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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
---------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- ---
Act of 1934
FOR THE PERIOD ENDED JULY 31, 1997
OR
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 0-14338
AUTODESK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2819853
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 MCINNIS PARKWAY
SAN RAFAEL, CALIFORNIA 94903
(Address of principal executive offices)
TELEPHONE NUMBER (415) 507-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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 X No
----- ---
As of September 8, 1997, there were 48,353,000 shares of the Registrant's Common
Stock outstanding.
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AUTODESK, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Statement of Operations
Three and six months ended July 31, 1997 and 1996............ 3
Condensed Consolidated Balance Sheet
July 31, 1997 and January 31, 1997........................... 4
Condensed Consolidated Statement of Cash Flows
Six months ended July 31, 1997 and 1996...................... 6
Notes to Condensed Consolidated Financial Statements........... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................... 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................... 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 16
SIGNATURES................................................. 16
2
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three months ended Six months ended
July 31, July 31,
------------------- ---------------------
1997 1996 1997 1996
-------- -------- ---------- --------
Revenues $157,944 $132,594 $280,067 $271,807
Direct commissions 3,848 3,849 6,987 6,781
-------- -------- -------- --------
Net revenues 154,096 128,745 273,080 265,026
Costs and expenses:
Cost of revenues 18,725 16,622 34,766 33,914
Marketing and sales 58,750 50,555 111,356 99,892
Research and development 30,426 22,947 58,035 45,809
General and administrative 20,726 18,269 39,163 36,934
Charge for acquired in-process
research and development - 3,229 58,087 3,229
-------- -------- -------- --------
128,627 111,622 301,407 219,778
-------- -------- -------- --------
Income (loss) from operations 25,469 17,123 (28,327) 45,248
Interest and other income, net 2,399 1,441 4,774 2,867
-------- -------- -------- --------
Income (loss) before income taxes 27,868 18,564 (23,553) 48,115
Provision for income taxes 10,033 7,919 11,357 18,410
-------- -------- -------- --------
Net income (loss) $ 17,835 $ 10,645 $(34,910) $ 29,705
======== ======== ======== ========
Net income (loss) per share $.34 $.22 $(.78) $.62
======== ======== ======== ========
Shares used in computing
net income (loss) per share 51,880 47,570 45,045 48,100
======== ======== ======== ========
See accompanying notes.
3
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
(In thousands)
July 31, 1997 January 31, 1997
-------------- -----------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 37,166 $ 64,814
Marketable securities 187,965 117,971
Accounts receivable, net 85,859 68,577
Inventories 6,548 7,340
Deferred income taxes 36,682 35,616
Prepaid expenses and other current assets 17,728 16,210
-------- --------
Total current assets 371,948 310,528
-------- --------
Marketable securities, including a restricted
balance of $17,300 at July 31, 1997
and $28,000 at January 31, 1997 102,429 103,523
Computer equipment, furniture, and leasehold
improvements, at cost:
Computer equipment and furniture 111,241 103,903
Leasehold improvements 19,536 17,818
Less accumulated depreciation (87,318) (77,671)
-------- --------
Net computer equipment, furniture,
and leasehold improvements 43,459 44,050
Purchased technologies and capitalized software 21,921 15,916
Other assets 38,101 18,216
-------- --------
$577,858 $492,233
======== ========
See accompanying notes.
4
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands)
July 31, 1997 January 31, 1997
-------------- -----------------
(Unaudited) (Audited)
Current liabilities:
Accounts payable $ 27,210 $ 24,557
Accrued compensation 22,969 18,099
Accrued income taxes 77,253 75,061
Other accrued liabilities 62,201 32,454
-------- --------
Total current liabilities 189,633 150,171
-------- --------
Deferred income taxes 3,453 2,974
Litigation accrual 29,328 29,328
Other liabilities 1,706 1,646
Put warrants 64,500 64,500
Stockholders' equity:
Common stock 263,317 147,091
Retained earnings 33,021 106,587
Foreign currency translation adjustment (7,100) (10,064)
-------- --------
Total stockholders' equity 289,238 243,614
-------- --------
$577,858 $492,233
======== ========
See accompanying notes.
