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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-14338

AUTODESK, INC.

(Exact name of registrant as specified in its charter)



Delaware		94-2819853
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer Identification No.)

111 McInnis Parkway,
San Rafael,	California	94903
(Address of principal executive offices)		(Zip Code)

(415) 507-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ADSK	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of August 28, 2020, registrant had outstanding 219,279,183 shares of common stock.

AUTODESK, INC. FORM 10-Q

TABLE OF CONTENTS



		Page No.
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 31, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended July 31, 2020 and 2019	5

	Condensed Consolidated Balance Sheets as of July 31, 2020 and January 31, 2020	6

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2020 and 2019	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48

Item 4.	Controls and Procedures	48

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65

Item 3.	Defaults Upon Senior Securities	65

Item 4.	Mine Safety Disclosures	66

Item 5.	Other Information	66

Item 6.	Exhibits	66

	Signatures	67

PART I. FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

AUTODESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)



	Three Months Ended July 31,						Six Months Ended July 31,
	2020			2019			2020			2019
Net revenue:
Subscription	$	841.2		$	663.7		$	1,644.2		$	1,259.5
Maintenance	51.2			103.5			113.3			215.5
Total subscription and maintenance revenue	892.4			767.2			1,757.5			1,475.0
Other	20.7			29.6			41.3			57.3
Total net revenue	913.1			796.8			1,798.8			1,532.3
Cost of revenue:
Cost of subscription and maintenance revenue	58.5			53.0			115.9			112.7
Cost of other revenue	15.0			17.9			32.1			31.7
Amortization of developed technology	7.4			8.6			14.8			17.8
Total cost of revenue	80.9			79.5			162.8			162.2
Gross profit	832.2			717.3			1,636.0			1,370.1
Operating expenses:
Marketing and sales	350.9			316.8			692.2			630.1
Research and development	232.5			215.4			449.9			421.0
General and administrative	93.2			101.4			198.0			200.5
Amortization of purchased intangibles	9.5			9.7			19.2			19.5
Restructuring and other exit costs, net	—			0.2			—			0.4
Total operating expenses	686.1			643.5			1,359.3			1,271.5
Income from operations	146.1			73.8			276.7			98.6
Interest and other expense, net	(17.1		)	(7.3		)	(57.2		)	(23.5		)
Income before income taxes	129.0			66.5			219.5			75.1
Provision for income taxes	(30.8		)	(26.3		)	(54.8		)	(59.1		)
Net income	$	98.2		$	40.2		$	164.7		$	16.0
Basic net income per share	$	0.45		$	0.18		$	0.75		$	0.07
Diluted net income per share	$	0.44		$	0.18		$	0.74		$	0.07
Weighted average shares used in computing basic net income per share	219.2			219.6			219.2			219.6
Weighted average shares used in computing diluted net income per share	222.2			222.4			222.0			222.3

See accompanying Notes to Condensed Consolidated Financial Statements.

AUTODESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

(Unaudited)



	Three Months Ended July 31,						Six Months Ended July 31,
	2020			2019			2020			2019
Net income	$	98.2		$	40.2		$	164.7		$	16.0
Other comprehensive income (loss), net of reclassifications:
Net loss on derivative instruments (net of tax effect of $2.3, ($1.7), $1.9 and ($2.0), respectively)	(19.5		)	(4.3		)	(15.5		)	(1.0		)
Change in net unrealized gain (loss) on available-for-sale debt securities (net of tax effect of zero, $0.1, $0.1 and ($0.3), respectively)	0.9			(0.2		)	1.3			0.9
Change in defined benefit pension items (net of tax effect of zero, $0.4, zero and $0.5, respectively)	—			(1.8		)	(0.3		)	(2.4		)
Net change in cumulative foreign currency translation gain (loss) (net of tax effect of ($0.4), ($0.4), ($0.4) and zero, respectively)	43.2			(22.8		)	20.3			(33.2		)
Total other comprehensive income (loss)	24.6			(29.1		)	5.8			(35.7		)
Total comprehensive income (loss)	$	122.8		$	11.1		$	170.5		$	(19.7	)

See accompanying Notes to Condensed Consolidated Financial Statements.

AUTODESK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)



	July 31, 2020			January 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,439.8		$	1,774.7
Marketable securities	79.7			69.0
Accounts receivable, net	490.1			652.3
Prepaid expenses and other current assets	194.3			163.3
Total current assets	2,203.9			2,659.3
Computer equipment, software, furniture and leasehold improvements, net	177.8			161.7
Operating lease right-of-use assets	416.2			438.8
Developed technologies, net	61.0			70.9
Goodwill	2,459.1			2,445.0
Deferred income taxes, net	51.5			56.4
Long-term other assets	377.8			347.2
Total assets	$	5,747.3		$	6,179.3
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	99.2		$	83.7
Accrued compensation	193.6			272.1
Accrued income taxes	32.5			21.2
Deferred revenue	2,102.1			2,176.1
Operating lease liabilities	53.8			48.1
Current portion of long-term notes payable, net	—			449.7
Other accrued liabilities	138.4			168.3
Total current liabilities	2,619.6			3,219.2
Long-term deferred revenue	776.8			831.0
Long-term operating lease liabilities	393.3			411.7
Long-term income taxes payable	20.2			19.1
Long-term deferred income taxes	89.9			82.5
Long-term notes payable, net	1,636.1			1,635.1
Long-term other liabilities	144.1			119.8
Stockholders’ equity (deficit):
Common stock and additional paid-in capital	2,492.7			2,317.0
Accumulated other comprehensive loss	(154.5		)	(160.3		)
Accumulated deficit	(2,270.9		)	(2,295.8		)
Total stockholders’ equity (deficit)	67.3			(139.1		)
Total liabilities and stockholders' equity (deficit)	$	5,747.3		$	6,179.3

