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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
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(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, 1996
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 __
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As of June 6, 1996, there were 45,852,000 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 Income
Three months ended April 30, 1996 and 1995.......................3
Condensed Consolidated Balance Sheet
April 30, 1996 and January 31, 1996..............................4
Condensed Consolidated Statement of Cash Flows
Three months ended April 30, 1996 and 1995.......................6
Notes to Condensed Consolidated Financial Statements..............7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................12
Item 6. Exhibits and Reports on Form 8-K.................................12
Signatures.......................................................12
2
PART I. FINANCIAL INFORMATION
- - ------------------------------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
Three months ended
April 30
------------------------------
1996 1995
------- --------
Revenues $139,213 $141,777
Direct commissions 2,932 3,119
-------- --------
Net revenues 136,281 138,658
Costs and expenses:
Cost of revenues 17,292 17,285
Marketing and sales 49,337 45,003
Research and development 22,862 19,166
General and administrative 18,665 18,796
-------- --------
Total costs and expenses 108,156 100,250
-------- --------
Income from operations 28,125 38,408
Interest and other income, net 1,426 2,500
-------- --------
Income before income taxes 29,551 40,908
Provision for income taxes 10,491 14,931
-------- --------
Net income $ 19,060 $ 25,977
======== ========
Net income per share $ 0.39 $ 0.51
======== ========
Shares used in computing net income per
share 48,640 50,610
========= =========
See accompanying notes.
3
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
(In thousands)
April 30, 1996 January 31, 1996
--------------- -----------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $102,945 $129,305
Marketable securities 71,050 64,001
Accounts receivable, net 107,038 93,919
Inventories 9,900 9,685
Deferred income taxes 34,616 33,769
Prepaid expenses and other current assets 16,521 17,155
-------- --------
Total current assets 342,070 347,834
-------- --------
Marketable securities, including a restricted
balance of $28,000 at April 30, 1996
and January 31, 1996 88,027 79,096
Computer equipment, furniture, and
leasehold improvements:
Computer equipment and furniture 109,831 106,643
Leasehold improvements 21,577 21,100
Accumulated depreciation (83,010) (78,778)
-------- --------
Net computer equipment, furniture, and
leasehold improvements 48,398 48,965
Capitalized software and purchased
technologies 20,103 22,141
Other assets 21,601 19,893
-------- --------
$520,199 $517,929
======== ========
See accompanying notes.
4
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands)
April 30, 1996 January 31, 1996
--------------- -----------------
(Unaudited) (Audited)
Current liabilities:
Accounts payable $ 23,953 $ 24,547
Accrued compensation 18,201 22,441
Accrued income taxes 68,315 65,517
Other accrued liabilities 32,784 31,790
-------- --------
Total current liabilities 143,253 144,295
-------- --------
Deferred income taxes 3,617 1,912
Litigation accrual 28,100 27,640
Other liabilities 1,820 1,754
Stockholders' equity:
Common stock 149,193 140,765
Retained earnings 186,992 191,109
Foreign currency translation adjustment 7,224 10,454
-------- --------
Total stockholders' equity 343,409 342,328
-------- --------
$520,199 $517,929
======== ========
See accompanying notes.
5
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended
April 30,
-----------------------------
1996 1995
------- -------
Operating activities
Net income $ 19,060 $ 25,977
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,501 6,656
Changes in operating assets and liabilities (12,922) (16,966)
-------- --------
Net cash provided by operating activities 13,639 15,667
-------- --------
Investing activities
Purchases of available-for-sale marketable
securities, net (15,980) (47,758)
Purchases of computer equipment, furniture and
leasehold improvements (3,809) (6,293)
Other (5,594) 12,531
-------- --------
Net cash used in investing activities (25,383) (41,520)
-------- --------
Financing activities
Proceeds from issuance of common stock 10,211 22,590
Repurchase of common stock (21,965) (21,415)
Dividends paid (2,862) (2,856)
-------- --------
Net cash used in financing activities (14,616) (1,681)
-------- --------
Net decrease in cash and cash equivalents (26,360) (27,534)
Cash and cash equivalents at beginning of year 129,305 195,038
-------- --------
Cash and cash equivalents at end of quarter $102,945 $167,504
======== ========
See accompanying notes.
6
AUTODESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements for the three month periods
ended April 30, 1996 and April 30, 1995 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, 1996. The results of operations for the three
months ended April 30, 1996 are not necessarily indicative of the results for
the entire fiscal year ending January 31, 1997.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which reflect management's
best judgment based on factors currently known, involve risks and uncertainties.
Actual results could differ materially from those anticipated in these forward-
looking statements as a result of a number of factors, including but not limited
to those discussed below. Forward-looking information provided by Autodesk
pursuant to the safe harbor established by recent securities legislation should
be evaluated in the context of these factors.