5
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended
July 31,
1997 1996
-------- --------
Operating activities
Net income (loss) $(34,910) $ 29,705
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Charge for acquired in-process research
and development 58,087 3,229
Depreciation and amortization 20,105 15,957
Changes in operating assets and liabilities,
net of business combinations 11,649 11,721
-------- --------
Net cash provided by operating activities 54,931 60,612
-------- --------
Investing activities
Purchases of marketable securities (61,005) (13,737)
Business combinations, net of cash acquired (5,766) (6,689)
Purchases of computer equipment, furniture,
and leasehold improvements (7,924) (8,825)
Purchases of software technologies,
capitalization of software costs and other 6,857 (9,830)
-------- --------
Net cash used in investing activities (67,838) (39,081)
-------- --------
Financing activities
Proceeds from issuance of common stock 29,250 13,051
Repurchase of common stock (38,243) (41,489)
Dividends paid (5,748) (5,595)
-------- --------
Net cash used in financing activities (14,741) (34,033)
-------- --------
Net decrease in cash and cash equivalents (27,648) (12,502)
Cash and cash equivalents at beginning of year 64,814 129,305
-------- --------
Cash and cash equivalents at end of quarter $ 37,166 $116,803
======== ========
Supplemental disclosure of noncash investing and
financing activities:
Common stock issued in connection with
the acquisition of Softdesk $ 89,600 $ --
======== ========
See accompanying notes.
6
AUTODESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements at July 31, 1997 and for the
three- and six-month periods then ended are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report to Stockholders
incorporated by reference in the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1997. The results of operations for the three
and six months ended July 31, 1997 are not necessarily indicative of the
results for the entire fiscal year ending January 31, 1998.
2. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly held common stock or
potential common stock. This statement is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods.
Earlier application of this statement is not permitted.
Under the new requirements, primary earnings per share (referred to as basic
earnings per share under the new pronouncement) will exclude the dilutive
effect of stock options. The adoption of this pronouncement is expected to
result in an increase in primary earnings per share for the second quarter
ended July 31, 1997 and 1996 of approximately $0.03 and $0.01, respectively.
The impact of the new requirements is expected to increase earnings per share
by $.03 for the six months ended July 31, 1996, but is not expected to impact
the calculation of primary loss per share for the six months ended July 31,
1997. The impact of SFAS 128 on the calculation of fully diluted earnings
(loss) per share for these periods is not expected to be material.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and displaying comprehensive income
and its components in a full set of general-purpose financial statements and
is required to be adopted by the Company beginning in fiscal 1999.
Additionally, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for the way
the public business enterprises report information in annual statements and
interim financial reports regarding operating segments, products and
services, geographic areas and major customers. SFAS 131 will first be
reflected in the Company's 1999 Annual Report and will apply to both annual
and interim financial reporting subsequent to this date. Autodesk management
is currently evaluating the implication of these statements on operations.
3. The Financial Accounting Standards Board has approved the American Institute
of Certified Public Accountants Statement of Position (SOP) on software
revenue recognition which will be effective beginning in fiscal year 1999.
The Company believes it is in compliance with the provisions of the new SOP
and its adoption is not expected to have a material impact on the financial
position or results of operations of the Company.
7
4. In January 1997, the SEC issued new rules requiring expanded disclosure for
"market risk-sensitive" financial instruments. These rules will be fully
effective for the Company's annual financial statements for the year ending
January 31, 1999. As required for this interim filing, specific information
on the Company's accounting policies with regard to activities in derivative
financial instruments is provided below.
The Company utilizes derivative financial instruments in the form of forward
foreign exchange contracts only for the purpose of hedging foreign currency
market exposures of underlying assets, liabilities and other obligations
which exist as a part of its ongoing business operations. The Company, as a
matter of policy, does not engage in trading or speculative transactions.
In general, instruments used as hedges must be effective at reducing the
foreign currency risk associated with the underlying transaction being hedged
and must be designated as a hedge at the inception of the contract.
Substantially all forward foreign currency contracts entered into by the
Company have maturities of 60 days or less.
