated amortization at January 31, 2021 were as follows:

Gross Carrying Amount (1)Accumulated AmortizationNet
Customer relationships$437.3$(345.1)$92.2
Developed technologies698.4(609.8)88.6
Trade names and patents111.5(93.0)18.5
Total intangible assets$1,247.2$(1,047.9)$199.3

(1)Includes the effects of foreign currency translation.

The weighted average amortization period for intangible assets during fiscal 2022 was 8.67 years. Excluding in-process research and development, expected future amortization expense for intangible assets for each of the fiscal years ended thereafter is as follows:

Fiscal Year ended January 31,
2023$95.2
202477.1
202567.6
202660.4
202751.7
Thereafter141.8
Total$493.8

Impairment of Long-Lived Assets

At least annually or more frequently as circumstances dictate, Autodesk reviews its long-lived assets for impairment whenever impairment indicators exist. Autodesk continually monitors events and changes in circumstances that could indicate the carrying amounts of its long-lived assets may not be recoverable. When such events or changes in circumstances occur, Autodesk assesses the recoverability of these assets. Recoverability is measured by comparison of the carrying amounts of the assets to the future undiscounted cash flow the assets are expected to generate generally using Level 3 inputs. If the long-lived assets are impaired, the impairment to be recognized is equal to the amount by which the carrying value of the assets exceeds its fair market value. Autodesk recorded impairment charges on lease related right-of-use assets and other long-lived assets related to certain office leases during the fiscal year ended January 31, 2022. See Note 9, “Leases” for further discussion. Impairment charges in fiscal years ended January 31, 2021 and 2020 were not material.

In addition to the recoverability assessments, Autodesk routinely reviews the remaining estimated useful lives of its long-lived assets. Any reduction in the useful life assumption will result in increased depreciation and amortization expense in the quarter when such determinations are made, as well as in subsequent quarters.

Goodwill

Goodwill consists of the excess of the consideration transferred over the fair value of net assets acquired in business combinations. Autodesk tests goodwill for impairment annually in its fourth fiscal quarter or more often if circumstances indicate a potential impairment may exist, or if events have affected the composition of reporting units.

When goodwill is assessed for impairment, Autodesk has the option to perform an assessment of qualitative factors of impairment (“optional assessment”) prior to necessitating a quantitative impairment test. Should the optional assessment be used for any given fiscal year, qualitative factors to consider include cost factors; financial performance; legal, regulatory, contractual, political, business, or other factors; entity-specific factors; and 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 the quantitative impairment test is unnecessary.

The quantitative impairment test is necessary when either Autodesk does not use the optional assessment or, as a result of the optional assessment, it is not more likely than not that the fair value of the reporting unit is greater than its carrying value. In situations in which an entity’s reporting unit is publicly traded, the fair value of the company may be approximated by its market capitalization, in performing the quantitative impairment test.

Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value. If impairment exists, the carrying value of the goodwill is reduced to fair value through an impairment charge recorded in the Company’s statements of operations. 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) a significant slowdown in the worldwide economy or the industries Autodesk serves, or (iv) changes in Autodesk’s business strategy.

For the annual impairment test, Autodesk’s market capitalization was substantially in excess of the carrying value of the Company as of January 31, 2022. Accordingly, Autodesk has determined there was no goodwill impairment of our reporting unit during the fiscal year ended January 31, 2022. In addition, Autodesk did not recognize any goodwill impairment losses in fiscal 2021 or 2020.

The following table summarizes the changes in the carrying amount of goodwill during the fiscal years ended January 31, 2022 and 2021:

January 31, 2022January 31, 2021
Goodwill, beginning of the year$2,855.7$2,594.2
Less: accumulated impairment losses, beginning of the year(149.2)(149.2)
Additions arising from acquisitions during the year936.2220.8
Effect of foreign currency translation, measurement period adjustments and other (1)(38.9)40.7
Goodwill, end of the year$3,603.8$2,706.5

(1)Measurement period adjustments reflect revisions made to the Company's preliminary determination of estimated fair value of assets and liabilities assumed.

Deferred Tax Assets

Deferred tax assets arise primarily from tax credits, net operating losses, and timing differences for reserves, accrued liabilities, stock options, deferred revenue, purchased technologies, and capitalized intangibles, partially offset by U.S. deferred tax liabilities on acquired intangibles, and valuation allowances against Netherlands, Canada, Australia, California, Michigan and U.S. capital loss deferred tax assets. Autodesk performs a quarterly assessment of the recoverability of these net deferred tax assets and believes it will generate sufficient future taxable income in appropriate tax jurisdictions to realize the net deferred tax assets. They are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce gross deferred tax assets to the amount that is more likely than not to be realized.

Stock-based Compensation Expense

The following table summarizes stock-based compensation expense for fiscal 2022, 2021, and 2020, respectively, as follows:

Fiscal Year Ended January 31,
202220212020
Cost of subscription and maintenance revenue$25.4$17.2$13.8
Cost of other revenue9.16.45.8
Marketing and sales233.5178.4149.0
Research and development220.5145.0120.8
General and administrative70.052.873.0
Stock-based compensation expense related to stock awards and Employee Qualified Stock Purchase Plan ("ESPP") purchases558.5399.8362.4
Tax benefit(53.3)(42.0)(1.1)
Stock-based compensation expense related to stock awards and ESPP purchases, net$505.2$357.8$361.3

Autodesk measures stock-based compensation cost at the grant date fair value of the award, and recognizes expense ratably over the requisite service period, which is generally the vesting period. Autodesk determines the estimated fair value of stock-based payment awards for stock options and grants of employee stock purchases related to the employee stock purchase plan using the Black-Scholes-Merton (“BSM”) option-pricing model. To determine the grant-date fair value of our stock-based payment awards for restricted stock units and performance stock units, we use the quoted stock price on the date of grant unless the awards are subject to market conditions, in which case we use the Monte Carlo simulation model. The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that market conditions will be achieved. These variables include our expected stock price volatility over the expected term of the award, actual and projected employee stock option exercise behaviors, the risk-free interest rate for the expected term of the award, and expected dividends. The variables

used in these models are reviewed on a quarterly basis and adjusted as needed. Share-based compensation cost for restricted stock is measured on the closing fair market value of our common stock on the date of grant. Autodesk uses the following assumptions to estimate the fair value of stock-based awards:

Fiscal Year EndedFiscal Year EndedFiscal Year Ended
January 31, 2022January 31, 2021January 31, 2020
Performance Stock UnitESPPPerformance Stock UnitESPPPerformance Stock UnitESPP
Range of expected volatilities36.9%29.5 - 41.8%50.7%39.4 - 45.8%36.3%33.0 - 40.0%
Range of expected lives (in years)N/A0.5 - 2.0N/A0.5 - 2.0N/A0.5 - 2.0
Expected dividends—%—%—%—%—%—%
Range of risk-free interest rates0.1%0.1 - 0.2%0.3%0.1 - 0.5%2.5%1.7 - 2.5%

Autodesk estimates expected volatility for stock-based awards based on the average of the following two measures: (1) a measure of historical volatility in the trading market for the Company’s common stock, and (2) the implied volatility of traded options on the Company’s common stock. The expected volatility for performance stock units subject to market conditions includes the expected volatility of companies within the S&P North American Technology Software Index with a market capitalization over $2.0 billion, depending on the award type.

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. The range of expected lives of ESPP awards are based upon the four six-month exercise periods within a 24-month offering period.

Autodesk did not pay cash dividends in fiscal 2022, 2021, or 2020 and does not anticipate paying any cash dividends in the foreseeable future. Consequently, an expected dividend yield of zero is used in the BSM option pricing model and the Monte Carlo simulation model.

The risk-free interest rate used in the BSM 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 ultimately vest. Autodesk accounts for forfeitures of stock-based awards as those forfeitures occur.

Advertising Expenses

Advertising costs are expensed as incurred. Total advertising expenses incurred were $80.5 million in fiscal 2022, $60.4 million in fiscal 2021, and $42.2 million in fiscal 2020.

Net Income Per Share

Basic net income per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed using the weighted average shares of common stock outstanding during the period and potentially dilutive common shares, including the effect of restricted stock units, performance share awards, and stock options using the treasury stock method.

Defined Benefit Pension Plans

The funded status of Autodesk’s defined benefit pension plans is recognized in the Consolidated Balance Sheets. The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation for the fiscal years presented. The projected benefit obligation represents the actuarial present value of benefits expected to be paid upon retirement based on employee services already rendered and estimated future compensation levels. The fair value of plan assets represents the current market value of Autodesk’s cumulative company and participant contributions made to the various plans in effect.

Net periodic benefit cost is recorded in the Consolidated Statements of Operations and includes service cost, interest cost, expected return on plan assets, amortization of prior service costs, and gains or losses previously recognized as a component of other comprehensive income (loss). Certain events, such as changes in the employee base, plan amendments, and changes in actuarial assumptions may result in a change in the defined benefit obligation and the corresponding change to other comprehensive loss.

Gains and losses and prior service costs not recognized as a component of net periodic benefit cost in the Consolidated Statements of Operations as they arise are recognized as a component of other comprehensive income (loss) in the Consolidated Statements of Comprehensive Income. Those gains and losses and prior service costs are subsequently amortized as a component of net periodic benefit cost over the average remaining service lives of the plan participants using a corridor approach to determine the portion of gain or loss subject to amortization.

