<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
-----------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- - --- Act of 1934
FOR THE PERIOD ENDED JULY 31, 1996
OR
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 0-14338
AUTODESK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2819853
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 MCINNIS PARKWAY
SAN RAFAEL, CALIFORNIA 94903
(Address of principal executive offices)
TELEPHONE NUMBER (415) 507-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
----- -----
As of September 6, 1996, there were 45,648,000 shares of the Registrant's
Common Stock outstanding.
===============================================================================
<PAGE>
AUTODESK, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page No.
--------
<S> <C>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Statement of Income
Three and six months ended July 31, 1996 and 1995........... 3
Condensed Consolidated Balance Sheet
July 31, 1996 and January 31, 1996.......................... 4
Condensed Consolidated Statement of Cash Flows
Six months ended July 31, 1996 and 1995..................... 6
Notes to Condensed Consolidated Financial Statements......... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................ 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 15
SIGNATURES................................................... 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
- - ------------------------------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
July 31, July 31,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $132,594 $143,947 $271,807 $285,724
Direct commissions 3,849 3,261 6,781 6,380
-------- -------- -------- --------
Net revenues 128,745 140,686 265,026 279,344
Costs and expenses:
Cost of revenues 16,622 17,362 33,914 34,647
Marketing and sales 50,555 45,895 99,892 90,898
Research and development 22,947 19,496 45,809 38,662
General and administrative 18,269 19,036 36,934 37,832
Charge for acquired in-process
research and development 3,229 - 3,229 -
-------- -------- -------- --------
111,622 101,789 219,778 202,039
-------- -------- -------- --------
Income from operations 17,123 38,897 45,248 77,305
Interest and other income, net 1,441 2,551 2,867 5,051
-------- -------- -------- --------
Income before income taxes 18,564 41,448 48,115 82,356
Provision for income taxes 7,919 15,149 18,410 30,080
-------- -------- -------- --------
Net income $ 10,645 $ 26,299 $ 29,705 $ 52,276
-------- -------- -------- --------
Net income per share $.22 $.52 $.62 $1.03
-------- -------- -------- --------
Shares used in computing
net income per share 47,570 50,460 48,100 50,535
-------- -------- -------- --------
</TABLE>
See accompanying notes.
3
<PAGE>
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
(In thousands)
<TABLE>
<CAPTION>
July 31, 1996 January 31, 1996
------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $116,803 $129,305
Marketable securities 76,428 64,001
Accounts receivable, net 87,873 93,919
Inventories 10,979 9,685
Deferred income taxes 30,048 33,769
Prepaid expenses and other current assets 18,470 17,155
-------- --------
Total current assets 340,601 347,834
-------- --------
Marketable securities, including a restricted balance
of $28,000 at July 31, 1996 and January 31, 1996 80,406 79,096
Computer equipment, furniture, and leasehold improvements:
Computer equipment and furniture 114,692 106,643
Leasehold improvements 17,749 21,100
Accumulated depreciation (83,704) (78,778)
-------- --------
Net computer equipment, furniture, and
leasehold improvements 48,737 48,965
Capitalized software and purchased technologies 19,516 22,141
Other assets 21,505 19,893
-------- --------
$510,765 $517,929
-------- --------
</TABLE>
See accompanying notes.
4
<PAGE>
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
July 31, 1996 January 31, 1996
-------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 25,037 $ 24,547
Accrued compensation 19,951 22,441
Accrued income taxes 68,917 65,517
Other accrued liabilities 36,361 31,790
-------- --------
Total current liabilities 150,266 144,295
-------- --------
Deferred income taxes 1,660 1,912
Litigation accrual 28,561 27,640
Other liabilities 1,871 1,754
Stockholders' equity:
Common stock 150,214 140,765
Retained earnings 176,815 191,109
Foreign currency translation adjustment 1,378 10,454
-------- --------
Total stockholders' equity 328,407 342,328
-------- --------
$510,765 $517,929
-------- --------
</TABLE>
See accompanying notes.
