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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 APRIL 30, 1998
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 June 4, 1998, there were 47,019,000 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 months ended April 30, 1998 and 1997............. 3
Condensed Consolidated Balance Sheet
April 30, 1998 and January 31, 1998.................... 4
Condensed Consolidated Statement of Cash Flows
Three months ended April 30, 1998 and 1997............. 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......................................... 17
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
April 30,
---------------------
1998 1997
-------- ----------
Net revenues $187,206 $118,984
Costs and expenses:
Cost of revenues 19,687 16,041
Marketing and sales 65,213 52,606
Research and development 35,377 27,609
General and administrative 27,276 18,437
Nonrecurring charges - 58,087
-------- --------
147,553 172,780
-------- --------
Income (loss) from operations 39,653 (53,796)
Interest and other income, net 2,227 2,375
-------- --------
Income (loss) before income taxes 41,880 (51,421)
Provision for income taxes 14,239 1,324
-------- --------
Net income (loss) $ 27,641 $(52,745)
======== ========
Basic net income (loss) per share $0.60 $(1.15)
======== ========
Diluted net income (loss) per share $0.55 $(1.15)
======== ========
Shares used in computing
Basic net income (loss) per share 46,390 45,940
======== ========
Shares used in computing
diluted net income (loss) per share 50,240 45,940
======== ========
See accompanying notes.
3
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
(IN THOUSANDS)
April 30, 1998 January 31, 1998
--------------- -----------------
(unaudited) (audited)
Current Assets:
Cash and cash equivalents $ 124,784 $ 96,089
Marketable securities 145,232 100,399
Accounts receivable, net 64,579 60,856
Inventories 5,439 7,351
Deferred income taxes 43,284 27,577
Prepaid expenses and other current assets 13,240 15,430
--------- --------
Total current assets 396,558 307,702
--------- --------
Marketable securities, including a restricted
balance of $18,200 at April 30, 1998 and
$18,000 at January 31, 1998 97,569 104,831
Computer equipment, furniture, and leasehold
improvements, at cost:
Computer equipment and furniture 121,879 117,434
Leasehold improvements 21,245 20,505
Less accumulated depreciation (104,161) (98,800)
--------- --------
Net computer equipment, furniture, and leasehold improvements 38,963 39,139
Purchased technologies and capitalized software 29,395 31,553
Deferred income taxes 1,250 13,782
Other assets 31,657 36,676
--------- --------
$ 595,392 $533,683
========= ========
See accompanying notes.
4
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands)
April 30, 1998 January 31, 1998
--------------- -----------------
(Unaudited) (Audited)
Current liabilities:
Accounts payable $ 23,725 $ 26,417
Accrued compensation 27,901 34,962
Accrued income taxes 83,689 76,465
Deferred revenues 16,188 18,934
Litigation accrual 29,328 -
Other accrued liabilities 41,926 42,709
-------- --------
Total current liabilities 222,757 199,487
-------- --------
Deferred income taxes 504 481
Litigation accrual - 29,328
Other liabilities 2,025 1,255
Stockholders' equity:
Common stock 342,310 299,315
Retained earnings 44,932 20,472
Foreign currency translation adjustment (17,136) (16,655)
-------- --------
Total stockholders' equity 370,106 303,132
-------- --------
$595,392 $533,683
======== ========
See accompanying notes.
5
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended
April 30,
---------------------------
1998 1997
-------- --------
Operating activities
Net income (loss) $ 27,641 $(52,745)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Charges for acquired in-process research and development - 58,058
Depreciation and amortization 12,261 8,139
Changes in operating assets and liabilities, net of business
combinations (9,202) 6,597
-------- --------
Net cash provided by operating activities 30,700 20,049
-------- --------
Investing activities
Net purchases of marketable securities (37,571) (21,131)
Business combinations, net of cash acquired - (5,766)
Purchases of computer equipment, furniture, and leasehold
improvements (4,924) (2,603)
Purchases of software technologies, capitalization of software
costs and other (1,973) (2,350)
Other 2,278 3,720
-------- --------
Net cash used in investing activities (42,190) (28,130)
-------- --------
Financing activities
Proceeds from issuance of common stock 42,995 8,050
Repurchase of common stock - (12,722)
Dividends paid (2,810) (2,872)
-------- --------
Net cash provided by (used in) financing activities 40,185 (7,544)
-------- --------
Net increase (decrease) in cash and cash equivalents 28,695 (15,625)
Cash and cash equivalents at beginning of year 96,089 64,814
-------- --------
Cash and cash equivalents at end of quarter $124,784 $ 49,189
======== ========
Supplemental disclosure of noncash investing and financing
activities:
Shares of common stock received in relation to the equity
collar (See Note 3) $ 4,265 $ -
======== ========
Common stock issued in connection with the acquisition of
Softdesk, Inc. $ - $ 92,021
======== ========
See accompanying notes.