The Company uses the forward contracts only as hedges of existing
transactions. Amounts receivable and payable on forward foreign exchange
contracts are recorded as other current assets and other accrued liabilities,
respectively. For these contracts, mark-to-market gains and losses are
recognized as other income or expense in the current period, generally
consistent with the period in which the gain or loss of the underlying
transaction is recognized. Cash flows associated with derivative transactions
are classified in the statement of cash flows in a manner consistent with
those of the transactions being hedged.
As further discussed in the Company's fiscal year 1997 Annual Report on
Form 10-K, the Company sold put warrants to an independent third party in
September 1996 that entitle the holder of the warrants to sell 3 million
shares of its common stock to the Company at $21.50 per share. Additionally,
the Company purchased call options from the same independent third party that
entitle the Company to buy 2 million shares of its common stock at $25.50 per
share. The put warrants and call options expire in September 1997.
As part of its ongoing and systematic stock repurchase program, the Company
may, from time to time, enter into additional put warrant and call option
arrangements. As with the current put warrant contracts, the Company's
maximum potential repurchase obligation under the put warrants will be
reclassified from stockholders' equity to put warrants on the consolidated
balance sheet. Under these arrangements, the Company can typically settle
with a stock or a cash settlement equal to the difference between the
exercise price and market value at the date of exercise.
5. On March 31, 1997, the Company issued approximately 2.9 million shares of its
common stock for all outstanding shares of Softdesk, Inc. ("Softdesk"), a
leading supplier of AutoCAD-based application software for the architecture,
engineering, and construction market, and exchanged Autodesk options for
outstanding Softdesk options. Based upon the value of Autodesk stock and
options exchanged, the transaction was valued at approximately $94 million
for the Softdesk stockholders. This transaction has been accounted for using
the purchase method. The operating results of Softdesk, which have not been
material in relation to those of the Company, have been included in the
accompanying condensed consolidated financial statements from the acquisition
date.
To assist in the allocation of the purchase price, an independent valuation
of Softdesk was completed. Approximately $55.1 million of the Softdesk
purchase price represented the value of in-process research and development
that had not yet reached technological feasibility and had no alternative
future use. This amount was charged to operations in the first quarter of
fiscal year 1998.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contains trend analysis and other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements, trend
analyses and other information contained herein relative to markets for
Autodesk's products and trends in revenue, as well as other statements including
such words as "anticipate," "believe," "plan," "estimate," "expect," and
"intend" and other similar expressions, constitute forward-looking statements.
These forward-looking statements are subject to business and economic risks, and
Autodesk's actual results could differ materially from those set forth in the
forward-looking statements as a result of the factors set forth elsewhere
herein, including "Certain Risk Factors Which May Impact Future Operating
Results," page 11, as well as factors set forth in Autodesk's Annual report on
Form 10-K.
RESULTS OF OPERATIONS
Three Months Ended July 31, 1997 and 1996
- -----------------------------------------
Net revenues. The Company's second quarter net revenues of $154.1 million
increased 20 percent from the second quarter of the prior fiscal year. The
Company achieved significant net revenue growth in the Americas when compared to
the same period in the prior fiscal year while remaining relatively flat in
Europe and Asia/Pacific. Growth in net revenues resulted from sales of new
products such as AutoCAD Map, Autodesk World and 3D Studio Viz. Also
contributing to this growth were higher sales of AutoCAD software, the Company's
flagship product, as well as incremental revenues associated with the March 1997
acquisition of Softdesk, Inc. ("Softdesk"), a leading supplier of AutoCAD-based
software for the architecture, engineering, and construction ("AEC") market. The
most current release of AutoCAD, Release 14, was introduced in the United States
and certain foreign markets in the second quarter of the current fiscal year.