5
<PAGE>
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
July 31,
--------------------
1996 1995
--------- --------
<S> <C> <C>
Operating activities
Net income $ 29,705 $ 52,276
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 15,957 13,589
Charge for acquired in-process research and development 3,229 -
Changes in operating assets and liabilities, net of
business combinations 11,721 (18,957)
-------- --------
Net cash provided by operating activities 60,612 46,908
-------- --------
Investing activities
Purchases of available-for-sale marketable securities, net (13,737) (49,245)
Purchases of computer equipment, furniture and leasehold improvements (8,825) (9,570)
Business combinations, net of cash acquired (6,689) -
Other (9,830) 13,457
-------- --------
Net cash used in investing activities (39,081) (45,358)
-------- --------
Financing activities
Proceeds from issuance of common stock 13,051 35,090
Repurchase of common stock (41,489) (48,836)
Dividends paid (5,595) (5,678)
-------- --------
Net cash used in financing activities (34,033) (19,424)
-------- --------
Net decrease in cash and cash equivalents (12,502) (17,874)
Cash and cash equivalents at beginning of year 129,305 195,038
-------- --------
Cash and cash equivalents at end of quarter $116,803 $177,164
-------- --------
</TABLE>
See accompanying notes.
6
<PAGE>
AUTODESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements at July 31, 1996 and for the
three- and six-month periods then ended are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report to Stockholders
incorporated by reference in the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996. The results of operations for the three
and six months ended July 31, 1996 are not necessarily indicative of the
results for the entire fiscal year ending January 31, 1997.
2. During the six months ended July 31, 1996, the Company acquired assets from
Creative Imaging Technologies, Inc. ("CIT"), and CadZooks, Inc., as well as
the outstanding stock of Teleos Research ("Teleos"). The aggregate cash
purchase price for these three transactions was $6.7 million. Additional
consideration may also be payable to the former shareholders of Teleos and
CIT based on product milestones and operating results. These acquisitions
were accounted for using the purchase method of accounting with the purchase
price being principally allocated to capitalized software and purchased
technologies, and intangible assets. Approximately $3.2 million of the Teleos
purchase price represented the value of in-process research and development
that had not yet reached technological feasibility and had no alternative
future use and was included as a one-time charge to operations in the second
quarter of fiscal year 1997.
The operating results of the acquired entities, which have not been material
in relation to those of the Company, have been included in the consolidated
financial results from their respective acquisition dates.
3. 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 the repurchase program. This
program is in addition to shares previously reserved pursuant to an on-going
and systematic repurchase plan to reduce the dilutive effect of common stock
to be issued under the Company's stock plans.
In connection with the new repurchase program, the Company sold 3 million put
warrants to an independent third party in September 1996 that entitle the
holder of the warrants to sell one share of common stock to the Company at a
fixed price per share. Additionally, the Company purchased 2 million call
options that entitle the Company to buy one share of its common stock at a
fixed price per share. The put warrants and call options expire in September
1997. The amount related to the Company's maximum potential repurchase
obligation under the put warrants will be reclassified from stockholders'
equity to put warrants. The pro-forma impact of this reclassification has not
been presented in the accompanying condensed consolidated balance sheet as of
July 31, 1996. 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.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which reflect management's
best judgment based on factors currently known, involve risks and uncertainties.
Actual results could differ materially from those anticipated in these forward-
looking statements as a result of a number of factors, including but not limited
to those discussed below. Forward-looking information provided by Autodesk
pursuant to the safe harbor established by recent securities legislation should
be evaluated in the context of these factors.
RESULTS OF OPERATIONS
Three Months Ended July 31, 1996 and 1995
- - -----------------------------------------
Net revenues. Autodesk's worldwide net revenues in the second quarter of fiscal
year 1997 were $128.7 million compared to $140.7 million in the prior fiscal
year, a decrease of 8 percent. The lower revenues resulted principally from
lower revenues and unit shipments of new AutoCAD licenses as the current
version, AutoCAD Release 13, which began shipping in the fourth quarter of
fiscal year 1995, experiences a slow down in sales as it enters the latter
stages of its life cycle. Second quarter revenues in fiscal year 1997 as
compared to the same period in the prior fiscal year were also adversely
impacted by approximately $6 million resulting from the stronger value of the
dollar relative to international currencies, most notably the Japanese yen.