6
AUTODESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The condensed consolidated financial statements of Autodesk, Inc. ("Autodesk" or
the "Company") at April 30, 1998 and 1997 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 at April 30, 1998 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, 1998. The results of operations for the three
months ended April 30, 1998 are not necessarily indicative of the results for
the entire fiscal year ending January 31, 1999.
2. Recently Issued Accounting Standards
------------------------------------
In the first quarter of fiscal year 1999, the Company adopted the provisions of
the American Institute of Certified Public Accountants' Statement of Position
98-1 "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This standard requires companies to capitalize qualifying
computer software costs which are incurred during the application development
stage and amortize them over the software's estimated useful life. The adoption
of this standard did not have a material effect on the Company's consolidated
operating results or financial position.
3. Common Stock Repurchase Programs
--------------------------------
The Company sold put warrants to an independent third party in December 1997
that entitled the holder of the warrants to sell 1.5 million shares of common
stock to the Company at $38.12 per share. Additionally, the Company purchased
call options from the same independent third party that entitled the Company to
buy 1 million shares at $39.88 per share. The premiums received with respect to
the equity options totaled $4.5 million and equaled the premiums paid.
Consequently, there was no exchange of cash. The put warrants permitted a net
share settlement at the Company's option. In March 1998, the Company exercised
the call option, electing the net share settlement option and retired
approximately 97,000 shares of its common stock. The put warrants expired
unexcercised.
4. Net Income Per Share
--------------------
Basic net income per share is calculated using the weighted average number of
common shares outstanding. Diluted net income per share is computed using the
weighted average number of common shares outstanding and dilutive common stock
equivalents outstanding during the period. A reconciliation of the numerators
and denominators used in the basic and diluted net income (loss) per share
amounts follows:
Three months ended
April 30,
----------------------
1998 1997
--------- ----------
Numerator:
Numerator for basic and diluted
per share amounts--net income (loss) $ 27,641 $ (52,745)
-------- ---------
Denominator:
Denominator for basic net income (loss)
per share--weighted average shares 46,390 45,940
Effect of dilutive common stock options 3,850 -
-------- ---------
Denominator for dilutive net income (loss) per share 50,240 45,940
-------- ---------
7
5. Change in Accounting Principle
------------------------------
Effective February 1, 1998, Autodesk adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or stockholders' equity. This Statement requires
unrealized gains or losses on the Company's available-for-sale securities and
foreign currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to
the requirements of SFAS 130.
Autodesk's total comprehensive income was as follows:
Three months ended
April 30,
------------------------
1998 1997
--------- ----------
Net income (loss) $ 27,641 $ (52,745)
Other comprehensive loss (513) (3,929)
-------- ---------
Total comprehensive income (loss) $ 27,128 $ (56,674)
======== =========
6. Subsequent Events
-----------------
On May 4, 1998, the Company acquired certain assets related to the mechanical
applications business of Genius CAD Software GmbH ("Genius"), a German limited
liability company, for $68 million in cash. The acquisition will be accounted
for using the purchase method with the results of Genius being included in
Autodesk's consolidated financial statements from the acquisition date. To
assist in the allocation of the purchase price, an independent valuation of
Genius is being completed. The Company expects that it will allocate $27
million to $30 million to in-process research and development and charge this
amount to operations in the second quarter of fiscal year 1999.
In May 1998, final judgment was entered in the Vermont Microsystems, Inc.
("VMI") trade secret litigation in the amount of $7.8 million plus accrued
interest. Following entry of judgment, final payment of approximately $8.4
million was made to VMI and charged against a previously recorded litigation
accrual, and the remainder of the escrow account returned to Autodesk. As a
result, the Company plans to record a credit to operating income during the
second quarter of fiscal year 1999 that reflects excess litigation accruals.
