EXHIBIT 13
Autodesk
Design Your World
1996 Annual Report
pg with charts- Net revenues by Geography
Graph- net revenues in fiscal years 1994, 1995, and 1996 of $405.6 million,
$454.6 million, and $534.2 million, respectively.
Every day investors ask us, "What exactly does Autodesk do?"
To help answer that question we've created an annual report that is both a
financial document and a narrative. It is a story as much about people with
vision--customers, partners, Autodesk staff--as it is about developing quality
software, leveraging technology trends to pursue new market opportunities, and a
reorientation toward customers.
We also want to reintroduce ourselves because we're no longer just the
AutoCAD(R) company. We're the company that creates and markets design software,
software that you, or people you know, use to create, visualize, imagine, and
manage the designed world. Stay with us, it's an exciting story.
Selected financial data
(In thousands, except per share data, percentages, and employees)
Fiscal year ended
January 31, Percentage
1996 1995 change
Net revenues $534,167 $454,612 17.5%
Income from operations $129,027 $107,411 20.1%
Net income* $ 87,788 $ 56,606 55.1%
Net income per share* $ 1.76 $ 1.14 54.4%
Return on net revenues 16.4% 12.5% 31.2%
Working capital $203,539 $218,095 (6.7%)
Stockholders' equity $342,328 $323,484 5.8%
Shares used in computing net
income per share 49,800 49,840 0%
Number of employees 1,894 1,788 5.9%
*Fiscal year 1995 results include a pre-tax litigation charge of approximately
$26 million resulting in a $0.33 reduction in earnings per share.
Letter to Stockholders
Last winter when I first began thinking about this letter, I recalled one
incident from fiscal year 1996 with particular clarity. I was meeting with
the Autodesk Mechanical Desktop(TM) team to discuss beta testing for this
new mechanical computer-aided design (CAD) product. The talk was lively and
opinionated; it always is at Autodesk. As we got into the rhythm of the
meeting, many people seemed to realize at about the same moment that what
we'd planned just wasn't going to be enough.
I'm sure some of us were also thinking about the technology transition
problems we were then having with AutoCAD(R) Release 13, and about the
thousands of customers and partners we were meeting with worldwide who were
telling us what was needed to make this release the success it has since
become.
From the seeds of this Desktop discussion and out of our experience
with Release 13, a new model for developing quality software has taken
root. It's a model in which Autodesk programmers will work side-by-side
with our customers and application developer partners and their customers
to shape the final product, to make sure that when it's released, it has
the features and the performance gains that design professionals need and
expect. And what began as some 60 beta sites for the Desktop eventually
topped out at more than 700.
The other hallmarks of this experience, a renewal of vision and the role
of dedicated, gifted people in Autodesk success, also characterize fiscal
year 1996, and our future course. Vision has led us into new markets
and down exciting paths. We're not just "that CAD software company"
anymore, we're a design software company. That story is told through-out
this document, and I hope you'll spend some time with it. Vision has led us
as well to a renewed commitment to customers. You'll see some of the
results of that commitment when you review our strong product lineup and
read about our enhanced support resources. But ultimately, people made the
difference in fiscal year 1996. Customers, partners, all of us here at
Autodesk helped turn a year of difficult but essential change into a
success.
I can tell you that we are working hard to create the best design software
in the industry, that we are committed to superior strategic execution in
fiscal year 1997, and that we enter our new fiscal year with confidence,
with a solid and enduring foundation for success. Now let's look at the
bottom-line results.
Financial Highlights
Net revenues for the fiscal year ended January 31, 1996, were $534.2
million, an increase of 17.5 percent over the previous year. Net income was
$87.8 million or $1.76 per share compared to $73.1 million or $1.47 per
share last year. The fiscal year 1995 earnings figure excludes the $16.5
million earnings impact related to the VMI litigation judgment. Setting
aside the litigation accrual, earnings grew 20 percent for the year.