The growth in AutoCAD revenues resulted from increased sales of the commercial
version in the Americas and an increase in AutoCAD revenues resulting from
strong initial demand for Release 14 updates. The stronger value of the US
dollar, relative to international currencies, primarily the Japanese yen and the
German mark, negatively impacted net revenues in the second quarter of the
current fiscal year by $7.6 million when compared to the same period in the
prior fiscal year. Sales of AutoCAD and AutoCAD updates accounted for
approximately 74 percent and 70 percent of the Company's consolidated revenues
in the second quarter of fiscal years 1998 and 1997, respectively. International
sales, including exports from the U.S., accounted for approximately 58 percent
of the Company's revenues in the second quarter of fiscal year 1998 as compared
to 66 percent for the second quarter of fiscal year 1997.
The Company derives a substantial portion of its revenues from sales of AutoCAD
and AutoCAD updates. As such, any factors adversely affecting sales of AutoCAD
and AutoCAD updates, including customer acceptance, product performance,
compatibility with hardware equipment, and interoperability problems with
products designed to run in conjunction with AutoCAD Release 14, could result in
damage to the Autodesk and AutoCAD brand names, and could have a material
adverse effect on the Company's business and consolidated results of operations.
Product returns, consisting principally of stock rotation, are recorded as a
reduction of revenues and represented approximately 6 percent and 10 percent of
consolidated revenues in the second quarter of fiscal years 1998 and 1997,
respectively. Fiscal year 1997 product returns were impacted by product rotation
resulting from performance issues with AutoCAD Release 13 and transition and
update cycles related to the Company's various software products. Management
anticipates that product returns in future periods will continue to be impacted
by product update cycles, new product releases, and software quality.
9
Cost of revenues. When expressed as a percentage of net revenues, cost of
revenues decreased approximately 1 percent in the second quarter of fiscal year
1998 as compared to the same period of the prior fiscal year. Gross margins in
the second quarter of fiscal year 1998 were positively impacted by cost
reductions and improved operating efficiency as well as the mix of product
sales. Revenues from commercial versions of AutoCAD software, which
historically have yielded a higher gross margin than many of Autodesk's other
commercial products, increased as a percentage of consolidated revenues. Cost
of revenues as a percentage of net revenues has been and may continue to be
impacted by the mix of product sales, royalty rates for licensed technology
embedded in Autodesk's products, and the geographic distribution of sales.
Marketing and sales. Marketing and sales expenses were 38 percent and 39
percent of net revenues in the second quarter of fiscal years 1998 and 1997,
respectively. Actual spending increased approximately 16 percent as a result of
higher employee costs, marketing and sales costs associated with the launch of
AutoCAD Release 14 and new and enhanced product introductions from the Company's
market groups. The Company expects to continue its emphasis on marketing and
sales activities in the future to promote Autodesk's competitive position and to
support sales and marketing of its products. Accordingly, the Company expects
marketing and sales expenses to continue to be significant, both in absolute
dollars and as a percentage of net revenues.
Research and development. Research and development expenses represented 20
percent and 18 percent of net revenues in the second quarter of fiscal years
1998 and 1997, respectively. Actual research and development spending, including
capitalized software costs of $434,000 recorded in the second quarter of fiscal
year 1998, increased by $7.9 million or 34 percent in absolute dollars from the
same period in the prior fiscal year due to the addition of software engineers,
expenses associated with the development and translation of new products and
incremental expenses associated with fiscal year 1997 acquisitions and the March
31, 1997 business combination with Softdesk. The Company anticipates that
research and development expenses will increase in future periods as a result of
product development efforts by the Company's market groups and incremental
growth of technical personnel resulting from recent business combinations.
Additionally, the Company intends to continue recruiting and hiring experienced
software developers and to consider the licensing and acquisition of
complementary software technologies and businesses.
General and administrative. General and administrative expenses decreased to 13
percent of net revenues in the second quarter of fiscal year 1998 from 14
percent of net revenues in the second quarter of the prior fiscal year. In
absolute dollar terms, general and administrative expenses increased 13 percent
from the same period of the prior fiscal year resulting primarily from increased
employee related expenses as well as costs associated with integrating Softdesk
and other recent acquisitions. The Company currently expects that general and
administrative expenses will increase in future periods to support spending on
infrastucture, including continued investment in Autodesk's worldwide
information systems.