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 analyses 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," "goal," 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 April 30, 1998 and 1997
- ------------------------------------------
Net revenues. The Company's first quarter net revenues of $187.2 million
increased 57 percent from the first quarter of the prior fiscal year. The
Company achieved significant net revenue growth in the Americas and Europe when
compared to the same period in the prior fiscal year while remaining relatively
flat in Asia Pacific. The Company recorded net revenues in the Americas of $90.1
million, an 81 percent increase from the same period in the prior fiscal year,
and net revenues in Europe of $68.0 million, an increase of 68 percent. This net
revenue growth was the result of strong demand for new and upgrade units of
AutoCAD Release 14, which began shipping in the second quarter of fiscal year
1998. Also contributing to the higher revenues were new and enhanced products
such as Mechanical Desktop 2.0 and AutoCAD LT 97. Sales of AutoCAD and AutoCAD
upgrades accounted for approximately 69 percent and 70 percent of the Company's
consolidated net revenues in the first quarter of fiscal years 1999 and 1998,
respectively. The stronger value of the US dollar, relative to certain
international currencies, primarily the Japanese yen, the German mark and the
French franc, negatively impacted net revenues in the first quarter of the
current fiscal year by $4.4 million when compared to the same period in the
prior fiscal year. International sales, including exports from the U.S.,
accounted for approximately 58 percent of the Company's revenues in the first
quarter of fiscal year 1999 as compared to 64 percent in the same period of the
prior fiscal year.
The Company derives a substantial portion of its revenues from sales of AutoCAD
software, AutoCAD upgrades, and adjacent products which are interoperable with
AutoCAD. As such, any factor adversely affecting sales of AutoCAD and AutoCAD
upgrades, 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. Additionally,
slowdowns in any of the Company's geographical markets, including the current
economic instability in certain countries of the Asia Pacific region, could also
have a material adverse impact 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 5 percent of consolidated
revenues in the first quarter of both fiscal years 1999 and 1998. Although
product returns, comparing the first quarter of fiscal year 1999 to the same
period in the prior year, remained the same as a percentage of consolidated
revenues, management anticipates that product returns in future periods will
continue to be impacted by the timing of new product releases, as well as the
quality and market acceptance of new products.
9
Cost of revenues. When expressed as a percentage of net revenues, cost of
revenues decreased approximately 3 percent in the first quarter of fiscal year
1999 as compared to the same period of the prior fiscal year. This improvement
resulted from efficiencies in production and distribution activities, and the
mix of product sales. 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 35 percent and 44 percent
of net revenues in the first quarter of fiscal years 1999 and 1998,
respectively. Actual spending increased 24 percent as a result of higher
employee costs, including increased variable compensation associated with higher
revenues, and higher advertising and promotion costs to support the launch of
new and enhanced products from the Company's market groups, including AutoCAD
Mechanical and MapGuide Release 3.0. The Company expects to continue to invest
in marketing and sales of its products, to develop market opportunities, and to
promote Autodesk's competitive position. 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 19
percent and 23 percent of net revenues in the first quarter of fiscal years 1999
and 1998, respectively. Actual research and development spending (including
capitalized software development costs of $1,750,000 recorded in the prior
fiscal year) increased by 20 percent 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 exit costs incurred in the
restructuring of one of the Company's development centers. 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 personnel costs. 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 15
percent of net revenues in the first quarter of fiscal year 1999 from 16 percent
of net revenues in the first quarter of the prior fiscal year. In absolute
dollar terms, general and administrative expenses increased 48 percent from the
same period of the prior fiscal year, resulting primarily from increased
employee-related expenses, amortization of intangibles recorded in connection
with the Softdesk merger, and costs related to the Company's Year 2000
compliance program. The Company currently expects that general and
administrative expenses will increase in future periods to support spending on
infrastructure, including continued investment in Autodesk's worldwide
information systems and making any additional corrections to the Company's
hardware and software for compliance in the year 2000; and to amortize
goodwill and other intangible assets associated with recent business
combinations.
Charge for acquired in-process research and development. On March 31, 1997, the
Company acquired the outstanding stock of Softdesk in exchange for Autodesk
common stock. 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
3D/Eye during the quarter 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.
Interest and other income. Interest and other income remained relatively flat
in the first quarter of fiscal year 1999 compared to the first quarter of fiscal
year 1998. Interest and other income in the first quarter was $2.2 million, net
of foreign exchange gains of $14,000, compared to $2.4 million in the same
quarter of the prior fiscal year, including foreign currency losses of $56,000.
