<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-26772
VISIO CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1448389
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 PIKE STREET, SUITE 1800, SEATTLE, WASHINGTON 98101-4001
(Address of principal executive offices) (Zip code)
(206) 521-4500
(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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Shares outstanding as of April 30, 1998
- ------------------------------------ ---------------------------------------
Common Stock ($.01 par value) 29,330,352
================================================================================
<PAGE>
VISIO CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Balance Sheets as of March 31, 1998 and September 30, 1997........................ 2
Statements of Income for the three and six months ended March 31, 1998 and 1997... 3
Statements of Cash Flows for the six months ended March 31, 1998 and 1997......... 4
Notes to Financial Statements..................................................... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................................... 8
<CAPTION>
PART II. OTHER INFORMATION
<S> <C>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................... 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 18
SIGNATURES................................................................................. 19
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISIO CORPORATION
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1997
------------- -------------
(UNAUDITED)
Assets
<S> <C> <C>
Current assets:
Cash and short-term investments...................................... $ 91,835 $ 79,594
Accounts receivable.................................................. 14,004 6,360
Inventories.......................................................... 1,434 1,079
Prepaid expenses..................................................... 6,210 3,991
Deferred income taxes................................................ 8,035 7,291
------------- -------------
Total current assets................................................ 121,518 98,315
Equipment and leasehold improvements.................................. 9,051 8,039
Capitalized technology................................................ 2,578 2,861
------------- -------------
Total assets...................................................... $ 133,147 $ 109,215
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 6,026 $ 5,954
Accrued compensation and benefits.................................... 3,881 2,706
Other accrued liabilities............................................ 13,772 10,717
Deferred revenue..................................................... 7,202 8,998
Income taxes payable................................................. 1,766 2,988
Current portion of notes payable..................................... 724 1,024
------------- -------------
Total current liabilities........................................... 33,371 32,387
------------- -------------
Shareholders' equity:
Common stock......................................................... 64,090 52,258
Retained earnings.................................................... 35,686 24,570
------------- -------------
Total shareholders' equity.......................................... 99,776 76,828
------------- -------------
Total liabilities and shareholders' equity........................ $ 133,147 $ 109,215
============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
VISIO CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues............................................... $39,649 $23,536 $76,695 $42,546
Cost of revenues....................................... 3,607 2,391 6,956 4,368
------- ------- ------- -------
Gross profit........................................... 36,042 21,145 69,739 38,178
------- ------- ------- -------
Operating expenses:
Research and development.............................. 6,444 3,459 12,341 6,164
Sales and marketing................................... 16,183 9,313 31,545 16,803
General and administrative............................ 2,830 1,816 5,603 3,182
Acquired technology................................... 7,090 6,697 7,090 6,697
------- ------- ------- -------
Total operating expenses............................ 32,547 21,285 56,579 32,846
------- ------- ------- -------
Operating income (loss)................................ 3,495 (140) 13,160 5,332
Interest and other income, net......................... 1,363 790 2,504 1,242
------- ------- ------- -------
Income before income taxes............................. 4,858 650 15,664 6,574
Provision for income taxes............................. 1,263 169 4,073 1,709
------- ------- ------- -------
Net income............................................. $ 3,595 $ 481 $11,591 $ 4,865
======= ======= ======= =======
Basic earnings per share............................... $0.12 $0.02 $0.41 $0.18
======= ======= ======= =======
Shares used in computation of basic earnings per share.
28,827 27,353 28,511 27,202
======= ======= ======= =======
Diluted earnings per share............................. $0.12 $0.02 $0.37 $0.16
======= ======= ======= =======
Shares used in computation of diluted earnings per
share................................................. 31,188 30,127 31,057 30,131
======= ======= ======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
VISIO CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income....................................................... $ 11,591 $ 4,865
Adjustments to reconcile net income to net cash from operations:
Depreciation and amortization................................... 2,140 866
Deferred income taxes........................................... 249 (3,554)
Issuance of common stock for acquired technology................ 6,964 -
Changes:
Accounts receivable........................................... (7,777) (4,073)
Inventories................................................... (382) (98)
Prepaid expenses.............................................. (2,485) (268)
Accounts payable.............................................. 113 1,028
Accrued compensation and benefits............................. 1,159 549
Deferred revenue.............................................. (1,781) 881
Other accrued liabilities..................................... 3,059 2,271
Income taxes payable.......................................... 319 1,343
-------- --------
Net cash from operations......................................... 13,169 3,810
-------- --------
CASH FLOWS USED FOR INVESTMENTS:
Purchases of short-term investments.............................. (29,699) (11,018)
Proceeds from maturities of short-term investments............... 5,500 8,500
Purchases of equipment and leasehold improvements................ (3,355) (1,666)
-------- --------
Net cash used for investments.................................... (27,554) (4,184)
-------- --------
CASH FLOWS FROM FINANCING:
Issuance of common stock......................................... 2,538 2,751
Payments on long-term obligations................................ (300) (170)
-------- --------
Net cash from financing.......................................... 2,238 2,581
-------- --------
Net increase (decrease) in cash and cash equivalents............... (12,147) 2,207
Effect of exchange rate changes on cash............................ (411) (145)
Cash and cash equivalents, beginning............................... 58,222 42,506
-------- --------
Cash and cash equivalents, end..................................... 45,664 44,568
Short-term investments............................................. 46,171 21,108
-------- --------
Cash and short-term investments.................................... $ 91,835 $ 65,676
======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
VISIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of Visio Corporation ("Visio" or the "Company") at
March 31, 1998 and for the three- and six-month periods ended March 31, 1998 and
1997 are unaudited and reflect all adjustments, consisting of only normal
recurring items which are, in the opinion of management, necessary for a fair
presentation of the financial position and results of operations for the interim
periods. The financial statements should be read in conjunction with the
financial statements and notes thereto for the fiscal year ended September 30,
1997 included in Visio's Annual Report on Form 10-K. The results of operations
for the three- and six-months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the full fiscal year.