The measurement of projected benefit obligations and net periodic benefit cost is based on estimates and assumptions that reflect the terms of the plans and use participant-specific information such as compensation, age and years of services, as well as certain assumptions, including estimates of discount rates, expected return of plan assets, rate of compensation increases, interest rates, and mortality rates.

Accounting Standards in Fiscal 2022

With the exception of those discussed below, there have been no recent changes in accounting pronouncements issued by FASB or adopted by the Company during the fiscal year ended January 31, 2022, that are applicable to the Company.

Accounting Standards Adopted

In March 2020, FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU No. 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020, through December 31, 2022. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. Autodesk will apply the expedients in ASU No. 2020-04 through December 31, 2022. Autodesk does not believe ASU No. 2020-04 will have a material impact on its consolidated financial statements.

In November 2021, FASB issued ASU No. 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU No. 2021-08”), which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606 “Revenue from Contracts with Customers” (Topic 606). ASU No. 2021-08 allows an acquirer to assess how the acquiree applied Topic 606 to determine what to record for acquired revenue contracts. Historically, such amounts were recognized by the acquirer at fair value in accordance with Topic 805. The amendments are effective for Autodesk's fiscal year beginning February 1, 2023. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. Autodesk adopted ASU No. 2021-08 in the fourth fiscal quarter of 2022. ASU No. 2021-08 did not have a material impact on Autodesk’s consolidated financial statements at adoption.

2. Revenue Recognition

Revenue Disaggregation

Autodesk recognizes revenue from the sale of (1) product subscriptions, cloud service offerings, and enterprise business agreements (“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 Consolidated Statements of Operations.

Information regarding the components of Autodesk’s net revenue from contracts with customers by geographic location, product family, sales channel, and product type was as follows:

Fiscal Year ended January 31,
202220212020
Net revenue by product family:
Architecture, Engineering and Construction$1,959.9$1,648.6$1,377.1
Manufacturing876.0798.6726.1
AutoCAD and AutoCAD LT1,253.01,099.4948.2
Media and Entertainment258.9219.4199.2
Other38.624.423.7
Total net revenue$4,386.4$3,790.4$3,274.3
Net revenue by geographic area:
Americas
U.S.$1,456.5$1,281.8$1,108.9
Other Americas308.6260.6226.9
Total Americas1,765.11,542.41,335.8
Europe, Middle East and Africa1,700.41,472.61,303.5
Asia Pacific920.9775.4635.0
Total net revenue$4,386.4$3,790.4$3,274.3
Net revenue by sales channel:
Indirect$2,849.4$2,600.0$2,282.2
Direct1,537.01,190.4992.1
Total net revenue$4,386.4$3,790.4$3,274.3
Net revenue by product type:
Design$3,868.8$3,365.8$2,920.1
Make363.9296.4218.4
Other153.7128.2135.8
Total net revenue$4,386.4$3,790.4$3,274.3

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 payable to customers for which significant estimation or judgment is required as of the reporting date.

Remaining performance obligations consist of total short-term, long-term, and unbilled deferred revenue. As of January 31, 2022, Autodesk had remaining performance obligations of $4.74 billion, which represents the total contract price allocated to remaining performance obligations, which are generally recognized over the next three years. We expect to recognize $3.14 billion or 66% of our remaining performance obligations as revenue during the next 12 months. We expect to recognize the remaining $1.60 billion or 34% of our remaining performance obligations as revenue thereafter.

The amount of remaining performance obligations may be impacted by 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 January 31, 2022. 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 fiscal years ended January 31, 2022 and 2021, that was included in the deferred revenue balances at January 31, 2021 and 2020, was $2.50 billion and $2.24 billion, respectively. The satisfaction of performance obligations typically lags behind payments received under revenue contracts from customers.

3. 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 January 31, 2022 and 2021.

January 31, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueLevel 1Level 2Level 3
Cash equivalents (1):
Money market funds$302.3$—$—$302.3$302.3$—$—
Commercial paper54.7——54.7—54.7—
U.S. government securities25.0——25.0—25.0—
Custody cash deposit17.8——17.817.8——
Corporate debt securities17.6——17.6—17.6—
Certificates of deposit5.7——5.7—5.7—
Other (2)4.0——4.0—4.0—
Marketable securities:
Short-term
Commercial paper102.9——102.9—102.9—
Corporate debt securities60.7—60.7—60.7—
Asset backed securities26.3——26.3—26.3—
Certificates of deposit13.7——13.7—13.7—
U.S. government securities12.5——12.5—12.5—
Municipal bonds11.1——11.1—11.1—
Common Stock—4.3—4.34.3——
Other (3)4.2—4.24.2—
Long-term
Corporate debt securities44.7—(0.1)44.6—44.6—
Other (4)0.8——0.8—0.8—
Mutual funds (5) (6)74.215.6(0.3)89.589.5——
Strategic investments derivative asset (6)0.10.4(0.4)0.1——0.1
Derivative contract assets (6)1.117.1(0.2)18.0—18.0
Derivative contract liabilities (7)——(10.7)(10.7)—(10.7)—
Total$779.4$37.4$(11.7)$805.1$413.9$391.1$0.1

(1)Included in “Cash and cash equivalents” in the accompanying Consolidated Balance Sheets. These investments are classified as debt securities.

(2)Consists of sovereign bonds and municipal bonds.

(3)Consists of sovereign bonds and supranational bonds.

(4)Consists of asset backed securities.

(5)See Note 7, "Deferred Compensation" for more information.

(6)Included in “Prepaid expenses and other current assets” or “Long-term other assets” in the accompanying Consolidated Balance Sheets.

(7)Included in “Other accrued liabilities” in the accompanying Consolidated Balance Sheets.

January 31, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueLevel 1Level 2Level 3
Cash equivalents (1):
Commercial paper$36.0$—$—$36.0$—$36.0$—
Money market funds686.9——686.9686.9——
Other (2)4.4——4.44.00.4—
Marketable securities:
Short-term available-for-sale
Other (3)4.0—4.04.0—
Short-term trading securities
Mutual funds (4)64.516.5—81.081.0——
Strategic investments derivative asset (5)0.10.4(0.3)0.2——0.2
Derivative contract assets (5)0.49.8(0.4)9.8—9.8
Derivative contract liabilities (6)——(17.5)(17.5)—(17.5)—
Total$796.3$26.7$(18.2)$804.8$771.9$32.7$0.2

(1)Included in “Cash and cash equivalents” in the accompanying Consolidated Balance Sheets. These investments are classified as debt securities.

(2)Consists of custody cash deposits and certificates of deposit.

(3)Consists of commercial paper and municipal bonds.

(4)See Note 7, "Deferred Compensation" for more information.

(5)Included in “Prepaid expenses and other current assets” or “Long-term other assets” in the accompanying Consolidated Balance Sheets.

(6)Included in “Other accrued liabilities” in the accompanying Consolidated Balance Sheets.

The following table summarizes the fair values of investments classified as marketable securities by contractual maturity date as of January 31, 2022:

Fair Value
Due within 1 year$207.9
Due in 1 year through 5 years69.2
Total$277.1

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.

As of both January 31, 2022 and 2021, Autodesk had no material unrealized losses, individually and in the aggregate, for marketable debt securities that are in a continuous unrealized loss position for greater than 12 months. Total unrealized gains for securities with net gains in accumulated other comprehensive income were not material for fiscal 2022.

Autodesk monitors all marketable debt securities for potential credit losses by reviewing indicators such as, but not limited to, current credit rating, change in credit rating, credit outlook, and default risk. There were no allowances for credit losses as of both January 31, 2022 and 2021. There were no write offs of accrued interest receivables for fiscal 2022 and 2021.

There were no realized gain or loss for the sales or redemptions of debt securities during fiscal 2022. The sales or redemptions of debt securities in fiscal 2021 resulted in a net gain of $0.6 million. There were no realized gain or loss for the sales or redemptions of debt securities during fiscal 2020. Realized gains and losses from the sale or redemption of marketable securities are recorded in “Interest and other expense, net” on the Company’s Consolidated Statements of Operations.

Proceeds from the sale and maturity of marketable debt securities for fiscal 2022, 2021, and 2020 were $37.8 million, $17.0 million, and $27.4 million, respectively.

Strategic investment equity securities

As of January 31, 2022 and 2021, Autodesk had $133.7 million and $134.1 million, respectively, in direct investments in privately held companies. These strategic investment equity securities do not have readily determined fair values and Autodesk uses the measurement alternative to account for the adjustment to these investments in a given quarter. If Autodesk determines that an impairment has occurred, Autodesk writes down the investment to its fair value.

Adjustments to the carrying value of our strategic investment equity securities with no readily determined fair values measured using the measurement alternative were as follows:

Fiscal Year EndedCumulative Amount as of
202220212020January 31, 2022
Upward adjustments (1)$7.2$6.6$3.2$23.2
Negative adjustments, including impairments (1)(16.6)(51.6)(4.2)(77.2)
Net adjustments$(9.4)$(45.0)$(1.0)$(54.0)

(1)Included in “Interest and other expense, net” on the Company’s Consolidated Statements of Operations.

Autodesk does not consider the remaining investments to be impaired as of January 31, 2022.

