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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR
ENDED JANUARY 31, 1997
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) (Zip Code)
Registrant's telephone number, including area code: (415) 507-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on April 21,
1997 as reported on the Nasdaq National Market, was approximately
$1,117,000,000. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of April 21, 1997, Registrant had outstanding 47,660,000 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended January
31, 1997 are incorporated by reference into Parts II and IV. Portions of the
Proxy Statement for Registrant's 1997 Annual Meeting of Stockholders to be held
June 26, 1997 are incorporated by reference in Part III.
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PART I
FORWARD LOOKING INFORMATION
The forward-looking statements included in this report, which reflect
management's best judgment based on factors currently known, involve risks and
uncertainties. Actual results could differ materially from those anticipated in
the forward-looking statements included herein as a result of a number of
factors, including but not limited to those discussed in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
incorporated by reference to pages 24 through 32 of the Company's 1997 Annual
Report to Stockholders.
ITEM 1. BUSINESS
GENERAL
Autodesk, Inc. ("Autodesk" or the "Company") is a leader in the development
and marketing of design and drafting software and multimedia tools, primarily
for the business and professional environment. The Company's flagship product,
AutoCAD, is one of the world's leading computer-aided design ("CAD") tools, with
an installed base of more than 1.6 million units worldwide. The Company's
software products are sold worldwide, primarily through a network of dealers and
distributors.
In February 1995, the Company realigned its internal marketing and
development organizations around the five key market groups that most closely
match Autodesk's customer base. Each market group incorporates product
development, quality assurance, technical publications, and product industry
marketing. These market groups are discussed below.
Architecture, Engineering and Construction ("AEC"). The architecture,
--------------------------------------------------
engineering, construction and facilities management industries utilize software
from the Company and third-party developers to manage every phase of a
building's life cycle--from conceptual design through construction, maintenance
and renovation. CAD is an integral part of today's building design and
construction process. The Company believes that the majority of its CAD sales
are directed to the AEC industry.
Mechanical Computer-Aided Design ("MCAD"). The Company's Mechanical CAD
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Market Group is dedicated to providing mechanical engineers, designers and
drafters with advanced, value-based software solutions that help solve their
professional design challenges. Autodesk's MCAD products include Mechanical
Desktop, AutoCAD Designer, and AutoSurf software.
Geographic Information Systems ("GIS"). The Company's GIS Market Group
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strategy is to provide easy-to-use mapping and GIS technology to help businesses
and governments manage their assets and infrastructure. The GIS Market Group is
assisting automated mapping/facilities managers, as well as GIS and CAD users,
to share mapping, GIS, and associated information in a corporate environment.
The Company's current GIS products include AutoCAD Map, Autodesk MapGuide, and
AutoCAD Data Extension ("ADE").
Data Management ("DM"). The Data Management Market Group develops and
----------------------
markets products that allow users to organize, access, share, view, and manage
design-related information. DM products offered by the Company include
WorkCenter and Autodesk View.
Kinetix. The Kinetix division of Autodesk (formerly Autodesk's Multimedia
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Market Group) is devoted to bringing powerful 3D content-creation software to
computer-industry professionals focused on film, video, interactive games, and
design visualization. Products offered by this market group include 3D Studio
MAX, 3D Studio, and AutoVision.
In addition to the five market groups discussed above, the Company has an
Advanced Products Group ("APG") which focuses on business opportunities adjacent
to and outside of Autodesk's original market of design and drafting
professionals. The goal of APG is to expand Autodesk's traditional customer base
of architects and engineers by, for example, creating products for individuals
in associated trades, such as landscaping and interior design. The first in a
series of APG retail products, Picture This Home! Kitchen, was launched in
January 1997.
2
RECENT DEVELOPMENTS
In March 1997, the Company exchanged approximately 2.9 million shares of its
common stock for all of the outstanding shares of Softdesk, Inc. ("Softdesk"), a
leading supplier of AEC software. To assist in the allocation of the purchase
price, an independent valuation of Softdesk is being completed. The Company
expects that it will allocate approximately $45 to $55 million to in-process
research and development and charge this amount to operations in the first
quarter of fiscal year 1998. The Company also expects to incur an additional
significant charge to operations, which is currently expected to be $3 million
to $4 million, to reflect costs associated with integrating the two companies.
Costs generally associated with this type of integration that may be incurred by
the Company include the write-off of capitalized software, closing of excess
facilities, and disposition of excess equipment. There can be no assurance that
Autodesk will not incur additional charges to reflect costs associated with this
merger or that management will be successful in its efforts to integrate the
operations of the two companies. Failure to effectively accomplish the
integration of the operations of the Company and Softdesk would have a material
adverse effect on Autodesk's business, consolidated results of operations and
financial condition. Moreover, uncertainty in the marketplace or customer
hesitation relating to the Softdesk merger could negatively affect the Company's
business, results of operations, and financial condition.
PRODUCTS
The Company's primary CAD software products include AutoCAD and AutoCAD LT.
AutoCAD
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AutoCAD software is a general-purpose CAD tool used independently and in
conjunction with specific applications designed to work with AutoCAD in fields
ranging from architecture and mechanical design to plant design and mapping.
Professionals utilize AutoCAD for design, modeling, drafting, mapping,
rendering, and management tasks. The most current version, AutoCAD Release 13,
was introduced in November 1994. AutoCAD runs on MS-DOS, Windows 95, Windows NT
for both Intel and Alpha, Windows 3.1, and certain UNIX-based platforms (Sun
Solaris, HP-UX, Silicon Graphics IRIX, and IBM AIX). The installed base of
AutoCAD exceeds 1.6 million units. Because AutoCAD software's DWG files are
portable across many platforms and operating systems, it is a viable solution
for customers with multiple computer systems who need to exchange drawing files
in such an environment.
Advanced AutoCAD functionality includes a comprehensive 2D and 3D drafting
feature set. AutoCAD also has integrated 3D solid modeling, rendering, extensive
2D geometry such as NURBS (nonuniform rational B-spline) surfaces, and
constraints, associative hatching, streamlined dimensioning, and text editing
with a built-in spell checker.
AutoCAD software's open-system architecture allows users to adapt AutoCAD
to unique professional requirements with any of more than 5,000 independently
developed add-on applications. Independent application developers can use the
AutoCAD Runtime Extension ("ARX") programming environment to take advantage of
the rearchitected core technology contained in AutoCAD Release 13, which
incorporates object-oriented programming to provide a foundation for the
development of custom, market-specific applications.
Sales of AutoCAD and AutoCAD updates accounted for approximately 70 percent
of Autodesk's revenues in fiscal year 1997 as compared to approximately 80
percent in fiscal years 1996 and 1995. The Company currently anticipates that
the next release of AutoCAD will begin shipping in the second quarter of fiscal
year 1998.
Autodesk is committed to enhancing AutoCAD software's core technology while
at the same time extending Autodesk's reach with complementary products of
varying price and functionality, some of which are described below.
3
AutoCAD LT
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AutoCAD LT for the Windows 3.1 and Windows 95 operating systems is a
low-cost CAD package offering a wide range of 2D and basic 3D drafting
capabilities. With an installed base of more than 450,000 seats, AutoCAD LT is
intended for CAD managers, designers, and engineers who need a powerful,
stand-alone CAD tool, but who do not require the advanced feature set in
AutoCAD. AutoCAD LT software contains an extensive 2D drafting toolset as well
as 3D lines and polylines with quick shading and hidden-line removal. Other
features include Aerial View for panning and zooming and Paper Space for
scaling, annotating, and assembling multiple drawing views before plotting.
Operating in the Windows environment with pull-down menus, customizable toolbar,
toolbox, menus, and scripts, as well as dialog boxes and icons, AutoCAD LT is
easy to learn and use. It supports the Windows Clipboard, as well as Object
Linking and Embedding, which allows users to link AutoCAD LT drawings to other
Windows applications such as Microsoft Word or Excel. AutoCAD LT for Windows 95
has complete data compatibility with AutoCAD Release 13, which allows the
exchange of drawings without requiring translation, ensuring greater speed and
accuracy.
AutoSketch
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AutoSketch for Windows is a low-cost, entry-level 2D drafting package that
can be used for creating technical diagrams, architectural layouts, electrical
drawings, mechanical plans, information graphics, and presentations. AutoSketch
offers easy tool customization; 13 library packs with more than 2,000 predrawn
symbols; extensive editing capabilities; double-precision geometry; and the
ability to write DWG files for AutoCAD and AutoCAD LT users.
AutoCAD OEM
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AutoCAD OEM ("Original Equipment Manufacturer") for Windows-based operating
systems is a selectively licensed CAD engine offering a complete
application-development environment for creating and delivering targeted or
niche solutions with scaled feature sets. It is for developers, system
integrators, and commercial software developers who require an embeddable CAD
system which gives them the ability to scale and control the application feature
set. AutoCAD OEM provides developers with a complete toolkit of AutoCAD features
and application programming interfaces ("API's") including object-oriented ARX
capabilities, a full suite of drawing and editing functions as well as AutoLISP,
a LISP API, and the AutoCAD Development System, a C programming interface. These
capabilities enable development of new products for new markets untapped by
traditional CAD products and solutions.
Autodesk's MCAD products include Mechanical Desktop and the Autodesk
Mechanical Library, which are discussed below.
Mechanical Desktop
- ------------------
Mechanical Desktop software is an integrated software application that
unites advanced 2D and 3D mechanical design capabilities for PCs. The Mechanical
Desktop contains integrated modules for parametric feature-based solid modeling,
surface modeling, and assembly modeling; 2D design/drafting and bidirectional
associative drafting; as well as the Autodesk IGES Translator for AutoCAD
Release 13, which enables users to accurately and efficiently exchange all
versions of IGES (Initial Graphics Exchange Specification)-formatted files.
Mechanical Desktop Release 1.2 which was released in March 1997, includes an
Express User Interface, featuring a context-sensitive menu structure,
Edit-in-Place assembly functionality in which individual components can be
edited or created directly in the context of their targeted assemblies as well
as improved integration with the Company's WorkCenter, 3D Studio, Autodesk View
and AutoCAD software products. Advanced ordinate dimensioning, editing and
display of crosshatch patterns, surface scaling, section view, and
bill-of-materials generation are among the features included in the related
release of Mechanical Desktop software.
4
Autodesk Mechanical Library
- ---------------------------
Available on CD-ROM via a regularly updated subscription service from
Autodesk Data Publishing, the Autodesk Mechanical Library currently consists of
two titles: PartSpec and MaterialSpec. PartSpec contains more than 500,000 parts
from over 70 manufacturers and MaterialSpec contains more than 25,000 material
types. Sophisticated search capabilities allow users to search the PartSpec
database by product, manufacturer, part number or performance specifications.
Once a part is located, users can insert a part drawing directly into an AutoCAD
drawing. PartSpec and the Mechanical Library also seamlessly integrate with the
Autodesk Mechanical Desktop.
Autodesk's GIS Market Group offers a family of GIS products, tools, and
developer programs to address the unique requirements of customers who use
geographic information. These products are discussed below.
AutoCAD Map
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AutoCAD Map software is the first AutoCAD-based automated-mapping product
for professional planners, utility managers, and technicians who create and
maintain their own maps. Built with AutoCAD software, AutoCAD Map focuses on
five key areas: digital map creation, analysis, maintenance of up-to-date maps,
data exchange, and publishing. The application programming interface ("API") in
AutoCAD Map lets developers build vertical applications for industries such as
telecommunications, utilities, oil and gas, state and local government, and
natural resource and environmental engineering. AutoCAD Map also contains the
object-oriented power of ARX, a C++ application development environment that
allows custom applications to operate directly within the AutoCAD Release 13
system architecture. As a result, more than 75 developers are providing
applications for the AutoCAD Map platform.
MapGuide
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Released in October 1996, MapGuide is a Web-based GIS technology that lets
corporate customers and developers use the Internet and business intranets to
deploy geographic information systems that support live updates of maps and
data. Suited for a wide range of users--from GIS professionals to the casual
computer user--MapGuide software lets business and government organizations use
the Internet to access and query digital maps and permits users to display and
analyze geographic data for applications that include tracking customers,
allocating resources, managing facilities, and infrastructure.
AutoCAD Data Extension
- ----------------------
AutoCAD Data Extension ("ADE") software is an add-on program that
incorporates AutoCAD drawings with database records and other documents into one
integrated environment. The graphical information created with ADE allows users
to locate data within a set of AutoCAD drawings based upon entity location;
properties such as color, layer, or linetype; or associated data. Well suited
for multiuser work environments, ADE software provides simultaneous access to an
organization's entire drawing database. Entity-locking and user-access controls
monitor changes to source drawings and prevent accidental overwrites. Other
features include data management tools that automatically link drawing objects
to database records and related documents.
Autodesk's principal data management programs, Autodesk WorkCenter and
Autodesk View, are discussed below.
Autodesk WorkCenter
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Windows-based Autodesk WorkCenter software is an easily customized software
system for managing technical documents and automating workflow for design
teams. Its built-in management tools allow users to organize documents according
to specific needs; check documents in and out of a secured, multiuser
environment; and automatically manage revisions over time. With workflow
automation tools such as electronic notification, document distribution,
approvals, and task routing with all relevant documents attached, WorkCenter
software permits users to track projects easily and manage the flow of workgroup
information. Its customizable interface and unique SmartView Folders feature
allow users such as architects, mechanical engineers, or facilities managers to
tailor the program using terminology and document/project organization schemes
that work for them.
5
Fully integrated with AutoCAD for Windows, WorkCenter offers CAD document
redlining and extensive viewing capabilities and works with more than 150 types
of electronic documents, including text, spreadsheet, graphics, database, and
CAD files. Thus, managers can view CAD drawings even though they may be
unfamiliar with CAD software. The software also allows users to compare two
drawings, and then highlights the differences. In September 1996, Autodesk
introduced WorkCenter for the Web, the first commercially released product to
extend the reach and impact of WorkCenter design document management beyond
LAN-based AutoCAD design teams. WorkCenter for the Web lets design team members
quickly and easily share WorkCenter-managed AutoCAD drawings and related
documents through a company intranet or the Internet.
Autodesk View
- -------------
Autodesk View is a low-cost CAD preview, view, and redline tool for design
teams. The most current version, Autodesk View 1.1, supports Microsoft Windows
NT and Windows 95 and includes additional AutoCAD Release 13 viewing
functionality. Autodesk View supports more than 150 file formats common to
drafters, designers, and managers, including office productivity formats. With
Autodesk View, project managers can distribute AutoCAD files and related
documents to users in a workgroup who, regardless of their CAD proficiency, need
to view and comment on them, and be assured that the original documents will not
be altered in the process.
Autodesk Data Publishing
- ------------------------
Autodesk's Data Management Market Group also includes product offerings
from Autodesk Data Publishing ("ADP"), which publishes preformatted product and
reference libraries for specific markets. ADP titles include PartSpec and
MaterialSpec (previously described) and PlantSpec, and provides purchased parts
information to users in the process manufacturing industry.
PlantSpec
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PlantSpec is a CD-ROM based intelligent digital library for the process and
power industry that brings together product information from various
manufacturers of plant components in a single digital format. Similar to
PartSpec, PlantSpec includes graphical and texture information in a standard
format, including DWG blocks, for thousands of parts, significantly reducing the
time needed to locate pr redraw manufacturer parts drawings in AutoCAD designs.
The principal product offerings from the Kinetix division are discussed
below.
3D Studio MAX
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3D Studio MAX software, which began shipping in the first quarter of fiscal
year 1997, is a 3D modeling and animation software package specifically written
to take advantage of advanced features offered by the Windows NT operating
system. With a real-time interface, multiple-processor support, and 3D graphics
acceleration capabilities, 3D Studio MAX delivers workstation-class performance
and functionality to PCs.
The easily navigated, intuitive interface eliminates many of the commonly
accepted boundaries between modeling, rendering, and animation, and offers
instant feedback; users can see the results of their actions in real time, as
they are applied. Shaded views with real-time feedback allow users to visualize
natural, real-world environments in which they can directly manipulate objects,
regardless of scene complexity. Because 3D Studio MAX software maintains a data
history of geometry creation and modification, users can return to and change
any step, at any time, without having to redo prior work. 3D Studio MAX is also
the only environment that can run Character Studio, a character-animation and
skinning plug-in software product offered by Autodesk.
3D Studio
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3D Studio is a graphics package for creating professional-quality 3D
modeling and animation. This PC-based software product, running in a DOS
environment, provides a full complement of modeling, animation, and rendering
tools that help users create richly textured, workstation-quality images and
animations. In addition, 3D Studio and AutoCAD files are easily exchanged and
allow for the development of advanced engineering or architectural
visualizations. This product is well suited for animation designers and can be
used to create corporate presentations, broadcast animations, industrial design
visualizations, crime reenactments, and architectural walk-throughs, as well as
for education and training.
6
AutoVision
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AutoVision software helps users create photorealistic still renderings and
is integrated completely within AutoCAD software. With AutoVision, AutoCAD users
can produce high-impact images and render, light, and compare multiple views of
a single drawing. AutoVision is compatible with Autodesk 3D Studio and
Autodesk's Texture Universe software, a collection of ready-to-use, digitized
textures and backgrounds offering further visualization capabilities.