Sales of 233,000 new AutoCAD seats, a record number and an increase of 15
percent over fiscal year 1995, as well as a 32 percent increase in sales of
non-AutoCAD products sparked growth. I'm pleased to tell you that the
installed AutoCAD base now approaches 1.5 million seats. The 1996 balance
sheet also reflects a $17 million increase in cash reserves over the
previous fiscal year, even though we spent nearly $108 million to
repurchase stock as part of our ongoing commitment to maintaining
stockholder value.
Net revenues by geography were up worldwide. Europe led that annual growth
with an increase of 33 percent, its highest in more than 5 years.
Asia/Pacific increased by 23 percent; the Americas by only 3 percent, a
direct result of the execution problems we had with AutoCAD Release 13.
A Tough Transition, A Positive Outcome
The core AutoCAD rearchitecting we undertook for Release 13, which
incorporated a new object-oriented design paradigm, made for a difficult
transition. But the final AutoCAD Release 13 platform, for Windows(R) 95
and Windows NT(R), is an excellent product. It's significantly faster than
the original product and includes new features, some of which, such as
real-time Pan and Zoom, customers had wanted for a long time. AutoCAD
Release 13 also plays particularly well with new customers who want
to pursue a more-collaborative design process using "intelligent" digital
models. That story is also told within this document.
The final Release 13 platform contains the revolutionary new application
programming interface, the AutoCAD(R) Runtime Extension (ARX). Developer
partners and customers will leverage ARX to create high-powered
applications that are integrated into, not merely compatible with, Release
13. Reaching the ARX milestone is sure to add to AutoCAD success in fiscal
year 1997 and beyond.
The Design Software Company
Our reorganization around customer-focused market groups began to reach a
critical mass in fiscal year 1996. The products these groups are launching
in fiscal year 1997 speak strongly to our traditional, but rapidly evolving
markets and effectively position us in new ones, authenticating our view of
ourselves as the world's leading design software company. To signal this
shift we have even changed our Nasdaq stock symbol from ACAD to ADSK.
In first quarter 1997 we shipped Autodesk Mechanical Desktop for mechanical
design. The Desktop, with newly developed assembly-modeling technology,
integrates AutoCAD Release 13, AutoCAD(R). Designer, and AutoSurf(R)
modules for a comprehensive "art-to-part" mechanical-design environment.
Later in fiscal year 1997 we will be launching AutoCAD(R) Map, the first in
a planned series of AutoCAD "avors" in which Release 13 technology will be
customized and complemented to better suit the needs of our vertical
markets.
When you're first in world markets, as we are in CAD software revenues and
in seats for animation and visualization, you're expected to lead. So look
for our multimedia team to create a stir as the newly formed Kinetix(TM).
Autodesk was born out of an entrepreneurial spirit and continues to foster
it, which is why we've launched Kinetix as a separate division. And if you
haven't already heard about the new Kinetix animation product 3D Studio
MAX(TM), believe me, you will in fiscal year 1997.
The work of our Data Management Market Group in fiscal year 1996 moves us
strongly into new markets for the electronic publishing of design content
through Autodesk Data Publishing (ADP) and for design process management
software like Autodesk WorkCenter(R). Finally, we're licensing Autodesk
technology as OEM engines to select developer partners, a move that further
strengthens the competitive advantage of our .DWG file format, the
worldwide standard for computer-aided design.
Each new business opportunity we're pursuing is volume based, markets to
existing customers, wins us new ones, and adds to our competitiveness.
Looking Ahead
I believe Autodesk is now better positioned to pursue multiple, global
opportunities than at any time in our history. Our business model is more
integrated and focused, our products support the needs of a total
design environment, our partners are stronger, our customer base larger.
We're learning, changing, and growing. In fiscal year 1997 we want to
delight our customers with quality software. I can't state our future goals
any more clearly or powerfully than that. We hope you'll continue to
share in our vision.
And to those people--customers, business partners, stockholders, the
Autodesk workforce--who were so very loyal during a challenging business
year, I extend my personal thanks.