During fiscal year ended January 31, 2022, Autodesk recognized gains of $8.1 million on the disposition of strategic investment equity securities. During both fiscal years ended January 31, 2021 and 2020, Autodesk recognized no gains on the dispositions of strategic investment equity securities.

Foreign currency contracts designated as cash flow hedges

Autodesk uses foreign currency contracts to reduce the exchange rate impact on a portion of the net revenue or operating expense of certain anticipated transactions. These currency collars and forward contracts are designated and documented as cash flow hedges. The notional amounts of these contracts are presented net settled and were $1.08 billion at January 31, 2022, and $1.14 billion at January 31, 2021. Outstanding contracts are recognized as either assets or liabilities on the Company’s Consolidated Balance Sheets at fair value. The majority of the net loss of $24.2 million remaining in “Accumulated other comprehensive loss” as of January 31, 2022, is expected to be recognized into earnings within the next 24 months.

The location and amount of gain or loss recognized in income on cash flow hedges together with the total amount of income or expense presented in the Company’s Consolidated Statements of Operations where the effects of the hedge are recorded were as follows for the fiscal years ended January 31, 2022 and 2021:

Fiscal Year Ended January 31, 2022
Net revenueCost of revenueOperating expenses
Subscription revenueMaintenance revenueCost of subscription and maintenance revenueMarketing and salesResearch and developmentGeneral and administrativeInterest and other expense, net
Total amounts of income and expense line items presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded$4,156.4$76.3$299.1$1,623.1$1,114.8$571.7$(52.9)
(Loss) gain on cash flow hedging relationships in Subtopic ASC 815-20
Foreign exchange contracts
Amount of (loss) gain reclassified from accumulated other comprehensive income into income$(10.7)$(1.2)$(0.5)$(2.4)$(1.2)$(1.2)$0.1
Fiscal Year Ended January 31, 2021
Net revenueCost of revenueOperating expenses
Subscription revenueMaintenance revenueCost of subscription and maintenance revenueMarketing and salesResearch and developmentGeneral and administrative
Total amounts of income and expense line items presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded$3,478.9$183.3$242.1$1,440.3$932.5$413.9
Gain (loss) on cash flow hedging relationships in Subtopic ASC 815-20
Foreign exchange contracts
Amount of (loss) gain reclassified from accumulated other comprehensive income into income$(0.4)$0.1$0.6$2.4$0.5$1.2

Interest rate locks designated as cash flow hedges

During fiscal 2022, Autodesk entered into interest rate lock arrangements to mitigate the risk of changes in interest rates prior to completion of a debt offering. The interest rate locks hedged the cash flow risk for each of the interest payments on the planned fixed-rate debt issue. The interest rate lock hedges were terminated in October 2021 in connection with the debt offering completed in that month. See Note 8, “Borrowing Arrangements,” for further discussion. The aggregate fair value of the terminated interest rate lock hedges of $4.0 million, net of tax of $0.9 million, was classified as an increase to accumulated other comprehensive income and is amortized as a reduction to interest expense over the term of the related debt issuance. The Company had cash inflows of $4.0 million in the fiscal year ended January 31, 2022, associated with the termination of the interest rate lock arrangements, included in “Other financing activities” in our Consolidated Statement of Cash Flows.

Derivatives not designated as hedging instruments

Autodesk uses foreign currency contracts that are not designated as hedging instruments to reduce the exchange rate risk associated primarily with foreign currency denominated receivables, payables, and cash. The notional amounts of these foreign currency contracts are presented net settled and were $542.2 million at January 31, 2022, and $434.5 million at January 31, 2021.

Fair Value of Derivative Instruments:

The fair values of derivative instruments in Autodesk’s Consolidated Balance Sheets were as follows as of January 31, 2022, and January 31, 2021:

Balance Sheet LocationFair Value at
January 31, 2022January 31, 2021
Derivative Assets
Foreign currency contracts designated as cash flow hedgesPrepaid expenses and other current assets$12.2$4.7
Derivatives not designated as hedging instrumentsPrepaid expenses and other current assets and long-term other assets5.95.3
Total derivative assets$18.1$10.0
Derivative Liabilities
Foreign currency contracts designated as cash flow hedgesOther accrued liabilities$6.9$16.5
Derivatives not designated as hedging instrumentsOther accrued liabilities3.81.0
Total derivative liabilities$10.7$17.5

The effects of derivatives designated as hedging instruments on Autodesk’s Consolidated Statements of Operations were as follows for the fiscal years ended January 31, 2022, 2021, and 2020, respectively (amounts presented include any income tax effects):

Foreign Currency Contracts
Fiscal Year Ended January 31,
202220212020
Amount of gain (loss), net of tax, recognized in accumulated other comprehensive loss on derivatives (effective portion)$31.0$(28.1)$3.0
Amount and location of (loss) gain reclassified from accumulated other comprehensive loss into income (effective portion)
Net revenue$(11.9)$(0.3)$17.6
Cost of revenue(0.5)0.6(0.9)
Operating expenses(4.8)4.1(7.1)
Interest and other expense, net0.1——
Total$(17.1)$4.4$9.6

The effects of derivatives not designated as hedging instruments on Autodesk’s Consolidated Statements of Operations were as follows for the fiscal years ended January 31, 2022, 2021, and 2020, respectively (amounts presented include any income tax effects):

Fiscal Year Ended January 31,
202220212020
Amount and location of gain (loss) recognized on derivatives in net income (loss)
Interest and other expense, net$11.2$(0.8)$6.0

4. Equity Compensation

Stock Plans

As of January 31, 2022, Autodesk maintained four 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 (as amended, the “2012 Employee Plan”), which is available only to employees, the Autodesk 2012 Outside Directors’ Stock Plan (“2012 Directors’ Plan”), which is available only to non-employee directors, the PlanGrid 2012 Equity Incentive Plan (“PlanGrid 2012 Plan”), which is available to employees who held outstanding unvested options and restricted stock units that were assumed as part of our acquisition of PlanGrid, Inc. and the BuildingConnected, Inc. 2013 Stock Plan (“BuildingConnected 2013 Plan”), which is available to employees who held outstanding unvested options that were assumed as part of our acquisition of BuildingConnected, Inc.

The 2012 Employee Plan was approved by Autodesk’s stockholders and became effective on January 6, 2012. Since the 2012 Stock Plan was adopted by stockholders in January 2012, Autodesk has received stockholder approval to increase the number of shares subject to the plan by 36.1 million shares. The 2012 Employee Plan reserves up to 57.3 million shares which includes 51.3 million shares reserved under 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 January 31, 2022, 59.1 million shares subject to options, restricted stock units, or restricted stock awards have been granted under the 2012 Employee Plan. Options and restricted stock that were granted under the 2012 Employee 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 January 31, 2022, 6.9 million shares were available for future issuance under the 2012 Employee Plan.

The 2012 Directors’ Plan was approved by Autodesk’s stockholders and became effective on January 6, 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 January 31, 2022, 1.0 million shares subject to restricted stock units, and restricted stock awards 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. On March 12, 2015, the Board reduced the number of shares reserved for issuance under the 2012 Directors' Plan by 0.9 million shares, so that 1.7 million shares are now reserved for issuance under the 2012 Directors’ Plan. The 2012 Directors’ Plan will expire on June 30, 2022. At January 31, 2022, 0.7 million shares were available for future issuance under the 2012 Directors’ Plan.

Pursuant to the PlanGrid acquisition on December 19, 2018, the Company assumed the unvested options and restricted stock units under the PlanGrid 2012 Plan. No further equity awards will be granted under the PlanGrid 2012 Plan. As of January 31, 2022, approximately 67 thousand shares subject to options remain outstanding under the PlanGrid 2012 Plan. Options that were granted under the PlanGrid 2012 Plan vest over a four-year period and expire 10 years from the date of grant. The PlanGrid 2012 Plan will expire on June 18, 2022.

Pursuant to the BuildingConnected acquisition on January 23, 2019, the Company assumed the unvested options under the BuildingConnected 2013 Plan. No further equity awards will be granted under the BuildingConnected 2013 Plan. As of January 31, 2022, approximately 14 thousand shares subject to options remain outstanding under the BuildingConnected 2013 Plan. Options that were granted under the BuildingConnected 2013 Plan vest over a four-year period and expire 10 years from the date of grant. The BuildingConnected 2013 Plan will expire on May 6, 2023.

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

Restricted Stock Units:

A summary of restricted stock activity for the fiscal year ended January 31, 2022, was as follows:

Unreleased Restricted Stock Units (in thousands)Weighted average grant date fair value per share
Unvested restricted stock at January 31, 20214,503.9$191.91
Granted2,294.1288.13
Vested(2,230.7)181.97
Canceled/Forfeited(526.7)226.00
Performance Adjustment (1)(7.9)137.02
Unvested restricted stock at January 31, 20224,032.7$251.17

(1)Based on Autodesk’s financial results and relative total stockholder return for the fiscal 2021 performance period. The performance stock units were attained at rates ranging from 103.0% to 108.0% of the target award.

For the restricted stock granted during fiscal years ended January 31, 2022, 2021 and 2020, the weighted average grant date fair values were $288.13, $224.20, and $156.24, respectively. The fair value of the shares vested during fiscal years ended January 31, 2022, 2021 and 2020 were $619.8 million, $503.4 million, and $361.0 million, respectively.