The Advanced Product Group introduced the following product in fiscal year
1997.
Picture This Home! Kitchen
- --------------------------
Introduced by the Company's Advanced Product Group during fiscal year 1997 as
the first in a series of easy-to-use consumer home-remodeling software products,
Picture This Home! Kitchen is a kitchen remodeling program that allows users to
visualize and plan their own kitchen, down to the finest detail. The technology
also allows users to mix and match thousands of decorative products (such as
paints, wallpapers, and appliances) from more than 30 leading manufacturers
using magazine-quality photographic images.
PRODUCT DEVELOPMENT AND ENHANCEMENT
The computer industry is characterized by rapid technological change in
computer hardware, operating systems, and software. To keep pace with this
change, the Company maintains an aggressive program of new product development.
The Company dedicates considerable resources to research and development to
further enhance its existing products and to create new products and
technologies. During fiscal years 1997, 1996, and 1995, the Company incurred
$93,702,000, $78,678,000, and $65,176,000, respectively, for software design,
development, product localization, and project-management activities (excluding
capitalized software development costs of approximately $2,100,000 in fiscal
year 1995; no software development costs were capitalized during fiscal years
1997 and 1996).
The majority of the Company's basic research and product development has
been performed in the US, while translation and localization of foreign-market
versions are generally performed by development teams or contractors in the
local markets. Autodesk's product-related functions in Europe, including
software development, localization, quality assurance, technical publications,
and production, are centralized in Neuchatel, Switzerland.
The Company intends to continue recruiting and hiring experienced software
developers and to consider the licensing and acquisition of complementary
software technologies and businesses. In addition, the Company will continue to
actively collaborate with and support independent software developers who offer
products that enhance and complement AutoCAD software and other products
Autodesk offers.
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 internally complex and, despite extensive testing and
quality control, may contain errors or defects ("bugs"), especially when first
introduced. In fiscal year 1996, Autodesk experienced quality and performance
issues associated with AutoCAD Release 13, including issues related to
compatibility with certain hardware platforms and peripheral equipment,
interoperability problems with products designed to work in conjunction with
AutoCAD Release 13, and other issues associated with the software's
object-oriented design. These factors resulted in a high rate of product returns
in fiscal year 1996. While Autodesk believes the AutoCAD Release 13 performance
issues have been satisfactorily addressed, there can be no assurance that
defects or errors will not be discovered in future versions of AutoCAD and 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, 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.
7
Certain of the Company's product development activities are performed by
independent firms and contractors, while other technologies are licensed from
third parties. The Company generally either owns or has licenses 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 existing
license agreements on favorable terms, if at all, which could have a material
and adverse effect on the Company's business and consolidated results of
operations.
Additionally, there can be no assurance that the Company's development
efforts will result in the timely introduction of new products or that such new
products will be commercially successful. Failure to successfully develop new
products or delays in the introduction of these new products, including the next
version of AutoCAD, which is currently anticipated to ship in the second quarter
of fiscal year 1998, or lower-than-anticipated demand for these products could
have a material and adverse effect on the Company's business and consolidated
results of operations.
MARKETING AND SALES
Autodesk's customer-related operations are divided into three geographic
regions: the Americas, Europe, and Asia/Pacific. Autodesk's products are
marketed worldwide through a network of domestic and foreign offices. The
Company distributes its software products primarily through a network of more
than 4,000 independent distributors and dealers (value-added resellers or
"VARs") who distribute the Company's products to end users in more than 150
countries. VARs, including both independent owners and computer store
franchisees, are supported by the Company and its subsidiaries through technical
training, periodic publications, the Autodesk Forum, an electronic bulletin
board on the CompuServe network, and Autodesk's Home Page on the Internet.
In addition, the Company works directly with dealer and distributor sales
organizations, computer manufacturers, other software developers, and
peripherals manufacturers through cooperative advertising, promotions, and
trade-show presentations. Autodesk also holds annual "Expos" throughout the
world. These dedicated trade shows, incorporated within major industry trade
shows, highlight Autodesk's products, as well as a number of third-party
products. The Company also employs mass-marketing techniques such as direct
mailings and advertising in business and trade journals. Further, Autodesk
supports user groups dedicated to the exchange of information related to the use
of the Company's products.
Domestically, the Company distributes its products primarily through its
authorized dealer network. Other domestic sales are made principally to large
corporations, governmental agencies, educational institutions, and, for certain
low-end CAD products, to end users. Substantially all of Autodesk's
international sales are made to dealers and distributors, which are supported by
Autodesk's foreign subsidiaries and international sales organizations. Certain
international sales result from direct exports from the United States.
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,
have tended to experience difficulties during times of economic contraction and
during periods of technology-market price pressure, and may do so in the future.
No single customer accounted for more than 10 percent of Autodesk's consolidated
revenues in fiscal year 1997, 1996, or 1995. The loss of, or a significant
reduction in, business with any one of Autodesk's major international
distributors or large US dealers could have a material adverse effect on the
Company's business and consolidated results of operations.
The Company intends to continue to make its products available in foreign
languages and expects that foreign sales will continue to contribute a
significant portion of its consolidated revenues. Foreign revenues, including
export sales from the US to foreign customers, accounted for approximately 65
percent, 64 percent, and 61 of revenues in fiscal years 1997, 1996, and 1995,
respectively.
8
CUSTOMER AND DEALER SUPPORT
The Company requires each authorized dealer and distributor to provide a
professional level of technical support to customers by employing full-time,
trained, technical-support personnel. The Company supports its dealers and
distributors through technical product training, sales training classes, and
direct telephone support. While the Company generally does not provide direct
end-user support, Autodesk offers online support to customers through Autodesk's
Home Page on the Internet and to customers who log onto one of the Autodesk
Forums on CompuServe. The Autodesk Forums are the AutoCAD Forum, the Autodesk
Beta Forum, the Autodesk Multimedia Forum, Kinetix Forum, Showcase Forum, and
the Autodesk Retail Products Forum. These forums provide answers to user's
technical questions as well as tips and techniques for the effective use of the
Company's products. The Autodesk Forum also allows the Company to make available
important product-support information simultaneously to dealers and customers.
Responding to the increasing demand for industry-specific customer
services, the Company offers authorized Autodesk dealers training and support
under two programs: the Autodesk Premier Support Center ("APSC") program and the
Autodesk Systems Center ("ASC") Solutions Training. The APSC program requires
participating dealers to provide a high level of technical support with special
expertise in a specified vertical industry. The ASC Solutions Training Program
requires dealers to provide superior industry-specific application training to
end users of the Company's products. Both programs require that the dealers meet
certain qualifications in order to receive an industry medallion and APSC and
ASC Solutions Training status.
As of January 31, 1997, the Company had more than 900 Autodesk Training
Centers ("ATC's") sites throughout the world. These accredited training centers
offer in-depth education and training in computer-aided design skills on AutoCAD
and other Autodesk products, as well as on related, independently developed
software.
Customers have formed Autodesk user groups as forums for education and to
suggest product enhancements and development of new products. The Autodesk User
Group International ("AUGI"), officially recognized by Autodesk, sponsors an
annual meeting held concurrently with the Autodesk University user show;
publishes a quarterly newsletter; independently evaluates Autodesk products;
compiles user feature and functionality requirements; and offers telecourses
taught by its membership on CompuServe. In addition there are local user groups
in Europe, Asia/Pacific, and the Americas focused on expanding the use of
Autodesk products.
DEVELOPER PROGRAMS
One of the Company's key strategies is to maintain an open-architecture
design of its software products to facilitate third-party development of
peripheral and complementary products. This approach enables customers and third
parties to customize the Company's products for a wide variety of highly
specific uses. Autodesk offers several programs that provide marketing, sales,
and technical support and programming tools to Autodesk Registered Developers
worldwide, who have, to date, developed more than 5,000 commercially available
add-on applications for Autodesk products. Although Autodesk derives no direct
revenue from these application developers, the Company believes that the
availability and use of their add-on products enhance sales opportunities for
Autodesk's core products.
Autodesk also licenses its industry-standard component technologies to
selected developers through the Autodesk OEM Program. Currently, the OEM Program
includes a CAD engine and engines for 3D graphics, drawing access, and
rendering. Autodesk's OEM Program provides the technology for qualified
developers to create and deliver suites of scalable products that focus on
solving customer needs in specialized markets. It also leverages Autodesk's
technological and market leadership, enables developers to take cost-effective
advantage of a growing trend in software engineering technology, and provides
customers with an opportunity to migrate to fully extensible, custom, high-end
Autodesk solutions.
To support the growth of third-party developers, whose applications extend
and enhance the functionality of Autodesk's products worldwide, the Company
established the Virtual Corporation Partner Program ("VCPP") during fiscal year
1995. This program provides sales, marketing, technical, and financial support
to Autodesk strategic developers and dealers.
9
In fiscal year 1996, the Company introduced the Mechanical Application
Initiative ("MAI") partner program which is aimed at the development and
marketing of products which can be integrated with Autodesk's MCAD products. MAI
partners participate with Autodesk in product marketing and development
activities. In October 1995, an initial application programming interface was
delivered to MAI partners to support their development of these MCAD-compatible
applications.
BACKLOG
Autodesk typically ships products within one to two weeks after receipt of
an order, which is common in the computer software industry. Accordingly,
Autodesk does not maintain significant backlog and backlog as of any particular
date gives no indication of actual sales for any succeeding period.
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 future are likely to intensify. Increased
competition could result in price reductions, reduced revenues and profit
margins, and loss of market share, which would adversely affect Autodesk's
business, consolidated results of operations and financial condition.
The AutoCAD family of products competes directly with other CAD software,
including that of MicroStation from Bentley Systems, Inc.; Personal Designer and
CADDS from Computervision Corporation; MICRO CADAM which is developed and
supported by CADAM Systems Company, Inc; and CADKEY from Cadkey, Inc. In the
low-cost CAD segment, AutoCAD LT competes directly with Corel Visual CADD,
software developed by Numera Software and marketed by Corel Corporation, and
indirectly with Visio Technical by Visio Corporation and TurboCADD 2D/3D by
ISMI. Autodesk's MCAD products compete with Parametric Technology Corporation's
Pro/Engineer; SolidWorks 95 from SolidWorks Corporation; the I-DEAS Master
Series from Structural Dynamics Research Corporation; and the CATIA and CADAM
products offered by Paris-based Dassault Systemes and marketed and sold by IBM.
Autodesk's data management products compete with various low-end file management
systems such as AM Workflow from Cyco Software BV, as well high-end product data
management software solutions including offerings from Sherpa Corporation and
Metaphase. Autodesk's data management products also compete with generic
document management products including offerings from Documentum, Inc. and PC
DOCS, Inc. AutoCAD Map competes most directly with MicroStation Geographics from
Bentley Systems, Inc., and GIS product lines offered by Environmental Systems
Research Institute, Inc., and Intergraph Corporation. Autodesk also faces
competition in its foreign markets from a number of products offered by foreign-
based companies.
Product offerings from the Kinetix division--3D Studio MAX, 3D Studio, and
AutoVision software--are currently available on IBM PCs and compatible
computers. The primary competition in the multimedia software market consists of
products available on personal computers and computer systems offered by Silicon
Graphics, Inc., including multimedia product offerings from Alias|Wavefront, a
wholly owned, independent subsidiary of Silicon Graphics, Inc. Products
competing with 3D Studio MAX and 3D Studio software include Softimage 3D by
Softimage Inc., a wholly owned subsidiary of Microsoft Corporation, Lightwave 3D
by NewTek, Inc., and trueSpace 2 and trueSpace/SE by Caligari Corporation. 3D
Studio Release 4 is also a viable alternative application to costlier graphics
systems available only on computers offered by Silicon Graphics, Inc. AutoVision
software competes with two third-party add-on products, AccuRender from Robert
McNeel & Associates and RenderStar from RenderStar Technology BV.
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.
10
INTELLECTUAL PROPERTY AND LICENSES
The Company protects its intellectual property through copyright, trade
secret, patent, and trademark laws. For substantially all AutoCAD sales outside
of North America, the Company uses software protection locks to inhibit
unauthorized copying. Nonetheless, there can be no assurance that Autodesk's
intellectual property rights can be successfully asserted in the future or will
not be invalidated, circumvented, or challenged. In addition, the laws of
certain foreign countries where Autodesk's products are distributed do not
protect Autodesk's intellectual property rights to the same extent as the laws
of the US. The inability of the Company to protect its proprietary information
could have a material adverse effect on the Company's business and consolidated
results of operations.
From time to time, the Company receives claims alleging violation of a
third party's intellectual property, including patent rights. Any disputes
involving Autodesk's intellectual property rights or those of another party
could lead to costly litigation which could have a material adverse effect on
the Company's business and consolidated results of operations.
The Company retains ownership of software it develops. All software is
licensed to users and provided in object code pursuant to either shrink-wrap,
embedded or on-line licenses, or executed license agreements. These agreements
contain restrictions on duplication, disclosure, and transfer.
The Company believes that because of the limitations of laws protecting its
intellectual property and the rapid, ongoing technological changes in both the
computer hardware and software industries, it must rely principally upon
software engineering and marketing skills to maintain and enhance its
competitive market position.
The Company has an in-house antipiracy program focused on pursuing
companies and individuals who illegally duplicate, sell or install Autodesk's
software products. Software piracy is in some cases a felony under US federal
law, which allows copyright and patent holders to protect and enforce their
rights as owners of intellectual property.
PRODUCTION
Production of the Company's software products involves duplication of the
software media and the printing of user manuals. The purchase of media and the
transfer of the software programs on to media for distribution to customers are
performed by the Company and by licensed subcontractors. Media for Autodesk's
products include CD-ROMs and disks and are available from multiple sources. User
manuals for the Company's products and packaging materials are produced to
Company specifications by outside sources. Domestic production is performed in
leased facilities operated by the Company. Certain product assembly is also
performed by independent third-party contractors. International production is
performed in leased facilities in Switzerland and Australia and by independent
third-party contractors in Ireland, Japan, and Singapore. To date, the Company
has not experienced any material difficulties or delays in the production of its
software and documentation.
EMPLOYEES
As of January 31, 1997, the Company had 2,044 full-time employees (1,379 in
North America, 471 in Europe, and 194 in Asia/Pacific), of whom 624 were in
software development and quality assurance, 930 in marketing and sales, 111 in
production, and 379 in general and administrative positions. The Company
believes that its future success will depend, in part, on its ability to
continue to attract and retain highly skilled technical, marketing, support, and
management personnel.
None of the Company's employees in the United States is subject to a collective
bargaining agreement, and the Company has never experienced a work stoppage.
Management believes that its employee relations are good.
11
ITEM 2. PROPERTIES
The Company's executive offices and those related to product development,
domestic marketing and sales, and production are located in leased office space
in northern California. The Company also leases office space in various
locations throughout the US for local sales and technical support personnel.
Autodesk's foreign subsidiaries lease office space for their operations. The
Company owns substantially all equipment used in its facilities.
ITEM 3. LEGAL PROCEEDINGS
Tektronix, Inc. has filed a complaint in the US District Court for the
District of Oregon alleging infringement by the Company of US Patent No.
4,734,690. The Company is still evaluating the claims in this matter, but
management believes the ultimate outcome of this matter will not be material to
Autodesk's consolidated financial position, results of operations, or cash
flows.
In December 1994, the US District Court for the District of Vermont entered a
$25.5 million verdict against the Company in a trade secret misappropriation
lawsuit brought by Vermont Microsystems, Inc. ("VMI"), which was recorded in the
fourth quarter of fiscal year 1995. After an initial appeal and remand, that
award was reduced to $14,209,000, plus interest. Because this case is still
under appeal, the Company has not reflected the reduction of damages in its
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1997.
Executive Officers of the Registrant
- ------------------------------------
The following sets forth certain information regarding the executive officers of
the Company as of April 25, 1997:
NAME AGE POSITION
---- --- --------
Carol A. Bartz............... 48 Chairman of the Board and Chief Executive Officer
Eric B. Herr................. 48 President; Chief Operating Officer
David C. Arnold.............. 41 Vice President, AEC Market Group
Joseph H. Astroth, Ph.D...... 40 Vice President, GIS Market Group
Robert M. Carr............... 40 Vice President, AutoCAD Market Group
Steve Cakebread.............. 45 Vice President and Chief Financial Officer
Larry L. Crume............... 52 Vice President, Kinetix
James D. D'Arezzo............ 45 Vice President, Corporate Marketing
Dominic J. Gallello.......... 41 Vice President, Mechanical CAD and Data Management
Market Groups
John E. Lynch................ 40 Vice President, Advanced Products Group
Stephen McMahon.............. 55 Vice President, Human Resources
Tom Norring ................. 51 Vice President, Asia/Pacific
Marcia K. Sterling........... 53 Vice President, Business Development, and General Counsel
Godfrey R. Sullivan.......... 42 Vice President, Americas
Michael E. Sutton............ 52 Vice President, Europe
CAROL A. BARTZ joined the Company in April 1992 and has served as Chief
Executive Officer and Chairman of the Board since May 1992. Ms. Bartz served as
President from May 1992 through September 1996. Prior to joining Autodesk, from
1983 to April 1992, Ms. Bartz held various positions at Sun Microsystems, Inc.,
including Vice President, Worldwide Field Operations (July 1990 to April 1992).