Carol Bartz, President, Chief Executive Officer, and
Chairman of the Board
Design Your World
The world of design represents extraordinary business opportunities. In
pursuing them, we've become the world's leading design software company.
"We're becoming the company whose products help define the total design
environment. Our market opportunities are limited only by the imagination
of the design and multimedia communities."
Eric Herr, Chief Financial Officer and Vice President, Finance and
Administration
People design office towers and robotics, restorations of natural
environments and plans for emergency services, car bodies and cameras. They
design educational programs and pipelines, clothing and yachts, video games
and maps. People also manage and analyze what they imagine and build. They
add aesthetic content to their work as they move through the creative
process. And as they design this complex, interrelated world--your world--
they use Autodesk software.
Opening a Door on the Designed World
What's more ordinary than grasping a door handle as you enter an office
tower on business? You don't think about the cross-hatched, stainless-steel
handle that's so easy to grasp and swing, although you can be sure a
designer has. No matter. We take for granted the highly designed world.
Even so, it's a rather extraordinary place. It's a world in which a stream
of electronic data defines, organizes, models, and reinforces all the
design spaces in your world: From the very tower itself and its urban
surroundings to the bushings, screws, and bolts in the door handle
assembly. From the advanced electrical, engineering, heating, air-
conditioning, and facilities-management systems that support the tower
workforce to the product videos you watch with your investment banker.
These designs and interdependent processes are possible, this environment
made functional and pleasing, in part because of the quality, precision,
and broad resources found in Autodesk software.
So although we began with AutoCAD(R) software for computer-aided design,
we're now much more. We will always support the 2D CAD market. But
professionals across the design continuum now need software that allows
them to work in more collaborative and creative ways, to work in 2D and 3D,
whether they're manufacturing aircraft, adding special effects to a film,
or re-modeling a kitchen. We market software for this wider world of
design, software for mechanical CAD, for multimedia and data management,
for architecture and geographic information systems, and for design-content
creation.
Your world, Autodesk software.
Quality Software
We've innovated a new software-development model to meet the creative and
competitive needs of the people designing your world.
"With Mechanical Desktop, the MCAD Market Group hit high gear. From the
Gunslinger events for software development to extended beta testing, from
the Mechanical Applications Initiative to the creation of extensive
learning materials, we've architected a complete MCAD software solution
that will delight customers and partners alike."
Dominic Gallello, Vice President, MCAD Market Group
Autodesk Mechanical Desktop(TM) for the mechanical CAD (MCAD) software
market typifies this new model, leverages core AutoCAD(R) technology, and
redefines for the entire Company what it means to delight customers with
quality products.
The software-development cycle generally follows a linear pattern of
coding, quality assurance, automated testing, and so on. With Mechanical
Desktop we initiated a new process in addition to following the traditional
methodology. We held so-called Gunslinger events (Desktop was code-named
Texas) in which software architecture and documentation were refined under
exacting real-world conditions.
Gunslinger teams included Autodesk software-development engineers and
application engineers, mechanical engineers from our value-added reseller
partners, and most importantly, customer engineers.
We held 12 four-day Gunslingers at our development sites at which more
than 100 mechanical engineers participated. The goal: to create a complete
"art to part" MCAD software solution that also helps end-users cut product
time-to-market.
The Dialog
Gunslinger events fostered a rich dialog. As a participant identified a
software issue--perhaps a developer application stalled at a particular
command sequence--an Autodesk programmer was there to sort it out online,
in real time.
Typically, this sort of exchange does not occur face-to-face. It happens
after product launch and is conducted over e-mail or via fax. Under those
circumstances, some highly complex problems may never be fully resolved.
The Gunslinger innovation eliminates these inefficiencies. As a result
Mechanical Desktop is the product our customers and partners told us they
needed, a product that enhances their design creativity and makes them more
competitive.
To meet concerns about training and staffing expressed during the Desktop
development cycle, we created curriculum materials targeted for college and
university audiences as well as for Autodesk Training Centers. And we
provided the
award-winning, interactive, multimedia software, Inside Track(TM), which
promotes individualized learning of current mechanical-design techniques
for both professional and student users.