During the fiscal year ended January 31, 2022, Autodesk granted 2.0 million restricted stock units. 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 expensed ratably over the vesting period.

During the fiscal years ended January 31, 2022 and 2021, Autodesk settled liability-classified awards of $2.7 million and $28.7 million, respectively. The ultimate number of shares earned was based on the Autodesk closing stock price on the vesting date. As these awards were settled in a fixed dollar amount of shares, the awards were accounted for as a liability-classified award and were expensed using the straight-line method over the vesting period.

Autodesk recorded stock-based compensation expense related to restricted stock units of $425.1 million, $308.9 million, and $274.5 million during fiscal years ended January 31, 2022, 2021 and 2020, respectively. As of January 31, 2022, total compensation cost not yet recognized of $672.8 million related to non-vested awards is expected to be recognized over a weighted average period of 1.6 years. At January 31, 2022, the number of restricted stock units granted but unvested was 3.6 million.

During the fiscal year ended January 31, 2022, Autodesk granted 0.2 million performance stock units for which the ultimate number of shares earned is determined based on the achievement of performance criteria at the end of the stated service and performance period. The performance criteria for the performance stock units vested during fiscal 2022 are based on revenue and free cash flow goals adopted by the Compensation and Human Resource Committee and, as applicable, total stockholder return compared against companies in the S&P North American Technology Software Index with a market capitalization over $2.0 billion (“Relative TSR”). These performance stock units vests over the three-year period and have the following vesting schedule:

  • Up to one third of the performance stock units may vest following year one, depending upon the achievement of the performance criteria for fiscal 2022 as well as 1-year Relative TSR (covering year one).

  • Up to one third of the performance stock units may vest following year two, depending upon the achievement of the performance criteria for year two as well as 2-year Relative TSR (covering years one and two).

  • Up to one third of the performance stock units may vest following year three, depending upon the achievement of the performance criteria for year three as well as 3-year Relative TSR (covering years one, two and three).

Additionally, during fiscal year ended January 31, 2022, Autodesk granted 0.1 million performance stock units, as part of a program offering certain employees the option to receive equity in lieu of the opportunity to receive an annual cash incentive award. The ultimate number of shares earned is determined based on the achievement of performance criteria at the end of the stated service and performance period. The performance criteria for the performance stock units are based on revenue and Non-GAAP income from operations targets adopted by the Compensation and Human Resource Committee. The fair value of these performance stock units is expensed using the accelerated attribution method over the one-year vesting period.

Performance 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. Autodesk has determined the grant-date fair value for these awards using the stock price on the date of grant or if the awards are subject to a market condition, a Monte Carlo simulation model. The fair value of the performance stock units is expensed using the accelerated attribution over the vesting period.

Autodesk recorded stock-based compensation expense related to performance stock units of $68.2 million, $30.7 million, and $27.1 million during fiscal years ended January 31, 2022, 2021 and 2020 respectively. As of January 31, 2022, total compensation cost not yet recognized of $10.4 million related to unvested performance stock units, is expected to be recognized over a weighted average period of 0.6 years. At January 31, 2022, the number of performance stock units granted but unvested was 0.4 million.

Common Stock

Autodesk agreed to issue a fixed amount of $4.9 million in common stock at a future date to certain employees in connection with a fiscal 2021 acquisition. Issuance of the common stock is dependent on the respective employees’ continued employment through the vesting period. The number of shares to be issued will be determined based on the closing price of Autodesk’s common stock at the issuance date. During fiscal year ended January 31, 2022, Autodesk issued 8,300 shares at an aggregate fair value of $2.7 million. Remaining shares to be issued are estimated to be 9,000 based on the closing price of Autodesk’s common stock on January 31, 2022, the last trading day of Autodesk’s fiscal 2022 year-end. The awards are accounted for as liability-classified awards and are recognized as compensation expense using the straight-line method over the vesting period.

Autodesk issued 73,632 shares of restricted common stock to certain employees in connection with a fiscal 2021 acquisition. These shares of restricted common stock are subject to forfeiture by the employees if employment terminates prior to the three-year employment period. The fair value of the restricted common stock is recorded as compensation for post-acquisition services and recognized as expense using the straight-line method over the three-year repurchase period. See Note 6, “Acquisitions,” for further discussion.

Autodesk issued 9,277 shares of restricted common stock to certain employees in connection with a fiscal 2022 acquisition. These shares of restricted common stock were recorded as “Prepaid expenses and other current assets” and “Long-term other assets” on our Consolidated Balance Sheets and will be amortized to stock-based compensation expense for post-acquisition services using the straight-line method over the two-year vesting period. See Note 6, “Acquisitions,” for further discussion.

Autodesk agreed to issue a fixed amount of $13.1 million in shares of common stock to certain employees in connection with a fiscal 2022 acquisition. Issuance of the common stock is dependent on the respective employees’ continued employment through the vesting period. The number of shares to be issued will be determined based on the volume weighted average closing price (“VWAP”) of Autodesk’s common stock for the ninety consecutive trading day period ending on the release date. Shares to be issued are estimated to be 48,000 based on the VWAP of Autodesk’s common stock for the ninety consecutive trading day period ending January 31, 2022, the last trading day of Autodesk’s fiscal 2022 year-end. The awards are accrued as liability-classified awards and are recognized as compensation expense using the straight-line method over the vesting period. See Note 6, “Acquisitions,” for further discussion.

Autodesk agreed to issue a fixed amount of $10.6 million in common stock at a future date to certain employees in connection with other fiscal 2022 acquisitions. Issuance of the common stock is dependent on the respective employees’ continued employment through the vesting period. The number of shares to be issued will be determined based on the VWAP of Autodesk’s common stock at the issuance date. Shares to be issued are estimated to be 39,000 based on the closing price of Autodesk’s common stock on January 31, 2022. The awards are accounted for as liability-classified awards and are recognized as compensation expense using the straight-line method over the vesting period. Additionally, Autodesk issued 12,782 shares of restricted common stock to certain employees in connection with these fiscal 2022 acquisitions. These shares of restricted common stock were recorded as “Prepaid expenses and other current assets” and “Long-term other assets” on our Consolidated

Balance Sheets and will be amortized to stock-based compensation expense for post-acquisition services using the straight-line method over the vesting period. See Note 6, “Acquisitions,” for further discussion.

Autodesk recorded stock-based compensation expense related to common stock shares of $16.5 million and $2.4 million during the fiscal years ended January 31, 2022 and 2021, respectively.

1998 Employee Qualified Stock Purchase Plan (“ESPP”)

Under Autodesk’s ESPP, 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 85% of the lower of Autodesk's closing price (fair market value) on the offering date or the exercise date. The offering period for ESPP awards consists of four six-month exercise periods within a 24-month offering period.

At January 31, 2022, a total of 5.6 million shares were available for future issuance. Under the ESPP, the Company issues shares on the first trading day following March 31 and September 30 of each fiscal year. The ESPP does not have an expiration date.

A summary of the ESPP activity for the fiscal years ended January 31, 2022, 2021 and 2020 was as follows:

Fiscal year ended January 31,
202220212020
Issued shares0.90.90.9
Average price of issued shares$130.13$122.73$102.20
Weighted average grant date fair value of awards granted under the ESPP$84.21$55.98$47.78

Autodesk recorded $37.1 million, $40.1 million, and $33.3 million of compensation expense associated with the ESPP in fiscal 2022, 2021 and 2020, respectively.

Equity Compensation Plan Information

The following table summarizes the number of outstanding options and awards granted to employees and directors, as well as the number of securities remaining available for future issuance under these plans as of January 31, 2022:

(a)(b)(c)
Plan categoryNumber of securities to be issued upon exercise or vesting of outstanding options and awards (in millions)Weighted-average exercise price of outstanding optionsNumber of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (in millions) (1)
Equity compensation plans approved by security holders4.1$21.0313.3
Total4.1$21.0313.3

(1)Included in this amount are 5.6 million securities available for future issuance under Autodesk’s ESPP.

5. Income Taxes

The provision for income taxes consists of the following:

Fiscal year ended January 31,
202220212020
Federal:
Current$(0.5)$9.8$(2.3)
Deferred(5.4)(741.0)7.6
State:
Current2.519.0(0.4)
Deferred0.3(57.5)2.1
Foreign:
Current82.587.669.6
Deferred(11.7)20.63.7
Income tax provision (benefit)$67.7$(661.5)$80.3

Foreign pretax income was $559.5 million in fiscal 2022, $527.8 million in fiscal 2021, and $475.5 million in fiscal 2020.

The differences between the U.S. statutory rate and the aggregate income tax provision are as follows:

Fiscal year ended January 31,
202220212020
Income tax provision at U.S. Federal statutory rate$118.6$114.8$61.9
State income tax benefit, net of the U.S. Federal benefit2.2(43.0)1.8
Foreign income taxed at rates different from the U.S. statutory rate(25.4)(11.5)(81.0)
Valuation allowance adjustment(0.2)(637.4)93.9
Transition tax and revisions due to subsequent regulations——9.6
Tax effect of non-deductible stock-based compensation32.324.829.2
Stock compensation (windfall) / shortfall(43.2)(35.1)(22.5)
Research and development tax credit benefit(18.5)(15.5)(19.8)
Closure of income tax audits and changes in uncertain tax positions(0.4)0.1(2.1)
Tax effect of officer compensation in excess of $1.0 million7.04.63.4
Non-deductible expenses4.52.35.4
Global intangible low-taxed income, foreign derived intangible income24.1(65.0)—
India withholding tax refund(43.8)——
Acquisition-related integrations9.0——
Other1.5(0.6)0.5
Income tax provision (benefit)$67.7$(661.5)$80.3

(1) The above comparative for fiscal 2021 and fiscal 2020 have reclassified to conform to the current period presentation.