Interest and other income. Interest and other income in the second quarter was
$2.4 million compared to $1.4 million in the same quarter of the prior fiscal
year. The increase in interest income is due primarily to higher average cash
balances and higher interest rates on the Company's portfolio.
Provision for income taxes. The Company's effective income tax rate was 36
percent in the second quarter of fiscal year 1998 compared to 42.7 percent in
the same quarter of the prior fiscal year. The higher rate in the second
quarter of fiscal year 1997 resulted from a one-time charge for in-process
acquired research and development, which was not deductible for income tax
purposes, recorded during the quarter.
10
RESULTS OF OPERATIONS
Six Months Ended July 31, 1997 and 1996
- ---------------------------------------
Net revenues. Autodesk's net revenues for the six months ended July 31, 1997
were $273.1 million which represented a three percent increase from the same
period of the prior fiscal year. The increase resulted from strong initial
demand for Release 14 updates and higher sales of geographic information system,
AEC and low-end CAD product offerings.
Cost of revenues. Cost of revenues as a percentage of net revenues for the six
months ended July 31, 1997 was 13 percent, consistent with the same period in
the prior fiscal year. Cost of revenues as a percentage of net revenues has been
and may continue to be impacted by the mix of product sales, royalty rates for
licensed technology embedded in Autodesk's products, and the geographic
distribution of sales.
Marketing and sales. Marketing and sales expenses increased from 38 percent of
net revenues for the six months ended July 31, 1996 to 41 percent for the six
months ended July 31, 1997. Actual spending increased 11 percent compared to the
same period in the prior fiscal year as a result of higher employee costs as
well as increased marketing and sales costs associated with the launch of
AutoCAD Release 14 and other new and enhanced product offerings.
Research and development. Research and development expenses as a percentage of
net revenues for the six months ended July 31, 1997 increased to 21 percent from
17 percent for the same period in the prior fiscal year. Actual research and
development spending, including capitalized software costs of $2,184,000
recorded during the first six months of fiscal year 1998, increased 31 percent
as compared to the same period in the prior fiscal year. This increase is due
primarily to the addition of software engineers, expenses associated with the
development and translation of new products including AutoCAD Release 14, and
incremental research and development personnel expenses associated with fiscal
year 1997 acquisitions and the March 31, 1997 business combination with
Softdesk.
General and administrative. General and administrative expenses remained at 14
percent of net revenues for the six months ended July 31, 1997, consistent with
the same period in the prior fiscal year. In absolute dollar terms, general and
administrative expenses increased 6 percent for the six months ended July 31,
1997 from the same period of the prior fiscal year, primarily because of
increased employee-related expenses as well as the costs associated with the
integration of Softdesk with Autodesk operations.
Charge for acquired in-process research and development. On March 31, 1997, the
Company exchanged 2.9 million shares of its common stock for all of the
outstanding stock of Softdesk. This transaction was accounted for using the
purchase method of accounting with the purchase price being principally
allocated to capitalized software, purchased technologies, and intangible
assets. Approximately $55.1 million of the total purchase price represented the
value of in-process research and development that had not yet reached
technological feasibility and had no alternative future use. Approximately $3.0
million of technology acquired from another third party during the first quarter
of the current fiscal year also represented the value of in-process research and
development that had not yet reached technological feasibility and had no
alternative future use. The $55.1 million and the $3.0 million were charged to
operations in the first quarter of fiscal year 1998. A one-time charge of $3.2
million for acquired in-process research and development was recorded in the
second quarter of the prior fiscal year associated with the acquisition of
Teleos Research.
Interest and other income. Interest and other income for the six months ended
July 31, 1997 was $4.8 million as compared to $2.9 million for the same period
in the prior fiscal year. The increase reflected higher interest income than in
the same period of the prior fiscal year resulting from higher average cash
balances and higher interest rates on the Company's investment portfolio.
11
Provision for income taxes. The Company's effective income tax rate,
excluding the one-time charges for acquired in-process research and
development, was 36.0 percent for the first half of fiscal year 1998 as
compared to 35.0 percent for the same period in the prior fiscal year. The
increase in the effective income tax rate was due to a change in the
geographic mix of operations. Actual tax rates differ from the effective tax
rates due to the acquired in-process research and development, which is not
deductible for tax purposes.