These decreases were partially offset by higher sales of new and enhanced
products introduced during the first half of fiscal year 1997, including
Autodesk Mechanical Desktop, 3D Studio MAX, and AutoCAD LT for Windows 95, as
well as increased AutoCAD update revenues. Second quarter net revenues in fiscal
year 1997 as compared to fiscal year 1996 decreased by 18 percent and 7 percent
in the Americas and Europe, respectively, resulting from lower AutoCAD shipments
and revenues in both regions as well as softness in the German economy.
Consolidated revenues derived from AutoCAD and AutoCAD updates represented
approximately 70 percent of consolidated revenues in the second quarter of
fiscal year 1997 as compared to approximately 75 percent in the same period of
the prior fiscal year. Partially offsetting the decreases in Europe and the
Americas was a 7 percent increase in Asia/Pacific revenues which posted higher
revenues from sales of the Company's mechanical and multimedia product
offerings. International sales, including exports from the US, accounted for
approximately 66 percent of the Company's revenues in the second quarter of
fiscal year 1997 as compared to 63 percent for the second quarter of fiscal year
1996.
Direct commissions paid to dealers represented 3 percent of net revenues in the
second quarter of fiscal year 1997 as compared to 2 percent in the same period
of the prior fiscal year. The increase in direct commissions, both in absolute
dollars and as a percentage of net revenues, resulted from higher sales to
major accounts and US educational institutions.
The Company believes that net revenues in its third fiscal quarter ending
October 31, 1996 will be negatively impacted by an anticipated reduction in
sales of AutoCAD and related updates as AutoCAD Release 13 enters into the
latter stages of its product life cycle and due to seasonal slowdowns in Europe
and Asia/Pacific. Accordingly, the Company expects revenues to decrease by
approximately 5 to 10 percent in its third fiscal quarter ending October 31,
1996 and currently estimates that fiscal year 1997 consolidated revenues will be
below fiscal year 1996 revenues. While the Company expects that new products
introduced in recent quarters, including 3D Studio MAX, AutoCAD LT for Windows
95, and Autodesk Mechanical Desktop, as well as products expected to be
introduced during the last half of fiscal year 1997, will partially offset the
decrease in AutoCAD revenues, delays in the introduction of these products or
failure to achieve significant customer acceptance for these new products may
have a material adverse effect on the Company's revenues and consolidated
results of operations in future periods. Additionally, continued softness in the
Americas, particularly in the US, and in various European markets could also
have a material adverse effect on the Company's business and consolidated
results of operations.
8
<PAGE>
The foregoing forward-looking information is based upon current expectations of
the Company. Actual results could differ materially for the reasons noted and
due to other risks, including but not limited to those mentioned above and
otherwise discussed under "Certain Factors Which May Impact Future Operating
Results," page 11.
Cost of revenues. Cost of revenues as a percentage of net revenues increased in
the second quarter of fiscal 1997 to 13 percent from 12 percent in the second
quarter of the prior fiscal year. This increase resulted from a change in the
mix of product sales which included increased update sales of AutoCAD and
AutoCAD LT for Windows 95, which have lower gross margin than commercial
versions of these products, and, to a lesser extent, costs associated with the
transition of certain European software manufacturing from Switzerland to
Ireland. 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 the Company's products, and the geographic distribution of sales.
Marketing and sales. Marketing and sales expenses increased from 33 percent of
net revenues in the second quarter of fiscal year 1996 to 39 percent in the
second quarter of fiscal year 1997. Actual spending increased 10 percent as a
result of higher employee costs as well as marketing and sales costs associated
with the launch of AutoCAD LT for Windows 95 and AutoCAD Map Release 1.0, which
was released at the end of the second fiscal quarter. The Company expects to
continue to invest in marketing and sales of its products, to develop market
opportunities, and to promote Autodesk's competitive position. Accordingly, the
Company expects marketing and sales expenses to continue to be significant, both
in absolute dollars and as a percentage of net revenues.
Research and development. Research and development expenses as a percentage of
net revenues for the second quarter of fiscal year 1997 increased to 18 percent
from 14 percent in the second quarter of the prior fiscal year. Actual research
and development spending increased by 18 percent in absolute dollars on a year
over year basis due to the addition of software engineers and increased
personnel costs, costs associated with the development of new and enhanced
products, and the translation of certain of these products into foreign
languages. The Company anticipates that research and development expenses will
increase in fiscal year 1997 over the prior fiscal year as a result of
acquisitions and product development efforts by the Company's market groups.