Revolutionary ARX
The tightly integrated Mechanical Desktop modules, among them AutoCAD(R)
Release 13 and a newly created Assembly Modeler, unite 2D and 3D design
capabilities and provide for associative drafting as well as surface,
mechanical-assembly, and feature-based solid modeling.
We also adapted the Release 13-embedded 32-bit, object-oriented application
programming interface, AutoCAD(R) Runtime Extension (ARX), for the MCAD
design community. ARX heralds a revolutionary new generation of
applications that will be fully integrated into AutoCAD, not merely
AutoCAD-compatible. These applications will foster a seamless and
associative design, analysis, and manufacturing environment for the MCAD
professional.
This pure focus on customer and partner needs now drives Autodesk software
development more than at any other time in our history. We're confident
Autodesk Mechanical Desktop software is the right product at the right
price point for the estimated US$3 billion MCAD software market.
Imaginative Software
Given technology trends, the release of 3D Studio MAX software, and new
leadership within our multimedia team, the launch of Kinetix seemed
inevitable.
"With 3D Studio MAX for Windows NT, not only can we leverage new business
opportunities in the 3D design animation and modeling space, we can spur
that growth. This compelling, cost-effective software unites 2D and 3D
design in an intelligent object-oriented environment. It's a trendsetter."
Larry Crume, Vice President and General
Manager, Kinetix
Now Playing: The 3D Experience
Producing the realistic, interactive 3D content that design professionals
and sophisticated consumers desire is costly, typically undertaken in a
workstation environment. But demand for the 3D experience is so great that
we're seeing a shift in hardware and operating-system choices to
accommodate it. Professional users who model and animate in 3D can now
achieve workstation-level performance--multiple-processor support, built-in
networking capabilities, and 3D graphics acceleration--by moving to the
more cost-effective, PC-based, 32-bit Windows NT(R) platform. This opens up
an exciting new market for design animation software.
Kinetix is ready with the vision and the products to leverage these
opportunities.
Who are Kinetix customers? Investment bankers Volpe and Welty define
multimedia software as tools for people creating films and videos;
authoring interactive content, such as World Wide Web home pages;
developing video games; and for visualizing design, where Autodesk 3D
Studio(R) and AutoVision(R) software are already market leaders. With the
release of 3D Studio MAX(TM) for Windows NT, an object-oriented, next-
generation graphics and animation environment, Kinetix offers a single,
dynamic content-creation solution for all these market sectors, the current
estimated value of which is US$650 million.
Design Visualization and More
Many of our architectural and mechanical customers who are now considering
a move to Windows NT will want to leverage 3D Studio MAX software's unified
2D and 3D environment if
they make the change. With this software, they'll be able to initiate a
highly creative, productive process for design visualization and concep-
tualization. This software also meets the needs of professional animators
and of those creating 3D content for videos, films, and video games. And
with 3D Studio MAX plug-ins--products created by our Plug-In developer
partners--games professionals can output to the Sony(R) PlayStation(TM) and
Sega(R) Saturn games machines. 3D Studio MAX software also supports VRML,
Virtual Reality Markup Language, used on the Internet to publish 3D scenes.
The Vision
Consumers and design professionals want the richer experience of 3D.
Certainly for entertainment--movies like Johnny Mnemonic or Virtuosity, TV,
video games--but also for more serious purposes. As a communications tool
in educating the medical profession, for animated forensics and crime
reenactments, for architectural, engineering, and product design. They want
the 3D experience because it mirrors the way people see and absorb
information. It enhances understanding, it's visceral. And more
interestingly from a market perspective, they want to create it, to explore
its design potential. With our software and that of our Plug-In partners,
they can.
New Software Markets
Real-world location, and the data and documents that are linked to it, must
be managed in every design process.