See accompanying Notes to Condensed Consolidated Financial Statements.

AUTODESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	Six Months Ended July 31,
	2020			2019
Operating activities:
Net income	$	164.7		$	16.0
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	60.0			64.8
Stock-based compensation expense	194.1			163.4
Deferred income taxes	14.5			35.8
Restructuring and other exit costs, net	—			0.4
Other	36.0			(4.2		)
Changes in operating assets and liabilities
Accounts receivable	162.7			125.8
Prepaid expenses and other assets	(52.0		)	27.4
Accounts payable and other liabilities	(42.8		)	(138.1		)
Deferred revenue	(130.0		)	158.3
Accrued income taxes	11.3			(9.1		)
Net cash provided by operating activities	418.5			440.5
Investing activities:
Purchases of marketable securities	(17.0		)	(19.9		)
Sales of marketable securities	—			22.4
Maturities of marketable securities	11.0			5.0
Capital expenditures	(46.7		)	(29.5		)
Purchases of developed technologies	(4.8		)	—
Other investing activities	(54.3		)	(10.5		)
Net cash used in investing activities	(111.8		)	(32.5		)
Financing activities:
Proceeds from issuance of common stock, net of issuance costs	58.5			49.7
Taxes paid related to net share settlement of equity awards	(39.6		)	(31.2		)
Repurchases of common stock	(209.0		)	(134.6		)
Repayment of debt	(450.0		)	(250.0		)
Other financing activities	(2.5		)	—
Net cash used in financing activities	(642.6		)	(366.1		)
Effect of exchange rate changes on cash and cash equivalents	1.0			(4.0		)
Net (decrease) increase in cash and cash equivalents	(334.9		)	37.9
Cash and cash equivalents at beginning of period	1,774.7			886.0
Cash and cash equivalents at end of period	$	1,439.8		$	923.9

Supplemental cash flow disclosure:
Non-cash financing activities:
Fair value of common stock issued to settle liability-classified restricted stock units	$	28.7		$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

AUTODESK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Tables in millions, except share and per share data, or as otherwise noted)

1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Autodesk, Inc. (“Autodesk,” “we,” “us,” “our,” or the “Company”) as of July 31, 2020, and for the three and six months ended July 31, 2020 and 2019, have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information along with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In management’s opinion, Autodesk made all adjustments (consisting of normal, recurring and non-recurring adjustments) during the quarter that were considered necessary for the fair statement of the financial position and operating results of the Company. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. In addition, the results of operations for the three and six months ended July 31, 2020, are not necessarily indicative of the results for the entire fiscal year ending January 31, 2021, or for any other period. Further, the balance sheet as of January 31, 2020, has been derived from the audited Consolidated Balance Sheet as of this date. There have been no material changes, other than what is discussed herein, to Autodesk's significant accounting policies as compared to the significant accounting policies disclosed in the Annual Report on Form 10-K for the fiscal year ended January 31, 2020. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes, together with management’s discussion and analysis of financial position and results of operations, contained in Autodesk’s Annual Report on Form 10-K for the fiscal year ended January 31, 2020, filed on March 19, 2020.

2. Recently Issued Accounting Standards

With the exception of those discussed below, there have been no recent changes in accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) or adopted by the Company during the six months ended July 31, 2020, that are applicable to the Company.

Accounting standards adopted

In June 2016, FASB issued ASU No. 2016-13 regarding ASC Topic 326, "Financial Instruments - Credit Losses," which requires the measurement and recognition of expected credit losses for certain financial instruments using forward-looking information to calculate credit loss estimates. Autodesk adopted ASU 2016-13 as of the effective date which represents Autodesk’s fiscal year beginning February 1, 2020. The ASU did not have a material impact on Autodesk's consolidated financial statements at adoption.

Adoption and policy elections

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 July 31, 2020.

Autodesk’s investments in available-for-sale debt securities are subject to a periodic impairment review. If Autodesk does not intend to sell and it is more likely than not that Autodesk will not 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 Condensed Consolidated Balance Sheets with a corresponding adjustment to "Interest and other expense, net" on the Company's Condensed Consolidated Statements of Operations. Any impairment that is not credit-related is recognized in “Accumulated other comprehensive loss” on the Condensed 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 unaudited Condensed 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 Condensed Consolidated Balance Sheets, as applicable.