Ms. Bartz is a director of AirTouch Communications, Cadence Design Systems,
Inc., Network Appliance, Inc., Cisco Systems, Inc., and BEA Systems, Inc.
12
ERIC B. HERR has been Autodesk's President and Chief Operating Officer
since September 1996, having also served as the Acting Vice President, AEC
Market Group from September 1996 through March 1997. Mr. Herr served as the
Chief Financial Officer from the time he joined the Company in May 1992 until
September 1996. From December 1992 through January 1995, Mr. Herr served as Vice
President, Emerging Businesses. From January 1995 to May 1995, Mr. Herr served
as Vice President, Finance, and Administration. From May 1990 to May 1992, he
served as Vice President of Finance and Planning, Sun Microsystems, Inc.
DAVID C. ARNOLD has served as Vice President, AEC Market Group since April
1997. Mr Arnold is a cofounder of Softdesk and has served as its Chief Executive
Officer, Treasurer, and Chairman of the Board from Softdesk's inception in 1985
through March 1997.
DR. JOSEPH H. ASTROTH has served as Vice President, GIS Market Group, since
joining the Company in January 1996. From September 1989 through December 1995,
Dr. Astroth held various positions with Graphic Data Systems Corporation
including Director, Environmental Market Group from January 1993 to June 1994,
and Vice President of Product Management, Engineering, from June 1994 to
December 1995.
STEVE CAKEBREAD joined the Company in April 1997 as Vice President and
Chief Financial Officer. From April 1993 through March 1997 he served as Vice
President, Finance World Trade Corporation at Silicon Graphics. Mr. Cakebread
held various finance and general management positions at Hewlett-Packard
Company from January 1972 through March 1993.
ROBERT M. CARR has served as Vice President, AutoCAD Market Group, since
September 1996. Mr. Carr joined Autodesk in November 1993 and served as Vice
President, Core Technology Group, through January 1995, and Vice President,
Engineering from January 1995 through September 1996. From September 1987 to
August 1993, Mr. Carr served as Vice President of Software Development of Go
Corporation, a company he cofounded.
LARRY L. CRUME has served as Vice President and General Manager, Kinetix
(formerly Autodesk's Multimedia Market Group), since joining Autodesk in October
1995. From March 1990 through September 1994, Mr. Crume worked at Lotus
Development Corporation, serving as Vice President, International Business
Development, from January 1990 to April 1993, and as Vice President, Electronic
Messaging Division, from April 1993 to September 1994. From that time until
joining Autodesk, Mr. Crume was an independent consultant.
JAMES D. D'AREZZO has served as Vice President, Corporate Marketing, since
joining Autodesk in February 1994. Mr. D'Arezzo served as Vice President, Data
Management Market Group, from February 1996 through September 1996. From
February 1994 through December 1995, Mr. D'Arezzo served as Vice President,
Corporate Marketing, and Vice President, GIS and DM Market Groups. From November
1993 to January 1994, Mr. D'Arezzo served as the Vice President of Corporate
Business Development for Banyan Systems. From July 1990 to November 1993, Mr.
D'Arezzo served as Banyan's Vice President of Marketing.
DOMINIC J. GALLELLO has served as Vice President, MCAD Market Group since
January 1995 and as Vice President, Data Management Group since November 1996.
Mr. Gallello served as Vice President, Asia/Pacific from the time he joined
Autodesk in October 1992 until July 1996. From February 1995 to August 1995, Mr.
Gallello served as Acting Vice President, MCAD Market Group. From April 1981 to
October 1992, he held various positions with Intergraph Corporation, including
President, Intergraph Japan, from June 1986 to October 1992.
JOHN E. LYNCH joined Autodesk in May 1986 and has served as Vice President,
Advanced Product Group, since January 1995, Chief Technical Officer from
February 1995 through September 1996, and Vice President, AEC/FM Market Group
from September 1995 through September 1996.
STEPHEN MCMAHON has served as Vice President, Human Resources, since
joining Autodesk in July 1992. From July 1987 to July 1992, Mr. McMahon served
as Senior Director, Human Resources, for Apple Computer, Inc.
TOM NORRING has served as Vice President, Asia Pacific, since joining
Autodesk in June 1996. Prior to joining Autodesk, Mr. Norring served as Vice
President of Asia Pacific and Latin America and in a variety of international
management positions for Hitachi Data Systems from 1978 to 1996.
13
MARCIA K. STERLING joined Autodesk in October 1995 as Vice President,
Business Development, and General Counsel. From September 1982 to October 1995,
she practiced corporate and securities law at Wilson Sonsini Goodrich & Rosati,
where she was a member.
GODFREY R. SULLIVAN has served as Vice President, the Americas, since
joining Autodesk in October 1992 and as Acting Vice President, AEC/FM Market
Group, from February 1995 to September 1995. Mr. Sullivan held various positions
with Apple Computer, Inc., from June 1984 to September 1992, including Vice
President and General Manager, Business Markets Division, from April 1992 to
September 1992 and Vice President and General Manager, US Reseller Operations,
from July 1991 to March 1992.
MICHAEL E. SUTTON has served as Vice President, Europe, since June 1993.
Mr. Sutton joined Autodesk in October 1987 as a sales and marketing director in
the United Kingdom. Mr. Sutton was the Managing Director of Autodesk's United
Kingdom subsidiary from January 1990 to January 1992. From January 1992 to
February 1993, Mr. Sutton served as Northern Region Manager, Europe, and from
February 1993 to May 1993, he served as Acting Vice President, Europe.
There is no family relationship between any director or executive officer
of Autodesk.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to page 52 of
the Company's 1997 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to page 23 of
the Company's 1997 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to pages 24
through 32 of the Company's 1997 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to pages 33
through 50 of the Company's 1997 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
14
PART III
Certain information required by Part III is omitted from this Report in that the
Registrant will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement that
specifically address the items set forth herein are incorporated by reference.
Such incorporation does not include the Compensation Committee Report or the
Performance Graph included in the Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to the Company's Proxy Statement.
The information concerning the Company's executive officers required by this
Item is incorporated by reference herein to the section of this Report in Part
I, Item 4, entitled "Executive Officers of the Registrant."
The information regarding compliance with Section 16 of the Securities and
Exchange Act of 1934 is to be set forth in the Proxy Statement and is hereby
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements: The following Consolidated Financial Statements of
--------------------
Autodesk, Inc. and Report of Ernst & Young LLP, Independent Auditors, are
incorporated by reference to pages 33 through 50 of the Registrant's 1997
Annual Report to Stockholders:
Consolidated Statement of Income--Fiscal Years Ended January 31, 1997,
1996, and 1995
Consolidated Balance Sheet--January 31, 1997 and 1996
Consolidated Statement of Cash Flows--Fiscal Years Ended January 31, 1997,
1996, and 1995
Consolidated Statement of Stockholders' Equity--Three-Year Period Ended
January 31, 1997
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
2. Financial Statement Schedule: The following financial statement schedule of
----------------------------
Autodesk, Inc., for the fiscal years ended January 31, 1997, 1996, and 1995
is filed as part of this Report and should be read in conjunction with the
Consolidated Financial Statements of Autodesk, Inc.
Schedule II Valuation and Qualifying Accounts..............S-1
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes
thereto.
3. Exhibits: The Exhibits listed on the accompanying Index to Exhibits
--------
immediately following the financial statement schedules are filed as part
of, or incorporated by reference into, this Report.
Exhibit
No. Description
--- -----------
2.1 (1) Agreement and Plan of Reorganization By and Among Autodesk,
Inc., Autodesk Acquisition Corporation, and Softdesk, Inc.,
dated Decmeber 10, 1996, as amended December 19, 1996.
3.1 (2) Certificate of Incorporation of Registrant, as amended
3.2 Certificate of Designation
3.3 (2) Bylaws of Registrant
4.1 (3) Preferred Shares Right Agreement dated December 14, 1995
10.1 (4)* Registrant's 1987 Stock Option Plan, as amended
10.2 (4)* Registrant's Employee Qualified Stock Purchase Plan and
form of Subscription Agreement, as amended
10.3 (4)* Registrant's 1990 Directors' Option Plan, as amended
10.4 (4)* Registrant's 1996 Stock Option Plan
10.5 (2)* Form of Indemnification Agreement executed by the Company
and each of its officers and directors
10.6 (5)* Agreement between Registrant and Carol A. Bartz dated
April 7, 1992
10.7 (6) Teleos Research 1996 Stock Plan
16
10.8 (7) Registrant's Nonstatutory Stock Option Plan
10.9 (8) Softdesk, Inc. 1992 Stock Option Plan
10.10(8) Softdesk, Inc. 1993 Director Stock Option Plan
10.11(8) Softdesk, Inc. 1993 Equity Incentive Plan
13.1 Annual Report to Stockholders for the year ended January 31,
1997 (to be deemed filed only to the extent required by the
instructions to exhibits for reports on Form 10-K)
21.1 List of Subsidiaries
23.1 Consent of Independent Auditors (included on page 19 of
this Report)
24.1 Power of Attorney (included on page 18 of this Report)
(1) Incorporated by reference to the exhibit filed with the
Registration on From S-4 filed on March 3,
1997.
(2) Incorporated by reference to the exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1995.
(3) Incorporated by reference to the Registrants Report on Form 8-A
filed on January 5, 1996, as amended on January 8, 1996.
(4) Incorporated by reference to the exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1996.
(5) Incorporated by reference to the exhibit filed with the
Registrant's Report on Form 10-Q for the fiscal quarter ended
April 30, 1992.
(6) Incorporated by reference to the exhibit filed with the
Registrant's Report on Form S-8 filed on
July 23, 1996.
(7) Incorporated by reference to the exhibit filed with the
Registrant's Report on Form S-8 filed on
October 29, 1996.
(8) Incorporated by reference to the exhibit filed with the
Registrant's Report on Form S-8 filed on
April 3, 1997.
* Denotes a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K: No report on Form 8-K was filed by the Company during
-------------------
the fiscal quarter ended January 31, 1997.
With the exception of the information incorporated by reference to the
Annual Report to Stockholders in Items 5, 6, 7, and 8 of Part II and Item
14 of Part IV of this Form 10-K, the Company's 1996 Annual Report to
Stockholders is not to be deemed filed as a part of this Report.
Autodesk, the Autodesk logo, AutoCAD, AutoCAD LT, 3D Studio, WorkCenter,
and PartSpec are registered trademarks, and Mechanical Desktop, 3D Studio
MAX, Kinetix, AutoCAD Map, Autodesk MapGuide, Autodesk World, PlantSpec,
DesignBlocks, Hyperwire, Picture This Home!, and Design Your World are
trademarks, of Autodesk, Inc. in the USA and/or other countries. Microsoft
Windows and Windows NT are registered trademarks of Microsoft Corporation.
All other brand names, product names, or trademarks belong to their
respective holders.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AUTODESK, INC.
By: /s/ CAROL A. BARTZ
------------------
Carol A. Bartz
Chairman of the Board
Dated: April 30, 1997
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Carol A. Bartz as his or her
attorney-in-fact, each with the power of substitution, for him or her in
any and all capacities, to sign any amendments to this Report on Form 10-K,
and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ----------------------------------------------- --------------------------- ----------
/s/ CAROL A. BARTZ Chief Executive Officer and April 30, 1997
- ----------------------------------------------- Director (Principal Executive Officer)
Carol A. Bartz
/s/ STEVE CAKEBREAD Vice President and April 30, 1997
- ----------------------------------------------- Chief Financial Officer
Steve Cakebread (Principal Financial Officer)
/s/ JOHN E. CALONICO Vice President, Finance April 30, 1997
- ----------------------------------------------- (Principal Accounting Officer)
John E. Calonico
/s/ MARK A. BERTELSEN Director April 30, 1997
- -----------------------------------------------
Mark A. Bertelsen
/s/ CRAWFORD W. BEVERIDGE Director April 30, 1997
- -----------------------------------------------
Crawford W. Beveridge
/s/ J. HALLAM DAWSON Director April 30, 1997
- -----------------------------------------------
J. Hallam Dawson
/s/ MORTON L. TOPFER Director April 30, 1997
- -----------------------------------------------
Morton L. Topfer
/s/ MARY ALICE TAYLOR Director April 30, 1997
- -----------------------------------------------
Mary Alice Taylor
18
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Autodesk, Inc. of our report dated February 24, 1997, except for
Note 10 as to which the date is March 31, 1997, included in the 1997 Annual
Report to Stockholders of Autodesk, Inc.
Our audits also included the financial statement schedule of Autodesk, Inc.
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-15675, No. 33-22656, No. 33-39458, No.
33-41265, No. 33-51110, No. 33-54683, No. 33-61015, No. 333-08693, No.
333-15037 and No. 333-24469) pertaining to the 1987 Stock Option Plan, 1990
Directors' Option Plan, the Autodesk, Inc. Nonstatutory Stock Option Plan,
and Employee Qualified Stock Purchase Plan of Autodesk, Inc., the Teleos
Research 1996 Stock Plan and the Softdesk, Inc. 1992 Stock Option Plan,
Softdesk, Inc. 1993 Director Stock Option Plan and Softdesk, Inc. 1993
Equity Incentive Plan of our report dated February 24, 1997, except for
Note 10 as to which the date is March 31, 1997, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Autodesk,
Inc.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
San Jose, California
April 28, 1997
19
Schedule II
AUTODESK, INC.
VALUATION AND QUALIFYING ACCOUNTS
Additions--
Balance at Charged to Balance
Beginning Costs and Deductions at End
Description of Year Expenses Write-Offs of Year
----------- ------- -------- ---------- -------
Fiscal year ended January 31, 1997
Allowance for doubtful accounts $6,731,000 $1,735,000 $1,831,000 $6,635,000
Allowance for stock balancing and
product rotation $14,607,000 $46,884,000 $44,316,000 $17,175,000
Fiscal year ended January 31, 1996
Allowance for doubtful accounts $6,457,000 $3,527,000 $3,253,000 $6,731,000
Allowance for stock balancing and
product rotation $6,892,000 $58,889,000 $51,174,000 $14,607,000
Fiscal year ended January 31, 1995
Allowance for doubtful accounts $5,204,000 $2,198,000 $945,000 $6,457,000
Allowance for stock balancing and
product rotation $1,290,000 $34,224,000 $28,622,000 $6,892,000
S-1
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF AUTODESK, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, Carol A. Bartz and Marcia K. Sterling, the President and the
Secretary, respectively, of Autodesk, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware, in accordance with
the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation of the said Corporation, the said Board of
Directors on December 14, 1995 adopted the following resolution creating a
series of 100,000 shares of Preferred Stock designated as Series A Participating
Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of
Directors of the corporation by the Certificate of Incorporation, the Board of
Directors does hereby provide for the issue of a series of Preferred Stock of
the Corporation, to be designated "Series A Participating Preferred Stock," par
value $0.01 per share, initially consisting of 100,000 shares, and to the extent
that the designations, powers, preferences and relative and other special rights
and the qualifications, limitations and restrictions of the Series A
Participating Preferred Stock are not stated and expressed in the Certificate of
Incorporation, does hereby fix and herein state and express such designations,
powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions thereof, as follows (all terms used
herein which are defined in the Certificate of Incorporation shall be deemed to
have the meanings provided therein):
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series A Participating Preferred Stock," par value $0.01 per
share, and the number of shares constituting such series shall be 100,000.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the prior and superior right of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Participating Preferred Stock shall be entitled to
receive when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the last day
of January, April, July
and October in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Participating Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to, subject to the provision for adjustment hereinafter set
forth, 1,000 times the aggregate per share amount of all cash dividends, and
1,000 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock of the Corporation
(the "Common Stock") since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Participating
Preferred Stock. In the event the Corporation shall at any time after December
14, 1995 (the "Rights Dividend Declaration Date") (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount to which holders of shares
of Series A Participating Preferred Stock were entitled immediately prior to
such event under the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue on outstanding shares of
Series A Participating Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series A Participating
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A
Participating Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Participating Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such shares
shall be allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Participating Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for the
payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
-------------
Participating Preferred Stock shall have the following voting rights:
-2-
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Participating Preferred Stock shall entitle the
holder thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any time
after the Rights Dividend Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the number of votes per share to which holders of
shares of Series A Participating Preferred Stock were entitled immediately prior
to such event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(C) Except as required by law, holders of Series A
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
--------------------
(A) The Corporation shall not declare any dividend on, make
any distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of Common Stock after the first issuance of a share or
fraction of a share of Series A Participating Preferred Stock unless
concurrently therewith it shall declare a dividend on the Series A Participating
Preferred Stock as required by Section 2 hereof.