Visio's fiscal year is a 52/53-week period. Accordingly, all references as
of and for the periods ended March 31, 1998, September 30, 1997 and March 31,
1997 reflect amounts as of and for the periods ended April 3, 1998, October 3,
1997 and March 28, 1997, respectively.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No.128, Earnings Per Share, which the company has adopted effective
for periods ending December 31, 1997. Pursuant to the requirements of Statement
128, the Company has changed the method previously used to compute earnings per
share and has restated all prior periods whereby the calculation of primary and
fully diluted earnings per share have been replaced by basic and diluted
earnings per share. Under the new requirements for calculating basic earnings
per share, the dilutive effect of stock options and stock warrants are excluded.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------
BASIC DILUTED
----------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- ------------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
Weighted average common shares outstanding................ 28,864 27,701 28,864 27,701
Restricted stock subject to repurchase.................... (37) (348) n/a n/a
Net effect of dilutive stock options and warrants
calculated using the treasury stock method and the
average stock price...................................... n/a n/a 2,324 2,426
------- ------- ------- -------
Total..................................................... 28,827 27,353 31,188 30,127
======= ======= ======= =======
Net Income................................................ $ 3,595 $ 481 $ 3,595 $ 481
======= ======= ======= =======
Earnings per share........................................ $ 0.12 $ 0.02 $ 0.12 $ 0.02
======= ======= ======= =======
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
-----------------------------------------------------------
BASIC DILUTED
----------------------------- ----------------------------
1998 1997 1998 1997
-------------- ------------- -------------- ------------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
Weighted average common shares outstanding................ 28,573 27,594 28,573 27,594
Restricted stock subject to repurchase.................... (62) (392) n/a n/a
Net effect of dilutive stock options and warrants
calculated using the treasury stock method and the
average stock price...................................... n/a n/a 2,484 2,537
------- ------- ------- -------
Total..................................................... 28,511 27,202 31,057 30,131
======= ======= ======= =======
Net Income................................................ $11,591 $ 4,865 $11,591 $ 4,865
======= ======= ======= =======
Earnings per share........................................ $ 0.41 $ 0.18 $ 0.37 $ 0.16
======= ======= ======= =======
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost or market and consist of the
following:
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
(in thousands)
<S> <C> <C>
Raw Materials..................................... $ 620 $ 299
Finished Goods.................................... 814 780
------ ------
$1,434 $1,079
====== ======
</TABLE>
ACQUISITIONS
On January 22, 1998, Visio agreed to merge with MarComp Inc. ("MarComp"), a
privately held provider of programming toolkits for access to Autodesk AutoCAD
.dwg and .dxf file formats. MarComp is located in Parkton, Maryland. Under the
terms of the reorganization agreement, Visio exchanged 50,014 shares of its
unregistered common stock for all of the outstanding shares of MarComp. The
transaction was accounted for as a pooling of interests. Due to the
immateriality of the amounts involved, prior periods have not been restated.
The transaction resulted in an increase in equity of $100,000 primarily due to
the acquisition of cash and accounts receivable from Marcomp and resulted in a
one-time charge of approximately $100,000 in acquisition related charges in the
quarter ended March 31, 1998.
On February 10, 1998, the Company agreed to acquire InfoModelers, Inc.
("InfoModelers"), a privately held, leading supplier of database and data
warehouse visual design, access and query tools, located in Bellevue,
Washington. The transaction will be accounted for using the purchase method.