Recently issued accounting standards not yet 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 generally accepted accounting principles (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.

3. Revenue Recognition

Revenue Disaggregation

Autodesk recognizes revenue from the sale of (1) product subscriptions, cloud service offerings, and EBAs, (2) renewal fees for existing maintenance plan agreements that were initially purchased with a perpetual software license, and (3) consulting, training and other goods and services. The three categories are presented as line items on Autodesk's Condensed Consolidated Statements of Operations.

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



	Three Months Ended July 31,				Six Months Ended July 31,
(in millions)	2020		2019		2020		2019
Net revenue by product family:
Architecture, Engineering and Construction	$	397.0	$	334.2	$	779.7	$	638.5
AutoCAD and AutoCAD LT	271.9		231.3		534.1		444.5
Manufacturing	185.5		174.6		368.4		342.1
Media and Entertainment	53.3		50.8		105.9		96.3
Other	5.4		5.9		10.7		10.9
Total net revenue	$	913.1	$	796.8	$	1,798.8	$	1,532.3

Net revenue by geographic area:
Americas
U.S.	$	309.5	$	267.9	$	610.1	$	517.0
Other Americas	62.0		58.0		123.6		104.7
Total Americas	371.5		325.9		733.7		621.7
Europe, Middle East and Africa	354.7		316.2		699.5		613.4
Asia Pacific	186.9		154.7		365.6		297.2
Total net revenue	$	913.1	$	796.8	$	1,798.8	$	1,532.3

Net revenue by sales channel:
Indirect	$	639.3	$	560.2	$	1,262.7	$	1,076.6
Direct	273.8		236.6		536.1		455.7
Total net revenue	$	913.1	$	796.8	$	1,798.8	$	1,532.3

Payments for product subscriptions, industry collections, cloud subscriptions, and maintenance subscriptions are typically due up front with payment terms of 30 to 45 days. As a result of the COVID-19 pandemic, we extended contract payment terms for up to 60 days through August 7, 2020, for all customers and partners for new orders and renewals placed directly with Autodesk. Payments on EBAs are typically due in annual installments over the contract term, with payment terms of 30 to 60 days. Autodesk does not have any material variable consideration, such as obligations for returns, refunds, warranties or amounts due to customers for which significant estimation or judgment is required as of the reporting date.

Remaining performance obligations consist of total short-term, long-term and unbilled deferred revenue. As of July 31, 2020, Autodesk had remaining performance obligations of $3.35 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 $2.31 billion or 69% of our remaining performance obligations as revenue during the next 12 months. We expect to recognize the remaining $1.04 billion or 31% 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 July 31, 2020. 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 six months ended July 31, 2020 and 2019, that was included in the deferred revenue balances at January 31, 2020 and 2019, was $1.43 billion and $1.19 billion, respectively. The satisfaction of performance obligations typically lags behind payments received under revenue contracts from customers.

4. Concentration of Credit Risk

Autodesk places its cash, cash equivalents and marketable securities in highly liquid instruments with, and in the custody of, multiple diversified financial institutions globally with high credit ratings and limits the amounts invested with any one institution, type of security and issuer. Autodesk’s primary commercial banking relationship is with Citigroup Inc. and its global affiliates. Citibank, N.A., an affiliate of Citigroup, is one of the lead lenders and an agent in the syndicate of Autodesk’s $650.0 million line of credit facility. See Note 13, "Borrowing Arrangements," in the Notes to Condensed Consolidated Financial Statements for further discussion.

Total sales to the Company's largest distributor Tech Data Corporation and its global affiliates (“Tech Data”) accounted for 37% and 38% of Autodesk’s total net revenue for the three and six months ended July 31, 2020, respectively. Total sales to the Tech Data accounted for 35% of Autodesk’s total net revenue for both the three and six months ended July 31, 2019. 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 39% and 31% of trade accounts receivable at July 31, 2020, and January 31, 2020, respectively. Ingram Micro Inc. ("Ingram Micro") accounted for 10% of Autodesk's total net revenue during both the three and six months ended July 31, 2020 and 2019. No other customer accounted for more than 10% of Autodesk's total net revenue or trade accounts receivable for each of the respective periods.

5. Financial Instruments

The following tables summarize the Company's financial instruments' amortized cost, gross unrealized gains, gross unrealized losses, and fair value by significant investment category as of July 31, 2020, and January 31, 2020:



			July 31, 2020
		(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value			Level 1		Level 2			Level 3
Cash equivalents (1):
	Commercial paper		$	36.0	$	—	$	—		$	36.0		$	—	$	36.0		$	—
	Money market funds		712.3		—		—			712.3			712.3		—			—
	Other (2)		2.5		—		—			2.5			2.0		0.5			—
Marketable securities:
	Short-term available for sale
		Other (3)	6.0		—		—			6.0			—		6.0			—
	Short-term trading securities
		Mutual funds (4)	63.4		10.8		(0.5		)	73.7			73.7		—			—
Non-marketable securities derivative assets (5)			1.8		0.4		(0.2		)	2.0			—		—			2.0
Derivative contract assets (5)			0.3		14.1		(0.2		)	14.2			—		14.2			—
Derivative contract liabilities (6)			—		—		(30.7		)	(30.7		)	—		(30.7		)	—
		Total	$	822.3	$	25.3	$	(31.6	)	$	816.0		$	788.0	$	26.0		$	2.0

____________________


(1)	Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets. These investments are classified as debt securities with stated contractual maturities due within one year.