CERTAIN RISK FACTORS WHICH MAY IMPACT FUTURE OPERATING RESULTS
Autodesk operates in a rapidly changing global environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks and the possible impact of these
factors on future results of operations.
Fluctuations in quarterly operating results. From time to time, the Company
experiences fluctuations in its quarterly operations as a result of periodic
release cycles, competitive factors, and general economic conditions among other
things. In addition, the Company has experienced fluctuations in operating
results in interim periods in certain geographic regions due to seasonality. The
Company's operating results in Europe during the third fiscal quarter are
usually impacted by a slow summer period while the Asia/Pacific operations
typically experience seasonal slowing in the third and fourth fiscal quarters.
The Company typically receives and fulfills a majority of its orders within a
particular quarter, with these orders frequently concentrated in the last weeks
or days of a fiscal quarter. As a result, the Company may not learn of revenue
shortfalls until late in a fiscal quarter. Additionally, the Company's operating
expenses are based in part on its expectations of future revenues and are
relatively fixed in the short term. Accordingly, any revenue shortfall below
expectations could have an immediate and significant adverse effect on the
Company's consolidated results of operations and financial condition.
Similarly, shortfalls in Autodesk's revenues or earnings from levels expected by
securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's common stock. Moreover, the Company's stock
price is subject to the volatility generally associated with technology stocks
and may also be affected by broader market trends unrelated to performance.
Product concentration. Autodesk derives a substantial portion of its revenues
from sales of AutoCAD software, AutoCAD updates, and adjacent products which are
interoperable with AutoCAD. As such, any factor adversely affecting sales of
AutoCAD and AutoCAD updates, including such factors as product life cycle,
market acceptance, product performance and reliability, reputation, price
competition, and the availability of third-party applications, could have a
material adverse effect on the Company's business and consolidated results of
operations.
Product development and introduction. The software industry is characterized by
rapid technological change as well as changes in customer requirements and
preferences. The software products offered by the Company are complex and,
despite extensive testing and quality control, may contain errors on
or defects ("bugs"), especially when first introduced. There can be no assurance
that defects or errors will not be discovered in software products offered by
the Company. Such defects or errors could result in corrective releases to the
Company's software products, damage to Autodesk's reputation, loss of revenues,
an increase in product returns, or lack of market acceptance of its products,
any of which could have a material and adverse effect on the Company's business
and consolidated results of operations.
12
The Company believes that its future results will depend largely upon its
ability to offer products that compete favorably with respect to price,
reliability, performance, range of useful features, continuing product
enhancements, reputation, and training. The discovery of product defects could
result in the delay or cancellation of planned development projects, and could
have a material and adverse effect on the Company's business and consolidated
results of operations. Further, increased competition in the market for design,
mapping, multimedia, data management, or data publishing software products could
also have a negative impact on the Company's business and consolidated results
of operations.
Certain of the Company's historical product development activities have been
performed by independent firms and contractors, while other technologies are
licensed from third parties. Autodesk generally either owns or has an exclusive
license for use of the software developed by third parties. Because talented
development personnel are in high demand, there can be no assurance that
independent developers, including those who have developed products for the
Company in the past, will be able to provide development support to the Company
in the future. Similarly, there can be no assurance that the Company will be
able to obtain and renew license agreements on favorable terms, if at all, and
any failure to do so could have a material adverse effect on the Company's
business and consolidated results of operations.
International revenues The Company anticipates that international revenues
will continue to account for a significant portion of its consolidated revenues.
Risks inherent in the Company's international sales include the following: the
impact of fluctuating exchange rates between the US dollar and foreign
currencies in markets where Autodesk does business; unexpected changes in
regulatory practices and tariffs; difficulties in staffing and managing foreign
operations; longer collection cycles; potential changes in tax laws; and greater
difficulty in protecting intellectual property. During the first half of fiscal
year 1998, changes in exchange rates from the same period of the prior fiscal
year adversely impacted revenues, principally due to changes in the Japanese
yen, the German mark and the French franc. The Company's international results
may also be impacted by general economic and political conditions in these
foreign markets. There can be no assurance that these and other factors will
not have a material adverse effect on the Company's future international sales
and consequently, on the Company's business and consolidated results of
operations.