Under the terms of the agreement, Visio issued 200,000 shares of its common
stock for accounts receivable, fixed assets, tax assets and certain technology
assets. The transaction was valued at approximately $7.8 million for InfoModeler
shareholders. This transaction resulted in a one-time charge of approximately
$7.0 million with respect to in-process research and development. The Company
expects this technology to be included in a future product offering.
6
<PAGE>
In the March 31, 1997 quarter, the Company acquired certain assets of
Boomerang Technology Inc., a privately held developer of Autodesk AutoCAD-
compatible software, located in San Diego, CA. Under the terms of the agreement,
the Company acquired source code and certain other assets for cash payments
totaling $6.7 million. The transaction was accounted for as a purchase with the
acquisition price expensed primarily as in-process acquired technology in the
March 31, 1997 quarter. The Company expects this technology will be incorporated
into a future product offering.
The operating results of Boomerang, Marcomp and Infomodelers were not
considered material to the consolidated financial statements of Visio and,
accordingly, pro forma information has not been presented.
COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." Statement No. 130 establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. It does
not, however, require a specific format for the disclosure but requires the
Company to display an amount representing total comprehensive income for the
period in its financial statements. The Company will be required to implement
Statement No. 130 for its fiscal year 1999.
SEGMENT REPORTING
In June 1997, the FASB issued Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information." Statement No. 131
establishes standards for the manner in which public companies report
information about operating segments in annual and interim financial statements.
The Company is currently evaluating the operating segment information to
determine whether this will have an impact on its financial statement reporting.
The Company will be required to implement Statement No. 131 for its fiscal year
1999.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Visio, which commenced operations in September 1990, develops drawing and
diagramming software for the general business personal computer user. All of
the Company's products have been developed for the Microsoft Windows 3.1,
Windows 95 and Windows NT operating systems and are marketed under the Visio
brand. The Company's primary products are Visio Standard, Visio Technical and
Visio Professional. The Company's first product, Visio Standard, which first
shipped in November 1992, began creating a new market for business diagramming.
The Company shipped its second significant product, Visio Technical for
technical drawing, in November 1994. The Company introduced its third
significant product in January 1997: Visio Professional, for information systems
and network design and documentation. The company recently introduced its new
PC CAD product, Intellicad for technical drawing.
When used in this discussion, the words "expects," "believes,"
"anticipates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Factors
which could affect the Company's financial results and cause such results to
differ materially from quarter to quarter include but are not limited to
fluctuations in quarterly performance, dependence on other products, including
Microsoft Windows, competition in the business drawing and diagramming software
market, timing and customer acceptance of new products, the Company's ability to
manage growth and integrate acquired technology, potential changes in licensing
and marketing methods and changes in general economic conditions. Additional
information concerning these and other risks is described in the "Certain Risk
Factors that may Impact Future Results of Operations" section of the Company's
Form 10-K for the fiscal year ended September 30, 1997, and, from time to time,
in other reports filed by the Company with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
- - - - - - - - - - - -
VISIO is a registered trademark of Visio Corporation.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statement of income data as a percentage of
revenues for the fiscal periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
---------------------- ---------------------
1998 1997 1998 1997
----------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenues.......................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................................. 9.1 10.2 9.1 10.3
----- ----- ----- -----
Gross profit...................................... 90.9 89.8 90.9 89.7
----- ----- ----- -----
Operating expenses:
Research and development......................... 16.3 14.7 16.1 14.5
Sales and marketing.............................. 40.8 39.6 41.1 39.5
General and administrative....................... 7.1 7.7 7.3 7.5
Acquired technology.............................. 17.9 28.4 9.2 15.7
----- ----- ----- -----
Total operating expenses.......................... 82.1 90.4 73.7 77.2
----- ----- ----- -----
Operating income (loss)........................... 8.8 (0.6) 17.2 12.5
Interest and other income, net.................... 3.5 3.4 3.2 2.9
----- ----- ----- -----
Income before income taxes........................ 12.3 2.8 20.4 15.4
Provision for income taxes........................ 3.2 0.8 5.3 4.0
----- ----- ----- -----
Net income........................................ 9.1% 2.0% 15.1% 11.4%
===== ===== ===== =====
</TABLE>
REVENUES
Revenues include the license of software products, maintenance and support
contracts, net of reserves for estimated future returns and allowances. License
revenues are derived from packaged software products, volume licenses,
international royalties and certain OEM arrangements.
In August 1997 Visio upgraded its most significant products, Visio
Standard, Visio Technical and Visio Professional to version 5.0. Revenues for
the second quarter of fiscal 1998 increased 68% over the same quarter in the
prior year. Revenues for the six months ended March 31, 1998 increased 80% over
the comparable prior year period. The increase in revenues was due primarily to
sales volume growth across product groups, distribution channels and geographic
regions.