(B) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock;
(ii) declare or pay dividends on, or make any
other distributions on, any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with Series A
Participating Preferred Stock, except dividends paid ratably on the Series A
-3-
Participating Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating Preferred
Stock;
(iv) purchase or otherwise acquire for
consideration any shares of Series A Participating Preferred Stock, or any
shares of stock ranking on a parity with the Series A Participating Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(C) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Participating
-----------------
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation, no distribution shall be made to the holders
of shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock unless,
prior thereto, the holders of shares of Series A Participating Preferred Stock
shall have received $1,000.00 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the date
of such payment (the "Series A Liquidation Preference"). Following the payment
of the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A Participating
Preferred Stock unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference by (ii)
1,000 (as appropriately adjusted as set forth in subparagraph (C) below
-4-
to reflect such events as stock splits, stock dividends and recapitalization
with respect to the Common Stock) (such number in clause (ii), the "Adjustment
Number"). Following the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding shares of
Series A Participating Preferred Stock and Common Stock, respectively, holders
of Series A Participating Preferred Stock and holders of shares of Common Stock
shall receive their ratable and proportionate share of the remaining assets to
be distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full to the Series A Liquidation
Preference and the liquidation preferences of all other series of Preferred
Stock, if any, which rank on a parity with the Series A Participating Preferred
Stock, then such remaining assets shall be distributed ratably to the holders of
such parity shares in proportion to their respective liquidation preferences. In
the event, however, that there are not sufficient assets available to permit
payment in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Dividend Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
--------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Participating Preferred Stock shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
-5-
Section 8. No Redemption. The shares of Series A Participating
-------------
Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Participating Preferred Stock shall
-------
rank junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 10. Amendment. The Restated Certificate of Incorporation of the
---------
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preference or special rights of the Series A
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series A Participating Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Participating Preferred Stock
-----------------
may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Participating Preferred Stock.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they hereby
are, authorized and directed to prepare and file (or cause to be prepared and
filed) a Certificate of Designation of Rights, Preferences and Privileges in
accordance with the foregoing resolution and the provisions of Delaware law and
to take such actions as they may deem necessary or appropriate to carry out the
intent of the foregoing resolution."
-6-
IN WITNESS WHEREOF, we have executed and subscribed to this Certificate
and do hereby affirm the foregoing as true under the penalties of perjury this
14th day of December, 1995.
/s/ CAROL A. BARTZ
--------------------------
Carol A. Bartz, President
/s/ MARCIA K. STERLING
--------------------------
Marcia K. Sterling, Secretary
-7-
Autodesk Annual Report
1997
Timing
Focus
Building
Execution
Performance
[Autodesk, Inc. logo]
[Timing]
Graphic: [photograph of clock]
[T i m i n g]
[The time was wrong for financial growth in FY97: the
European economy took a downturn, the strength of the U.S.
dollar drove down the value of foreign currencies, and
AutoCAD Release 13 end-of-cycle sales tapered off. But the
timing was right to shore up our long-term strategies.]
Graphic: [Inverted photograph of clock]
[Focus]
Graphic: [photograph of magnifying glass]
[F o c u s]
[We stayed on course with product diversification and
support for our dealer channel by reducing inventories.
Despite a 7 percent decrease in revenues, we focused on
stockholder value by continuing to invest in long-term
growth.]
Graphic: [Inverted photograph of magnifying glass]
[Building]
Graphic: [Photograph of hammer]
[B u i l d i n g]
[We added staff to our market groups, acquired companies and
their technologies, developed new vertical-market products
for release in the coming year, and we laid the foundation
for moving design to the Internet.]
Graphic: [Inverted photograph of hammer]
[Execution]
Graphic: [photograph of movie director's cue]
[E x e c u t i o n]
[We are already acting on the investments we made in
acquisitions and product development in FY97. We launched
more than 20 new products this fiscal year and grew non-
AutoCAD revenues more than 28 percent. And we built a fast,
compelling, high-quality AutoCAD Release 14.
Graphic: [Inverted photograph of movie director's cue]
It has been my custom, in years past, as chief executive officer of Autodesk to
introduce our annual report to stockholders with a brief letter. My letter this
year--which begins on page 11--will be longer than usual because I want to speak
frankly with you about Autodesk. Our financial results were disappointing, we
did not show revenue growth, and we lost some relative market share. But the
news is not all bad. We have weathered the worst storm in Autodesk(R) history by
shoring up our long-term strategies. We've kept our focus on vertical-market
product diversification. We've built a foundation for future growth through
internal development and acquisitions. We've established a leadership position
in Internet-based CAD. We've taken action across our markets by launching more
than 20 products and by developing a fast, compelling, and high-quality
AutoCAD(R) Release 14. And every employee has resolved to relaunch Autodesk as a
company that delights customers, edges out competitors, and provides long-term
stockholder value as we move ahead.
--Carol Bartz
Letter to Our Stockholders
Carol Bartz
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
To say FY97 was a difficult period for Autodesk and its partners would
be an understatement. Europe, our largest market last year and one that
had previously shown steady growth, entered an economic slowdown. The
strength of the US dollar hurt us on foreign currency exchange, and we
just didn't achieve the sales volumes expected for AutoCAD(R) Release
13. For the first time in company history, Autodesk experienced a
decline in revenue and loss of some relative market share.
But FY97 was also a very exciting business year. We shipped more than
20 new products, carried forward our market group diversification
strategy, and pioneered Internet-based design technology. We also
entered the final testing stages of what promises to be the fastest,
most compelling, and highest quality AutoCAD ever developed--AutoCAD
Release 14.
In my letter this year, I want to speak frankly with you about both the
good and the bad of FY97. I'll start by reviewing our financial
performance.
FINANCIAL SUMMARY
- -----------------
Net revenues for the fiscal year ended January 31, 1997, were $497
million, down approximately 7 percent from the previous fiscal year.
Net revenues by geography were down 11 percent in Europe, 10 percent in
the Americas, and up approximately 5 percent in Asia/Pacific. Changes
in foreign currency exchange rates negatively impacted revenues for the
year by more than $17 million.
While the majority of this slowdown was AutoCAD related, we continued
to grow the installed base at 15 percent and maintained AutoCAD upgrade
revenue at just over 9 percent of total revenues. We shipped more than
200,000 new copies of AutoCAD for the year, bringing the installed base
to more than 1.6 million seats.
Total non-AutoCAD revenues were up 28 percent over the previous year.
We grew the installed base for our second-highest revenue generator,
AutoCAD LT(R), by 55 percent to 450,000 units. Other year-end installed
base numbers include 25,000 units for Mechanical Desktop(TM)
software--more than five times its nearest competitor--and 26,000 units
for 3D Studio MAX(TM). Total Kinetix(TM) revenues grew only 11 percent;
however, revenues for 3D Studio(R) and 3D Studio MAX software posted
sequential growth for every quarter and finished the year up 33
percent.
Net income for FY97 was $42 million, or $0.88 per share, compared to
$88 million, or $1.76 per share, in fiscal year 1996. FY97 results
include onetime charges of approximately $0.10 per share related to
strategic acquisitions made during the year.
The balance sheet for FY97 year-end remained very strong as reflected
by the $14 million increase in cash from a year ago to $286 million,
despite spending $67 million repurchasing Autodesk shares and $10
million on acquisitions. Both receivable and inventory levels improved.
In addition, the increased linearity of our business coupled with
strong cash collections have led to days sales outstanding lower than
they have been in more than five years.
A YEAR OF CHALLENGES
- --------------------
Five years ago, we made a decision to rearchitect AutoCAD software to
take advantage of the performance potential of object-oriented
technology. We made the right decision. That strategy has moved us
years ahead of the competition, but it also presented key
challenges--and not just from an engineering standpoint. To take
advantage of AutoCAD Release 13 and the 32-bit operating system it is
designed for, most of our customers had to upgrade their hardware and
operating systems. Because object-oriented file formats are structured
differently from procedural formats and require different application
programming interfaces (APIs), our independent developers also faced
some substantial reengineering challenges for their add-on products.
These key challenges have largely been met during the last year. The
power and capacity of Pentium(R) systems, and their declining costs,
have taken care of the hardware dilemma, and the Windows NT(R) and
Windows(R) 95 platforms are firmly established as the operating systems
of choice. With AutoCAD Release 13 c4 we achieved Windows 95 compliance
with a high-quality product. And developers began delivering impressive
object-oriented add-on applications.
So we entered FY97 with high hopes for AutoCAD Release 13 in the last
year of its product cycle. But our customers still didn't upgrade in
the numbers we expected. To learn firsthand from our AutoCAD Release 12
users why so many were choosing not to buy AutoCAD Release 13, every
member of the executive staff and a number of employees conducted a
phone survey. Our customers told us that the initial negative
perception some users had of AutoCAD Release 13 during its first year
on the market discouraged others. In fact, due to the early perception
problems almost 30 percent of poll respondents had never even seen a
Release 13 demo. Finally, even though AutoCAD Release 13 was the 13th
release of AutoCAD software, it was the first release of our new
object-oriented architecture, and it behaved like a release-1 product.
We paid attention to what our survey participants said about their
quality expectations. (I'll have more to say about that later when I
discuss the prerelease testing we've been conducting with AutoCAD
Release 14.) But we also received encouraging news from our users. They
told us that they still believe in our products and in our company.
They'll upgrade from Release 12, they said, when they have a compelling
reason to do so. They'll have that reason with AutoCAD Release 14.
MAINTAINING FOCUS
- -----------------
Even though FY97 was a tough financial year for the company, we took
significant steps to support our dealers and developers. Lower product
inventories and higher specialization demands are the wave of the
future, and we helped our channel partners prepare by stepping up our
vertical-market training seminars around the world and by continuing to
move closer to a just-in-time approach to product inventories.
We're focusing on the Internet as the technology of choice for
providing more timely interactivity among our channel partners,
developers, and customers. We launched the Autodesk(R) Developer
Network, an online product marketing and technical support Extranet
that enables our virtual corporation partners to tap into a
controlled-access area of our internal communications network. We're
taking a similar approach with customer service by developing online
product registration and technical support--a key charter of our newly
formed Customer Satisfaction Center.
We also sharpened our focus by moving away from non-Windows(R)
platforms and concentrating our product-engineering effort on
Microsoft(R) Windows NT- and Windows 95-based products. These are the
PC platforms of choice, and we gain product integrity and development
momentum by focusing on them.
We built up our market groups, adding staff in key areas so that we
could continue our product diversification strategy. We'll see the
results of these efforts throughout FY98 with the release of several
new products.
And we shipped a number of vertical-market products in FY97. The GIS
Market Group released AutoCAD Map(TM), the first vertical-market
"flavor" of AutoCAD software. The GIS team will follow up in the first
half of FY98 with a high-level mapping and GIS analysis
product--Autodesk World(TM). Both these products, combined with
Autodesk MapGuide(TM), the group's Internet-based server and client
software, make this a market group to watch in the coming year. The
worldwide mapping/GIS market is growing and the Autodesk GIS Market
Group is poised to provide total solutions.
The Mechanical Market Group showed some real "velocity"--its theme for
FY97--by launching Mechanical Desktop software and then delivering
two upgrades in its first 10 months. Mechanical Desktop has received
strong praise from industry-leading companies for its powerful 3D
functionality, best-of-class design-through-manufacturing solutions,
and low price point. The MCAD team leveraged its third-party
development partnership with 15 key mechanical-design firms--the
Mechanical Applications Initiative--to land volume sales contracts with
such internationally known firms as ABB, Hughes Space and
Communications Group, Philips, Siemens, and Wisne. The MCAD Market
Group will also release a mechanical-flavored AutoCAD during FY98.
We complemented our Autodesk(R) Mechanical Library series with new
subscription products from the AEC Market Group--PlantSpec(TM) and
DesignBlocks(TM). These CD-ROM subscriptions contain hundreds of
thousands of parts from leading manufacturers in the mechanical,
process and power and building/construction industries. We also offered
a Web-based subscription option, PartSpec(R) Online, this year.
Our Data Management Market Group continues to study the opportunities
in this market. We delivered a successful WorkCenter(R) product two
years ago, but our customers' workgroup-size demands have outpaced our
original technology. We took important steps to address this customer
need in FY97 by entering a joint-development agreement with Documentum,
Inc. Utilizing the company's Enterprise Document Management System and
middleware technology, future releases of WorkCenter will have the
flexibility to support larger design workgroups and to provide enhanced
workflow capabilities. We also shipped versions of WorkCenter(R) for
Windows 95 and Windows NT this year, and we will be releasing
WorkCenter(R) for the Web in Q2-
enabling design teams to use both company intranets and external
Internet sites to share controlled-access AutoCAD DWG files.
FY97 also marked the debut of a low-end product that has already made
quite an impression on the retail market. The Advanced Product Group's
Picture This Home!(TM) Kitchen is the first software title to earn the
Good Housekeeping Seal. Featuring point-and-click ease-of-use and
photo-quality graphics, this consumer-design product targets impulse
shoppers at discount retail outlets. We plan more releases in the
Picture This Home! series for FY98.
Kinetix, now in its second year as a separate Autodesk business unit,
will build on its early successes with 3D Studio MAX in the multimedia
film, video, and special-effects market even as it targets the AEC
design visualization space in FY98. And in the first quarter of the new
fiscal year, Kinetix will ship Hyperwire(TM) software, a 3D authoring
tool for the Web.
And, finally, our AEC Market Group is strategically positioned to
provide next generation solutions in the AEC design space as a result
of our March 1997 merger with Softdesk. More than any other independent
AutoCAD developer, Softdesk has optimized the object-oriented
technology introduced with AutoCAD Release 13 by including intelligent
objects in its products. Its software enables designers and drafters to
design doors and windows, for example, that "remember" their door and
window properties, no matter where they are moved within a drawing,
which means higher productivity for our customers. The new AEC Market
Group will ship key Softdesk(R) products simultaneously with shipment
of AutoCAD Release 14 in the second quarter of FY98.
BUILDING BEYOND FY97
- --------------------
During difficult financial periods, companies often show their true
character. In their rush to protect the bottom line for the short term,
some companies lose sight of long-term strategies--an unwise move, in
my opinion. In our company, we had our share of spirited debates during
executive staff meetings about whether to modify our short-term
strategies, but I'm proud to say that no one argued against investing
in Autodesk's long-term growth.
We chose not to introduce a hiring freeze, for example, because we
needed to invest in our market groups to develop the kind of products
that will help us lead the field in FY98 and beyond. However, during
this time I did institute a policy that required my personal approval
for each new position. Nor did we scale back our acquisition plans.
During Q1, we acquired Creative Imaging Technologies. That acquisition
led to the release of Picture This Home! Kitchen by our Advanced
Products Group and our entry into the consumer home-decorating and
home-remodeling market. The image-analysis technology we acquired along
with our purchase of Teleos Research will strengthen future
product-development efforts from our Advanced Products Group. Our
acquisition of Argus Technologies during the third quarter enabled the
GIS Market Group to offer Internet-based solutions with its Autodesk
MapGuide products.
We are making the Internet a large part of our development strategy
because we think it's inevitable that design teams will migrate to the
Net during the next several years. Design is no longer an isolated act.
It's a collaborative process involving not only internal team members
but customers and contractors frequently located in other cities,
states, or even countries. We see a great future for us in bringing
design teams together on the Internet. During FY97 we established a
leadership position for Internet-enabled CAD by introducing the
AutoCAD(R) Release 13 Internet Publishing Kit. Using this technology,
AutoCAD users can convert DWG files to our new drawing Web format (DWF)
and post them to Web sites. We have built this capability into AutoCAD
Release 14. Our Autodesk MapGuide product brings GIS applications to
the Web, and we are pioneering the exchange of vector-based digital
content on the Web with PartSpec Online.
In addition to making more of our products Web-capable, we will use the
Internet more and more for customer service and technical product
support.
IT'S ALL ABOUT EXECUTION
- ------------------------
Not only did we invest in acquisitions, we also moved ahead with
product development across all markets. In FY98 several of our market
group teams will introduce second- and third-generation product
releases, but none will be more anticipated than the next release from
our AutoCAD Market Group. By the time you read this letter, AutoCAD
Release 14 software will be in customers' hands. That is if--and only
if--the AutoCAD Release 14 team achieves its quality and performance
objectives. Judging by the reports we've received from alpha and beta
testers, those targets will not only be met--they'll be exceeded.
Our users helped us focus on the theme for this release--performance.
They want software that will allow them to produce a maximum number of
drawings in a minimum amount of time. Our alpha and beta testers
reported early on that the performance is there--faster than even
Release 12 for DOS.
But we had another overriding theme for Release 14, and users helped us
maintain our focus on this as well. We took steps to build quality in
from the very beginning. We began by specifying our product through
market research and by collecting customer feedback. Programmers
reviewed this data, designed feature areas in detail, then proposed
their work to a review board that included quality assurance (QA)
testing and marketing staff. The team made sure coding for the proposed
features could be completed in a high-quality fashion and tested
offline by QA before a feature got checked in to Release 14. In
addition to QA staff testing, we ran thousands of automated tests on
every build.
We also brought in a corps of Autodesk application engineers and
customer "power users" of AutoCAD from all around the world for four
separate testing sessions. Their charter was to try to break the
program by recreating the thorniest production problems they'd
encountered in the field. Programmers and QA team members sat beside
them recording their feedback on the highs and lows of prerelease
features and performance.
We launched an alpha testing program that in five months grew from 30
testers to more than 1,000. And then in our final testing stage, we
drew upon the design talent of more than 16,000 beta testers to polish
our product. We are very pleased with the results. We believe AutoCAD
Release 14 will restore the confidence of our user base and win new
volume accounts.
We are using this build-the-quality-in approach in developing all of
our products. And our customers will continue to be a vital part of our
development teams.
VISION, RESOLVE, PERFORMANCE--THE RELAUNCHING OF AUTODESK
- ---------------------------------------------------------
I want to conclude by talking with you about some intangibles. We made
several decisions during this year that can't be easily quantified, but
they were decisions that will help return us to a leadership and
revenue growth position in FY98.