Additionally, the Company intends to continue recruiting and hiring experienced
software developers and to consider the licensing and acquisition of
complementary software technologies and businesses.
General and administrative. General and administrative expenses were 14 percent
of net revenues in the second quarter of both fiscal years 1997 and 1996.
Expenses decreased 4 percent in absolute dollars over the same period in the
prior fiscal year resulting primarily from lower professional fees. The Company
currently expects that general and administrative expenses will increase
moderately in future periods to support spending on infrastructure, including
continued investment in Autodesk's worldwide information systems.
Charge for acquired in-process research and development. In June 1996, the
Company acquired the outstanding stock of Teleos Research ("Teleos") in exchange
for cash. The transaction was accounted for using the purchase method of
accounting with the purchase price being principally allocated to capitalized
software and intangible assets. Approximately $3.2 million of the total
purchase price represented the value of in-process research and development that
had not yet reached technological feasibility and had no alternative future use
and was charged to the Company's operating expenses in the second quarter of
fiscal year 1997.
9
<PAGE>
In August 1996, the Company acquired certain assets of Argus Technologies, Inc.
("Argus"), a Canadian Company engaged in the development of mapping software and
geographic information systems technology for use on the Internet and corporate
intranets. The acquisition has been accounted for using the purchase method of
accounting with the purchase price being principally allocated to capitalized
software and purchased technologies, and intangible assets and is expected to
include a one-time charge of approximately $1.5 million to $2.0 million for the
value of acquired in-process research and development. The results of Argus will
be included in the Company's consolidated financial results from the acquisition
date. In the near term, the Company expects the operating expenses associated
with the Argus acquisition and the acquisitions completed during the first half
of fiscal year 1997 will exceed revenues, resulting in a negative impact of up
to $0.02 per share in each of the third and fourth quarters of the current
fiscal year, exclusive of the anticipated one-time charge for in-process
research and development related to the Argus transaction.
Interest and other income. Interest and other income in the second quarter of
fiscal year 1997 was $1.4 million, including foreign currency losses of
approximately $173,000, compared to $2.6 million in the same quarter of the
prior fiscal year, which included foreign currency gains of approximately
$470,000. Interest income for the second quarter of fiscal year 1997 was $1.6
million, a decrease of approximately $1.1 million from the same period in the
prior fiscal year resulting from lower average cash balances and lower interest
rates on the Company's international investment portfolio when compared to the
same period in the prior fiscal year.
Provision for income taxes. The Company's effective income tax rate was 42.7
percent in the second quarter of fiscal year 1997 as compared to 36.5 percent in
the same quarter of the prior fiscal year. The increase in the effective income
tax rate resulted from a one-time charge for in-process acquired research and
development recorded during the quarter which is not deductible for income tax
purposes, partially offset by a reduction in the effective income tax rate due
to increased foreign earnings which are taxed at rates lower than the US
statutory rate.
Six Months Ended July 31, 1996 and 1995
- - ---------------------------------------
Net revenues. Autodesk's net revenues for the six months ended July 31, 1996
were $265.0 million which represented a five percent decrease from the same
period of the prior fiscal year. The decrease resulted from revenue decreases in
all geographies, most notably a 14 percent decrease in the Americas and an 11
percent decrease in Europe, principally due to lower sales of AutoCAD and
AutoCAD updates. Net revenues for the first six months of fiscal year 1997 were
also negatively affected by approximately $11.4 million due to changes in
foreign exchange rates when compared to the same period in the prior fiscal
year. These decreases were partially offset by revenues from new and enhanced
products introduced during the first half of fiscal year 1997, most notably
Autodesk Mechanical Desktop, AutoCAD LT for Windows 95, and 3D Studio MAX.
Cost of revenues. Cost of revenues as a percentage of net revenues for the six
months ended July 31, 1996 was 13 percent as compared to 12 percent for the same
period of the prior fiscal year. The increase resulted from increased royalty
payments associated with Autodesk Mechanical Desktop and 3D Studio MAX and a
higher percentage of revenues from update sales of AutoCAD and AutoCAD LT.