9
<PAGE>
The following table sets forth revenues by product group with the
corresponding percentage of total revenues and the year-to-year percentage
change for the fiscal periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
1998 1997 CHANGE
---------------- ------------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Business diagramming................................. $12,223 30.8% $10,790 45.8% 13.3 %
Technical drawing.................................... 8,760 22.1 7,239 30.8 21.0 %
IS design and documentation.......................... 18,666 47.1 5,507 23.4 239.0 %
------- ----- ------- -----
Total revenues................................... $39,649 100.0% $23,536 100.0% 68.5 %
======= ===== ======= =====
<CAPTION>
SIX MONTHS ENDED MARCH 31,
-------------------------------------------------
1998 1997 CHANGE
---------------- ------------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Business diagramming................................. $24,348 31.7% $22,470 52.8% 8.4 %
Technical drawing.................................... 17,753 23.2 14,527 34.1 22.2 %
IS design and documentation.......................... 34,594 45.1 5,549 13.1 523.4 %
------- ----- ------- -----
Total revenues................................... $76,695 100.0% $42,546 100.0% 80.3 %
======= ===== ======= =====
</TABLE>
Product Groups: The Company classifies its products in the following
product groups: Visio Standard and Visio Maps in the Business Drawing and
Diagramming product group, Visio Technical in the Technical Drawing product
group, and Visio Professional, Visio Business Modeler and Visio Network
Equipment in the IS Design and Documentation product group. The Company
recently introduced its new PC CAD product, Intellicad, which will be classified
in the Technical Drawing product group.
Visio Professional, the Company's first significant product in the IS
design and documentation product group which initially shipped in the second
quarter of fiscal 1997, significantly impacted the revenue mix within the
product groups for the quarter and six-months ended March 31, 1998. The IS
design and documentation product group revenues increased 239% for the quarter
ended March 31, 1998 over the comparable period in fiscal 1997 and represented
47% of revenues in the quarter ended March 31, 1998 compared to 23% in the
comparable period in fiscal 1997. The business diagramming product group
revenues increased 13% for the quarter ended March 31, 1998 over the comparable
period in fiscal 1997. The Company believes that the percentage growth in the
business diagramming product group has been impacted by cannibalization from
Visio Professional. The Company believes that customers who may otherwise have
purchased Visio Standard are choosing Visio Professional for its added features
and content. Many Visio Standard customers in the past were information
technology professionals who can now choose Visio Professional, which provides
them with more of the functionality they need. The technical drawing product
group revenues increased 21% for the quarter ended March 31, 1998 over the
comparable period in fiscal 1997. The Company believes that the percentage
growth in the technical drawing product group has also been impacted by
cannibalization from Visio Professional.
10
<PAGE>
The following table sets forth revenues by sales channel with the
corresponding percentage of total revenues and the year-to-year percentage
change for the fiscal periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------
1998 1997 CHANGE
---------------- ----------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Distribution......................................... $27,502 69.4% $17,574 74.7% 56.5 %
Direct............................................... 3,305 8.3 1,694 7.2 95.1 %
Volume Licensing..................................... 8,776 22.1 4,021 17.1 118.3 %
OEM.................................................. 66 0.2 247 1.0 (73.3)%
------- ----- ------- -----
Total revenues................................... $39,649 100.0% $23,536 100.0% 68.5 %
======= ===== ======= =====
<CAPTION>
SIX MONTHS ENDED MARCH 31,
--------------------------------------------------
1998 1997 CHANGE
---------------- ----------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Distribution......................................... $54,279 70.8% $31,535 74.1% 72.1 %
Direct............................................... 6,646 8.7 3,133 7.4 112.1 %
Volume Licensing..................................... 15,673 20.4 7,392 17.4 112.0 %
OEM.................................................. 97 0.1 486 1.1 (80.0)%
------- ----- ------- -----
Total revenues................................... $76,695 100.0% $42,546 100.0% 80.3 %
======= ===== ======= =====
</TABLE>
Sales Channels: Visio classifies its revenues in four sales channels:
"Distribution," "Direct," "Volume Licensing," and "OEM." Distribution revenues
represent sales of packaged products through national distributors and
corporate, retail and mail order resellers. Direct revenues represent sales of
packaged products directly by the Company, including upgrades, generally to end
users responding to advertising or marketing promotions. Volume Licensing
revenues are derived from volume licenses, which are generally administered
through corporate resellers after the Company's sales staff has negotiated the
sale. The sales cycle for a volume license can extend up to eighteen months on
significant volume licenses as organizations can require extensive time to
evaluate and consider a large-scale implementation. Volume Licensing revenues
usually do not include any significant amount of packaged goods, but do include
maintenance and support revenues, which are priced separately and recognized
over the lives of the contracts. OEM revenues include licenses of Visio
products to hardware and software manufacturers for bundling arrangements. OEM
revenues include packaged product sales, as well as royalty payments with no
associated product costs.