"GIS technology is no longer for a specialist class. People will be using
GIS data on their laptops to avoid traffic jams, book hotel rooms, map out
a travel itinerary. It doesn't get more down-to-earth than that."
Dr. Joseph Astroth, Vice President,
GIS Market Group
That freeway will be built 1,500 meters from that wetlands area, How will
the one affect the other? Those HVAC-system drawings have to be modified by
the construction team, How do they get electronically reviewed and
corrected? Not surprisingly, people using Autodesk software also need tools
to manage design documents and to optimize data tied to location.
You and GIS
A storm knocks out the electricity. You're curbside when the repairperson
arrives. She leans out the truck window, asks for your address, and punches
some keys on a laptop computer hooked into a cellular phone. You watch as
she downloads files, plugs into a printer, and outputs a map of the
neighborhood and a diagram of the switching unit on the power pole. Then
she hooks up her utility belt, climbs the pole, and gets to work.
That's a geographic information system, a GIS, in action. It's another way
in which information technology is changing our lives. The spatial
technology in a GIS yields a database that links maps, design graphics, and
related data to real-world location, to geography. That data-base becomes a
powerful, intelligent information tool for managing land, assets, and
infrastructure--from handling environmental restorations to tracking
emergency services. Estimated GIS software market: approaching US$900
million.
Over 100,000 Autodesk customers already use AutoCAD(R) for mapping. In
fiscal year 1997 they can switch to AutoCAD(R) Map software, a more-
complete mapping solution with tools for data transfer, custom digitizing,
editing and cleanup, query and analysis, presentation and plotting. The GIS
Market Group, now developing other products, has this goal: "When people
think GIS software solutions, they'll think of Autodesk."
"In fiscal year 1997, we'll be fulfilling a long-term vision: building
market share by offering software that helps customers manage design data
and processes. There are no clear leaders in this relatively new market,
but we intend to be one."
James D'Arezzo, Vice President,
Data Management Market Group
Managing the Data You Already Have
Entry into data management and electronic publishing, through Autodesk(R)
Data Publishing, is a natural move for us. Our customers, having created
more than a billion AutoCAD files, want to cost-effectively organize,
manage, visualize, and share that data. They also want re-usable digital
content. Who better to provide these tools than the company that helped
them create their design data in the first place?
Estimates suggest that for every professional designing with AutoCAD
software, five to ten more people on the extended, collaborative design
team may need to access and elaborate on that person's work. Beyond this
immediate circle are the manufacturers, purchasers, salespeople, and others
who add information to design documents as part of their jobs.
The solution: software from the Autodesk Data Management Market Group,
software that helps people utilize design data and documents for diverse
purposes. From Autodesk WorkCenter(R) software for networked file
management to Autodesk(R) View for viewing and redlining. From AutoCAD Data
Extension(R) for linking data-base information to drawings to the
Autodesk(R) Mechanical Library for adding digital content.
We offer a comprehensive response to these complex, interrelated design
needs.
Collaborative Design
We're helping our customers explore the economic and aesthetic
possibilities of an Internet-based, collaborative design environment using
object-oriented digital models.
As Robert Carr, vice president of our Engineering Group explains, "It's a
leading-edge technology story that we're already exploiting through new and
existing products and through our industry-standard file formats."
Digital Models
A digital model recreates in a computing environment the natural,
intuitive way people see designed objects. It's 3D, "experiential
computing": a digital model mimics its real-world counter-part. For
example, with digital models a robotics assembly can be visualized,
analyzed, and simulated before it's built, at tremendous savings. Or models
can simulate student learning experiences--flying a plane, running an
experiment. We also enjoy digital models in video games and films and on
the Internet.
An effective digital model must also be "intelligent"; its individual
objects must "understand" their context, their relationship with other
objects, and regenerate quickly and accurately when object parameters
change. The digital model, used collaboratively, has tremendous potential
to improve design and productivity. Autodesk provides the world with design
technology tools that offer these benefits, including AutoCAD(R), Autodesk
Mechanical Desktop(R), AutoCAD(R) LT, and 3D Studio MAX(TM) software.