Operating expenses. Operating expenses for the Company's marketing and sales,
research and development, and general and administrative functions for the six
months ended July 31, 1996 increased approximately 9 percent to $182.6 million
as compared to $167.4 million for the same period of the prior fiscal year. The
growth in operating expenses from the prior fiscal year was due to increased
headcount, higher spending to support the marketing and development of new and
enhanced products, expenditures to support the Company's market group structure,
and increased spending in order to support the Company's increased operations
and related infrastructure.
10
<PAGE>
Operating expenses for the first half of fiscal year 1997 included a one-time
charge of $3.2 million for acquired in-process research and development
associated with the Teleos acquisition.
Interest and other income. Interest and other income for the six months ended
July 31, 1996 was $2.9 million as compared to $5.1 million in the same period of
the prior fiscal year. Interest income was $3.1 million for the first six months
of fiscal year 1997 as compared to $5.6 million in the same period of the prior
fiscal year. The decrease in interest income from the same period of the prior
fiscal year resulted from lower average cash balances and lower interest rates
on the Company's international investment portfolio.
Income taxes. The Company's effective income tax rate was 38.3 percent in the
first half of fiscal year 1997 as compared to 36.5 percent in the same period of
the prior fiscal year. The increase in the effective income tax rate resulted
from a one-time charge for acquired in-process research and development recorded
in the second quarter of fiscal year 1997 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.
CERTAIN RISK FACTORS WHICH MAY IMPACT FUTURE OPERATING RESULTS
Autodesk operates in a rapidly changing environment that involves a number of
risks, some of which are beyond the Company's control. The following discussion
highlights some of these risks and the possible impact of these factors on
future results of operations.
Fluctuations in quarterly operating results. The Company has experienced
fluctuations in operating results in interim periods in certain geographic
regions due to seasonality and general economic conditions in these markets.
The Company's operating results in Europe during the third fiscal quarter are
usually impacted by a slow summer period while the Asia/Pacific operations
typically experience seasonal slowing in the third and fourth fiscal quarters.
The Company typically receives and fulfills a majority of its orders within the
quarter, with a substantial portion occurring in the third month of the fiscal
quarter. As a result, the Company may not learn of revenue shortfalls until late
in a fiscal quarter. Additionally, the Company's operating expenses are based in
part on its expectations for future revenues and are relatively fixed in the
short term. Any revenue shortfall below expectations could have an immediate and
significant adverse effect on results of operations.
Similarly, shortfalls in Autodesk's revenues or earnings from levels expected by
securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's common stock. Moreover, the Company's stock
price is subject to the volatility generally associated with software and
technology stocks and may also be affected by broader market trends unrelated to
the Company's performance.
Product concentration. Autodesk derives a substantial portion of its revenues
from sales of AutoCAD, AutoCAD updates, and adjacent computer-aided design
("CAD") products which are interoperable with AutoCAD. As such, any factor
adversely affecting sales of AutoCAD and AutoCAD updates, including such factors
as 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 and financial condition. The current version of AutoCAD,
AutoCAD Release 13, is entering the latter stages of its product life cycle
which is expected to result in lower AutoCAD sales and unit shipments in future
periods.
11
<PAGE>
A substantial portion of the Company's CAD sales, including sales of AutoCAD and
AutoCAD updates, are used by the Architecture, Engineering, and Construction
("AEC") industry. The Company's product sales to the AEC markets, particularly
in the US and parts of Euorpe, relative to prior periods, have slowed due in
part to general market conditions and short-term growth is not anticipated for
these markets. Contraction in the AEC industry in other markets where the
Company operates or a greater than anticipated slowdown in the US and parts of
Europe, particularly in Germany, could have a material adverse effect on
Autodesk's business and consolidated results of operations in future periods.
Product development and introduction. The software industry is characterized by
rapid technological change as well as changes in customer requirements and
preferences. The Company believes that its future results will depend largely
upon its ability to offer products that compete favorably with respect to price,
reliability, performance, range of useful features, continuing product
enhancements, reputation, and training. Delays or difficulties with new product
introductions or product enhancements planned for release in the second half of
fiscal year 1997 could have a material and adverse effect on the Company's
business and consolidated results of operations. Further, increased competition
in the market for design, 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.