Growth in absolute terms in the Distribution channel was driven by the
strength of Visio Professional. Direct channel growth was from increased upgrade
revenues as well as revenues from Visio Network Equipment which is sold
primarily in the direct channel. Volume Licensing channel revenues grew 118% for
the three month period ended March 31, 1998, over the comparable period in
fiscal 1997. This strong growth reflects continued investment in the corporate
volume licensing program as can be seen in the increased number of corporate
sales representatives from twenty-six at March 31, 1997 to sixty at March 31,
1998.
11
<PAGE>
The following table sets forth revenues by geography with the corresponding
percentage of total revenues and the year-to-year percentage change for the
fiscal periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------
1998 1997 CHANGE
----------------- ---------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
North America........................................ $22,355 56.4% $14,832 63.0% 50.7%
Europe............................................... 10,026 25.3 5,382 22.9 86.3%
Rest of world........................................ 7,268 18.3 3,322 14.1 118.8%
------- ----- ------- -----
Total international............................... 17,294 43.6 8,704 37.0 98.7%
------- ----- ------- -----
Total revenues................................ $39,649 100.0% $23,536 100.0% 68.5%
======= ===== ======= =====
<CAPTION>
SIX MONTHS ENDED MARCH 31,
--------------------------------------------------
1998 1997 CHANGE
----------------- ---------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
North America........................................ $43,357 56.5% $25,801 60.7% 68.0%
Europe............................................... 20,243 26.4 10,218 24.0 98.1%
Rest of world........................................ 13,095 17.1 6,527 15.3 100.6%
------- ----- ------- -----
Total international............................... 33,338 43.5 16,745 39.3 99.1%
------- ----- ------- -----
Total revenues................................ $76,695 100.0% $42,546 100.0% 80.3%
======= ===== ======= =====
</TABLE>
Geography: Revenues in the U.S. and Canada for the quarter ended March
31, 1998 increased in absolute terms over the comparable period of fiscal 1997
primarily due to the contribution of Visio Professional. International revenues
for the quarter ended March 31, 1998 increased in absolute terms and as a
percentage of total revenues over the comparable period of fiscal 1997 primarily
due to increased upgrade revenues as well as the contribution of Visio
Professional in localized versions and continued investment in international
markets.
COST OF REVENUES
The following table sets forth cost of revenues with the corresponding
percentage of revenues and year-to-year percentage change for the fiscal periods
indicated.
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------------------------------
1998 1997 CHANGE
------------------------------ ------------------------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Three months ended......... $3,607 9.1% $2,391 10.2% 50.9%
Six months ended........... $6,956 9.1% $4,368 10.3% 59.2%
</TABLE>
Cost of revenues varies with the mix of Distribution, Direct, Volume
Licensing and OEM revenues, due to relative variations in the standard product
costs associated with each revenue category, and with fluctuations in period
costs. Standard product costs consist primarily of documentation, packaging,
media duplication, assembly and material management costs. Period costs consist
primarily of certain royalties, technical support, production management,
freight and fulfillment, amortization of capitalized acquired technology,
standard material variances and inventory valuation adjustments.
12
<PAGE>
Standard costs associated with each revenue category are primarily
determined by the amount of packaged product delivered in that revenue category.
Accordingly, most of the Company's standard costs are associated with
Distribution and Direct revenues, all of which are derived from sales of
packaged products. Volume Licensing revenues have the lowest standard cost
because they generally do not include any significant amount of packaged goods.
The decrease in cost of revenues as a percentage of revenues for the three-
and six-month periods of fiscal 1998 over the comparable periods of fiscal 1997
resulted from the increased use of lower cost CD-ROM media and other raw
material cost reductions, an increase in the percentage of revenue from Visio
Professional and Visio Technical which have lower standard product costs as a
percentage of revenues than Visio Standard and increased Volume Licensing
revenues which have little or no standard product costs. These decreases were
partially offset by increased royalty costs for licensed technology including
Visual Basic for Applications (VBA) from Microsoft Corporation and increased
amortization costs of capitalized technology. The Company anticipates its cost
of revenues as a percentage of revenues to increase due to expected increases in
technical support costs associated with the Company's new PC CAD product,
Intellicad.
RESEARCH AND DEVELOPMENT
The following table sets forth research and development expenses with the
corresponding percentage of revenues and year-to-year percentage change for the
fiscal periods indicated.