The Foundry and the Internet
To be widely adopted, the digital-model paradigm must be economical to
implement, easily used, and models must be available in quantity for the
mass-market PC platform. Fortunately, much that turns potential into
profit is now in place. With technology advances such as the release of 32-
bit Windows(R) 95 and the broader professional use of the Windows NT(R)
operating system, the digital model now has a life on the desktop.
This suggests the rise of digital foundries, where design professionals--
our customers--will create and supply digital models in volume. And by
permitting on a global scale the fast, easy sharing of these models, the
Internet will enable the economies of collaborative design and shorten
product development cycles. For example, imagine a robotics manufacturing
team downloading revised drawing files from the Internet. They correct
files and e-mail them to the engineers, in offices halfway around the
world. In a matter of hours, final changes are completed; new files are
sent; and manufacturing can begin.
Industry-Standard File Formats
As our three-million-plus customers move to the Internet to find these
economies, to access already-created digital models and to share their own,
they will take with them our open and de facto file-format standards,
AutoCAD.DWG and DXF(TM) and 3D Studio .3DS. A fourth file format, .DWF, for
the recently announced Autodesk WHIP(TM) Plug-In software has been
specifically created for real-time access to 2D, vector-based, design data
over the Internet, a fundamental step in enabling a truly collaborative
design environment for our customers and their clients.
These Autodesk formats will become the software languages by which
countless digital models will be stored, published, viewed, and
manipulated. Millions of people already use them, millions more will.
"Autodesk's next big franchise, which builds on our design and
visualization businesses, will be design-capture software for a
collaborative design environment. Autodesk Mechanical Desktop is our first
entry in this field, and I think it's a knockout."
John Lynch, Chief Technology Officer and Vice President, Advanced Products
Group
Delighting Customers
We want to delight customers with easily accessible, highly utilitarian
support resources, such as those on our new World Wide Web home page. We're
moving on other fronts as well.
Enhanced Product Support
We've installed a new customer-call-tracking software, SCOPUS ProTeam, for
recording complete data about support calls. With it, we can spot any trend
in end-user problems with a particular software product and quickly
initiate proactive solutions. Eventually we'll use SCOPUS to automate the
flow of customer questions, bug-related data, and the solutions we've
crafted to our technical specialists around the world.
The Worldwide Workgroups program creates support teams grouped by product
and specialty area to rapidly solve complex technical problems. The program
leverages the expertise and knowledge of individual Autodesk staff across
geographies and reduces duplication of resources. In a related effort, our
Product Support team is writing more customer-focused technical papers,
which we post to the AutoCAD Forum on CompuServe(R), to our fax information
system, and to our World Wide Web site. And as Michael Sutton, vice
president of European operations notes, "We're even centralizing customer-
and developer-support operations, which allows us to offer more, and more
focused, product information and a wider range of technical training and
expertise."
Education and Training Strategies
Education and training are a vital part of our business. For example in
fiscal year 1996, with International Thomson Publishing, we established
Autodesk(R) Press to respond to the evolving educational needs of design
professionals, educators, and students. The Press's Inside Track(TM)
software, an award-winning, interactive, multimedia learning and
productivity tool for engineers, is based on the educational concepts of
just-in-time and just-enough learning. It optimizes an engineer's use of
Autodesk MCAD software by demonstrating the design techniques she must
master to solve specific mechanical problems. Under consideration: a
similar tool for the AEC community.
Rather than address learning and training strategies late in a software-
development cycle, they will now be instituted concurrently. This approach
means better training tools sooner, from technical documentation to the
course work presented by our worldwide network of more than 5,000 dealer,
distributor, and training center partners. Additionally, we've certified
more than 240 Autodesk Systems Centers to deliver advanced industry
training, technical support, and solutions to customers. And the new
Autodesk Developer Network supplies the marketing and technical support as
well as the Autodesk software engines our developer partners need to
deliver critical add-on applications.