Autodesk’s fiscal 2022 tax expense is primarily driven by the U.S. and foreign tax expense, including withholding taxes on payments made to the United States or to Singapore from foreign sources, offset by shared-based compensation deductions, India withholding tax refunds and generation of federal tax credits.

Significant components of Autodesk’s deferred tax assets and liabilities are as follows:

January 31,
20222021
Stock-based compensation$55.8$39.0
Research and development tax credit carryforwards249.7220.4
Foreign tax credit carryforwards55.969.9
Accrued compensation and benefits5.73.4
Other accruals not currently deductible for tax23.014.1
Purchased technology and capitalized software88.448.2
Fixed assets24.58.1
Lease liability105.7114.2
Tax loss carryforwards53.065.5
Deferred revenue389.6501.5
Other23.340.2
Total deferred tax assets1,074.61,124.5
Less: valuation allowance(188.3)(186.5)
Net deferred tax assets886.3938.0
Indefinite lived intangibles(95.4)(83.1)
Right-of-use assets(73.7)(101.6)
Unremitted earnings of foreign subsidiaries(5.5)(1.6)
Total deferred tax liabilities(174.6)(186.3)
Net deferred tax assets (liabilities)$711.7$751.7

Autodesk regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, Autodesk evaluates whether it is more likely than not that some or all of the deferred tax assets will not be realized based on all available positive and negative evidence.

In evaluating the need for a valuation allowance, prior to fiscal 2021 Autodesk considered global cumulative losses arising from the Company’s business model transition as a significant piece of negative evidence. During fiscal 2021 Autodesk recognized cumulative earnings on a global basis and was profitable in the U.S. and forecasted future cumulative earnings in U.S. jurisdiction for future periods. In the fourth quarter of fiscal 2021, Autodesk released the valuation allowance against the Company’s U.S. deferred tax assets, due to positive evidence indicating that these deferred tax assets are more likely than not to be realized. The Company has retained a valuation allowance against California and Michigan deferred tax assets and deferred tax assets that will convert into a capital loss upon reversal as we do not have sufficient income of the appropriate character to benefit these deferred tax assets. The Company continues to retain a valuation allowance of $60.5 million against foreign deferred tax assets in the Netherlands and Canada as of January 31, 2022, as well as establishing a valuation allowance in Australia.

The valuation allowance increased by $1.8 million in fiscal 2022 primarily due to the generation of deferred tax attributes and the establishment of a valuation allowance in Australia. The valuation allowance decreased by $696.9 million in fiscal 2021 primarily due to the U.S. valuation allowance release of $679.0 million. The valuation allowance increased by $85.6 million in fiscal 2020, primarily due to the generation of deferred tax attributes, net of the fiscal 2020 valuation allowance release of $42.0 million in Singapore.

We anticipate that the U.S. Department of Treasury and other standard-setting bodies will continue to interpret or issue guidance on how provisions of the U.S. Tax Cuts and Jobs Act (“TCJA”) will be applied or otherwise administered. As future guidance is issued, we may make adjustments to amounts that we have previously recorded that may materially impact our financial statements in the period in which the adjustments are made.

The company has elected to recognize any potential GILTI obligations as an expense in the period it is incurred.

As of January 31, 2022, Autodesk had $41.0 million of cumulative U.S. federal tax loss carryforwards and $585.4 million of cumulative U.S. state tax loss carryforwards, which may be available to reduce future income tax liabilities in federal and state jurisdictions. The pre-fiscal 2019 U.S. federal tax loss carryforward will expire beginning fiscal 2035 through fiscal 2039. U.S. federal losses generated beginning in fiscal 2019 do not expire and are carried forward indefinitely. The U.S. state tax loss carryforward will expire beginning fiscal 2025 through fiscal 2042.

In addition to U.S. federal and state tax loss carryforwards, the Netherlands, Norway, Singapore, and other foreign jurisdictions incurred tax losses totaling $164.0 million, which may be available to reduce future income tax liabilities. Our Norway and Singapore losses, of $28.7 million and $85.2 million, respectively, have an indefinite expiration period. The Netherlands losses of $41.3 million will expire beginning in fiscal 2026 through fiscal 2028, and have a full valuation allowance against them on our balance sheet as the Company has determined it is more likely than not that these losses will not be utilized.

As of January 31, 2022, Autodesk had $190.8 million of cumulative U.S. federal research tax credit carryforwards, $106.5 million of cumulative California state research tax credit carryforwards, and $49.2 million and $1.4 million of cumulative Canadian federal research and Ontario minimum tax credit carryforwards, respectively, which may be available to reduce future income tax liabilities in the respective jurisdictions. The federal research tax credit carryforwards will expire beginning fiscal 2026 through fiscal 2042, the state research tax credit carryforwards may reduce future California income tax liabilities indefinitely, and the Canadian research tax credit carryforwards will expire beginning fiscal 2030 through fiscal 2042. Autodesk also has $119.3 million of cumulative U.S. federal foreign tax credit carryforwards, which may be available to reduce future U.S. tax liabilities. These foreign tax credits will expire beginning fiscal 2025 through fiscal 2032. As discussed above, the California and Canada cumulative assets have full valuation allowance against them on our balance sheet as the Company has determined it is more likely than not that these losses and credits will not be utilized.

Utilization of net operating losses and tax credits may be subject to an annual limitation due to ownership change limitations provided in the Internal Revenue Code and similar state provisions. This annual limitation may result in the expiration of net operating losses and credits before utilization. No ownership change has occurred through the balance sheet date that would result in permanent losses of the U.S. federal and state tax attributes.

As of January 31, 2022, the Company had $206.7 million of gross unrecognized tax benefits, of which $33.6 million would reduce our valuation allowance, if recognized. The remaining $173.1 million would impact the effective tax rate. It is possible that the amount of unrecognized tax benefits will decrease in the next 12 months for an audit settlement of approximately $7.8 million.

A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits is as follows:

Fiscal Year Ended January 31,
202220212020
Gross unrecognized tax benefits at the beginning of the fiscal year$198.0$220.6$209.0
Increases for tax positions of prior years9.012.72.8
Decreases for tax positions of prior years(6.6)(41.1)(0.4)
Increases for tax positions related to the current year6.76.411.1
Decreases relating to settlements with taxing authorities———
Reductions as a result of lapse of the statute of limitations(0.4)(0.6)(1.9)
Gross unrecognized tax benefits at the end of the fiscal year$206.7$198.0$220.6

It is the Company’s continuing practice to recognize interest and/or penalties related to income tax matters in income tax expense. Autodesk had $6.5 million, $4.5 million, and $2.3 million, net of tax benefit, accrued for interest and penalties related to unrecognized tax benefits as of January 31, 2022, 2021, and 2020, respectively. There was $2.1 million, $2.2 million, and $(0.8) million of net expense for interest and penalties related to tax matters recorded through the consolidated statements of operations for the years ended January 31, 2022, 2021, and 2020, respectively.

Autodesk’s U.S. and state income tax returns for fiscal 2002 through fiscal 2022 remain open to examination due to either net operating loss or credit carryforward. The Internal Revenue Service notified the Company of examination of the Company’s consolidated federal income tax returns for fiscal 2020 and 2021. This audit commenced in February, 2022.

Autodesk files tax returns in multiple foreign taxing jurisdictions with open tax years ranging from fiscal 2005 to 2022.

6. Acquisitions

Fiscal 2022 Acquisitions

The results of operations for the following acquisitions are included in the accompanying Consolidated Statements of Operations since their respective acquisition dates. Pro forma results of operations have not been presented because the effects of these acquisitions were not material to Autodesk’s Consolidated Financial Statements.

Upchain

On May 11, 2021, Autodesk acquired 100% of the outstanding stock of Upchain Inc. (“Upchain”), a cloud-based provider of product lifecycle management and product data management systems, for approximately $126.7 million in cash and Autodesk will issue a fixed amount of $13.1 million in common stock at future dates to certain employees in connection with the acquisition for a total consideration of $139.8 million. Of the total consideration transferred, $123.6 million is considered purchase consideration. Of the remaining amount, $13.1 million is accounted for as liability-classified awards and recognized as compensation expense using the straight-line method over the vesting period, and $3.1 million was recorded as stock-based compensation expense during the fiscal year ended January 31, 2022. Issuance of the $13.1 million fixed value in common stock is dependent on the respective employees’ continued employment and vests 40% and 60% on the first and second anniversaries of the closing date, respectively. The number of shares will be determined based on the VWAP of Autodesk’s common stock for the ninety consecutive trading day period ending on the release date. The number of shares is estimated to be 48,000 based on the VWAP of Autodesk’s common stock for the ninety consecutive trading day period ending January 31, 2022, the last trading day of the fiscal quarter. See also Note 4, “Equity Compensation”.

Autodesk expects to integrate Upchain’s unified cloud platform in Autodesk solutions to centralize data management and process management.