At the executive staff level, we appointed Eric Herr president and
chief operating officer. The sales geographies, the majority of the
market groups, and Operations now report to Eric. That has allowed me
to devote more of my time to overseeing product development and quality
standards and to carrying out long-term growth strategies.
Management and employees are sharing the responsibility for this year's
disappointing results by forgoing performance bonuses and delaying
salary action until mid-FY98. While this decision helps lower costs,
another all-hands effort promises to have an even more profound impact
on the company's bottom line. Every employee is taking part in a
campaign to return Autodesk to revenue growth and market leadership.
We're basing this campaign on five carefully developed key initiatives,
and we're calling this effort the "relaunching" of Autodesk.
We have set the performance bar very high with this all-hands campaign,
but as I reflect on the past year--in many ways, the most difficult in
Autodesk history--I feel confident that we will meet and exceed our own
expectations. I feel that way because of the spirit and determination I
see in every Autodesk employee. We've been battered a bit, but we
are by no means down. Our collective resolve will put Autodesk back
on track in FY98.
I also take heart from the loyalty of our stockholders. I want to
express my sincere appreciation to those of you who have invested for
the long term, who have stood by us during this most trying year, and
who have encouraged us to follow our long-term strategies. Indeed we
have stayed on course, and we believe you will be rewarded for your
faith in Autodesk in FY98 and beyond.
I'll close by saying that the proof is in the performance. Our focus in
the coming year will be on just that. All of the hard work that went
into product development and into sales and marketing over the past
year will provide a great foundation for our future. I'm excited by the
many opportunities ahead.
To all of our stockholders, our business partners, our employees and
our customers--I extend my personal thanks.
/s/ Carol Bartz
Carol Bartz, Chief Executive Officer and Chairman of the Board
[Performance]
Graphic: [photograph of dartboard]
[P e r f o r m a n c e]
[The proof is in the performance. With a tough year behind
us, we move ahead resolved to win back our customers, edge
out the competition in all of our markets, and provide
tomorrow's technology for today's design needs.]
Graphic: [inverted photograph of dartboard]
Financial Review
CONTENTS
22 Financial Highlights
23 Selected Five-Year Financial Data
24 Management's Discussion and Analysis of
Financial Condition and Results of Operations
33 Consolidated Statement of Income
34 Consolidated Balance Sheet
35 Consolidated Statement of Cash Flows
36 Consolidated Statement of Stockholders' Equity
37 Notes to Consolidated Financial Statements
50 Report of Ernst & Young LLP, Independent Auditors
51 Directors and Executive Officers
52 Corporate Information
Financial Highlights
Net Revenues Cash, Cash Equivalents, and Marketable Securities
Dollars in Millions Dollars in Millions
[Graph] - Net Revenues [Graph] - Cash, Cash Equivalents, and Marketable
in fiscal years 1995, 1996 Securities in fiscal years 1995, 1996 and 1997 of
and 1997 of $455 million, $255 million, $272 million and $286 million,
$534 million and respectively.
$497 million, respectively.
Net Revenues by Geography
[Graph] - Pg with charts - Net Revenues by Geography
Fiscal year 1995
Europe 35%
Asia/Pacific 21%
Americas 44%
Fiscal year 1996
Europe 40%
Asia/Pacific 21%
Americas 39%
Fiscal year 1997
Europe 38%
Asia/Pacific 24%
Americas 38%
Selected Five-Year Financial Data
Fiscal year ended January 31,
- -------------------------------------------------------------------------------------------------
(In thousands, except per share
data, percentages, and employees) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------
FOR THE FISCAL YEAR
Net revenues $ 496,693 $ 534,167 $ 454,612 $ 405,596 $ 353,154
Cost of revenues 64,217 66,812 61,725 63,338 63,652
Marketing and sales 199,939 183,550 154,562 137,788 119,871
Research and development 93,702 78,678 65,176 56,231 51,481
General and administrative 74,280 76,100 65,738 58,536 54,953
Nonrecurring charges 4,738 -- 25,500 -- 5,000
Income from operations 59,817 129,027 81,911 89,703 58,197
Interest and other income, net 6,695 9,253 7,233 7,055 11,566
Income before income taxes 66,512 138,280 89,144 96,758 69,763
Net income 41,571 87,788 56,606 62,166 43,873
Net cash provided by
operating activities 114,183 106,632 104,412 88,853 68,608
----------------------------------------------------------------
AT YEAR END
Cash, cash equivalents, and
marketable securities $ 286,308 272,402 255,373 217,011 $ 192,277
Current assets 310,528 347,834 373,085 279,557 249,341
Total assets 492,233 517,929 482,076 404,874 358,283
Current liabilities 150,171 144,295 154,990 102,316 84,080
Total liabilities 184,119 175,601 158,592 107,995 90,450
Stockholders' equity 243,614 342,328 323,484 296,879 267,833
Working capital 160,357 203,539 218,095 177,241 165,261
Number of employees 2,044 1,894 1,788 1,788 1,565
----------------------------------------------------------------
COMMON STOCK DATA
Net income per share $ 0.88 $ 1.76 $ 1.14 $ 1.25 $ 0.88
Book value per share $ 5.40 $ 7.39 $ 6.85 $ 6.25 $ 5.58
Dividends paid per share $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.24
Shares used in computing
net income per share 47,190 49,800 49,840 49,740 49,800
Shares outstanding at year end 45,108 46,351 47,241 47,480 48,022
----------------------------------------------------------------
FINANCIAL RATIOS
Current ratio 2.1 2.4 2.4 2.7 3.0
Return on net revenues 8.4% 16.4% 12.5% 15.3% 12.4%
Return on average assets 8.2% 17.6% 12.8% 16.3% 12.8%
Return on average stockholders'
equity 14.2% 26.4% 18.2% 22.0% 16.4%
----------------------------------------------------------------
GROWTH PERCENTAGES
Net revenues (7.0%) 17.5% 12.1% 14.8% 28.9%
Net income (52.6%) 55.1% (8.9%) 41.7% (24.1%)
Net income per share (50.0%) 54.4% (8.8%) 42.0% (23.5%)
----------------------------------------------------------------
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. 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 28.
RESULTS OF OPERATIONS
---------------------
The following table sets forth, as a percentage of net revenues,
consolidated statement of income data for the periods indicated.
These operating results are not necessarily indicative of results for
any future periods.
Fiscal year ended January 31,
----------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------
Net revenues 100% 100% 100%
Costs and expenses:
Cost of revenues 13 13 14
Marketing and sales 40 34 34
Research and development 19 15 14
General and administrative 15 14 14
Nonrecurring charges 1 -- 6
------------------------
Total costs and expenses 88 76 82
------------------------
Income from operations 12 24 18
Interest and other income, net 1 2 2
------------------------
Income before income taxes 13 26 20
Provision for income taxes 5 9 7
------------------------
Net income 8% 17% 13%
------------------------
NET REVENUES Autodesk's consolidated net revenues in fiscal year 1997
were $496.7 million, which represented a 7 percent decrease from
fiscal year 1996 net revenues of $534.2 million. Revenue decreases in
the Americas and Europe were 10 percent and 11 percent, respectively,
reflecting slowdowns in the US dealer channel, Germany, Switzerland,
and France. The reductions reflect lower sales of AutoCAD(R) and
AutoCAD update software as the current version, AutoCAD Release 13,
introduced in November 1994, entered the end of its product life
cycle. These decreases were partially offset by revenues from new and
enhanced products introduced by the Company's various market groups
during fiscal year 1997, most notably Mechanical Desktop(TM), AutoCAD
LT(R) for Windows(R) 95, AutoCAD Map(TM), 3D Studio MAX(TM), and
Picture This Home!(TM) Kitchen. In fiscal year 1997, revenues in the
Company's Asia/Pacific region increased 5 percent, reflecting
increased sales primarily in Japan and South Korea of AutoCAD, and
AutoCAD updates, as well as new products introduced during the year.
Net revenues in fiscal year 1996
increased 18 percent over the $454.6 million posted in fiscal year
1995, reflecting increased revenues in all sales geographies, the
most significant occurring in Autodesk's European operations. Growth
in fiscal year 1996 revenues resulted from higher sales of AutoCAD,
multimedia, data management, and low-end CAD product offerings, most
notably AutoCAD LT.
Sales of AutoCAD and AutoCAD updates decreased, both in
absolute dollars and as a percentage of revenues, from fiscal year
1996 to fiscal year 1997. AutoCAD and AutoCAD updates represented
approximately 70 percent of consolidated revenues in fiscal year 1997
as compared to 80 percent in the prior fiscal year. Shipments of new
AutoCAD licenses decreased from 233,000 seats in fiscal year 1996 to
207,000 in fiscal year 1997. AutoCAD update revenues were $45 million
and $49 million in fiscal years 1997 and 1996, respectively.
Foreign revenues, including exports from the United States,
accounted for approximately 65 percent, 64 percent, and 61 percent of
revenues in fiscal years 1997, 1996, and 1995, respectively. The
stronger value of the dollar, relative to international currencies,
primarily the Japanese yen and German mark, negatively affected
fiscal year 1997 international revenues by approximately $17 million
compared to fiscal year 1996. The weaker value of the dollar,
relative to international currencies, most notably the Japanese yen,
German mark, French franc, and Swedish krona, favorably affected
fiscal year 1996 international revenues by approximately $18.8
million compared to fiscal year 1995. Fluctuations in foreign
exchange rates did not materially impact operating expenses in fiscal
years 1997, 1996, and 1995. A summary of revenues by geographic area
is presented in Note 9, page 48, to the consolidated financial
statements.
The Company records product returns as a reduction of
revenues. In fiscal years 1997, 1996, and 1995, product returns,
consisting principally of stock rotation, totaled $44.3 million or 9
percent of consolidated revenues, $51.2 million or 9 percent of
consolidated revenues, and $7.7 million or 2 percent of consolidated
revenues, respectively. Returns of AutoCAD products accounted for 61
percent, 79 percent, and 75 percent of total product returns in
fiscal years 1997, 1996, and 1995, respectively. More specifically,
returns of AutoCAD Release 13 products totaled $25.9 million and
$29.5 million of product returns in fiscal years 1997 and 1996,
respectively. Management attributed the increase in product returns
in fiscal year 1996 primarily to product rotation associated with
performance issues with initial versions of AutoCAD Release 13
software, the number and complexity of associated corrective releases
to the software, and ultimately, certain customer dissatisfaction
with these corrective releases. Fiscal year 1996 product returns
were, to a lesser extent, also impacted by transition and update
cycles related to the introduction of new and enhanced products,
including AutoCAD(R) Designer, 3D Studio(R), and AutoCAD LT software.
The Company, while experiencing an overall decrease in product
returns in fiscal year 1997, continued to experience a higher level
of product returns relative to periods prior to the introduction of
AutoCAD Release 13. This trend reflects an increase in the number of
software titles shipping as well as transition and update cycles
related to the Company's various software products.
The nature and technical complexity of Autodesk's software
is such that defect corrections have occurred in the past and may
occur in future releases of AutoCAD and other products offered by the
Company. Performance issues associated with AutoCAD Release 13 were
more substantial than those the Company had experienced with previous
AutoCAD releases. The total cost of corrective actions was also
likely more substantial, although the nature of such costs does not
lend itself to quantification. The Company believes the corrective
costs include not only the salary and other associated expenses for
time spent by the engineering staff, but also costs relating to the
diversion of resources in Autodesk's distribution channel and sales
organization, the potential impact of delays on other research and
development projects, and damage to the Autodesk and AutoCAD brand
names.
Delays in the introduction of the next version of AutoCAD or
other new and enhanced products planned for future periods, 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.
Additionally, slowdowns in the Americas, particularly in the US, and
in various European
markets, including Germany and France, could also
have a material adverse effect on Autodesk's business and
consolidated results of operations. The foregoing forward-looking
information is based upon the Company's current expectations. 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 Risk Factors Which May Impact
Future Operating Results," page 28.
COST OF REVENUES Cost of revenues includes the purchase of discs and
compact disks (CD-ROMs), costs associated with transferring the
Company's software to electronic media, printing of user manuals and
packaging materials, freight, royalties, amortization of capitalized
software development costs, and, in certain foreign markets, software
protection locks. When expressed as a percentage of net revenues,
cost of revenues increased approximately one-half of 1 percent in
fiscal year 1997 as compared to the prior fiscal year. Gross margins
in fiscal year 1997 were adversely impacted by the mix of product
sales and, to a lesser extent, the impact of increased fixed costs on
a lower net revenue base. Revenues from commercial versions of
AutoCAD software, which historically have yielded a higher gross
margin than many of Autodesk's other commercial products, decreased
as a percentage of consolidated revenues. Similarly, the portion of
revenue contributed by AutoCAD LT, which has a lower gross margin
than commercial versions of AutoCAD, increased as a percentage of
total revenues. The improved gross margin in fiscal year 1996 as
compared with prior periods resulted from ongoing cost-control
measures primarily in the areas of purchasing, disk duplication,
assembly, packaging, shipping, and the increased use of lower-cost
CD-ROM media. In the future, 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 Autodesk's products, and the
geographic distribution of sales.
MARKETING AND SALES Marketing and sales expenses include salaries,
sales commissions, travel, and facility costs for the Company's
marketing, sales, dealer training, and support personnel. These
expenses also include programs aimed at increasing revenues, such as
advertising, trade shows, and expositions, as well as various sales
and promotional programs designed for specific sales channels and end
users. Consolidated fiscal year 1997 marketing and sales expense of
$199.9 million increased by 9 percent from the $183.6 million of
expense incurred in the prior fiscal year. When expressed as a
percentage of net revenues, marketing and sales expenses increased
from 34 percent to 40 percent, reflecting higher personnel costs as
well as marketing and sales costs associated with the launch of
Mechanical Desktop, AutoCAD LT for Windows 95, AutoCAD Map, Picture
This Home! Kitchen software, and other new and enhanced product
offerings introduced by the Company's market groups during fiscal
year 1997. Fiscal year 1996 marketing and sales expenses increased 19
percent over fiscal year 1995 expense of $154.6 million due to an
increase in personnel costs, sales incentive programs, continued
expansion in the sales geographies, and expenses to support the
Company's market group structure. 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 consist
primarily of salaries and benefits for software engineers, contract
development fees, expenses associated with product translations,
costs of computer equipment used in software development, and
facilities expenses. During fiscal years 1997, 1996, and 1995,
Autodesk incurred $93.7 million, $78.7 million, and $65.2 million of
research and development expense, respectively (excluding capitalized
software developments costs of $2.1 million in fiscal year 1995; no
software development costs were capitalized during fiscal years 1997
and 1996). Research and development expenses increased both in
absolute dollars and as a percentage of revenues in fiscal year 1997
due to the addition of software engineers, expenses associated with
the development of new and enhanced products, including the next
release of AutoCAD, and the translation of certain
of these products into foreign languages. Also contributing to the
increase were operating results associated with fiscal year 1997
business combinations. Fiscal year 1996 research and development
spending increased $11.4 million or 17 percent over fiscal year 1995
expenditures (including capitalized expenses) due to the addition of
software engineers, costs associated with the development of new and
enhanced products, and product translations. The Company anticipates
that research and development expenses will increase in fiscal year
1998 as a result of product development efforts by the Company's
market groups and incremental personnel costs resulting from recent
business combinations, including the March 1997 acquisition of
Softdesk, Inc. ("Softdesk"), a leading supplier of architecture,
engineering, and construction applications.
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
include the Company's information systems, finance, human resources,
legal, purchasing, and other administrative operations. Fiscal year
1997 general and administrative expenses of $74.3 million decreased 2
percent from the $76.1 million recorded in the prior fiscal year,
reflecting lower professional fees, partially offset by increased
expenses to maintain and expand the Company's worldwide information
systems. Fiscal year 1996 general and administrative expenses
increased 16 percent from fiscal year 1995 spending of $65.7 million
resulting from higher personnel and information systems costs
associated with increased operations, partially offset by a reduction
in legal expenses. The Company currently expects that general and
administrative expenses in the coming year will increase to support
spending on infrastructure, including continued investment in
Autodesk's worldwide information systems.
NONRECURRING CHARGES During fiscal year 1997, the Company acquired
the outstanding stock of Teleos Research ("Teleos") and assets from
Argus Technologies, Inc. ("Argus"). These business combinations were
accounted for using the purchase method of accounting, with the
purchase price being principally allocated to capitalized software,
purchased technologies, and intangible assets. Approximately $3.2
million of the Teleos purchase price and $1.5 million of the Argus
purchase price represented the value of in-process research and
development that had not yet reached technological feasibility and
had no alternative future use. These amounts were charged to
operations during fiscal year 1997.
As discussed in Note 4, page 42, to the consolidated
financial statements, a $25.5 million judgment was entered against
Autodesk in fiscal year 1995 on a claim of trade secret
misappropriation brought by Vermont Microsystems, Inc. ("VMI"). The
Company recorded this nonrecurring charge in the fourth quarter of
fiscal year 1995. The Company appealed and a reduced judgment was
entered against the Company in the amount of $14.2 million, plus
interest. Because the case is still under appeal, Autodesk has not
reflected the reduction of damages in its financial statements.