10
Provision for income taxes. The Company's effective income tax rate was 34.0
percent in the first quarter of fiscal year 1999 compared to 36.0 percent in the
same quarter of the prior fiscal year. The decrease in the effective income tax
rate was due to tax benefits associated with the Company's foreign sales
corporation and foreign earnings which are taxed at rates different than the
U.S. statutory rate.
The Company's United States income tax returns for fiscal years ended January
31, 1992 through 1996, are under examination by the Internal Revenue Service
("IRS"). On August 27, 1997, the IRS issued a Notice of Deficiency proposing
increases to the amount of the Company's federal income taxes for fiscal years
1992 and 1993. On November 25, 1997, the Company filed a petition with the
United States Tax Court to contest these alleged tax deficiencies. Resolution
of these alleged tax deficiencies and any adjustments that may ultimately result
from these examinations are not expected to have a material adverse impact on
the Company's consolidated results of operations or its financial position.
CERTAIN RISK FACTORS WHICH MAY IMPACT FUTURE OPERATING RESULTS
Autodesk operates in a rapidly changing 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.
Competition. The software industry has limited barriers to entry, and the
availability of desktop computers with continually expanding capabilities at
progressively lower prices contributes to the ease of market entry. Because of
these and other factors, competitive conditions in the industry are likely to
intensify in the future. Increased competition could result in price
reductions, reduced revenues and profit margins, and loss of market share, any
of which could adversely affect Autodesk's business, consolidated results of
operations, and financial condition.
Autodesk believes that the principal factors affecting competition in its
markets are price, product reliability, performance, range of useful features,
continuing product enhancements, reputation, and training. In addition, the
availability of third-party application software is a competitive factor within
the CAD market. Autodesk believes that it competes favorably in these areas and
that its competitive position will depend, in part, upon its continued ability
to enhance existing products, and to develop and market new products.
In April 1998, the Company received notice that the Federal Trade Commission
("FTC") has undertaken a nonpublic investigation of its business practices. The
FTC has not made any claims or allegations regarding the Company's current
business practices or policies, nor have any charges been filed. Autodesk
intends to cooperate fully with the FTC in its inquiry. The Company does not
believe that the investigation will have a material adverse impact on its
business or consolidated 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. In
particular, 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 receives and fulfills a majority of its orders within a particular
quarter, with the majority of the sales to distributors and dealers (value-added
resellers or "VARs"). These resellers typically carry inventory of the
Company's products and place volume orders equivalent to a few days or a few
weeks of sales. The timing of these orders could have a material impact on
quarterly operating results. 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.
11
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 upgrades, and adjacent products which
are interoperable with AutoCAD. As such, any factor adversely affecting sales of
AutoCAD and AutoCAD upgrades, 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 or defects
("bugs"), especially when first introduced. There can be no assurance that
defects or errors will not occur in future releases of AutoCAD or other 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.
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 design, mapping, or
multimedia software products could also have a negative impact on the Company's
business and consolidated results of operations. More specifically, gross
margins may be adversely affected if sales of low-end CAD products, which
historically have had lower margins, grow at a faster rate than the Company's
higher-margin products.
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 licenses 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 operations. The Company anticipates that international operations
will continue to account for a significant portion of its consolidated revenues.
Risks inherent in the Company's international operations include the following:
unexpected changes in regulatory practices and tariffs; difficulties in staffing
and managing foreign operations; longer collection cycles; potential changes in
tax laws; greater difficulty in protecting intellectual property; and the impact
of fluctuating exchange rates between the U.S. dollar and foreign currencies in
markets where Autodesk does business. During the first three months of fiscal
year 1999, changes in exchange rates from the same period of the prior fiscal
year adversely impacted revenues, principally due to changes in the rate of
exchange between the U.S. dollar and the Japanese yen, the German mark, and the
French franc.
Although the Company has not been significantly impacted by the recent
unfavorable economic volatility currently experienced in certain Asia/Pacific
countries, any further deterioration in these markets could have a material
adverse impact on the Company's business, consolidated results of operations,
and financial condition.
12
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 currently 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 U.S. resellers 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. Although product returns, comparing the first quarter of fiscal 1999 to
the same period in the prior year, remained the same as a percentage of
consolidated revenues, management anticipates that product returns in future
periods will continue to be impacted by the timing of new product releases, as
well as the quality and market acceptance of new products.
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 could have a material adverse effect on the Company's business and
consolidated results of operations.