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


(3)	Consists of commercial paper and municipal bonds.


(4)	See Note 11, "Deferred Compensation " for more information.


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


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



			January 31, 2020
		(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value			Level 1		Level 2			Level 3
Cash equivalents (1):
	Agency bonds		$	6.0	$	—	$	—		$	6.0		$	—	$	6.0		$	—
	Commercial paper		36.8		—		—			36.8			—		36.8			—
	Money market funds		1,135.5		—		—			1,135.5			1,135.5		—			—
	Other (2)		2.3		—		—			2.3			1.3		1.0			—
Marketable securities:
	Short-term trading securities
		Mutual funds (3)	59.9		9.2		(0.1		)	69.0			69.0		—			—
Non-marketable equity security derivative asset (4)			0.1		0.5		—			0.6			—		—			0.6
Derivative contract assets (4)			1.0		9.2		(1.3		)	8.9			—		8.9			—
Derivative contract liabilities (5)			—		—		(4.7		)	(4.7		)	—		(4.7		)	—
		Total	$	1,241.6	$	18.9	$	(6.1	)	$	1,254.4		$	1,205.8	$	48.0		$	0.6

____________________


(1)	Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets. These investments are classified as debt securities with stated contractual maturities due in one year.


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


(3)	See Note 11, "Deferred Compensation " for more information.


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


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

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 July 31, 2020, and January 31, 2020, 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 twelve months. Total unrealized gains for securities with net gains in accumulated other comprehensive income was not material for the six months ended July 31, 2020.

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 for the six months ended July 31, 2020. There were no write offs of accrued interest receivables for the six months ended July 31, 2020.

There was no realized gain or loss for the sales or redemptions of debt securities during the six months ended July 31, 2020 and 2019. Gains and losses resulting from the sale or redemption of debt securities are recorded in “Interest and other expense, net” on the Company's Condensed Consolidated Statements of Operations.

There was $11.0 million in proceeds from the sale and maturity of marketable debt securities for the three and six months ended July 31, 2020. Proceeds from the sale and maturity of marketable debt securities for the three and six months ended July 31, 2019, was $22.8 million and $27.4 million, respectively.

As of July 31, 2020, Autodesk had $5.3 million in non-marketable debt securities in privately held companies. As of July 31, 2020, both the amortized cost and fair value was $5.3 million and is classified as level 3 in the fair value hierarchy. There were no allowances for credit losses for the six months ended July 31, 2020.

Non-marketable equity securities

As of July 31, 2020, and January 31, 2020, Autodesk had $136.2 million and $122.5 million in direct investments in privately held companies, respectively. These non-marketable equity security investments 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 non-marketable equity securities with no readily determined fair values measured using the measurement alternative were as follows:



	Six Months Ended July 31,						Cumulative Amount as of
(in millions)	2020			2019			July 31, 2020
Upward adjustments (1)	$	3.0		$	1.7		$	12.4
Negative adjustments, including impairments (1)	(34.8		)	(3.4		)	(43.8		)
Net adjustments	$	(31.8	)	$	(1.7	)	$	(31.4	)

____________________


(1)	Included in "Interest and other expense, net" on the Company's Condensed Consolidated Statements of Operations.

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 $1.18 billion at July 31, 2020, and $981.3 million at January 31, 2020. Outstanding contracts are recognized as either assets or liabilities on the Company's Condensed Consolidated Balance Sheet at fair value. The majority of the net loss of $7.1 million remaining in “Accumulated other comprehensive loss” as of July 31, 2020, is expected to be recognized into earnings within the next twenty-four 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 Condensed Consolidated Statements of Operations where the effects of the hedge are recorded were as follows for the three and six months ended July 31, 2020 and 2019:



	Three Months Ended July 31, 2020
	Net revenue				Cost of revenue			Operating expenses
(in millions)	Subscription revenue		Maintenance revenue		Cost of subscription and maintenance revenue			Marketing and sales			Research and development			General and administrative
Total amounts of income and expense line items presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded	$	841.2	$	51.2	$	58.5		$	350.9		$	232.5		$	93.2

Gain (loss) on cash flow hedging relationships in Subtopic ASC 815-20
Foreign exchange contracts
Amount of gain (loss) reclassified from accumulated other comprehensive income into income	$	1.6	$	—	$	(0.1	)	$	(0.5	)	$	—		$	(0.2	)

	Six Months Ended July 31, 2020
	Net revenue				Cost of revenue			Operating expenses
	Subscription revenue		Maintenance Revenue		Cost of subscription and maintenance revenue			Marketing and sales			Research and development			General and administrative
Total amounts of income and expense line items presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded	$	1,644.2	$	113.3	$	115.9		$	692.2		$	449.9		$	198.0