Dependence on distribution channels The Company sells its software products
primarily to distributors and dealers (value-added resellers, or "VARs").
Autodesk's ability to effectively distribute products depends in part upon the
financial and business condition of its VAR network. Although the Company has
not, to date, experienced any material problems with its VAR network, computer
software dealers and distributors are typically not highly capitalized and have
experienced difficulties during times of economic contraction and may do so in
the future. The loss of or a significant reduction in business with any one of
the Company's major international distributors or large US dealers could have a
material adverse effect on the Company's business and consolidated results of
operations in future periods.
Product returns With the exception of certain European distributors,
agreements with the Company's VARs do not contain specific product-return
privileges. However, Autodesk permits its VARs to return product in certain
instances, generally during periods of product transition and during update
cycles. While the Company experienced a decrease in product returns both in
absolute dollars and as a percentage of consolidated revenues during the first
half of fiscal year 1998 as compared to the same period in the prior fiscal
year, management anticipates that product returns in future periods will
continue to be impacted by product update cycles, new product releases, and
software quality.
13
Autodesk establishes reserves, including reserves for stock balancing and
product rotation, based on estimated future returns of product and after taking
into account channel inventory levels, the timing of new product introductions,
and other factors. While the Company maintains strict measures to monitor
channel inventories and to provide appropriate reserves, actual product returns
may differ from the Company's reserve estimates, and such differences could be
material to Autodesk's consolidated financial statements.
Intellectual property The Company relies on a combination of patent, copyright
and trademark laws, trade secrets, confidentiality procedures, and contractual
provisions to protect its proprietary rights. Despite such efforts to protect
the Company's proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's software products or to obtain and use information that
Autodesk regards as proprietary. Policing unauthorized use of the Company's
software products is time-consuming and costly. Although the Company is unable
to measure the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that its competitors will not independently develop similar technology. The
Company expects that software product developers will be increasingly subject to
infringement claims as the number of products and competitors in its market
grows and the functionality of products in different market segments overlap.
There can be no assurance that infringement or invalidity claims (or claims for
indemnification resulting from infringement claims) will not be asserted against
the Company or that any such assertions will not have a material adverse effect
on its business. Any such claims, whether with or without merit, could be time-
consuming, result in costly litigation and diversion of resources, cause product
shipment delays, or require the Company to enter into royalty or licensing
agreements. Such royalty or license agreements, if required, may not be
available on acceptable terms, if at all, which could have a material adverse
effect on the Company's business and consolidated results of operations.
The Company also relies on certain software that it licenses from third parties,
including software that is integrated with internally developed software and
used in its products to perform key functions. There can be no assurance that
these third-party software licenses will continue to be available on
commercially reasonable terms, or that the software will be appropriately
supported, maintained, or enhanced by the licensors. The loss of licenses, or
inability to support, maintain, and enhance any such software, could result in
increased costs, or in delays or reductions in product shipments until
equivalent software could be developed, identified, licensed, and integrated,
which would have a material adverse effect on the Company's business and
consolidated results of operations.
Risks associated with recent acquisitions and investments Autodesk consummated
several acquisitions in fiscal year 1997, including acquisitions of Teleos
Research, Argus Technologies, Inc., and Creative Imaging Technologies, Inc., as
well as the March 1997 acquisition of Softdesk. The Company is integrating the
operations acquired in the Softdesk merger with its own. There can be no
assurance that the anticipated benefits of the Softdesk merger or other
business combinations completed in fiscal year 1997 or 1998 will be realized.
The Softdesk merger entails a number of risks, including managing a larger and
more geographically disparate business. In addition, the Softdesk merger could
require significant additional management attention. If Autodesk is unsuccessful
in integrating and managing the Softdesk business and the businesses of other
recently acquired entities, the Company's business and consolidated results of
operations in future periods could be adversely affected.