INTEREST AND OTHER INCOME Interest income was $8.8 million, $10.6
million, and $8.0 million for fiscal years 1997, 1996, and 1995,
respectively. The decrease in fiscal year 1997 interest income from
the prior fiscal year resulted from a lower average balance of cash,
cash equivalents, and marketable securities, partially offset by
higher interest rates on the Company's international investment
portfolio when compared to the same period in the prior fiscal year.
The increase in fiscal year 1996 interest income from the prior
fiscal year resulted from a greater average balance of cash, cash
equivalents, and marketable securities, partially offset by lower
interest rates on the Company's international portfolio when compared
to the prior fiscal year. Interest and other income for fiscal years
1997, 1996, and 1995 was net of interest expense of $1.8 million,
$1.8 million, and $0.2 million, respectively, primarily associated
with the VMI judgment.
The Company has a hedging program to minimize foreign
exchange gains or losses, where possible, from recorded
foreign-denominated assets and liabilities. This program involves the
use of forward foreign exchange contracts in the primary European and
Asian currencies. The Company does not cur-
rently hedge anticipated foreign-denominated revenues and expenses
not yet incurred. Gains (losses) resulting from foreign currency
transactions primarily in Europe and Asia/Pacific, which are included
in interest and other income, were ($197,000), $554,000, and
($1,043,000) in fiscal years 1997, 1996, and 1995, respectively.
PROVISION FOR INCOME TAXES Autodesk's effective income tax rate in
fiscal year 1997 was 37.5 percent as compared with 36.5 percent in
the prior fiscal year. The increase in the effective income tax rate
resulted from a onetime charge for acquired in-process research and
development associated with the Teleos acquisition, which is not
deductible for income tax purposes, partially offset by a reduction
in the effective income tax rate attributable to increased foreign
earnings, which are taxed at rates lower than the US statutory rate.
See Note 3, page 41, to the consolidated financial statements for an
analysis of the differences between the US statutory and the
effective income tax rates.
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 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 the 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 for 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
circumstances 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. The current version of AutoCAD,
Release 13, is in the later stage of its product life cycle, which is
expected to result in lower AutoCAD sales until the next release is
introduced. While Autodesk has anticipated a slowdown in AutoCAD
revenues based on historical experiences and expected market
conditions, any variation from Autodesk's current expectations may
have a material impact on Autodesk's business and consolidated
results of operations.
A substantial portion of Autodesk's computer-aided design
("CAD") sales, including sales of AutoCAD, AutoCAD updates, and
product offerings from Softdesk, are used in the architecture,
engineering, and construction ("AEC") industry. Following the
combination with Softdesk, the Company
expects to continue to compete favorably through a combination of
product features and performance, price, innovation, and the
reputations of both Autodesk and Softdesk. Autodesk's historical
product sales to the AEC markets, particularly in the US and in
various European markets, including Germany, France, and Italy, have
been sluggish due in part to general market conditions, and short-
term growth is not anticipated for these markets. Other factors which
could affect the AEC market, including downward pricing pressure,
consolidation resulting in strengthened competitors, product
combinations which offer more- comprehensive solutions to customers,
technological innovation by competitors, entry of new competitors
into the AEC market, and changes in the design construction process
resulting in changes in the demand for the type of software produced
by the Company, could have a material adverse effect on the Company'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 software products offered
by the Company are internally complex and, despite extensive testing
and quality control, may contain errors or defects ("bugs"),
especially when first introduced. In fiscal year 1996, Autodesk
experienced quality and performance issues associated with AutoCAD
Release 13, including issues related to compatibility with certain
hardware platforms and peripheral equipment, interoperability
problems with products designed to work in conjunction with AutoCAD
Release 13, and other issues associated with the software's
object-oriented design. These factors resulted in a high rate of
product returns in fiscal year 1996. While Autodesk believes the
AutoCAD Release 13 performance issues have been satisfactorily
addressed, there can be no assurance that defects or errors will not
be discovered in future versions of AutoCAD and 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.
Delays or difficulties, including the discovery of product defects
similar to those experienced with AutoCAD Release 13, may 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.
Autodesk's business strategy has historically depended in
large part on its relationships with third-party developers, who
provide products that expand the functionality of Autodesk's design
software. In the AEC market in particular, a number of developer
partners, including Softdesk, have contributed to demand for AutoCAD
software by providing application products with high levels of
functionality. Because Softdesk has products which compete with the
product offerings of some of these developers, the merger with
Softdesk may negatively impact certain of Autodesk's relationships
with these third parties. However, Autodesk's commitment to maintain
an open architecture for AutoCAD and for certain of Softdesk's
products should permit third-party developers to continue to develop
and market specific applications. While Autodesk's management
believes that the Softdesk merger will ultimately improve the quality
of the platform on which developer products are based and permit
achievement of higher functionality and greater customer
satisfaction, thereby benefiting Autodesk and the developer base,
there can be no assurance that certain developers will not elect to
support other products or otherwise experience disruption in product
development and delivery cycles. Such disruption in particular
markets could negatively impact these third-party developers and end
users during the transitional period, which could have a material
adverse effect on Autodesk'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: 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. During
fiscal year 1997, changes in exchange rates from the same period of
the prior fiscal year adversely impacted revenues, principally due to
changes in the Japanese yen and German mark. The Company's
international results may also be impacted by general economic and
political conditions in these foreign markets, including an ongoing
slowdown in the German market experienced since the middle of fiscal
year 1997, and its adverse impact on other European 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. While no single customer accounted for more than
10 percent of the Company's consolidated revenues in fiscal years
1997, 1996, or 1995, 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. In fiscal year 1996, the
Company experienced a higher level of product returns than in fiscal
years 1995 and 1994, most notably in the US, which management
attributed to performance issues associated with initial versions of
AutoCAD Release 13 software. While the Company experienced a decrease
in product returns in absolute dollars during fiscal year 1997,
management anticipates that product returns in future periods will
continue to be impacted by product update cycles, new product
releases, and software quality.
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
tim-ing 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 industry segments grows and the functionality
of products in different industry segments overlaps. 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 to, 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 Autodesk consummated
several acquisitions in fiscal year 1997, including acquisitions of
Teleos, Argus, and Creative Imaging Technologies. During the first
quarter of fiscal year 1998, the Company completed its acquisition of
all of the outstanding stock of Softdesk in a transaction to be
accounted for under the purchase method of accounting. The Company is
in the process of integrating the operations acquired in the Softdesk
merger with its own. There can be no assurance that the anticipated
benefits of recently concluded business combinations will be
realized. The Softdesk merger entails a number of risks, including
managing a larger and more geographically disparate business. In
addition, recent mergers could require significant additional
management attention. If Autodesk is unsuccessful in integrating and
managing recently acquired businesses, the Company's business and
consolidated results of operations in future periods could be
adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Working capital, which consists principally of cash, cash
equivalents, and marketable securities, was $160.4 million at January
31, 1997, compared to $203.5 million at January 31, 1996. Cash, cash
equivalents, and marketable securities, which consist primarily of
high-quality municipal bonds, tax-advantaged money market
instruments, and US treasury notes, totaled $286.3 million at January
31, 1997, compared to $272.4 million at January 31, 1996. The $13.9
million increase in cash, cash equivalents, and marketable securities
was due primarily to cash generated from operations ($114.2 million)
and cash proceeds
from the issuance of shares through employee stock option and stock
purchase programs ($23.3 million). This increase was partially offset
by cash used to repurchase shares of the Company's common stock under
an ongoing, systematic repurchase program ($67.3 million); to
purchase computer equipment, furniture, and leasehold improvements
($17.4 million); to pay dividends on the Company's common stock
($10.9 million); and to acquire complementary software technologies
and businesses ($9.9 million).
During fiscal years 1997, 1996, and 1995, the Company
repurchased and retired 2,217,000, 2,671,000, and 2,990,000 shares of
its common stock at average per share repurchase prices of $30.34,
$40.43, and $30.05, respectively, pursuant to repurchase programs
approved by its Board of Directors.
In August 1996, the Company announced a stock repurchase
program under which the Company may purchase up to 5 million shares
of common stock in open market transactions as market and business
conditions warrant. The Company may also utilize equity options as
part of its repurchase program. This program is in addition to shares
previously reserved pursuant to Autodesk's ongoing and systematic
repurchase program.
In connection with the new repurchase program, 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
common stock to the Company at $21.50 per share. Additionally, the
Company purchased call options that entitle the Company to buy 2
million shares of its common stock at $25.50 per share. The put and
call options expire in September 1997. The premiums received with
respect to the equity options totaled $8.1 million and equaled the
premiums paid. Consequently, there was not an exchange of cash. The
amount related to the Company's maximum potential repurchase
obligation under the put warrants has been reclassified from
stockholders' equity to put warrants in the accompanying consolidated
financial statements. The Company has the right to settle the put
warrants with stock or a cash settlement equal to the difference
between the exercise price and market value at the date of exercise.
These securities had no significant dilutive effect on net income per
share in fiscal year 1997.
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 January 31, 1997,
there were no borrowings outstanding under this credit agreement
which expires in January 1999.
The Company's principal commitments at January 31, 1997,
consisted of obligations under operating leases for facilities.
At January 31, 1997 and 1996, the Company's principal
unhedged monetary assets denominated in currencies other than the US
dollar consisted of cash, cash equivalents, and marketable
securities.
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.
Autodesk, Inc.
Consolidated Statement of Income
Fiscal year ended January 31,
-----------------------------------
(In thousands, except per share data) 1997 1996 1995
- -------------------------------------------------------------------------------------------------
Revenues $ 509,630 $ 546,884 $ 465,278
Direct commissions 12,937 12,717 10,666
-----------------------------------
Net revenues 496,693 534,167 454,612
Costs and expenses:
Cost of revenues 64,217 66,812 61,725
Marketing and sales 199,939 183,550 154,562
Research and development 93,702 78,678 65,176
General and administrative 74,280 76,100 65,738
Nonrecurring charges 4,738 -- 25,500
-----------------------------------
Total costs and expenses 436,876 405,140 372,701
-----------------------------------
Income from operations 59,817 129,027 81,911
Interest and other income, net 6,695 9,253 7,233
-----------------------------------
Income before income taxes 66,512 138,280 89,144
Provision for income taxes 24,941 50,492 32,538
-----------------------------------
Net income $ 41,571 $ 87,788 $ 56,606
-----------------------------------
Net income per share $ 0.88 $ 1.76 $ 1.14
-----------------------------------
Shares used in computing net income per share 47,190 49,800 49,840
-----------------------------------
See accompanying notes.
Autodesk, Inc.
Consolidated Balance Sheet
January 31,
---------------------
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 64,814 $ 129,305
Marketable securities 117,971 64,001
Accounts receivable, net of allowance for doubtful
accounts of $6,635 ($6,731 in 1996) 68,577 93,919
Inventories 7,340 9,685
Deferred income taxes 35,616 33,769
Prepaid expenses and other current assets 16,210 17,155
--------- ---------
Total current assets 310,528 347,834
Marketable securities, including a restricted balance
of $28,000 at January 31, 1997 and 1996 103,523 79,096
Computer equipment, furniture, and leasehold improvements:
Computer equipment and furniture 103,903 106,643
Leasehold improvements 17,818 21,100
Accumulated depreciation (77,671) (78,778)
--------- ---------
Net computer equipment, furniture, and leasehold
improvements 44,050 48,965
Purchased technologies and capitalized software 15,916 22,141
Other assets 18,216 19,893
--------- ---------
$ 492,233 $ 517,929
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,557 $ 24,547
Accrued compensation 18,099 22,441
Accrued income taxes 75,061 65,517
Other accrued liabilities 32,454 31,790
--------- ---------
Total current liabilities 150,171 144,295
Deferred income taxes 2,974 1,912
Litigation accrual 29,328 27,640
Other liabilities 1,646 1,754
Commitments and contingencies
Put warrants 64,500 --
Stockholders' equity:
Common stock, $0.01 par value; 100,000 shares authorized,
45,108 issued and outstanding (46,351 in 1996) 147,091 140,765
Retained earnings 106,587 191,109
Foreign currency translation adjustment (10,064) 10,454
--------- ---------
Total stockholders' equity 243,614 342,328
--------- ---------
$ 492,233 $ 517,929
========= =========
See accompanying notes.
Autodesk, Inc.
Consolidated Statement of Cash Flows
Fiscal year ended January 31,
----------------------------------
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 41,571 $ 87,788 $ 56,606
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 34,833 25,247 24,989
Charge for acquired in-process research and
development 4,738 -- --
Changes in operating assets and liabilities,
net of business combinations:
Accounts receivable 25,365 (7,579) (15,068)
Inventories 2,345 (3,850) 3,034
Deferred income taxes (785) (4,567) (18,334)
Prepaid expenses and other current assets 890 (6,443) (2,898)
Accounts payable and accrued liabilities (4,318) 3,721 48,017
Accrued income taxes 9,544 12,315 8,066
--------- --------- ---------
Net cash provided by operating activities 114,183 106,632 104,412
--------- --------- ---------
INVESTING ACTIVITIES
Purchases of available-for-sale marketable securities (683,550) (224,655) (74,682)
Maturities of available-for-sale marketable securities 604,727 141,893 145,754
Purchase of computer equipment, furniture, and
leasehold improvements (17,409) (16,306) (20,019)
Business combinations, net of cash acquired (9,908) (7,194) (4,469)
Purchases of software technologies and capitalization
of software costs (995) (1,409) (4,958)
Other (16,698) 8,042 4,642
--------- --------- ---------
Net cash provided (used) by investing activities (123,833) (99,629) 46,268
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 23,307 46,424 59,912
Repurchase of common stock (67,269) (107,976) (89,851)
Dividends paid (10,879) (11,184) (11,307)
--------- --------- ---------
Net cash used in financing activities (54,841) (72,736) (41,246)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (64,491) (65,733) 109,434
Cash and cash equivalents at beginning of year 129,305 195,038 85,604
--------- --------- ---------
Cash and cash equivalents at end of year $ 64,814 $ 129,305 $ 195,038
========= ========= =========
See accompanying notes.
Autodesk, Inc.
Consolidated Statement of Stockholders' Equity
Three-year period ended January 31, 1997
----------------------------------------
Common Stock Foreign
------------ currency Total
Retained translation stockholders'
(In thousands) Shares Amount earnings adjustment equity
- --------------------------------------------------------------------------------------------------
Balances, January 31, 1994 47,480 $ 43,769 $ 257,052 $ (3,942) $ 296,879
Common shares issued under
stock option and stock
purchase plans 2,751 49,467 49,467
Tax effect of stock options 10,445 10,445
Net income 56,606 56,606
Dividends paid (11,307) (11,307)
Repurchase of common shares (2,990) (2,811) (87,040) (89,851)
Foreign currency translation
adjustment 11,492 11,492
Unrealized losses on available-
for-sale securities, net of tax (247) (247)
------ -------- --------- --------- ---------
Balances, January 31, 1995 47,241 100,870 215,064 7,550 323,484
Common shares issued under
stock option and stock
purchase plans 1,781 35,712 35,712
Tax effect of stock options 10,712 10,712
Net income 87,788 87,788
Dividends paid (11,184) (11,184)
Repurchase of common shares (2,671) (6,529) (101,447) (107,976)
Foreign currency translation
adjustment 2,904 2,904
Unrealized gains on available-
for-sale securities, net of tax 888 888
------ -------- --------- --------- ---------
Balances, January 31, 1996 46,351 140,765 191,109 10,454 342,328
Common shares issued under
stock option and stock
purchase plans 974 20,729 20,729
Tax effect of stock options 2,578 2,578
Reclassification of put warrants (9,870) (54,630) (64,500)
Net income 41,571 41,571
Dividends paid (10,879) (10,879)
Repurchase of common shares (2,217) (7,111) (60,158) (67,269)
Foreign currency translation
adjustment (20,518) (20,818)
Unrealized losses on available-
for-sale securities, net of tax (426) (426)
------ --------- --------- --------- ---------
Balances, January 31, 1997 45,108 $ 147,091 $ 106,587 $ (10,064) $ 243,614
====== ========= ========= ========= =========
See accompanying notes.
Autodesk, Inc.
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------
OPERATIONS Autodesk, Inc. ("Autodesk" or the "Company"), is a leader
in the development and marketing of design and drafting software and
multimedia tools, primarily for the business and professional
environment. Autodesk's flagship product, AutoCAD, is one of the
world's leading computer-aided design ("CAD") tools, with an
installed base of 1.6 million seats worldwide.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been
eliminated.
The asset and liability accounts of foreign subsidiaries are
translated from their respective functional currencies at the rates
in effect at the balance sheet date, and revenue and expense accounts
are translated at weighted average rates during the period. Foreign
currency translation adjustments are reflected as a separate
component of stockholders' equity. Gains (losses) resulting from
foreign currency transactions, which are included in interest and
other income, were ($197,000), $554,000, and ($1,043,000) in fiscal
years 1997, 1996, and 1995, respectively.
BUSINESS COMBINATIONS During fiscal year 1997 the Company acquired
certain businesses for an aggregate of $9.9 million. Included in
these acquisitions were the purchases of assets from Creative Imaging
Technologies, Inc. ("CIT"), CadZooks, Inc., Argus Technologies, Inc.