Gain (loss) on cash flow hedging relationships in Subtopic ASC 815-20
Foreign exchange contracts
Amount of gain (loss) reclassified from accumulated other comprehensive income into income	$	3.7	$	0.6	$	(0.3	)	$	(1.3	)	$	(0.1	)	$	(0.6	)



	Three Months Ended July 31, 2019
	Net Revenue				Cost of revenue			Operating expenses
(in millions)	Subscription Revenue		Maintenance Revenue		Cost of subscription and maintenance revenue			Marketing and sales			Research and development			General and administrative
Total amounts of income and expense line items presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded	$	663.7	$	103.5	$	53.0		$	316.8		$	215.4		$	101.4

Gain (loss) on cash flow hedging relationships in Subtopic ASC 815-20
Foreign exchange contracts
Amount of gain (loss) reclassified from accumulated other comprehensive income into income	$	3.2	$	1.8	$	(0.2	)	$	(0.8	)	$	(0.2	)	$	(0.4	)

	Six Months Ended July 31, 2019
	Net revenue				Cost of revenue			Operating expenses
	Subscription revenue		Maintenance Revenue		Cost of subscription and maintenance revenue			Marketing and sales			Research and development			General and administrative
Total amounts of income and expense line items presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded	$	1,259.5	$	215.5	$	112.7		$	630.1		$	421.0		$	200.5

Gain (loss) on cash flow hedging relationships in Subtopic ASC 815-20
Foreign exchange contracts
Amount of gain (loss) reclassified from accumulated other comprehensive income into income	$	5.4	$	3.1	$	(0.3	)	$	(2.4	)	$	(0.5	)	$	(1.2	)

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 $182.1 million at July 31, 2020, and $736.2 million at January 31, 2020.

Fair Value of Derivative Instruments

The fair values of derivative instruments in Autodesk’s Condensed Consolidated Balance Sheets were as follows as of July 31, 2020, and January 31, 2020:



	Balance Sheet Location	Fair Value at
(in millions)	Balance Sheet Location	July 31, 2020		January 31, 2020
Derivative Assets
Foreign currency contracts designated as cash flow hedges	Prepaid expenses and other current assets	$	7.3	$	1.0
Derivatives not designated as hedging instruments	Prepaid expenses and other current assets and long-term other assets	7.2		8.4
Total derivative assets		$	14.5	$	9.4
Derivative Liabilities
Foreign currency contracts designated as cash flow hedges	Other accrued liabilities	$	21.6	$	2.8
Derivatives not designated as hedging instruments	Other accrued liabilities	9.1		1.9
Total derivative liabilities		$	30.7	$	4.7

The effects of derivatives designated as hedging instruments on Autodesk’s Condensed Consolidated Statements of Operations were as follows for the three and six months ended July 31, 2020 and 2019, (amounts presented include any income tax effects):



	Foreign Currency Contracts
	Three Months Ended July 31,						Six Months Ended July 31,
(in millions)	2020			2019			2020			2019
Amount of (loss) gain recognized in accumulated other comprehensive loss on derivatives (effective portion)	$	(18.6	)	$	(0.9	)	$	(13.5	)	$	3.1
Amount and location of gain (loss) reclassified from accumulated other comprehensive loss into income (effective portion)
Net revenue	$	1.6		$	5.0		$	4.3		$	8.5
Cost of revenue	(0.1		)	(0.2		)	(0.3		)	(0.3		)
Operating expenses	(0.7		)	(1.4		)	(2.0		)	(4.1		)
Total	$	0.8		$	3.4		$	2.0		$	4.1

The effects of derivatives not designated as hedging instruments on Autodesk’s Condensed Consolidated Statements of Operations were as follows for the three and six months ended July 31, 2020 and 2019, (amounts presented include any income tax effects):



	Three Months Ended July 31,						Six Months Ended July 31,
(in millions)	2020			2019			2020			2019
Amount and location of (loss) gain recognized on derivatives in net income
Interest and other expense, net	$	(4.4	)	$	(2.4	)	$	(5.4	)	$	1.7

6. Stock-based Compensation Expense

Restricted Stock Units:

A summary of restricted stock activity for the six months ended July 31, 2020, is as follows:



	Unvested restricted stock units		Weighted average grant date fair value per share
	(in thousands)
Unvested restricted stock units at January 31, 2020	4,732.3		$	147.24
Granted	867.8		176.50
Vested	(818.5	)	147.68
Canceled/Forfeited	(123.1	)	148.02
Performance Adjustment (1)	15.4		166.97
Unvested restricted stock units at July 31, 2020	4,673.9		$	152.44

_______________


(1)	Based on Autodesk's financial results and relative total stockholder return for the fiscal 2020 performance period. The performance stock units were attained at rates ranging from 96.6% to 101.1% of the target award.

The fair value of the shares vested during the six months ended July 31, 2020 and 2019, was $132.3 million and $84.3 million, respectively.