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------------------------
1998 1997 CHANGE
------------------------------- ------------------------------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Three months ended......... $ 6,444 16.3% $3,459 14.7% 86.3%
Six months ended........... $12,341 16.1% $6,164 14.5% 100.2%
</TABLE>
Research and development expenses consist primarily of personnel, contract
services, occupancy and equipment costs required to conduct the Company's
product development efforts. Product development includes product engineering,
documentation development, localization, usability testing, quality assurance
and advanced research and development costs. Product localization costs and lump
sum payments for technology such as file converters are capitalized and
amortized to development over the lesser of the useful life or 18 months.
Research and development expenses are charged to operations as incurred. The
Company has not capitalized certain software development costs subsequent to the
establishment of technological feasibility, as these costs have been immaterial.
Increases in research and development expenses in absolute terms for the
three- and six-month periods ended March 31, 1998 over the corresponding periods
of fiscal 1997 resulted primarily from planned additions to the Company's
development organization as well as the addition of engineering personnel that
joined the Company as part of the Marcomp and Infomodeler acquisitions in the
March 1998 quarter. The increase in research and development as a percentage of
revenues resulted primarily from the costs associated with developing
IntelliCAD, the Company's new PC CAD product that was recently released.
13
<PAGE>
SALES AND MARKETING
The following table sets forth sales and marketing expenses with the
corresponding percentage of revenues and year-to-year percentage change for the
fiscal periods indicated.
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------------------------
1998 1997 CHANGE
------------------------------- ----------------------------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Three months ended......... $16,183 40.8% $ 9,313 39.6% 73.8%
Six months ended........... $31,545 41.1% $16,803 39.5% 87.7%
</TABLE>
Sales and marketing expenses have increased in absolute terms as the
Company continues building its worldwide sales, marketing and customer service
infrastructure. The increase in sales and marketing expenses in absolute terms
for the three- and six-month periods ended March 31, 1998 over the comparable
periods in fiscal 1997 was primarily due to expansion in international markets,
increased product marketing costs to support new products and upgrades to
existing products and additions to the corporate sales force. The increase in
sales and marketing expenses as a percentage of revenues in both the three- and
six-month periods ending March 31, 1998 compared to the prior year periods was
primarily from marketing investments associated with the recent IntelliCAD
release.
The Company believes substantial spending on marketing awareness and
corporate sales staffing is essential to achieve revenue growth and to maintain
and enhance the Company's competitive position. Accordingly, Visio expects sales
and marketing expenses will continue to increase in absolute terms over time.
GENERAL AND ADMINISTRATIVE
The following table sets forth general and administrative expenses with the
corresponding percentage of revenues and year-to-year percentage change for the
fiscal periods indicated.
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------------------------
1998 1997 CHANGE
-------------------------------- ---------------------------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Three months ended......... $2,830 7.1% $1,816 7.7% 55.8%
Six months ended........... $5,603 7.3% $3,182 7.5% 76.1%
</TABLE>
General and administrative expenses increased in absolute terms in both the
second quarter and six months of fiscal 1998 over the corresponding periods of
fiscal 1997 primarily due to increased staffing to support the Company's growth
as well as growth in Visio's operational headquarters in the Asia Pacific
region. The Company expects to show increased general and administrative
expenses in absolute terms in future periods for infrastructure to support the
Company's revenue growth.
14
<PAGE>
ACQUIRED TECHNOLOGY
The following table sets forth acquired technology expenses with the
corresponding percentage of revenues and year-to-year percentage change for the
fiscal periods indicated.
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------------------------
1998 1997 CHANGE
------------------------------ ----------------------------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Three months ended......... $7,090 17.9% $6,697 28.4% 5.9%
Six months ended........... $7,090 9.2% $6,697 15.7% 5.9%
</TABLE>
On January 22, 1998, Visio agreed to merge with MarComp Inc. ("MarComp"), a
privately held provider of programming toolkits for access to Autodesk AutoCAD
.dwg and .dxf file formats. MarComp is located in Parkton, Maryland. Under the
terms of the reorganization agreement, Visio exchanged 50,014 shares of its
unregistered common stock for all of the outstanding shares of MarComp. The
transaction was accounted for as a pooling of interests. Due to the
immateriality of the amounts involved, prior periods have not been restated. The
transaction resulted in an increase in equity of $100,000 primarily due to the
acquisition of cash and accounts receivable from Marcomp and resulted in a one-
time charge of approximately $100,000 in acquisition related charges in the
quarter ended March 31, 1998.
On February 10, 1998, the Company agreed to acquire InfoModelers, Inc.
("InfoModelers"), a privately held, leading supplier of database and data
warehouse visual design, access and query tools, located in Bellevue,
Washington. The transaction will be accounted for using the purchase method.
Under the terms of the agreement, Visio issued 200,000 shares of its common
stock for accounts receivable, fixed assets, tax assets and certain technology
assets. The transaction was valued at approximately $7.8 million for InfoModeler
shareholders. This transaction resulted in one-time charges of approximately
$7.0 million with respect to in-process research and development. The Company
expects this technology to be included in a future product offering.