Innovyze

On March 31, 2021, Autodesk acquired all of the outstanding stock of Storm UK Holdco Limited, the parent of Innovyze, Inc. (“Innovyze”), a global leader in water infrastructure software. Innovyze is expected to provide comprehensive water modeling solutions that augment Autodesk’s BIM offerings in civil engineering, and is expected to extend Autodesk’s presence into operations and maintenance of water infrastructure assets.

The acquisition-date fair value of the consideration transferred totaled $1,038.1 million, which consisted of $1,035.5 million of cash and 9,277 shares of Autodesk’s restricted common stock at an aggregate fair value of $2.6 million. Of the total consideration transferred, $1,035.5 million is considered purchase consideration. The remaining amount of $2.6 million was recorded in “Prepaid expenses and other current assets” and “Long-term other assets”. The 9,277 shares of restricted common stock are subject to forfeiture until the second anniversary of the acquisition closing date. 50% are released from restriction on both the first and second anniversaries subject to continued employment. See also Note 4, “Equity Compensation”.

Other Acquisitions

During the fiscal year ended January 31, 2022, Autodesk completed four additional business combinations. The acquisition-date fair value of the consideration transferred totaled $113.3 million, which consisted of $98.8 million of cash, a fixed amount of $10.6 million in common stock to be issued at future dates to certain employees in connection with the acquisition, 12,782 shares of Autodesk’s restricted common stock at an aggregate fair value of $3.5 million, and $0.4 million of assumed liabilities on behalf of the sellers. Of the total consideration transferred, $99.2 million is considered purchase consideration. The remaining amounts of $3.5 million was recorded in “Prepaid expenses and other current assets” and “Long-term other assets” and $10.6 million is accounted for as liability-classified awards and recognized as compensation expense using the straight-line method over the vesting period.

Purchase Price Allocation

The acquisitions during fiscal 2022 were accounted for as business combinations. The goodwill recorded was primarily attributable to synergies expected to arise after the acquisition. Goodwill of $86.7 million, $323.5 million, and $69.7 million is deductible for U.S. income tax purposes for Upchain, Innovyze, and other acquisitions, respectively. The transaction costs related to the acquisitions were not material.

The following table summarizes the assets acquired and liabilities assumed by major class for the business combinations that were completed during the fiscal year ended January 31, 2022:

InnovyzeUpchainOtherTotal
Developed technologies$93.0$17.6$27.0$137.6
Customer relationships221.010.44.7236.1
Trade name4.00.40.54.9
Backlog0.5——0.5
Goodwill764.498.373.5936.2
Deferred revenue and long-term deferred revenue(12.3)(2.6)(3.5)(18.4)
Long-term deferred income taxes(42.4)(0.7)(2.5)(45.6)
Net tangible assets (liabilities)7.30.2(0.5)7.0
Total$1,035.5$123.6$99.2$1,258.3

For the business combinations, the allocation of purchase price consideration to certain assets and liabilities as well as the final amount of purchase consideration are not yet finalized. For the items not yet finalized, Autodesk's estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized are amounts for tax assets and liabilities, deferred revenue, and residual goodwill.

Fiscal 2021 Acquisitions

Spacemaker AS

On November 23, 2020, Autodesk acquired Spacemaker AS (“Spacemaker”). Spacemaker is a leading provider of cloud-based artificial intelligence technology and generative design enabling architects, urban designers, and real estate developers to optimize and maximize the potential of a building site, especially during early-stage design.

The acquisition-date fair value of the consideration transferred totaled $252.0 million, which consisted of $214.1 million of cash and 147,264 shares of Autodesk’s common stock at an aggregate fair value of $37.9 million. Of the total consideration transferred, $231.1 million is considered purchase consideration. Of the remaining amount, $18.9 million was recorded in “Prepaid expenses and other current assets” and “Long-term other assets” on our Consolidated Balance Sheets and will be amortized to stock-based compensation expense, and $2.0 million was recorded as stock-based compensation expense during the fiscal quarter ended January 31, 2021. The 147,264 shares of common stock are held in escrow until the third anniversary of the acquisition closing date, and 73,632 of those shares are subject to forfeiture by the employee if employment terminates during the three-year employment period. See Note 4, “Equity Compensation ,” for further discussion.

Other Acquisitions

During the fiscal year ended January 31, 2021, Autodesk also completed two other business combinations. The acquisition-date fair value of the cash consideration transferred totaled $45.4 million.

The results of operations for Spacemaker and the other acquisitions were included in the accompanying Consolidated Statement of Operations from the dates of the respective acquisitions. Goodwill of $193.0 million is deductible for U.S. income tax purposes.

Fiscal 2020 Acquisitions

During the fiscal year ended January 31, 2020, Autodesk did not complete any business combinations.

7. Deferred Compensation

At January 31, 2022, Autodesk had investments in debt and equity securities that are held in a rabbi trust under non-qualified deferred compensation plans and a corresponding deferred compensation liability totaling $89.5 million. Of this amount, $7.1 million was classified as current and $82.4 million was classified as non-current in the Consolidated Balance Sheet. Of the $81.0 million related to investments and deferred compensation liability in a rabbi trust as of January 31, 2021, $7.3 million was classified as current and $73.7 million was classified as non-current. The current and non-current asset portions of the investments in debt and equity securities that are held in a rabbi trust under non-qualified deferred compensation plans are recorded in the Consolidated Balance Sheets under “Prepaid expenses and other current assets” and “Long-term other assets,” respectively. The current and non-current portions of the deferred compensation liability are recorded in the Consolidated Balance Sheets under “Accrued compensation” and “Long-term other liabilities,” respectively. See Note 1, “Business and Summary of Significant Accounting Policies” for a change in the presentation and immaterial correction of an error on the Consolidated Balance Sheets related to the investments in a rabbi trust.

Costs to obtain a contract with a customer

Sales commissions earned by our internal sales personnel and our reseller partners are considered incremental and recoverable costs of obtaining a contract with a customer. The ending balance of assets recognized from costs to obtain a contract with a customer was $138.5 million and $120.9 million as of January 31, 2022 and January 31, 2021, respectively. These assets are recorded in “Prepaid expenses and other current assets” and “Long-term other assets” in the Consolidated Balance Sheet. Amortization expense related to assets recognized from costs to obtain a contract with a customer was $117.8 million, $96.6 million, and $101.6 million during fiscal years ended January 31, 2022, 2021, and 2020, respectively. Autodesk did not recognize any contract cost impairment losses during the fiscal years ended January 31, 2022, 2021, or 2020.

8. Borrowing Arrangements

In October 2021, Autodesk issued $1.0 billion aggregate principal amount of 2.4% notes due December 15, 2031 (“2021 Notes”). Net of a discount of $3.0 million and issuance costs of $9.2 million, Autodesk received net proceeds of $987.8 million from issuance of the 2021 Notes. Both the discount and issuance costs are being amortized to interest expense over the term of the 2021 Notes using the effective interest method. The 2021 Notes were designated as sustainability bonds, the net proceeds of which are used to fund environmentally and socially responsible projects in the following areas: eco-efficient products, production technologies, and processes, sustainable water and wastewater management, renewable energy & energy efficiency, green buildings, pollution prevention and control, and socioeconomic advancement and empowerment.

In September 2021, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) by and among the Company, the lenders party thereto and Citibank, N.A. (“Citibank”), as administrative agent, which provides for an unsecured revolving loan facility in the aggregate principal amount of $1.5 billion, with an option to be increased up to $2.0 billion. The Credit Agreement replaced and terminated the Company’s existing $650.0 million Amended and Restated Credit Agreement, with an option to be increased up to $1.0 billion, dated as of December 17, 2018, among the Company, the lenders party thereto and Citibank, N.A., as administrative agent. The revolving credit facility is available for working capital or other business needs. The Credit Agreement contains customary covenants that could, among other things, restrict the imposition of liens on Autodesk’s assets, and restrict Autodesk’s ability to incur additional indebtedness or make dispositions of assets if Autodesk fails to maintain compliance with the financial covenants. The Credit Agreement requires the Company to maintain a maximum leverage ratio of Consolidated Covenant Debt to Consolidated EBITDA (each as defined in the Credit Agreement) no greater than 3.50:1.00 during the term of the credit facility, subject to adjustment following the consummation of certain acquisitions up to 4.00:1.00 for up to four consecutive fiscal quarters. At January 31, 2022, Autodesk was in compliance with the Credit Agreement covenants. Revolving loans under the Credit Agreement will bear interest, at the Company’s option, at either (i) a per annum rate equal to the Base Rate (as defined in the Credit Agreement) plus a margin of between 0.000% and 0.375%, depending on the Company’s Public Debt Rating (as defined in the Credit Agreement), or (ii) a per annum rate equal to the rate at which dollar deposits are offered in the London interbank market, plus a margin of between 0.785% and 1.375%, depending on Company’s Public Debt Rating. The Credit Agreement includes customary provisions to provide for the eventual replacement of LIBOR as a benchmark interest rate. The interest rates for the revolving credit facility are subject to upward or

downward adjustments, on an annual basis, if the Company achieves, or fails to achieve, certain sustainability-linked targets based on two key performance indicator metrics: (i) the amount of scope 1 and 2 greenhouse gas emissions from the global operations of the Company and its subsidiaries during a fiscal year less qualified emissions reduction instruments and (ii) the percentage of employees of the Company and its subsidiaries identifying as female working in technical roles. The maturity date on the Credit Agreement is September 30, 2026. At January 31, 2022, Autodesk had no outstanding borrowings under the Credit Agreement.