13
Risks associated with recent acquisitions and investments. The Company
periodically acquires or invests in 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 acquisitions or investments include, among others, the
difficulty of assimilating the operations and personnel of the companies, the
failure to realize anticipated synergies and the diversion of management's time
and attention. In addition, such investments and acquisitions may involve
significant transaction-related costs. 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 acquisitions, 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.
As further described in Note 6 to the condensed consolidated financial
statements, on May 4, 1998, the Company acquired certain assets related to the
mechanical applications business of Genius CAD Software GmbH ("Genius"), a
German limited liability company, for $68 million in cash. There can be no
assurance that the anticipated benefits of the Genius asset purchase and any
future mergers, acquisitions, or asset purchases will be realized.
Attraction and Retention of Employees. The continued growth and success of the
Company depends significantly on the continued service of highly skilled
employees. Competition for these employees in today's marketplace, especially
in the technology industries, is intense. The Company's ability to attract and
retain employees is dependent on a number of factors including its continued
ability to grant stock incentive awards. There can be no assurance that the
Company will be successful in continuing to recruit new personnel and to retain
existing personnel. The loss of one or more key employees or the Company's
inability to maintain existing employees or recruit new employees could have a
material adverse impact on the Company. In addition, the Company may experience
increased compensation costs to attract and retain skilled personnel.
Impact of Year 2000. Some of the computer programs used by the Company in its
internal operations rely on time-sensitive software that was written using two
digits rather than four to identify the applicable year. These programs may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Additionally, as the Company is in the business of software production, year
2000 issues may affect the Company's products which are being sold externally.
The Company expects to successfully implement a six-phase year 2000 compliance
program and does not believe that the cost of such procedures will have a
material effect on the Company's results of operations or financial condition.
There can be no assurance, however, that there will not be a delay in the
completion of these procedures or that the cost of such procedures will not
exceed original estimates, either of which could have a material adverse effect
on future results of operations.
In addition to correcting the business and operating systems used by the Company
in the ordinary course of business as described above, the Company has also
reviewed all products it produces internally for sale to third parties to
determine compliance of its products. Products either have been found to be
compliant or are currently being tested for compliance. However, many Autodesk
products run on application systems produced and sold by third-party vendors.
There can be no assurance that these application systems will be converted in a
timely manner, and any failure in this regard may cause Autodesk products not to
function as designed. Any future costs associated with ensuring that the
Company's products are compliant with the year 2000 are not expected to have a
material impact on the Company's results of operations or financial position.
14
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and marketable securities, which consist primarily of
high-quality municipal bonds, tax-advantaged money market instruments and U.S.
treasury notes, totaled $367.6 million at April 30, 1998, compared to $301.3
million at January 31, 1998. The $66.3 million increase in cash, cash
equivalents, and marketable securities was due primarily to cash generated from
operations ($30.7 million) and cash proceeds from the issuance of shares through
employee stock option and stock purchase programs ($43.0 million). This increase
was partially offset by cash used to purchase software technologies and
capitalize software costs ($2.0 million); to purchase computer equipment,
furniture, and leasehold improvements ($4.9 million); and to pay dividends on
the Company's common stock ($2.8 million).
The Company has an unsecured $40 million bank line of credit, of which $20
million is guaranteed, that may be used from time to time to facilitate short-
term cash flow. At April 30, 1998, there were no borrowings outstanding under
this credit agreement, which expires in January 1999.
The Company's principal commitments at April 30, 1998 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.
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
In May 1998, final judgment was entered in the Vermont Microsystems, Inc.
("VMI") trade secret litigation in the amount of $7.8 million plus accrued
interest. Following entry of judgment, final payment of approximately $8.4
million was made to VMI and charged against a previously recorded litigation
accrual, and the remainder of the escrow account returned to Autodesk. As a
result, the Company plans to record a credit to operating income during the
second quarter of fiscal year 1999 that reflects excess litigation accruals.
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a Special Meeting of Stockholders on March 31, 1998. The
following proposals were approved by the stockholders as indicted below:
Affirmative Negative Votes Non
Votes Votes Withheld Votes
----------------- ---------------- --------------- ---------------
1. To amend the Company's Certificate
of Incorporation to increase the
number of authorized shares of Common
Stock from 100,000,000 to 250,000,000. 24,012,523 14,646,843 47,690 37
2. To approve the adoption of the
Company's 1998 Employee Qualified
Stock Purchase Plan 29,580,741 4,598,879 77,960 4,449,513
3. To approve certain amendments to
the Company's 1996 Stock Plan 17,392,856 16,758,171 106,556 4,449,510
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
--------
27.0 Financial Data Schedule for the period ended April 30, 1998
27.1 Financial Data Schedule restated for the twelve months ended
January 31, 1998, 1997 & 1996
27.2 Financial Data Schedule restated for the fiscal quarters ended
April 30, 1997, July 31, 1997, and October 31, 1997
27.3 Financial Data Schedule restated for the fiscal quarters ended
April 30, 1996, July 31, 1996, and October 31, 1996
Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended April 30,
1998.