In the March 31, 1997 quarter, the Company acquired certain assets of
Boomerang Technology Inc., a privately held developer of Autodesk AutoCAD-
compatible software, located in San Diego, CA. Under the terms of the agreement,
the Company acquired source code and certain other assets for cash payments
totaling $6.7 million. The transaction was accounted for as a purchase with the
acquisition price expensed primarily as in-process acquired technology in the
March 31, 1997 quarter. The Company expects this technology will be incorporated
into a future product offering.
The operating results of Boomerang, Marcomp and Infomodelers were not
considered material to the consolidated financial statements of Visio and,
accordingly, pro forma information has not been presented.
INTEREST AND OTHER INCOME, NET
Interest income for the second quarter of fiscal 1998 of $1.1 million
increased 38% over the second quarter of fiscal 1997. Interest income for the
six months ended March 31, 1998 of $2.1 million increased 50% over the
comparable period of fiscal 1997. The increase in fiscal 1998 was primarily due
to a larger cash and short-term investment balance. Other income includes grant
income from the Industrial Development Agency of Ireland and foreign currency
transaction gains and losses. Visio currently hedges certain foreign exchange
transaction exposures. To the extent the Company has assets and liabilities
denominated in foreign currencies that are not hedged, the Company is subject to
foreign currency gains and losses.
15
<PAGE>
INCOME TAXES
The Company's effective income tax rate was 26% for both the fiscal 1998
and fiscal 1997 periods.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash and short-term investments totaling
$91.8 million, an increase of $12.2 million from September 30, 1997. The
increase in cash and short-term investments was due primarily to cash generated
from operations and cash proceeds from the issuance of shares through the
employee stock option program.
At March 31, 1998, the Company's principal commitments consisted primarily
of leases on its facilities. The Company's capital expenditures totaled $3.4
million in the first six months of fiscal 1998. At March 31,1998, the Company
did not have any material commitments for capital. The Company believes that its
current cash balances and cash flow from operations will be sufficient to meet
its working capital and capital expenditure requirements for at least the next
12 months.
From time to time, the Company evaluates potential acquisitions of
businesses, products or technologies that complement the Company's business. At
March 31, 1998, the Company had no material agreements or commitments with
respect to any such transactions requiring cash payments.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Accounting Standards Executive Committee has issued Statement of
Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), which supersedes SOP
91-1, the former literature on software revenue recognition. This Statement will
be effective beginning in fiscal year 1999. The Company believes it is
substantially in compliance with the provisions of SOP 97-2, and its adoption is
not expected to have a material impact on the financial position or results of
operations of the Company.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." Statement No. 130 establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. It does
not, however, require a specific format for the disclosure but requires the
Company to display an amount representing total comprehensive income for the
period in its financial statements. The Company will be required to implement
Statement No. 130 for its fiscal year 1999.
In June 1997, the FASB issued Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information." Statement No. 131
establishes standards for the manner in which public companies report
information about operating segments in annual and interim financial statements.
The Company is currently evaluating the operating segment information to
determine whether this will have an impact on its financial statement reporting.
The Company will be required to implement Statement No. 131 for its fiscal year
1999.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of Shareholders of Visio Corporation was held on February 25,
1998. Matters voted on at the meeting and votes cast on each were as follows:
1. To elect seven directors of the Company to serve for the ensuing year
until the Company's 1999 annual meeting of shareholders and until their
successors are elected and qualified.
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
- ----------------------------------------------------------------
J. Jaech 26,026,237 97,121
- ----------------------------------------------------------------
T. Johnson 26,071,609 51,749
- ----------------------------------------------------------------
T. Alberg 26,071,887 51,471
- ----------------------------------------------------------------
T. Byers 26,071,489 51,869
- ----------------------------------------------------------------
J. Johnston 26,072,137 51,221
- ----------------------------------------------------------------
D. Mackenzie 26,072,167 51,191
- ----------------------------------------------------------------
S. Oki 26,072,337 51,021
- ----------------------------------------------------------------
</TABLE>
2. To approve the Company's 1995 Long-Term Incentive Compensation Plan, as
amended and restated, to increase by 3,000,000 the number of shares of
common stock which may be issued thereunder.
<TABLE>
<S> <C>
- --------------------------------
For 16,289,298
- --------------------------------
Against 7,920,565
- --------------------------------
Abstain 23,823
- --------------------------------
</TABLE>
3. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending September 30, 1998.
<TABLE>
<S> <C>
- --------------------------------
For 26,111,819
- --------------------------------
Against 2,430
- --------------------------------
Abstain 9,109
- --------------------------------
</TABLE>
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
27.1 1998 Financial Data Schedule which is submitted
electronically to the Securities and Exchange Commission
for information purposes only and not filed.