In January 2020, Autodesk issued $500.0 million aggregate principal amount of 2.85% notes due January 15, 2030 (“2020 Notes”). Net of a discount of $1.1 million and issuance costs of $4.8 million, Autodesk received net proceeds of $494.1 million from issuance of the 2020 Notes. Both the discount and issuance costs are being amortized to interest expense over the term of the 2020 Notes using the effective interest method. The proceeds of the 2020 Notes were used for the repayment of $450.0 million 2015 Notes, as defined below, and the remainder is available for general corporate purposes.

In June 2017, Autodesk issued $500.0 million aggregate principal amount of 3.5% notes due June 15, 2027 (the “2017 Notes”). Net of a discount of $3.1 million and issuance costs of $4.9 million, Autodesk received net proceeds of $492.0 million from issuance of the 2017 Notes. Both the discount and issuance costs are being amortized to interest expense over the term of the 2017 Notes using the effective interest method. The proceeds of the 2017 Notes have been used for the repayment of $400.0 million of debt due December 15, 2017, and the remainder is available for general corporate purposes.

In June 2015, Autodesk issued $300.0 million aggregate principal amount of 4.375% notes due June 15, 2025 (“ 2015 Notes”). Net of a discount of $1.1 million, and issuance costs of $2.5 million, Autodesk received net proceeds of $296.4 million from issuance of the 2015 Notes. Both the discount and issuance costs are being amortized to interest expense over the respective terms of the 2015 Notes using the effective interest method. The proceeds of the 2015 Notes are available for general corporate purposes.

In December 2012, Autodesk issued $350.0 million aggregate principal amount of 3.6% notes due December 15, 2022 (“2012 Notes”). Autodesk received net proceeds of $346.7 million from issuance of the 2012 Notes, net of a discount of $0.5 million and issuance costs of $2.8 million. Both the discount and issuance costs are being amortized to interest expense over the respective terms of the 2012 Notes using the effective interest method. The proceeds of the 2012 Notes are available for general corporate purposes.

The 2021, 2020 Notes, 2017 Notes, 2015 Notes and the 2012 Notes may all be redeemed 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 all the Notes, at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. All 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 important qualifications and exceptions.

Based on the quoted market prices, the approximate fair value of the notes as of January 31, 2022, were as follows:

Aggregate Principal AmountFair value
2012 Notes$350.0$355.8
2015 Notes300.0320.4
2017 Notes500.0525.8
2020 Notes500.0503.3
2021 Notes1,000.0956.7

The expected future principal payments for all borrowings as of January 31, 2022, were as follows:

Fiscal year ending
2023$350.0
2024—
2025—
2026300.0
2027—
Thereafter2,000.0
Total principal outstanding$2,650.0

9. Leases

Autodesk has operating leases for real estate, vehicles and certain equipment. Leases have remaining lease terms of less than 1 year to 68 years, some of which include options to extend the lease with renewal terms from 1 year to 10 years and some of which include options to terminate the leases from less than 1 year to 8 years. Options to extend the lease are included in the lease liability if they are reasonably certain of being exercised. Options to terminate are considered in determining the lease liability if they are reasonably certain of being exercised. Payments under our lease arrangements are primarily fixed, however, certain lease agreements contain variable payments, which are expensed as incurred and not included in the operating lease assets and liabilities. These amounts include payments affected by the Consumer Price Index, payments for common area maintenance that are subject to annual reconciliation, and payments for maintenance and utilities. The Company’s leases do not contain residual value guarantees or material restrictive covenants. Short-term leases are recognized in the Consolidated Statement of Operations on a straight-line basis over the lease term. Short-term lease expense was not material for the periods presented. Changes in operating lease right-of-use assets and operating lease liabilities are presented net in the “accounts payable and other liabilities” line in the Consolidated Statements of Cash Flows with the exception of “Lease-related asset impairments” which is presented in “Adjustments to reconcile net income to net cash provided by operating activities”.

During the fiscal year ended January 31, 2022, Autodesk vacated certain leased office facilities in connection with Autodesk’s move to a more hybrid workforce. Autodesk recorded total impairment and accelerated depreciation charges of $103.7 million, consisting of operating lease right-of-use assets of $74.8 million and computer equipment, software, furniture, and leasehold improvements of $28.9 million. Autodesk assessed the asset groupings for disaggregation based on the proposed changes in use of the facilities. For asset groups where impairment was triggered, Autodesk utilized an income approach to value the asset groups by developing discounted cash flow models. The significant assumptions used in the discounted cash flow models for each of the asset groups included projected sublease income over the remaining lease terms, expected downtime prior to the commencement of future subleases, expected lease incentives offered to future tenants, and discount rates that reflected the level of risk associated with these future cash flows. These significant assumptions are considered Level 1 and Level 2 inputs in accordance with the fair value hierarchy described in Note 1, “Business and Summary of Significant Accounting Policies.” The operating lease right-of-use assets and other lease-related assets charges are included in “general and administrative” in the Company’s Consolidated Statements of Operations.

The components of lease cost were as follows:

Fiscal Year Ended January 31, 2022
Cost of subscription and maintenance revenueCost of other revenueMarketing and salesResearch and developmentGeneral and administrativeTotal
Operating lease cost$8.1$2.3$43.2$30.3$14.4$98.3
Variable lease cost1.00.35.43.81.912.4
Fiscal Year Ended January 31, 2021
Cost of subscription and maintenance revenueCost of other revenueMarketing and salesResearch and developmentGeneral and administrativeTotal
Operating lease cost$7.2$1.9$45.0$29.2$18.1$101.4
Variable lease cost0.90.25.33.52.112.0

Supplemental operating cash flow information related to leases was as follows:

Fiscal Year Ended January 31, 2022Fiscal Year Ended January 31, 2021
Cash paid for operating leases included in operating cash flows (1)$106.8$96.3
Non-cash operating lease liabilities arising from obtaining operating right-of-use assets52.967.4

(1) Includes $12.4 million and $12.0 million in variable lease payments not included in “Operating lease liabilities” and “Long-term operating lease liabilities” on the Consolidated Balance Sheet for fiscal years ended January 31, 2022 and 2021, respectively.

The weighted average remaining lease term for operating leases is 6.9 and 7.3 years at January 31, 2022 and 2021, respectively. The weighted average discount rate was 2.46% and 2.69% at January 31, 2022 and 2021, respectively,

Maturities of operating lease liabilities were as follows:

Fiscal year ending
2023$95.8
202487.1
202566.4
202656.0
202738.0
Thereafter124.1
467.4
Less imputed interest35.0
Present value of operating lease liabilities$432.4

As of January 31, 2022, Autodesk had no additional operating lease minimum lease payments for executed leases that have not yet commenced.

10. Commitments and Contingencies

Purchase Commitments

In the normal course of business, Autodesk enters into various purchase commitments for goods or services. Total non-cancellable purchase commitments as of January 31, 2022, were approximately $317.6 million for periods through fiscal 2032. These purchase commitments primarily result from contracts entered into for the acquisition of cloud services, marketing, and commitments related to our investment agreements with limited liability partnership funds.

Autodesk has certain royalty commitments associated with the sale and licensing of certain products. Royalty expense is generally based on a fixed rate over a specified period, dollar amount per unit sold or a percentage of the underlying revenue. Royalty expense, which was recorded under cost of subscription and maintenance revenue and cost of other revenue on Autodesk’s Consolidated Statements of Operations, was $15.8 million in fiscal 2022, $14.9 million in fiscal 2021, and $14.3 million in fiscal 2020.

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, inquiries, investigations, and proceedings in the normal course of business including claims of alleged infringement of intellectual property rights, commercial, employment, tax, prosecution of unauthorized use, business practices, and other matters. Autodesk routinely reviews the status of each significant matter and assesses its potential financial exposure. If the potential loss from any matter is considered probable and the amount can be reasonably estimated, Autodesk records a liability for the estimated loss. Because of inherent uncertainties related to these legal matters, Autodesk bases its loss accruals on the best information available at the time. As additional information becomes available, Autodesk reassesses its potential liability and may revise its estimates. 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.

11. 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. Autodesk repurchased and retired

approximately 4.0 million shares in fiscal 2022 at an average repurchase price of $275.50 per share, 2.6 million shares in fiscal 2021 at an average repurchase price of $207.61 per share, and 2.7 million shares in fiscal 2020 at an average repurchase price of $168.63 per share.

At January 31, 2022, 8.1 million shares remained available for repurchase under the repurchase program approved by the Board of Directors. The share repurchase program does not have an expiration date and the pace and timing of repurchases will depend on factors such as cash generation from operations, available surplus, the volume of employee stock plan activity, cash requirements for acquisitions, economic and market conditions, stock price and legal and regulatory requirements.