During the six months ended July 31, 2020, Autodesk granted 0.6 million restricted stock units. Autodesk recorded stock-based compensation expense related to restricted stock units of $71.3 million and $64.2 million during the three months ended July 31, 2020 and 2019, respectively. Autodesk recorded stock-based compensation expense related to restricted stock units of $148.2 million and $118.6 million during the six months ended July 31, 2020 and 2019, respectively.

During the six months ended July 31, 2020, Autodesk settled liability-classified awards in the amount of $28.7 million. 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.

During the six months ended July 31, 2020, Autodesk granted 0.3 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 are based on revenue 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”). The fair value of the performance stock units is expensed using the accelerated attribution method over the three-year vesting 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 2021 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).

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 recorded stock-based compensation expense related to performance stock units of $10.1 million and $5.7 million for the three months ended July 31, 2020 and 2019, respectively. Autodesk recorded stock-based compensation expense related to performance stock units of $17.5 million and $12.2 million for the six months ended July 31, 2020 and 2019, 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.

A summary of the ESPP activity for the six months ended July 31, 2020 and 2019, is as follows:



	Six Months Ended July 31,
	2020		2019
Issued shares (in millions)	0.5		0.5
Average price of issued shares	$	122.54	$	99.46
Weighted average grant date fair value of awards granted under the ESPP (1)	$	45.70	$	52.41

_______________


(1)	Calculated as of the award grant date using the Black-Scholes Merton (“BSM") option pricing model.

Stock-based Compensation Expense

The following table summarizes stock-based compensation expense for the three and six months ended July 31, 2020 and 2019, respectively, as follows:



	Three Months Ended July 31,						Six Months Ended July 31,
(in millions)	2020			2019			2020			2019
Cost of subscription and maintenance revenue	$	4.2		$	3.4		$	7.9		$	7.0
Cost of other revenue	1.5			1.4			3.0			2.7
Marketing and sales	43.4			36.0			84.1			68.5
Research and development	35.3			30.8			68.2			57.5
General and administrative	11.5			16.6			30.9			27.7
Stock-based compensation expense related to stock awards and ESPP purchases	95.9			88.2			194.1			163.4
Tax benefit	(0.2		)	(0.1		)	(0.3		)	(0.3		)
Stock-based compensation expense related to stock awards and ESPP purchases, net of tax	$	95.7		$	88.1		$	193.8		$	163.1

Stock-based Compensation Expense Assumptions

Autodesk determines the grant date fair value of its share-based payment awards using a BSM option pricing model or the quoted stock price on the date of grant, unless the awards are subject to market conditions, in which case Autodesk uses a binomial-lattice model (e.g., Monte Carlo simulation model). The Monte Carlo simulation model uses multiple input variables to estimate the probability that market conditions will be achieved. Autodesk uses the following assumptions to estimate the fair value of stock-based awards:



	Six Months Ended July 31, 2020		Six Months Ended July 31, 2019
	Performance Stock Units (1)	ESPP (1)	Performance Stock Units (1)	ESPP (1)
Range of expected volatilities	50.7%	39.4 - 45.8%	36.3%	36.6 - 39.7%
Range of expected lives (in years)	N/A	0.5 - 2.0	N/A	0.5 - 2.0
Expected dividends	—%	—%	—%	—%
Range of risk-free interest rates	0.3%	0.3 - 0.5%	2.5%	2.4 - 2.5%

——————


(1)	There were no performance stock units or ESPP awards granted during the three months ended July 31, 2020 and 2019, where the fair value was estimated by a Monte Carlo simulation model or a BSM option pricing model, respectively.

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 forward call options to purchase shares of the Company’s common stock. The expected volatility for performance stock units

subject to market conditions includes the expected volatility of Autodesk's peer companies within the S&P North American Technology Software Index with a market capitalization over $2.0 billion, depending on the award type.

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

Autodesk does not currently pay, and does not anticipate paying in the foreseeable future, any cash dividends. Consequently, an expected dividend yield of zero is used in the 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 our stock-based awards as those forfeitures occur.

7. Income Tax

Autodesk had income tax expense of $30.8 million, relative to pre-tax income of $129.0 million for the three months ended July 31, 2020, and income tax expense of $26.3 million, relative to pre-tax income of $66.5 million for the three months ended July 31, 2019. Autodesk had income tax expense of $54.8 million, relative to pre-tax income of $219.5 million for the six months ended July 31, 2020, and income tax expense of $59.1 million, relative to pre-tax income of $75.1 million for the six months ended July 31, 2019. Income tax expense for the three and six months ended July 31, 2020, increased and decreased, respectively, as a result of the jurisdictional mix of year-to-date earnings relative to the worldwide annual effective tax rate.

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

The Company anticipates a significant increase in U.S. taxable income in fiscal 2021 due to current year increase in global earnings. We currently forecast the utilization of U.S. deferred tax assets to offset U.S. taxable income resulting from the inclusion of foreign earnings. While increased U.S. taxable income is considered positive evidence, we believe that the cumulative losses should be given more weight and have maintained the valuation allowance on our U.S. deferred tax assets.