27.2 1997 Financial Data Schedule which is submitted
electronically to the Securities and Exchange Commission
for information purposes only and not filed.
27.3 1996 Financial Data Schedule which is submitted
electronically to the Securities and Exchange Commission
for information purpose only and not filed.
(b) Reports on Form 8-K:
None.
ITEMS 1, 2, 3 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
18
<PAGE>
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.
Date: May 18, 1998 VISIO CORPORATION
By: /s/ STEVE M. GORDON
------------------------
Steve M. Gordon
Senior Vice President, Finance and Operations;
Chief Financial Officer
(Principal Financial and Accounting Officer and Duly
Authorized Officer)
19
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C>
27.1 1998 Financial Data Schedule which is submitted electronically to the N/A
Securities and Exchange Commission for information purposes only and not
filed.
27.2 1997 Financial Data Schedule which is submitted electronically to the N/A
Securities and Exchange Commission for information purposes only and not
filed.
27.3 1996 Financial Data Schedule which is submitted electronically to the N/A
Securities and Exchange Commission for information purposes only and not
filed.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 91,835
<SECURITIES> 0
<RECEIVABLES> 20,562
<ALLOWANCES> 6,558
<INVENTORY> 1,434
<CURRENT-ASSETS> 121,518
<PP&E> 16,787
<DEPRECIATION> 7,736
<TOTAL-ASSETS> 133,147
<CURRENT-LIABILITIES> 33,371
<BONDS> 0
0
0
<COMMON> 64,090
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 133,147
<SALES> 76,695
<TOTAL-REVENUES> 76,695
<CGS> 6,956
<TOTAL-COSTS> 6,956
<OTHER-EXPENSES> 56,579
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 15,664
<INCOME-TAX> 4,073
<INCOME-CONTINUING> 11,591
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,591
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.37
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1997 SEP-30-1997
<PERIOD-START> OCT-01-1996 OCT-01-1996 OCT-01-1996
<PERIOD-END> DEC-31-1996 MAR-31-1997 JUN-30-1997
<CASH> 67,261 65,676 67,369
<SECURITIES> 0 0 0
<RECEIVABLES> 7,361 12,609 10,833
<ALLOWANCES> 4,090 6,223 5,423
<INVENTORY> 680 700 433
<CURRENT-ASSETS> 75,739 80,769 83,547
<PP&E> 6,992 8,082 10,253
<DEPRECIATION> 3,410 3,802 4,639
<TOTAL-ASSETS> 79,321 85,049 92,208
<CURRENT-LIABILITIES> 17,591 22,167 22,978
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 47,643 48,439 50,877
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 79,321 85,049 92,208
<SALES> 19,010 42,546 68,351
<TOTAL-REVENUES> 19,010 42,546 68,351
<CGS> 1,977 4,368 7,099
<TOTAL-COSTS> 1,977 4,368 7,099
<OTHER-EXPENSES> 11,561 32,846 52,466
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 11 19 33
<INCOME-PRETAX> 5,924 6,574 11,015
<INCOME-TAX> 1,540 1,709 2,864
<INCOME-CONTINUING> 4,384 4,865 8,151
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 4,384 4,865 8,151
<EPS-PRIMARY> 0.16 0.18 0.30
<EPS-DILUTED> .15 .16 .27
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1996
<PERIOD-START> OCT-01-1995 OCT-01-1995
<PERIOD-END> MAR-31-1996 JUN-30-1996
<CASH> 51,067 56,520
<SECURITIES> 0 0
<RECEIVABLES> 4,168 6,312
<ALLOWANCES> 488 4,163
<INVENTORY> 998 698
<CURRENT-ASSETS> 58,964 62,844
<PP&E> 4,751 5,339
<DEPRECIATION> 2,157 2,499
<TOTAL-ASSETS> 61,564 65,690
<CURRENT-LIABILITIES> 15,323 14,545
<BONDS> 0 0
0 0
133 136
<COMMON> 45,809 50,762
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 61,564 65,690
<SALES> 27,944 43,175
<TOTAL-REVENUES> 27,944 43,175
<CGS> 4,729 6,854
<TOTAL-COSTS> 4,729 6,854
<OTHER-EXPENSES> 17,281 26,529
<LOSS-PROVISION> 80 0
<INTEREST-EXPENSE> 40 59
<INCOME-PRETAX> 6,567 10,813
<INCOME-TAX> 2,167 3,568
<INCOME-CONTINUING> 4,400 7,245
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,400 7,245
<EPS-PRIMARY> 0.17 0.28
<EPS-DILUTED> .15 .25
</TABLE>