The software products offered by the Company are internally complex and may
contain errors or defects ("bugs"), especially when first introduced. Despite
extensive product testing and quality control, there can be no assurance that
defects and errors will not be found in the Company's products. Such defects or
errors could result in damage to the Company's reputation, loss of revenues, or
lack of market acceptance of its products, any of which could have a material
adverse effect on the Company's business and consolidated results of operations.
Certain of the Company's product development activities are performed by
independent firms and contractors while other technologies are licensed from
third parties. Autodesk generally either owns or has an exclusive license for
use of the software developed by third parties. Because talented development
personnel are in high demand, there can be no assurance that independent
developers, including those who have developed products for the Company in the
past, will be able to provide development support to Autodesk in the future.
Similarly, there can be no assurance that the Company will be able to obtain and
renew license agreements on favorable terms, if at all, and any failure to do so
could have a material adverse effect on the Company's business and consolidated
results of operations.
International revenues. The Company anticipates that international revenues
will continue to account for a significant portion of its consolidated revenues.
Risks inherent in the Company's international sales include the following:
unexpected changes in regulatory practices and tariffs; difficulties in staffing
and managing foreign operations; longer collection cycles; potential changes in
tax laws; greater difficulty in protecting intellectual property; and the impact
of fluctuating exchange rates between the US dollar and foreign currencies in
markets where Autodesk does business. The Company's international results may
also be impacted by general economic and political conditions in these foreign
markets. There can be no assurance that these and other factors will not have a
material adverse effect on the Company's future international sales and
consequently on the Company's business and consolidated results of operations.
Dependence on distribution channels. The Company sells its software products
primarily to distributors and dealers (value-added resellers or "VARs").
Autodesk's ability to effectively distribute its products depends in part upon
the financial and business condition of its VAR network. Although the Company
has not to date experienced any material problems with its VAR network, computer
software dealers and distributors are typically not highly capitalized and have
experienced difficulties especially during times of economic contraction and may
do so in the future. The loss of or a significant reduction in business with
any one of the Company's major international distributors or large US dealers
could have a material adverse effect on the Company's business and consolidated
results of operations in future periods.
12
<PAGE>
Product returns. With the exception of certain European distributors, agreements
with the Company's VARs do not contain specific product-return privileges.
However, the Company permits its VARs to return product in certain instances,
generally during periods of product transition and update cycles. In fiscal year
1996, the Company experienced a higher level of product returns than in prior
periods, most notably in the US, which management attributed to performance
issues associated with initial versions of AutoCAD Release 13 software. During
the first half of fiscal year 1997, the Company continued to experience a high
level of product returns relative to prior periods due to transition and update
cycles related to the Company's software products. Autodesk establishes
allowances, including allowances for stock balancing and product rotation, based
on estimated future returns of product and after taking into account channel
inventory levels, the timing of new product introductions, and other factors.
While the Company maintains strict measures to monitor channel inventories and
to provide appropriate allowances, actual product returns may differ from the
Company's reserve estimates, and such differences could be material to
Autodesk's consolidated financial statements.
Intellectual property. The Company protects its intellectual property through
copyright, trade secret, patent, and trademark laws. There can be no assurance
that such measures will be adequate to protect the Company's proprietary
intellectual property or that claims or infringement of third parties'
intellectual property rights will not occur. Costs incurred in the future to
litigate intellectual property ownership or to acquire license rights could
negatively impact future results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and marketable securities, which consist primarily of
high-quality municipal bonds, tax-advantaged money market instruments, and US
treasury notes, totaled $273.6 million at July 31, 1996 compared to $272.4
million at January 31, 1996. (Both amounts include a restricted balance of $28.0
million related to a litigation judgment. See Part II, Item 1 of this report.)
During the first six months of fiscal year 1996, the Company generated $60.6
million in cash from operations and realized cash proceeds of $13.1 million from
the issuance of shares through employee stock option and stock purchase
programs. These increases were partially offset by cash used to purchase
1,152,000 shares of the Company's stock under an ongoing, systematic repurchase
program ($41.5 million); to purchase computer equipment, furniture, and
leasehold improvements ($8.8 million); to effect businesses combinations ($6.7
million); and to pay dividends on the Company's common stock ($5.6 million).
The Company's principal commitments at July 31, 1996, consisted of obligations
under operating leases for facilities.