("Argus"), as well as the outstanding stock of Teleos Research
("Teleos"). Approximately $3.2 million of the Teleos purchase price
and $1.5 million of the Argus purchase price represented the value of
in-process research and development that had not yet reached
technological feasibility and had no alternative future use. These
amounts were charged to income from operations during fiscal year
1997 and classified as nonrecurring charges in the statement of
income. In fiscal year 1996, the Company acquired certain assets of
Automated Methods (Pty) Ltd. and made final payments to the former
stockholders of Ithaca Software, which was acquired by the Company in
August 1993, based on revenues as specified in the acquisition
agreement. Cash payments in fiscal year 1996 associated with these
transactions totaled approximately $7.2 million. All of these
acquisitions were accounted for using the purchase method of
accounting with the purchase price being principally allocated to
purchased technologies and capitalized software, intangible assets,
and for the Teleos and Argus acquisitions, in-process research and
development. The Company is amortizing these intangible assets on a
straight-line basis over two-to-five years. The operating results of
the acquired businesses, which have not been material in relation to
those of the Company, have been included in the accompanying
consolidated financial statements from their respective dates of
acquisition. Additional consideration may also be payable to the
former stockholders of CIT, Argus, and Teleos based on product
milestones and operating results, which are expected to be allocated
to intangible assets and amortized on a straight-line basis over
two-to-five year periods.
USE OF ESTIMATES The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION The Company hedges a portion of its
exposure on certain intercompany receivables and payables denominated
in foreign currencies using forward foreign exchange contracts in
European and Asian foreign currencies. Gains and losses associated
with exchange rate
fluctuations on forward foreign exchange contracts are recorded
currently in interest and other income and offset corresponding gains
and losses on the foreign currency assets being hedged. The costs of
forward foreign exchange contracts are amortized on a straight-line
basis over the life of the contract as interest and other income.
CASH AND CASH EQUIVALENTS The Company considers all highly liquid
investments with insignificant interest rate risk and original
maturities of three months or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates fair value.
MARKETABLE SECURITIES Marketable securities, consisting principally
of high-quality municipal bonds, tax-advantaged money market
instruments, and US treasury notes, are stated at fair value.
Marketable securities maturing within one year that are not
restricted are classified as current assets.
The Company determines the appropriate classification of its
marketable securities at the time of purchase and reevaluates such
classification as of each balance sheet date. The Company has
classified all of its marketable securities as available-for-sale and
carries such securities at fair value, with unrealized gains and
losses, net of tax, reported in stockholders' equity until
disposition.
CONCENTRATION OF CREDIT RISK The Company places its cash, cash
equivalents, and marketable securities with financial institutions
with high credit standing and, by policy, limits the amounts invested
with any one institution, type of security, and issuer. Autodesk's
accounts receivable are derived from software sales to a large number
of dealers and distributors in the Americas, Europe, and
Asia/Pacific. The Company performs ongoing evaluations of its
customers' financial condition and limits the amount of credit
extended when deemed necessary, but generally requires no collateral.
INVENTORIES Inventories, consisting principally of disks and
technical manuals, are stated at the lower of cost (determined on the
first-in, first-out method) or market.
COMPUTER EQUIPMENT, FURNITURE, AND LEASEHOLD IMPROVEMENTS Computer
equipment and furniture are depreciated using the straight-line
method over the estimated useful lives of the assets, which range
from two to ten years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the estimated useful life or
the lease term.
PURCHASED TECHNOLOGIES AND CAPITALIZED SOFTWARE Costs incurred in the
initial design phase of software development are expensed as
incurred. Once the point of technological feasibility is reached,
production costs (programming and testing) are capitalized. Certain
acquired software-technology rights are also capitalized. Capitalized
software costs are amortized ratably as revenues are recognized, but
not less than on a straight-line basis over two- to seven-year
periods. Amortization expense was $9,563,000, $11,765,000, and
$7,634,000 in fiscal years 1997, 1996, and 1995, respectively. The
actual lives of the Company's purchased technologies or capitalized
software may differ from the Company's estimates, and such
differences could cause carrying amounts of these assets to be
reduced materially.
REVENUE RECOGNITION Autodesk's revenue recognition policy is in
compliance with the provisions of the American Institute of Certified
Public Accountants' Statement of Position 91-1, "Software Revenue
Recognition." Revenue is recognized at the time of shipment, provided
that no significant vendor obligations exist and collection of the
resulting receivable is deemed probable. A portion of revenues
related to certain customer consulting and training obligations is
deferred, while costs associated with certain post-sale customer
obligations are accrued.
Autodesk establishes allowances for product returns,
including allowances for stock balancing and product rotation, based
on estimated future returns of product and after taking into
consideration channel inventory levels at its resellers, the timing
of new product introductions, and other factors. These allowances are
recorded as direct reductions of accounts receivable. While the
Company maintains strict
measures to monitor channel inventories and to provide appropriate
allowances, actual product returns may differ from the Company's
estimates, and such differences could be material to the consolidated
financial statements.
ROYALTIES The Company licenses software used to develop components of
AutoCAD, Mechanical Desktop, 3D Studio MAX, and certain other
software products. Royalties are payable to developers of the
software at various rates and amounts generally based on unit sales
or revenues. Royalty expense was $8,000,000, $6,102,000, and
$5,944,000 in fiscal years 1997, 1996, and 1995, respectively. Such
costs are included as a component of cost of revenues.
NET INCOME PER SHARE Net income per share is based on the weighted
average number of outstanding common shares and dilutive common stock
equivalents.
COMMON STOCK SPLIT In October 1994, Autodesk's stockholders approved
an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock from
50,000,000 to 100,000,000 shares and to effect a 2-for-1 split of the
Company's common stock in the form of a 100 percent common stock
dividend. All share and per share amounts have been restated to
reflect the stock split.
RECENTLY ISSUED ACCOUNTING STANDARDS The Company adopted Financial
Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" ("FAS No. 121") in fiscal year 1997. FAS No. 121
requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Adoption of this statement did
not have a material effect on the Company's consolidated financial
statements.
RECLASSIFICATIONS A nonrecurring charge recorded in fiscal year 1995
related to a legal matter more fully discussed in Note 4, Litigation
Accrual, has been reclassified to a line item within income from
operations in the Company's consolidated statement of income.
Previously, such amount was recorded as a charge after income from
operations.
NOTE 2. FINANCIAL INSTRUMENTS
- -----------------------------------
FAIR VALUES OF FINANCIAL INSTRUMENTS Estimated fair values of
financial instruments are based on quoted market prices. The carrying
amounts and fair value of the Company's financial instruments are as
follows:
January 31,
----------------------------------------------
1997 1996
--------------------- -----------------------
Carrying Fair Carrying Fair
(In thousands) amount value amount value
--------------------------------------------------------------------------------------
Cash and cash equivalents $ 64,814 $ 64,814 $ 129,305 $ 129,305
Marketable securities 221,494 221,494 143,097 143,097
Forward foreign currency contracts (458) (458) (143) (143)
-------- ------- -------- ---------
FOREIGN CURRENCY CONTRACTS The Company enters into forward foreign
currency contracts to hedge the value of assets and liabilities
recorded in foreign currencies against fluctuations in exchange
rates. Substantially all forward foreign currency contracts entered
into by the Company have maturities of 60 days or less. The notional
amounts of foreign currency contracts were $35.7 million and $15.5
million at January 31, 1997 and 1996, respectively, and were
predominantly to buy Swiss francs. While the contract or notional
amount is often used to express the volume of foreign exchange
contracts, the amounts potentially subject to credit risk are
generally limited to the amounts, if any, by which the
counterparties' obligations under the agreements exceed the
obligations of the Company to the counterparties.
MARKETABLE SECURITIES Marketable securities include the following
available-for-sale securities at January 31, 1997 and 1996:
January 31, 1997
-----------------------------------------------
Gross Gross Estimated
unrealized unrealized fair
(In thousands) Cost gains losses value
- ---------------------------------------------------------------------------------------------------
Short-term:
Municipal bonds $ 70,325 $ 43 $ -- $ 70,368
Preferred stock 2,000 -- -- 2,000
Time deposits 45,603 -- -- 45,603
--------- ---- -------- ---------
117,928 43 -- 117,971
Long-term:
Municipal bonds 72,565 -- (74) 72,491
US Treasury notes 28,592 -- (592) 28,000
Preferred stock and other 3,022 10 -- 3,032
--------- ---- -------- ---------
104,179 10 (666) 103,523
--------- ---- -------- ---------
$ 222,107 $ 53 $ (666) $ 221,494
========= ==== ======== =========
January 31, 1997
--------------------------------------------------
Gross Gross Estimated
unrealized unrealized fair
(In thousands) Cost gains losses value
- ------------------------------------------------------------------------------------------------------
Short-term:
Municipal bonds $ 30,439 $ 85 $(1) $ 30,523
Time deposits 33,478 -- -- 33,478
-------- ------- -------- ----------
63,917 85 (1) 64,001
Long-term:
Municipal bonds 47,380 694 (3) 48,071
US Treasury notes 29,397 608 (3) 30,002
Time deposits and other 1,008 15 -- 1,023
-------- ------- -------- ----------
77,785 1,317 (6) 79,096
-------- ------- -------- ----------
$141,702 $ 1,402 $(7) $ 143,097
======== ======= ======== =========
Long-term US Treasury notes included a restricted balance of
$28.0 million at January 31, 1997 and 1996 (see Note 4). The
contractual maturities of Autodesk's short-term marketable securities
at January 31, 1997, were one year or less while the Company's
long-term marketable securities had contractual maturities as
follows: $52.1 million between one and two years; $17.3 million
maturing in three years; $28.8 million maturing in four to five
years; and $5.3 million beyond five years. Expected maturities may
differ from contractual maturities because the issuers of the
securities may have the right to prepay or call obligations without
prepayment penalties. Realized gains and losses on sales of
available-for-sale securities were immaterial in fiscal years 1997
and 1996. The cost of securities sold is based on the specific
identification method.
NOTE 3. INCOME TAXES
- --------------------------
The provision for income taxes consists of the following:
Fiscal year ended January 31,
-----------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Federal:
Current $ 5,546 $ 26,711 $ 29,203
Deferred 1,133 (3,392) (13,169)
State:
Current 4,796 8,779 9,417
Deferred (1,148) (856) (3,839)
Foreign:
Current 15,503 19,569 12,252
Deferred (889) (319) (1,326)
--------- -------- --------
$ 24,941 $ 50,492 $ 32,538
--------- -------- --------
The principal reasons that the aggregate income tax
provisions differ from the US statutory rate of 35 percent are as
follows:
Fiscal year ended January 31,
----------------------------------
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------
Income tax provision at statutory rate $ 23,279 $ 48,398 $ 31,200
Foreign income taxed at rates different from the
US statutory rate (1,644) (7,863) (4,916)
State income taxes, net of federal benefit 2,371 8,616 4,802
Tax-exempt interest (1,348) (1,668) (1,608)
Acquired in-process research and development 1,130 -- --
Other 1,153 3,009 3,060
-------- -------- --------
$ 24,941 $ 50,492 $ 32,538
-------- -------- --------
Significant sources of the Company's deferred tax assets and
liabilities are as follows:
January 31,
----------------------
(In thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------
Accrued state income taxes $ 5,562 $ 5,409
Accrued legal judgment, including accrued interest 13,822 12,821
Reserves for product returns and bad debts 7,864 9,110
Accrued compensation and benefits 2,950 2,994
Capitalized software 6,270 3,678
Unremitted earnings of certain subsidiaries (6,018) --
Other, net 2,192 (2,105)
-------- --------
Net deferred tax assets $ 32,642 $ 31,857
======== ========
Recorded as:
Current deferred assets $ 35,616 $ 33,769
Non-current deferred liability (2,974) (1,912)
-------- --------
$ 32,642 $ 31,857
======== ========
No provision has been made for federal income taxes on
unremitted earnings of certain of the Company's foreign subsidiaries
(cumulative $140 million at January 31, 1997) since the Company plans
to indefinitely reinvest all such earnings. At January 31, 1997, the
unrecognized deferred tax liability for these earnings was
approximately $33 million. Foreign pre-tax income was $45.0 million,
$64.4 million, and $34.3 million in fiscal years 1997, 1996, and
1995, respectively.
The Company's United States income tax returns for fiscal
years ended January 31, 1992 through 1995 are under examination by
the Internal Revenue Service. Management believes that adequate
amounts have been provided for any adjustments that may ultimately
result from these examinations.
Cash payments for income taxes were $13,605,000,
$32,032,000, and $32,361,000 for fiscal years 1997, 1996, and 1995,
respectively.
NOTE 4. LITIGATION ACCRUAL
- --------------------------------
In December 1994, the Company recorded a $25.5 million
litigation charge as the result of a judgment against the Company on
a claim of trade secret misappropriation brought by Vermont
Microsystems, Inc. ("VMI"). The Company appealed that judgment and a
reduced judgment was subsequently entered against the Company in the
amount of $14,209,000, plus interest. Because the case is still under
appeal, the Company has not reflected the reduction of damages in the
accompanying consolidated financial statements.
The Company was required by statute to post collateral
approximating the amount of the initial judgment plus accrued
interest. At January 31, 1997, the Company's long-term marketable
securities included a balance of $28.0 million which is restricted as
to its use until final adjudication of this matter.
NOTE 5. COMMITMENTS AND CONTINGENCIES
- -------------------------------------------
The Company leases office space and equipment under
noncancelable lease agreements. The leases generally provide that the
Company pay taxes, insurance, and maintenance expenses related to the
leased assets. Future minimum lease payments for fiscal years ended
January 31 are as follows: $16.5 million in
1998; $14.5 million in 1999; $12.3 million in 2000; $9.0 million in
2001; $6.7 million in 2002; and $27.2 million thereafter.
Rent expense was $17,358,000, $16,992,000, and $18,221,000
in fiscal years 1997, 1996, and 1995, respectively.
The Company has a line of credit permitting short-term,
unsecured borrowings of up to $40 million, which may be used from
time to time to facilitate short-term cash flow. There were no
borrowings under this agreement at January 31, 1997 which expires in
January 1999.
The Company is a party to various legal proceedings arising
from the normal course of business activities. In management's
opinion, resolution of these matters is not expected to have a
material adverse impact on the Company's consolidated results of
operations or its financial position. However, depending on the
amount and timing, an unfavorable resolution of a matter could
materially affect the Company's future results of operations or cash
flows in a particular period.
NOTE 6. EMPLOYEE BENEFIT PLANS
- ------------------------------------
STOCK OPTION PLANS Under the Company's stock option plans, incentive
and nonqualified stock options may be granted to officers, employees,
directors, and consultants to purchase shares of the Company's common
stock. Options vest over periods of one to five years and generally
have terms of up to ten years. A maximum of 24,040,000 shares of
common stock have been authorized for issuance under the plans. The
exercise price of the stock options is determined by the Company's
Board of Directors on the date of grant and is at least equal to the
fair market value of the stock on the grant date.
Stock option activity is as follows:
Weighted
average
Number price
(Shares in thousands) of shares Price per share per share
- -------------------------------------------------------------------------------------------------------------
Options outstanding at January 31, 1994 8,710 $ 12.56-$ 28.19 $ 18.95
Granted 2,123 24.25- 38.25 29.72
Exercised (2,416) 12.56- 25.38 17.99
Canceled (420) 13.38- 30.25 21.28
------ --------------- -------
Options outstanding at January 31, 1995 7,997 12.56- 38.25 21.97
Granted 2,546 35.25- 49.25 44.83
Exercised (1,484) 12.56- 30.50 19.19
Canceled (368) 13.38- 49.25 30.78
------ --------------- -------
Options outstanding at January 31, 1996 8,691 13.38- 49.25 28.75
Granted 5,271 0.01- 42.00 29.99
Exercised (651) 0.01- 38.25 19.66
Canceled (598) 16.25- 49.25 36.98
------ --------------- -------
Options outstanding at January 31, 1997 12,713 13.38- 49.25 28.11
------ --------------- -------
Options exercisable at January 31, 1997 4,912 13.38- 49.00 25.52
------ --------------- -------
Options available for grant at January 31, 1997 2,350
------
Certain employees have disposed of stock acquired through
the exercise of incentive stock options earlier than the mandatory
holding period required for such options. The tax benefits allowed to
the Company because of these dispositions, together with the tax
benefits realized from the exercise of nonqualified stock options,
have been recorded as increases to common stock.
The following table summarizes information about options
outstanding at January 31, 1997.
Outstanding options
weighted average
contractual life Weighted average
(Shares in thousands) Number of shares (in years) exercise price
- -------------------------------------------------------------------------------------------------------------
Range of per share exercise prices
$13.38-$23.00 2,733 4.33 $ 17.18
$23.13-$30.25 6,524 6.38 $ 25.62
$30.50-$49.25 3,456 8.86 $ 41.53
------
12,713 6.61 $ 28.11
======
The following table summarizes information about outstanding
and exercisable options at January 31, 1997.
Weighted average
(Shares in thousands) Number of shares exercise price
- -------------------------------------------------------------------------
Range of per share exercise prices
$13.38-$23.00 2,198 $ 17.03
$23.13-$30.25 1,888 $ 26.96
$30.50-$49.25 826 $ 43.80
-----
4,912 $ 25.52
=====
These options will expire if not exercised at specific dates
ranging from February 1997 to January 2007. Prices for options
exercised during the three-year period ended January 31, 1997, range
from $0.01 to $38.25.