12. Interest and Other Expense, net

Interest and other expense, net, consists of the following:

Fiscal Year Ended January 31,
202220212020
Interest and investment expense, net$(65.0)$(51.1)$(54.0)
Gain on foreign currency0.43.53.9
Gain (loss) on strategic investments4.0(41.7)(3.3)
Other income7.76.95.2
Interest and other expense, net$(52.9)$(82.4)$(48.2)

13. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss, net of taxes, consisted of the following:

Net Unrealized Gains (Losses) on Derivative InstrumentsNet Unrealized Gains (Losses) on Available for Sale SecuritiesDefined Benefit Pension ComponentsForeign Currency Translation AdjustmentsTotal
Balances, January 31, 2020$8.4$4.7$(22.8)$(150.6)$(160.3)
Other comprehensive (loss) income before reclassifications(33.1)1.50.364.333.0
Pre-tax (gain) loss reclassified from accumulated other comprehensive income(4.4)0.11.5—(2.8)
Tax effects5.00.1(0.3)(0.6)4.2
Net current period other comprehensive (loss) income(32.5)1.71.563.734.4
Balances, January 31, 2021(24.1)6.4(21.3)(86.9)(125.9)
Other comprehensive income (loss) before reclassifications39.411.70.7(63.2)(11.4)
Pre-tax loss reclassified from accumulated other comprehensive income17.20.14.7—22.0
Tax effects(8.3)—(0.7)0.3(8.7)
Net current period other comprehensive income (loss)48.311.84.7(62.9)1.9
Balances, January 31, 2022$24.2$18.2$(16.6)$(149.8)$(124.0)

Reclassifications related to gains and losses on available-for-sale debt securities are included in “Interest and other expense, net.” Refer to Note 3, “Financial Instruments” for the amount and location of reclassifications related to derivative instruments. Reclassifications of the defined benefit pension components of net periodic benefit cost are included in “Interest and other expense, net.”

14. Net Income Per Share

Basic net income per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed using the weighted average number of shares of common stock outstanding during the period and potentially dilutive common shares, including the effect of restricted stock units, performance share awards, and stock options using 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:

Fiscal Year Ended January 31,
202220212020
Numerator:
Net income$497.0$1,208.2$214.5
Denominator:
Weighted average shares for basic net income per share219.7219.4219.7
Effect of dilutive securities2.32.72.8
Weighted average shares for dilutive net income per share222.0222.1222.5
Basic net income per share$2.26$5.51$0.98
Diluted net income per share$2.24$5.44$0.96

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 fiscal year. The effect of 0.2 million and 0.1 million potentially anti-dilutive shares were excluded from the computation of diluted net income per share for the fiscal years ended January 31, 2022 and 2021, respectively. There were no potentially anti-dilutive shares excluded from the computation of diluted net income per share for the fiscal year ended January 31, 2020.

15. Retirement Benefit Plans

Pretax Savings Plan

Autodesk has a 401(k) plan that covers nearly all U.S. employees. Eligible employees may contribute up to 75% of their pretax salary, subject to limitations mandated by the Internal Revenue Service. Autodesk makes voluntary cash contributions and matches a portion of employee contributions in cash. Autodesk’s contributions were $24.3 million in fiscal 2022, $21.6 million in fiscal 2021, and $21.4 million in fiscal 2020. Autodesk does not allow participants to invest in Autodesk common stock through the 401(k) plan.

Defined Benefit Pension Plans

Autodesk provides certain defined benefit pension plans to employees located in countries outside of the United States, primarily the United Kingdom, Switzerland, and Japan. The Company deposits funds for specific plans, consistent with the requirements of local law, with insurance companies or third-party trustees, or into government-managed accounts, and accrues for the unfunded portion of the obligation, where material.

The projected benefit obligation was $106.7 million and $110.0 million as of January 31, 2022, and January 31, 2021, respectively. The accumulated benefit obligation was $99.5 million and $105.2 million as of January 31, 2022, and January 31, 2021, respectively. The related fair value of plan assets was $112.5 million and $107.2 million as of January 31, 2022, and January 31, 2021, respectively. Our defined pension plan assets are measured at fair value and consist primarily of insurance contracts categorized as level 2 in the fair value hierarchy and an investment fund valued using net asset value. The insurance contracts represent the immediate cash surrender value of assets managed by qualified insurance companies. The assets held in the investment fund are invested in a diversified growth fund actively managed by a third party.

Autodesk recognized an aggregate pension liability for the funded status of $9.3 million and $12.1 million in “Long-term other liabilities” on the Consolidated Balance Sheet as of January 31, 2022, and January 31, 2021, respectively. Our total net periodic pension plan cost was $2.6 million, $2.8 million and $3.7 million for fiscal years 2022, 2021, and 2020, respectively.

Our expected funding for the plans during fiscal 2023 is approximately $4.8 million.

Estimated Future Benefit Payments

Estimated benefit payments over the next 10 fiscal years are as follows:

Pension Benefits
2023$2.9
20241.8
20254.0
20263.4
20273.2
2028-203219.9
Total$35.2

Defined Contribution Plans

Autodesk also provides defined contribution plans in certain foreign countries where required by statute. Autodesk’s funding policy for foreign defined contribution plans is consistent with the local requirements in each country. Autodesk’s contributions to these plans were $38.3 million in fiscal 2022, $31.7 million in fiscal 2021, and $28.7 million in fiscal 2020.

Cash Balance Plans

Autodesk provides a cash balance plan that insures the risks of disability, death, and longevity, in which the vested pension capital is reinvested and provides a 100% capital and interest guarantee. The weighted-average guaranteed interest crediting rate for cash balance plans was 1%, 1%, and 1% for mandatory retirement savings and 0.3%, 0.1%, and 0.1% for supplementary retirement savings for fiscal 2022, 2021, and 2020, respectively.

Other Plans

In addition, Autodesk offers a non-qualified deferred compensation plan to certain key employees whereby they may defer a portion (or all) of their annual compensation until retirement or a different date specified by the employee in accordance with terms of the plan. See Note 7, “Deferred Compensation,” for further discussion.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Autodesk, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Autodesk, Inc. (the Company) as of January 31, 2022, and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended January 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 31, 2022, and 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 14, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition
Description of the MatterAs discussed in Note 1 to the consolidated financial statements, revenue is recognized when the Company's offerings are delivered to customers, in an amount that reflects the consideration expected in exchange for products and services. The Company’s contracts with customers often contain multiple performance obligations. 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. Auditing the Company’s revenue recognition was challenging and complex due to the effort required to analyze the accounting treatment for the Company’s various software product and service offerings in accordance with ASC 606, Revenue from Contracts with Customers. This involved assessing the impact of terms and conditions of new or amended contracts with customers or new product or service offerings, the determination of the relative standalone selling prices for each distinct performance obligation and the timing of recognition of revenue.
How We Addressed the Matter in Our AuditWe obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's identification and evaluation of performance obligations, determination of the relative standalone selling price for each performance obligation, and the determination of the timing of recognition of revenue. Among other procedures, to evaluate management’s identification and evaluation of the performance obligations and timing of revenue recognition, we read executed contracts for a sample of sales transactions to understand the contract, identified the promised goods and services in the contract and identified the distinct performance obligations. To test management’s determination of relative standalone selling price for each performance obligation, we assessed the appropriateness of the methodology applied, tested mathematical accuracy of the underlying data and calculations, and tested a sample of sales transactions to corroborate the data underlying the Company’s calculations.
Valuation of Innovyze intangible assets
Description of the MatterDuring fiscal 2022, the Company completed its acquisition of Storm UK Holdco Limited, the parent of Innovyze, Inc., for consideration of $1,038.1 million, as disclosed in Note 6 to the consolidated financial statements. The transaction was accounted for as a business combination. Auditing the accounting for the acquisition was complex due to the significant estimation uncertainty of the key assumptions in determining the fair values of the customer relationships of $221.0 million. The significant estimation was primarily due to the judgmental nature of the inputs to the valuation models and the sensitivity of the fair values to certain underlying significant assumptions. In particular for the customer relationships intangible, the significant assumptions include the projections of future revenue and the impact of customer attrition. These significant assumptions are forward-looking and could be affected by future economic and market conditions.
How We Addressed the Matter in Our AuditWe tested the Company's controls over its accounting for acquisitions. Our tests included controls over the estimation process supporting the recognition and measurement of customer relationships intangible assets. We also tested management’s review of assumptions used in the valuation models. To test the estimated fair value of the customer relationships intangible assets, we performed audit procedures that included, among others, evaluating the Company's selection of the valuation methodology, evaluating the methods and significant assumptions used by the Company's valuation specialist, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We involved our valuation specialists to assist with our evaluation of the methodologies used by the Company and significant assumptions included in the fair value estimates. Specifically, when assessing the key assumptions, we focused on the projections of future revenue and the impact of customer attrition for the customer relationships intangible asset.

/s/ ERNST & YOUNG LLP

We have served as the Company's auditor since 1983.

San Francisco, California

March 14, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Autodesk, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Autodesk, Inc.’s internal control over financial reporting as of January 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Autodesk, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 31, 2022, based on the COSO criteria.

As indicated in the accompanying management’s report on internal control over financial reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Storm UK Holdco Limited, the parent of Innovyze, Inc. (“Innovyze”), which is included in the January 31, 2022 consolidated financial statements of the Company and constituted less than 1% of total assets as of January 31, 2022 and 1% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Innovyze.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the accompanying consolidated balance sheets of the Company as of January 31, 2022, and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended January 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) and our report dated March 14, 2022, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ ERNST & YOUNG LLP

San Francisco, California

March 14, 2022

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