Longer-term cash requirements, other than normal operating expenses, are
anticipated for development of new software products and enhancement of existing
products; financing anticipated growth; dividend payments; repurchases of the
Company's common stock; and the possible acquisition of businesses, software
products, or technologies complementary to the Company's business. The Company
believes that its existing cash, cash equivalents, marketable securities,
available line of credit, and cash generated from operations will be sufficient
to satisfy its currently anticipated cash requirements for fiscal year 1997.
13
<PAGE>
PART II. OTHER INFORMATION
- - ---------------------------
ITEM 1. LEGAL PROCEEDINGS
In October 1992, Vermont Microsystems, Inc. ("VMI") filed a complaint against
the Company in the US District Court for the District of Vermont, alleging among
other things, misappropriation of trade secrets. In October 1994, the case was
tried before a Magistrate of the US District Court of Vermont. In December
1994, the US District Court ruled in favor of VMI on the trade secret claim and
the Company recorded a litigation charge of $25.5 million as a result of a
judgment in this matter. The Company appealed that judgment, and VMI cross-
appealed, before the US Court of Appeals for the Second Circuit in January 1996.
In July 1996, the Court of Appeals affirmed the lower court's finding of
liability but remanded the award for damages back to the US District Court of
Vermont to reconsider the appropriate calculation of damages. VMI's cross-
appeal was denied by the appellate court. Management believes the ultimate
resolution of this matter will not have a material adverse effect on the
Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on June 27, 1996, the
following individuals were elected to the Board of Directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
---------- --------------
<S> <C> <C>
Carol A. Bartz 39,233,736 6,944,160
Mark A. Bertelsen 39,236,035 6,941,861
Crawford W. Beveridge 39,237,083 6,940,813
J. Hallam Dawson 39,236,496 6,941,400
Jerre Stead 39,236,407 6,941,489
Mary Alice Taylor 39,234,353 6,943,543
Morton Topfer 39,233,897 6,943,999
</TABLE>
The following proposals were approved at the Company's Annual Meeting:
<TABLE>
<CAPTION>
Affirmative Negative Votes
Votes Votes Withheld
----------- -------- --------
<S> <C> <C> <C>
1. Proposal to adopt the Company's 1996
Stock Plan and reservation of 1,500,000
additional shares of the Company's Common
Stock for issuance thereunder plus any
previously authorized but unissued shares
remaining under the Company's 1987 Stock
Option Plan. 27,604,848 10,609,583 7,963,465
2. Amendment of the Company's Employee Qualified
Stock Purchase Plan, increasing the reserved
shares by 500,000 and to increase the maximum
permitted payroll deduction level to fifteen
percent of an employee's compensation. 37,962,720 845,309 7,369,867
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Affirmative Negative Votes
Votes Votes Withheld
----------- -------- --------
<S> <C> <C> <C>
3. Amendment of the Company's 1990 Directors'
Stock Option Plan, including an increase
in the reserved shares by 200,000. 28,328,825 10,468,604 7,380,467
4. Ratify the appointment of Ernst & Young LLP
as independent auditors for the fiscal year
ending January 31, 1997. 39,424,325 52,802 6,700,769
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended July 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: September 12, 1996
AUTODESK, INC.
(Registrant)
/s/ CAROL A. BARTZ
------------------
Carol A. Bartz
Chairman and Chief Executive Officer
/s/ JOHN E. CALONICO
--------------------
John E. Calonico
Acting Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 116,803
<SECURITIES> 76,428
<RECEIVABLES> 94,688
<ALLOWANCES> 6,815
<INVENTORY> 10,979
<CURRENT-ASSETS> 340,601
<PP&E> 132,441
<DEPRECIATION> 83,704
<TOTAL-ASSETS> 510,765
<CURRENT-LIABILITIES> 150,266
<BONDS> 0
0
0
<COMMON> 150,214
<OTHER-SE> 178,193
<TOTAL-LIABILITY-AND-EQUITY> 510,765
<SALES> 265,026
<TOTAL-REVENUES> 265,026
<CGS> 33,914
<TOTAL-COSTS> 185,864
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,032
<INTEREST-EXPENSE> 921
<INCOME-PRETAX> 45,248
<INCOME-TAX> 18,410
<INCOME-CONTINUING> 29,705
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,705
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0
</TABLE>