Results of Operations
Net revenues. Autodesk's worldwide net revenues in the first quarter of fiscal
year 1997 were $136.3 million compared to $138.7 million in the prior fiscal
year, a decrease of 2 percent. The lower revenues resulted principally from
lower sales of AutoCAD updates and, to a lesser extent, from lower revenues and
unit shipments of new AutoCAD licenses. First quarter revenues in fiscal year
1997 as compared to the same period in the prior fiscal year were adversely
impacted by approximately $5 million resulting from the stronger value of the
dollar relative to international currencies. These decreases were partially
offset by revenues from new and enhanced products introduced during the quarter,
most notably Autodesk Mechanical Desktop and 3D Studio MAX. First quarter net
revenues in fiscal year 1997 as compared to fiscal year 1996 increased by 8
percent and 3 percent in Europe and Asia/Pacific, respectively, offset by a 14
percent decrease in the Americas resulting from lower sales of AutoCAD software.
Consolidated revenues derived from AutoCAD and AutoCAD updates represented
approximately 75 percent of consolidated revenues in the first quarter of fiscal
year 1997 as compared to approximately 80 percent in the same period of the
prior fiscal year. International sales, including exports from the US, accounted
for approximately 70 percent of the Company's revenues in the first quarter of
fiscal year 1997 as compared to 66 percent for the first quarter of fiscal year
1996.
The Company currently intends to release a variety of new and upgraded products
during the balance of fiscal year 1997 and expects revenues to increase modestly
on a sequential basis. Delays in the introduction of new or enhanced products or
failure to achieve significant customer acceptance for these new products may
have a material adverse effect on the Company's revenues and consolidated
results of operations in future periods. A continued slowdown in sales in the
Americas, particularly in the US, and softness in the German market and the
potential risk that such conditions may carry over to other European markets
where the Company operates, could also have a material adverse effect on the
Company's business and consolidated results of operations. The foregoing
forward-looking information is based upon current expectations of the Company.
Actual results could differ materially for the reasons noted and due to other
risks, including but not limited to those mentioned above and otherwise
discussed under "Certain Factors Which May Impact Future Operating Results,"
page 9.
Cost of revenues. Cost of revenues as a percentage of net revenues increased in
the first quarter of fiscal 1997 to 13 percent from 12 percent in the first
quarter of the prior fiscal year. This increase resulted from increased royalty
payments associated with sales of Autodesk Mechanical Desktop and 3D Studio MAX.
In the future, the Company expects that cost of revenues as a percentage of net
revenues may be impacted by the mix of product sales, royalty rates for licensed
technology embedded in the Company's products, the geographic distribution of
sales, and sales of product updates, which have lower gross margins than
commercial versions of the Company's software products.
8
Marketing and sales. Marketing and sales expenses increased from 32 percent of
net revenues in the first quarter of fiscal year 1996 to 36 percent in the first
quarter of fiscal year 1997. Actual spending increased 10 percent as a result of
higher employee costs as well as marketing and sales costs associated with the
launch of the Autodesk Mechanical Desktop and 3D Studio MAX products. 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 as a percentage of
net revenues for the first quarter of fiscal year 1997 increased to 17 percent
from 14 percent in the first quarter of the prior fiscal year. Actual research
and development spending increased by 19 percent in absolute dollars on a year
over year basis due to the addition of software engineers and increased
personnel costs, costs associated with the development of new and enhanced
products, and the translation of certain of these products into foreign
languages. The Company anticipates that research and development expenses will
increase in fiscal year 1997 over the prior fiscal year as a result of product
development efforts by the Company's market groups. 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 were 14 percent
of net revenues in the first quarter of both fiscal years 1997 and 1996.
Expenses decreased 1 percent in absolute dollars over the same period in the
prior fiscal year resulting primarily from lower professional fees and occupancy
costs, partially offset by higher personnel costs and expenses incurred to
support the Company's increased operations and infrastructure. The Company
currently expects that general and administrative expenses will increase at
approximately the same rate as, or slightly below, anticipated revenue growth to
support spending on infrastructure, including continued investment in Autodesk's
worldwide information systems.
Interest and other income. Interest and other income in the first quarter was
$1.4 million, including foreign currency losses of approximately $60,000
compared to $2.5 million in the same quarter of the prior fiscal year, which
included foreign currency gains of approximately $190,000. Interest income for
the quarter was $2.0 million, a decrease of approximately $830,000 from the same
period in the prior fiscal year resulting from lower average cash balances and
lower interest rates on the Company's international investment portfolio when
compared to the same period in the prior fiscal year.