As Autodesk continually strives to optimize the overall business model, tax planning strategies may become feasible and prudent allowing the Company to realize many of the deferred tax assets that are offset by a valuation allowance; therefore, Autodesk will continue to evaluate the ability to utilize the deferred tax assets each quarter, both in the U.S. and in foreign jurisdictions, based on all available evidence, both positive and negative.

As of July 31, 2020, the Company had $222.4 million of gross unrecognized tax benefits, of which $204.7 million would reduce our valuation allowance, if recognized. The remaining $17.7 million would impact the effective tax rate, if recognized. It is possible that the amount of unrecognized tax benefits will change in the next twelve months; however, an estimate of the range of the possible change cannot be made at this time.

8. Other Intangible Assets, Net

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



(in millions)	July 31, 2020			January 31, 2020
Developed technologies, at cost	$	653.3		$	647.1
Customer relationships, trade names, patents, and user lists, at cost (1)	534.2			532.2
Other intangible assets, at cost (2)	1,187.5			1,179.3
Less: Accumulated amortization	(1,009.4		)	(972.2		)
Other intangible assets, net	$	178.1		$	207.1

_______________


(1)	Included in “Long-term other assets” in the accompanying Condensed Consolidated Balance Sheets.


(2)	Includes the effects of foreign currency translation.

9. 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 Condensed Consolidated Balance Sheets. Capitalized costs were $44.3 million and $22.3 million at July 31, 2020, and January 31, 2020, respectively. Accumulated amortization was $2.9 million and $1.2 million at July 31, 2020, and January 31, 2020, respectively. Amortization expense for the three months ended July 31, 2020 and 2019, was $0.8 million and none, respectively. Amortization expense for the six months ended July 31, 2020 and 2019, was $1.7 million and none, respectively.

10. Goodwill

Goodwill consists of the excess of the consideration transferred over the fair value of net assets acquired in business combinations. The following table summarizes the changes in the carrying amount of goodwill for the six months ended July 31, 2020 (in millions):



Balance as of January 31, 2020	$	2,594.2
Less: accumulated impairment losses as of January 31, 2020	(149.2		)
Net balance as of January 31, 2020	2,445.0
Effect of foreign currency translation	14.1
Balance as of July 31, 2020	$	2,459.1

Autodesk operates as a single operating segment and single reporting unit. As such, when Autodesk tests goodwill for impairment annually in its fourth fiscal quarter, it is performed on the Company's single reporting unit. Autodesk performs impairment testing 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; 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 our Condensed Consolidated 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.

There was no goodwill impairment during the three and six months ended July 31, 2020.

11. Deferred Compensation

At July 31, 2020, Autodesk had marketable securities totaling $79.7 million, of which $73.7 million is related to investments in debt and equity securities that are held in a rabbi trust under non-qualified deferred compensation plans. Of the $73.7 million related to the deferred compensation liability at July 31, 2020, $5.5 million was classified as current and $68.2 million was classified as non-current liabilities. Of the $69.0 million related to the deferred compensation liability at January 31, 2020, $5.3 million was classified as current and $63.7 million was classified as non-current liabilities. The securities are recorded in the Condensed Consolidated Balance Sheets under the current portion of "Marketable securities." The current and non-current portions of the liability are recorded in the Condensed Consolidated Balance Sheets under “Accrued compensation” and “Long-term other liabilities,” respectively.

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 $88.3 million as of July 31, 2020 and $98.8 million as of January 31, 2020. Amortization expense related to assets recognized from costs to obtain a contract with a customer was $23.6 million and $46.4 million during the three and six months ended July 31, 2020, respectively. Amortization expense related to assets recognized from costs to obtain a contract with a customer was $25.5 million and $50.2 million during the three and six months ended July 31, 2019, respectively. Autodesk did not recognize any contract cost impairment losses during the six months ended July 31, 2020 and 2019.

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

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



(in millions)	July 31, 2020			January 31, 2020
Computer hardware, at cost	$	158.8		$	159.7
Computer software, at cost	65.6			64.0
Leasehold improvements, land and buildings, at cost	311.5			284.0
Furniture and equipment, at cost	77.9			69.0
	613.8			576.7
Less: Accumulated depreciation	(436.0		)	(415.0		)
Computer software, hardware, leasehold improvements, furniture and equipment, net	$	177.8		$	161.7

13. Borrowing Arrangements

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 have been used for the repayment of the $450.0 million 2015 Notes, as defined below, and the remainder is available for general corporate purposes.