16
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: June 10, 1998
AUTODESK, INC.
(Registrant)
/S/ CAROL A. BARTZ
-------------------
Carol A. Bartz
Chief Executive Officer
and Chairman of the Board
/S/ STEVE CAKEBREAD
--------------------
Steve Cakebread
Vice President and Chief Financial Officer
(Principal Financial Officer)
17
5
1,000
3-MOS
JAN-31-1999
APR-30-1998
124,784
145,232
71,664
7,085
5,439
396,558
143,124
104,161
595,392
222,757
0
0
0
342,310
27,796
595,392
187,206
187,206
19,687
127,527
0
339
110
41,880
14,239
27,641
0
0
0
27,641
0.60
0.55
5
1,000
12-MOS 12-MOS 12-MOS
JAN-31-1998 JAN-31-1997 JAN-31-1996
FEB-01-1997 FEB-01-1996 FEB-01-1995
JAN-31-1998 JAN-31-1997 JAN-31-1996
96,089 64,814 129,305
100,399 117,971 64,001
67,992 75,212 100,650
7,136 6,635 6,731
7,351 7,340 9,685
307,702 310,528 347,834
137,939 121,721 127,743
98,800 77,671 78,778
533,683 492,233 517,929
199,487 150,171 144,295
0 0 0
0 0 0
0 0 0
299,315 147,091 140,765
3,817 96,523 201,563
533,683 492,233 517,929
617,126 496,693 534,167
617,126 496,693 534,167
70,858 64,217 66,812
497,212 370,922 334,801
0 0 0
3,701 1,737 3,527
159 1,842 1,841
54,999 66,512 138,280
39,635 24,941 50,492
15,364 41,571 87,788
0 0 0
0 0 0
0 0 0
15,364 41,571 87,788
0.33 0.91 1.86
0.31 0.88 1.76
For purposes of this exhibit, primary means basic.
Amounts have been restated to comply with the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share."
5
1,000
3-MOS 3-MOS 3-MOS
JAN-31-1998 JAN-31-1998 JAN-31-1998
APR-30-1997 JUL-31-1997 OCT-31-1997
49,189 37,166 43,024
140,313 187,965 169,956
83,654 96,073 85,872
10,260 10,214 7,527
7,152 6,548 6,397
325,157 371,948 351,667
127,180 130,377 135,687
81,937 87,318 94,040
543,320 577,858 568,966
171,895 189,633 197,751
0 0 0
0 0 0
0 0 0
245,460 263,317 304,153
25,576 25,921 34,068
543,320 577,858 568,966
118,984 154,096 162,195
118,984 154,096 162,195
16,041 18,725 17,512
156,378 109,229 114,451
0 0 0
361 673 106
0 0 0
(51,421) 27,868 32,743
(1,324) 10,033 11,787
(52,745) 17,835 20,956
0 0 0
0 0 0
0 0 0
(52,745) 17,835 20,956
(1.15) 0.37 0.44
(1.15) 0.34 0.41
5
1,000
3-MOS 3-MOS 3-MOS
JAN-31-1997 JAN-31-1997 JAN-31-1997
APR-30-1996 JUL-31-1996 OCT-31-1996
102,945 116,803 87,759
71,050 76,428 72,842
113,948 94,688 93,382
6,910 6,815 6,998
9,900 10,979 9,012
342,070 340,601 298,874
131,408 132,441 124,148
83,010 83,704 75,794
520,199 510,765 477,163
143,253 150,266 137,600
0 0 0
0 0 0
0 0 0
149,193 150,214 141,472
194,216 178,193 102,388
520,199 510,765 477,163
136,281 128,745 116,647
136,281 128,745 116,647
17,292 16,622 15,220
90,258 94,574 93,493
0 0 0
606 426 432
460 461 0
29,551 18,564 9,106
10,491 7,919 3,233
19,060 10,645 5,873
0 0 0
0 0 0
0 0 0
19,060 10,645 5,873
0.41 0.23 0.13
0.39 0.22 0.13