A total of 15.9 million shares of the Company's common stock
have been reserved for future issuance under existing stock option
programs in addition to 2.9 million shares related to the merger with
Softdesk, Inc., discussed in Note 10.
EMPLOYEE STOCK PURCHASE PLAN The Company has an employee stock
purchase plan for all employees meeting certain eligibility criteria.
Under the plan, employees may purchase shares of the Company's common
stock, subject to certain limitations, at not less than 85 percent of
fair market value as defined in the plan. A total of 2,600,000 shares
have been reserved for issuance under the plan. In fiscal years 1997,
1996, and 1995, shares totaling 323,000, 301,000, and 335,000,
respectively, were issued under the plan at average prices of $24.56,
$24.01, and $17.90 per share. At January 31, 1997, a total of 791,000
shares were available for future issuance under the plan.
PRO FORMA INFORMATION The Company has elected to follow APB Opinion
No. 25, "Accounting for Stock Issued to Employees," in accounting for
its employees' stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation," requires the use of option
valuation models that were not developed for use in valuing employee
stock options. Under APB. No. 25, because the exercise price of the
Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized in the Company's financial statements.
Pro forma information regarding net income and net income
per share is required by SFAS No. 123. This information is required
to be determined as if the Company had accounted for its employee
stock options (including shares issued under the Employee Stock
Purchase Plan, collectively called "options") granted subsequent to
January 31, 1995, under the fair value method of that statement. The
fair value of options granted in 1997 and 1996 reported below has
been estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions:
Employee stock Employee stock
options purchase plan
--------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------
Expected life (in years) 2.7 2.5 0.5 0.5
Risk-free interest rate 6.1% 5.8% 5.5% 5.8%
Volatility .42 .40 .45 .45
Dividend yield 0.8% 0.8% 0.8% 0.8%
--------------------------------------------
The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions,
including the expected volatility of the stock price. Because the
Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
the opinion of management, the existing models do not necessarily
provide a reliable single measure of the fair value of its options.
The weighted average estimated fair value of employee stock options
granted during fiscal years 1997 and 1996 was $8.34 and $12.76 per
share respectively. The weighted average estimated fair value of
shares granted under the Employee Stock Purchase Plan during fiscal
years 1997 and 1996 was $8.01 and $7.85 respectively.
For purposes of pro forma disclosure, the estimated fair
value of the options is amortized to expense over the options'
vesting period. The Company's pro forma information is as follows (in
thousands except for earnings per share information):
1997 1996
- -----------------------------------------------------
Pro forma net income $15,343 $71,952
Pro forma earnings per share 0.30 1.52
The effects on pro forma disclosures of applying SFAS No.
123 are not likely to be representative of the effects on pro forma
disclosures of future years. Because SFAS No. 123 is applicable only
to options granted subsequent to January 31, 1995, the pro forma
effect will not be fully reflected until 1999.
PRE-TAX SAVINGS PLAN The Company has a pre-tax savings plan covering
nearly all US employees that qualify under Section 401(k) of the
Internal Revenue Code. Eligible employees may contribute up to 15
percent of their pre-tax salary, subject to certain limitations. The
Company makes voluntary contributions and matches a portion of
employee contributions. Company contributions, which may be
terminated at the Company's discretion, were $3,068,000, $2,442,000,
and $1,474,000 in fiscal years 1997, 1996, and 1995, respectively.
NOTE 7. STOCKHOLDERS' EQUITY
- ----------------------------------
PREFERRED STOCK The Company's Certificate of Incorporation authorizes
two million shares of preferred stock, none of which is issued or
outstanding. The Board of Directors has the authority to issue the
preferred stock in one or more series and to fix rights, preferences,
privileges and restrictions, including dividends, and the number of
shares constituting any series or the designation of such series,
without any further vote or action by the stockholders.
COMMON STOCK REPURCHASE PROGRAM During fiscal years 1997, 1996, and
1995, the Company repurchased and retired a total of 1,659,500,
2,671,000, and 2,990,000 shares of its common stock at average per
share repurchase prices of $32.44, $40.43, and $30.05, respectively,
pursuant to repurchase plans approved by the Company's Board of
Directors to reduce the dilutive effect of common shares to be issued
under the Company's employee stock option plans.
In August 1996, the Company announced a stock repurchase
program under which the Company may purchase up to 5 million shares
of common stock in open market transactions as market and business
conditions warrant. The Company may also utilize equity options as
part of its repurchase program. During fiscal year 1997, the Company
repurchased 557,500 shares in the open market at an average per share
repurchase price of $24.09 and entered into the equity options
described below. This program is in addition to shares previously
reserved pursuant to an ongoing and systematic repurchase plan to
reduce the dilutive effect of common stock to be issued under the
Company's stock option plans.
In connection with the new repurchase program, the Company
sold put warrants to an investment bank in September 1996 that
entitle the holder of the warrants to sell 3 million shares of common
stock to the Company at $21.50 per share. Additionally, the Company
purchased call options from the same investment bank 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.
The premiums received with respect to the equity options totaled $8.1
million and equaled the premiums paid. Consequently, there was no
exchange of cash. The amount related to the Company's maximum
potential repurchase obligation under the put warrants has been
reclassified from stockholders' equity to put warrants in the
accompanying consolidated financial statements. The Company has the
right to settle the put warrants with stock or a cash settlement
equal to the difference between the exercise price and market value
at the date of exercise. These securities had no significant dilutive
effect on net income per share for the periods presented.
NOTE 8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- ---------------------------------------------------------
Summarized quarterly financial information for fiscal years 1997,
1996, and 1995 is as follows:
1st 2nd 3rd 4th Fiscal
(In thousands, except per share data) Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------------------------------
Fiscal year 1997
Net revenues $ 136,281 $ 128,745 $ 116,647 $ 115,020 $ 496,693
Gross margin 118,989 112,123 101,427 99,937 432,476
Income from operations 28,125 17,123 7,502 7,067 59,817
Net income 19,060 10,645 5,873 5,993 41,571
Net income per share 0.39 0.22 0.13 0.13 0.88
Fiscal year 1996
Net revenues $ 138,658 $ 140,686 $ 128,537 $ 126,286 $ 534,167
Gross margin 121,373 123,324 112,419 110,239 467,355
Income from operations 38,408 38,897 28,046 23,676 129,027
Net income 25,977 26,299 19,207 16,305 87,788
Net income per share 0.51 0.52 0.38 0.34 1.76
Fiscal year 1995
Net revenues $ 106,578 $ 110,259 $ 108,179 $ 129,596 $ 454,612
Gross margin 91,479 95,123 93,994 112,291 392,887
Income from operations 24,340 24,398 23,230 9,943 81,911
Net income 16,446 16,587 15,896 7,677 56,606
Net income per share 0.33 0.34 0.32 0.15 1.14
Results for the second and third fiscal quarters of fiscal
year 1997 included nonrecurring charges of $3.2 million and $1.5
million, respectively, related to in-process research and development
acquired in the Teleos and Argus acquisitions that had not yet
reached technological feasibility and had no alternative future use.
These charges resulted in a $0.08 and $0.02 reduction in net income
per share in the second and third quarters of fiscal year 1997,
respectively. Results for the fourth quarter of fiscal year 1995
included a pre-tax litigation charge of approximately $26.0 million
resulting in a $0.33 reduction in net income per share.
NOTE 9. INFORMATION BY GEOGRAPHIC AREA
- --------------------------------------------
Information regarding the Company's operations by geographic area at
January 31, 1997, 1996, and 1995 and for the fiscal years then ended
is as follows:
Fiscal year ended January 31,
-----------------------------------
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
Revenues:
The Americas
Customers in the United States $ 176,286 $ 195,272 $ 182,133
Customers in Asia/Pacific 40,284 42,262 36,513
Customers in Canada 10,671 14,619 15,720
Other exports 13,420 11,103 14,951
Intercompany revenues 65,758 67,728 48,539
--------- --------- ---------
306,419 330,984 297,856
Europe 189,082 211,480 159,110
Asia/Pacific 79,887 72,148 56,851
Consolidating eliminations (65,758) (67,728) (48,539)
--------- --------- ---------
$ 509,630 $ 546,884 $ 465,278
--------- --------- ---------
Income from operations:
The Americas $ 22,734 $ 63,843 $ 46,018
Europe 32,909 53,696 25,121
Asia/Pacific 4,174 11,488 10,772
--------- --------- ---------
$ 59,817 $ 129,027 $ 81,911
--------- --------- ---------
Identifiable assets:
The Americas $ 329,171 $ 306,795 $ 336,403
Europe 302,183 250,268 211,056
Asia/Pacific 72,543 73,426 51,761
Consolidating eliminations (211,664) (112,560) (117,144)
--------- --------- ---------
$ 492,233 $ 517,929 $ 482,076
--------- --------- ---------
Intercompany revenues consist of royalty revenue payable by
the Company's subsidiaries under software license agreements with the
US parent company. At January 31, 1997, 1996, and 1995, total foreign
net equity was $161.2 million, $133.2 million, and $88.7 million,
respectively.
NOTE 10. SUBSEQUENT EVENT
- -------------------------------
On December 10, 1996, the Company entered into a merger
agreement with Softdesk, Inc. ("Softdesk"), a leading supplier of
AutoCAD-based application software for the architecture, engineering,
and construction (AEC) market. The terms of the merger agreement were
subsequently amended on December 19, 1996. On March 31, 1997, under
the terms of the agreement, as amended, Autodesk issued $15.00 worth
of its common stock for each outstanding share of Softdesk stock, 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 and resulted in the issuance of approximately 2.9
million shares of Autodesk common stock to holders of Softdesk common
stock. This transaction will be accounted for using the purchase
method.
The Company anticipates that it will incur direct
transaction costs associated with this business combination in the
range of approximately $2.5 to $3.5 million. To assist in the
allocation of the purchase price, an independent valuation of
Softdesk is being completed. The Company expects that it will
allocate $45 million to $55 million to in-process research and
development and charge this amount to operations in the first quarter
of fiscal year 1998.
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Autodesk, Inc.
We have audited the accompanying consolidated balance sheets of
Autodesk, Inc., as of January 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended January 31,
1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Autodesk, Inc., at January 31,
1997 and 1996, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended January
31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
San Jose, California
February 24, 1997,
except for Note 10 as to which the date is
March 31, 1997
Directors and Executive Officers
DIRECTORS OFFICERS
Carol Bartz Carol Bartz John Lynch
Chief Executive Officer and Chief Executive Officer and Vice President,
Chairman of the Board Chairman of the Board Advanced Products Market Group
Mark A. Bertelsen Eric Herr Stephen McMahon
Member President and Chief Operating Officer Vice President, Human Resources
Wilson, Sonsini, Goodrich & Rosati, and Facilities
Attorneys-at-Law David Arnold
Vice President, AEC Market Group Thomas Norring
Crawford W. Beveridge Vice President, Asia/Pacific
Chief Executive Officer, Dr. Joseph Astroth
Scottish Enterprise, an economic Vice President, GIS Market Group Marcia Sterling
development company Vice President, Business Development,
Steve Cakebread and General Counsel
J. Hallam Dawson Vice President and
Chairman, IDI Associates, Chief Financial Officer Godfrey Sullivan
a private investment bank Vice President, the Americas
Robert Carr
Mary Alice Taylor Vice President, Michael Sutton
Executive Vice President of AutoCAD Market Group Vice President, Europe
Worldwide Operations and Technology,
CitiCorp Larry Crume
Vice President and General Manager,
Morton L. Topfer Kinetix
Vice Chairman,
Dell Computer Corporation James D'Arezzo
Vice President, Corporate Marketing
Dominic Gallello
Vice President, Mechanical CAD and
Data Management Market Groups
Market Information and Dividend Policy
MARKET PRICES
The Company's common stock is traded on the Nasdaq National Market
under the symbol ADSK (formerly ACAD). The following table lists the
high and low sales prices for each quarter in the last three fiscal
years:
High Low
- --------------------------------------------------------------------------------
FISCAL YEAR 1997
First quarter $44-1/4 $29-3/4
Second quarter 42-3/4 20-1/2
Third quarter 27-1/2 18-1/2
Fourth quarter 35-3/8 21
FISCAL YEAR 1996
First quarter $44 $33
Second quarter 50-1/4 34
Third quarter 53 33
Fourth quarter 39-1/2 27-3/4
FISCAL YEAR 1995
First quarter $30-7/8 $24-1/8
Second quarter 28-1/4 23-1/4
Third quarter 35 24-5/8
Fourth quarter 41-1/2 30-3/4
------- -------
DIVIDENDS
The Company paid quarterly dividends of $0.06 per share in fiscal
years 1997, 1996, and 1995. The Company currently intends to continue
paying regular cash dividends on a quarterly basis.
STOCKHOLDERS
As of April 21, 1997, the approximate number of common stockholders
of record was 1,650.
ANNUAL MEETING
The Company's Annual Meeting of Stockholders will be held at
2:00 PM on June 26, 1997, at the Embassy Suites Hotel, 101 McInnis
Parkway, San Rafael, California.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K for fiscal year
1997 filed with the Securities and Exchange Commission may be
obtained without charge by sending a written request to Investor
Relations, Autodesk, Inc., 111 McInnis Parkway, San Rafael, CA 94903.
Information about Autodesk and its business, including the Company's
periodic filings with the Securities and Exchange Commission, may be
obtained from Autodesk's Worldwide Web Site at www.autodesk.com.
Corporate Information
CORPORATE HEADQUARTERS LEGAL COUNSEL FOR MORE INFORMATION
Autodesk, Inc. Wilson, Sonsini, Goodrich & Rosati For more information, please write
111 McInnis Parkway 650 Page Mill Road Investor Relations, Autodesk, Inc.,
San Rafael, CA 94903 Palo Alto, CA 94304 111 McInnis Parkway, San Rafael, CA
USA USA 94903, phone us at 415-507-5000,
or visit our World Wide Web sites at
www.autodesk.com and
THE AMERICAS TRANSFER AGENT www.kinetix.com.
Autodesk, Inc. Harris Trust & Savings Bank
111 McInnis Parkway c/o Shareholder Services
San Rafael, CA 94903 11th Floor
USA 311 West Monroe Street
Chicago, IL 60606
USA
ASIA/PACIFIC
Autodesk, Inc. INDEPENDENT AUDITORS
111 McInnis Parkway
San Rafael, CA 94903 Ernst & Young LLP
USA 55 Almaden Boulevard
San Jose, CA 95113
USA
EUROPE
TRADEMARKS
Autodesk (Europe) SA
20, route de Pre-Bois Autodesk, the Autodesk logo,
Case Postale 766 AutoCAD, AutoCAD LT, 3D Studio,
CH-1215 Geneva 15 WorkCenter, and PartSpec are regis-
Switzerland tered trademarks, and Mechanical
Desktop, 3D Studio MAX, Kinetix,
AutoCAD Map, Autodesk MapGuide,
Autodesk World, PlantSpec,
DesignBlocks, Hyperwire, Picture
This Home!, and Design Your World
are trademarks, of Autodesk, Inc.,
in the USA and/or other countries.
Microsoft, Windows, and Windows NT
are registered trademarks of Microsoft
Corporation. All other brand names,
product names, or trademarks belong
to their respective holders.
(C) Copyright 1997 Autodesk, Inc.
All rights reserved.
[AUTODESK LOGO]
Autodesk, Inc.
111 McInnis Parkway
San Rafael, CA 94903
USA
SUBSIDIARIES OF AUTODESK INC.
-----------------------------
The Registrant owns 100% of the outstanding voting securities of the following
corporations, all of which are included in the Registrant's consolidated
financial statements:
Jurisdiction of
Name Incorporation
---- -------------
Autodesk (Europe) S.A. Switzerland
Autodesk AB Sweden
Autodesk AG Switzerland
Autodesk Asia Pte. Ltd. Singapore
Autodesk Australia Pty. Ltd. Australia
Autodesk B.V. Netherlands
Autodesk Canada Inc. Canada
Autodesk Development Africa (Pty) Ltd. Republic of South Africa
Autodesk Development B.V. Netherlands
Autodesk Far East Ltd. Hong Kong
Autodesk Gesm.bH Austria
Autodesk GmbH Germany
Autodesk International Ltd. Barbados
Autodesk Korea Ltd. Korea
Autodesk Ltd. United Kingdom
Autodesk Ltd. Japan Japan
Autodesk Ltda Brazil
Autodesk R Russia-C.I.S.
Autodesk S.A. Spain
Autodesk S.A.R.L France
Autodesk S.p.A. Italy
Autodesk Software limitada Portugal
Autodesk spol. s.r.o Czechia
Autodesk, Inc. Taiwan Taiwan
Teleos Research California
Autodesk Development Canada, Ltd. Canada
5
1,000
12-MOS
JAN-31-1997
JAN-31-1997
64,814
117,971
75,212
6,635
7,340
310,528
121,721
77,671
492,233
150,171
0
0
0
147,091
106,587
492,233
496,693
496,693
64,217
370,922
0
1,737
1,842
66,512
24,941
41,571
0
0
0
41,571
0.88
0