Provision for income taxes. The Company's effective income tax rate was 35.5
percent in the first quarter of fiscal year 1997 as compared 36.5 percent in the
same quarter of the prior fiscal year. The decrease in the effective income tax
rate is principally attributable to increased foreign earnings which are taxed
at rates lower than the US statutory rate.
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 from operations.
Fluctuations in quarterly operating results. The Company has experienced some
fluctuations in operating results in interim periods in certain geographic
regions due to seasonality and general economic conditions in these markets. 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.
9
The Company typically receives and fulfills a majority of its orders within the
quarter, with a substantial portion occurring in the third month of the 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 for future revenues and are relatively fixed in the
short term. Any revenue shortfall below expectations could have an immediate and
significant adverse effect on results of operations.
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 software and
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, AutoCAD updates, and adjacent computer-aided design
("CAD") products which are interoperable with AutoCAD. As such, any factor
adversely affecting sales of AutoCAD and AutoCAD updates, including such factors
as 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 and financial condition.
A substantial portion of the Company's CAD sales, including sales of AutoCAD and
AutoCAD updates, are used by the Architecture, Engineering, and Construction
("AEC") industry. The Company's product sales to the AEC markets, particularly
in the US and Germany, relative to the recent past, have slowed and short-term
growth in these markets is uncertain. Further contraction in the AEC industry in
these countries or other markets where the Company operates could have a
material adverse effect on Autodesk's business and consolidated results of
operations in future periods.
Product development and introduction. The software industry is characterized by
rapid technological change as well as changes in customer requirements and
preferences. 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. Delays or difficulties with new product
introductions or product enhancements planned for release in fiscal year 1997
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, multimedia, data management, or data publishing software products
could also have a negative impact on the Company's business and consolidated
results of operations.
The software products offered by the Company are internally complex and may
contain errors or defects ("bugs"), especially when first introduced. Despite
extensive product testing and quality control, there can be no assurance that
defects and errors will not be found in the Company's products. Such defects or
errors could result in damage to the Company's reputation, loss of revenues, 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.
Certain of the Company's product development activities are 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 Autodesk 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.
10
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:
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 US dollar and foreign currencies in
markets where Autodesk does business. 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 and 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 its 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 especially 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, the Company permits its VARs to return product in certain instances,
generally during periods of product transition and update cycles. In fiscal year
1996, the Company experienced a higher level of product returns than in prior
periods, most notably in the US, which management attributed to performance
issues associated with initial versions of AutoCAD Release 13 software. In the
first quarter of fiscal year 1997, the Company continued to experience a high
level of product returns relative to prior years due to transition and update
cycles related to the Company's software products. Autodesk establishes
allowances, including allowances 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 allowances, 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 protects its intellectual property through
copyright, trade secret, patent, and trademark laws. There can be no assurance
that such measures will be adequate to protect the Company's proprietary
intellectual property or that claims or infringement of third parties'
intellectual property rights will not occur. Costs incurred in the future to
litigate intellectual property ownership or to acquire license rights could
negatively impact future results of operations.
Liquidity and Capital Resources
Cash, cash equivalents, and marketable securities, which consist primarily of
high-quality municipal bonds, tax-advantaged money market instruments, and US
treasury notes, totaled $262.0 million at April 30, 1996 compared to $272.4
million at January 31, 1996. (Both amounts include a restricted balance of $28.0
million related to a litigation judgment which is being appealed. See Part II,
Item 1 of this report.) During the quarter, the Company generated $13.6 million
in cash from operations and realized cash proceeds of $10.2 million from the
issuance of shares through employee stock option and stock purchase programs.
These increases were offset by cash used to purchase 587,000 shares of the
Company's stock under an ongoing, systematic repurchase program ($22.0 million);
to purchase computer equipment, furniture, and leasehold improvements ($3.8
million); and to pay dividends on the Company's common stock ($2.9 million).
11
The Company's principal commitments at April 30, 1996, 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 possible 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 1997.
PART II. OTHER INFORMATION
- - ---------------------------
Item 1. Legal Proceedings
Reference is made to Item 3 of the Company's Annual Report to Stockholders on
Form 10-K for the fiscal year ended January 31, 1996.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended April 30, 1996.
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 13, 1996
AUTODESK, INC.
(Registrant)
/s/ CAROL A. BARTZ
------------------
Carol A. Bartz
President and Chief Executive Officer
/s/ ERIC B. HERR
----------------
Eric B. Herr
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
12
5
1,000
3-MOS
JAN-31-1997
APR-30-1996
102,945
71,050
113,948
6,910
9,900
342,070
131,408
83,010
520,199
143,253
0
0
0
149,193
194,216
520,199
136,281
136,281
17,292
90,864
0
606
460
29,551
10,491
19,060
0
0
0
19,066
0.39
0