14
The Company periodically invests in and acquires businesses, software products
and technologies which are complementary to the Company's business through
strategic alliances, debt and equity investments, joint ventures and the like.
The risks associated with such investments include, among others, the difficulty
of assimilating the operations and personnel of the companies, the failure to
realize anticipated synergies and merger-related expenses. There can be no
assurance that the Company will be successful in overcoming such risks or that
such investments and acquisitions will not have a material adverse impact upon
the Company's business, financial condition or results of operations. In
addition, such investments and acquisitions may contribute to potential
fluctuations in quarterly results of operations due to merger-related costs and
charges associated with eliminating redundant expenses or write-offs of impaired
assets recorded in connection with business combinations, any of which could
negatively impact results of operations for a given period or cause lack of
linearity quarter to quarter in the Company's operating results or financial
condition.
LIQUIDITY AND CAPITAL RESOURCES
Working capital, which consists principally of cash, cash equivalents,
marketable securities, and accounts receivable was $182.3 million at July 31,
1997, compared to $160.4 million at January 31, 1997. Cash, cash equivalents,
and marketable securities, which consist primarily of high-quality municipal
bonds, tax-advantaged money market instruments, and US treasury notes, totaled
$327.6 million at July 31, 1997, compared to $286.3 million at January 31, 1997.
The $41.3 million increase in cash, cash equivalents, and marketable securities
was due primarily to cash generated from operations ($54.9 million) and cash
proceeds from the issuance of shares through employee stock option and stock
purchase programs ($29.3 million). This increase was partially offset by cash
used to repurchase shares of the Company's common stock under an ongoing,
systematic repurchase program ($38.2 million); to pay dividends on the Company's
common stock ($5.7 million); to effect business combinations ($5.8 million); and
to purchase computer equipment, furniture, and leasehold improvements ($7.9
million).
The Company has an unsecured $40 million bank line of credit that may be used
from time to time to facilitate short-term cash flow. At July 31, 1997, there
were no borrowings outstanding under this credit agreement, which expires in
January 1999.
The Company's principal commitments at July 31, 1997 consisted of obligations
under operating leases for facilities.
Longer-term cash requirements, other than normal operating expenses, are
anticipated for development of new software products and enhancement of existing
products; financing anticipated growth; dividend payments; repurchases of the
Company's common stock; and the acquisition of businesses, software products, or
technologies complementary to the Company's business. The Company believes that
its existing cash, cash equivalents, marketable securities, available line of
credit, and cash generated from operations will be sufficient to satisfy its
currently anticipated cash requirements for fiscal year 1998.
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Form 10-Q filed with the Securities and Exchange
Commission for the period ended April 30, 1997.
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on June 26, 1997, the
following individuals were elected to the Board of Directors:
Votes For Votes Withheld
---------- --------------
Carol A. Bartz 39,787,957 8,204,374
Mark A. Bertelsen 39,702,394 8,289,937
Crawford W. Beveridge 39,342,600 8,649,731
J. Hallam Dawson 39,861,088 8,131,243
Mary Alice Taylor 39,861,870 8,130,461
Morton Topfer 39,857,305 8,135,026
The following proposal was approved at the Company's Annual Meeting:
Affirmative Negative Votes
Votes Votes Withheld
------------ --------- --------
1. Ratify the appointment of Ernst &
Young LLP as independent auditors
for the fiscal year ending
January 31, 1998. 40,294,578 33,182 7,664,571
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended July 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: September 12, 1997
AUTODESK, INC.
(Registrant)
/s/ CAROL A. BARTZ
-------------------
Carol A. Bartz
Chairman and Chief Executive Officer
/s/ STEVE CAKEBREAD
--------------------
Steve Cakebread
Vice President and
Chief Financial Officer
(Principal Accounting Officer)
16
5
1,000
6-MOS
JAN-31-1998
JUL-31-1997
37,166
187,965
96,073
10,214
6,548
371,948
130,777
87,318
577,858
189,633
0
0
0
263,317
25,921
577,858
273,080
273,080
34,766
265,607
0
1,034
0
(23,553)
11,357
(34,910)
0
0
0
(34,910)
(.78)
0