In December 2018, Autodesk entered into a credit agreement by and among Autodesk, the lenders from time to time party thereto and Citibank, N.A., as agent, which provides for an unsecured revolving loan facility in the aggregate principal amount of $650.0 million with an option, subject to customary conditions, to request an increase in the amount of the credit facility by up to an additional $350.0 million, and 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 financial covenants consist of (1) a minimum interest coverage ratio of 2.50:1.0 starting with the fiscal quarter ending January 31, 2019, and increasing to 3.00:1.0 starting with the fiscal quarter ending April 30, 2019, and (2) a maximum leverage ratio of 3.50:1.0 starting with the fiscal quarter ending July 31, 2019, and dropping to 3.00:1.0 in the fiscal quarter ending January 31, 2020. At July 31, 2020, Autodesk was in compliance with the credit agreement covenants. Revolving loans under the credit agreement bear interest, at Autodesk's option, at either (i) a floating rate per annum equal to the base rate plus a margin of between 0.000% and 0.500%, depending on Autodesk’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 0.900% and 1.500%, depending on Autodesk’s Public Debt Rating. The maturity date on the credit agreement is December 2023. At July 31, 2020, Autodesk had no outstanding borrowings under the credit agreement.

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 $450.0 million aggregate principal amount of 3.125% notes due June 15, 2020 ("$450.0 million 2015 Notes") and $300.0 million aggregate principal amount of 4.375% notes due June 15, 2025 (“$300.0 million 2015 Notes”) (collectively, the "2015 Notes"). Net of a discount of $0.6 million and $1.1 million, and issuance costs of $3.8 million and $2.5 million, Autodesk received net proceeds of $445.6 million and $296.4 million from issuance of the $450.0 million 2015 Notes and $300.0 million 2015 Notes, respectively. Both the discount and issuance costs are being amortized to interest expense over the respective term of the $300.0 million 2015 Notes using the effective interest method. The proceeds of the $300.0 million 2015 Notes is available for general corporate purposes. On March 4, 2020, the proceeds of the 2020 Notes were used for the repayment of the $450.0 million 2015 Notes. Autodesk paid a redemption price of $452.1 million, plus accrued and unpaid interest to, but not including, the date of redemption.

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 2020 Notes, 2017 Notes, $300 million 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 aforementioned 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 July 31, 2020, were as follows:



(in millions)	Aggregate Principal Amount		Fair value
2012 Notes	$	350.0	$	369.6
$300 million 2015 Notes	300.0		342.1
2017 Notes	500.0		577.2
2020 Notes	500.0		562.0

The expected future principal payments for all borrowings as of July 31, 2020, is as follows (in millions):



Fiscal year ending
2021 (remainder)	$	—
2022	—
2023	350.0
2024	—
2025	—
Thereafter	1,300.0
Total principal outstanding	$	1,650.0

14. Leases

Autodesk has operating leases for real estate, vehicles and certain equipment. Leases have remaining lease terms of less than 1 year to 70 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 10 years. Options to extend the lease are included in 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 Condensed Consolidated Statements 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 Condensed Consolidated Statements of Cash Flows.

The components of lease cost were as follows:



	Three Months Ended July 31, 2020
(in millions)	Cost of subscription and maintenance revenue		Cost of other revenue		Marketing and sales		Research and development		General and administrative		Total
Operating lease cost	$	1.7	$	0.4	$	10.6	$	7.8	$	4.2	$	24.7
Variable lease cost	0.1		—		1.0		0.7		0.5		2.3

	Six Months Ended July 31, 2020
(in millions)	Cost of subscription and maintenance revenue		Cost of other revenue		Marketing and sales		Research and development		General and administrative		Total
Operating lease cost	$	3.7	$	1.1	$	22.1	$	15.7	$	7.6	$	50.2
Variable lease cost	0.4		0.1		2.5		1.8		0.9		5.7



	Three Months Ended July 31, 2019
(in millions)	Cost of subscription and maintenance revenue		Cost of other revenue		Marketing and sales		Research and development		General and administrative		Total
Operating lease cost	$	1.6	$	0.7	$	9.6	$	6.8	$	3.0	$	21.7
Variable lease cost	0.3		—		1.5		1.1		0.5		3.4

	Six Months Ended July 31, 2019
(in millions)	Cost of subscription and maintenance revenue		Cost of other revenue		Marketing and sales		Research and development		General and administrative		Total
Operating lease cost	$	3.2	$	1.1	$	18.4	$	13.5	$	5.8	$	42.0
Variable lease cost	0.5		0.1		2.8		2.1		0.9		6.4

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



	Six Months Ended July 31,
(in millions)	2020		2019
Cash paid for operating leases included in operating cash flows (1)	$	47.6	$	45.9
Non-cash operating lease liabilities arising from obtaining operating lease right-of-use assets	$	18.4	$	53.0

_______________

(1) Includes $5.7 million in variable lease payments for the six months ended July 31, 2020, not included in "Operating lease liabilities" and "Long-term operating lease liabilities" on the Condensed Consolidated Balance Sheets. Includes $6.4 million in variable lease payments for the six months ended July 31, 2019, not included in "Operating lease liabilities" and "Long-term operating lease liabilities" on the Condensed Consolidated Balance Sheets.

The weighted average remaining lease term for operating leases is 7.2 years and 7.5 years at July 31, 2020, and January 31, 2020, respectively. The weighted average discount rate was 3.32% and 3.41% at July 31, 2020, and January 31, 2020, respectively.

Maturities of operating lease liabilities were as follows (in millions):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company