Global Accounts, ISO 9000
We're exploring ways to make it easier for customers to do business with
us. For example, the Global Accounts Program sets up a process in which
customers, with offices worldwide, can establish global pricing for their
software purchases, rather than negotiating contracts and pricing on a
country-by-country basis. The Global Accounts Sales Manager then works
with other Autodesk sales representatives and dealers and distributors to
provide comprehensive account management for these customers.
As significantly, we have achieved ISO 9001 or ISO 9002 certification in a
number of countries, including Germany, Singapore, the UK, the US, and for
our European Software Center in Neuchatel, Switzerland. ISO, the
International Standards Organization, has established globally recognized
standards for quality assurance in software design, development,
production, installation, and servicing. All of these advances are win-win
developments for our customers and for us.
"The only sustainable competitive advantage is the ability to learn the
right things faster. We can't just market software; we have to help
customers hone in on what they need to know, when they need to know it, so
that they can be more productive."
Wayne Hodgins, Technical Director, Autodesk Worldwide Learning Solutions
Design Partners
We can focus on what we do best because our partners take excellent
care of everything else.
Autodesk's partner-network of developers, dealers, distributors, and
training centers helps us serve markets great and small the world over.
The businesses profiled here exemplify the success, creativity, and
dedication of thousands more. We celebrate all of them.
Serving One Market
Germany's OPEN MIND Software Technologies GmbH, international producers of
numerical-control (NC) software that turns CAD into CAM (computer-aided
manufacturing), joined our Mechanical Application Initiative because they
share our philosophy of combining technologies to benefit customers.
Integrating their NC applications--hyperWORK for 2D milling and lathing,
hyperMILL for 3D mold-and-die work with AutoCAD(R) software allows
mechanical designers and manufacturing engineers to work collaboratively
from "art to part" within a unified CAM system. Adding additional luster to
our mechanical CAD offerings are versions of hyperMILL and hyperCAM (a new,
feature-based milling application) fully integrated into Autodesk
Mechanical Desktop(TM) software.
Serving Many
Quebec-based MKS Compu-Group, Inc., and Eagle Point Software, with
headquarters in Iowa, have found multiple-market synergy as Autodesk
partners.
MKS serves the AEC/FM, Civil Engineering, Mapping/GIS, and Process and
Power industries as an Autodesk Systems Center, Developer, and Unique
Application Reseller. Their activities include developing and selling
SAUF, a popular utility that converts English-language AutoCAD Release 12
and Release 13 Help files into French Canadian (significantly different
from Continental French); and promoting Autodesk-based solutions through a
comprehensive marketing plan that includes strong consulting and support
divisions and MKSEXPO, an annual, province wide convention. They are
currently localizing AutoCAD Release 13 software and developing an
AutoCAD(R) Map-based tool for use in a long-term mapping and GIS project.
Eagle Point Software began its Autodesk partnership by integrating its
stand-alone applications with AutoCAD. They quickly established a
reputation for technical support and training expertise and attained
Autodesk Dealer status. They now develop and sell more than 85 AutoCAD-
based AEC, Civil Engineering, Surveying/Mapping, and Hydrology solutions
to 20,000-plus clients in 61 countries. Last year Eagle Point purchased
LandCADD, Facility Mapping Systems, and ECOM Associates, and in June went
public in a 2-million-share initial offering.
Opening New Markets
HOPE (Hindustan Office Products, Ltd.), a New Delhi-based Autodesk
Distributor, works closely with a growing network of 100-plus dealers
and uses a variety of tactics--including massive customer-education
campaigns and a full range of support services--to introduce sophisticated
design software solutions to areas that are new to CAD. They have
contributed to Autodesk software's strong presence in nearly all of India's
design markets, most of which--such as videography, an expanding market due
to the privatization of Indian television--are beginning to open up.
Recent government policies easing access to foreign technologies and
products, reducing import tariffs, and the like will further accelerate the
pace of technical implementation. HOPE is ready.
"People use our software and that of our developer partners to do highly
creative and innovative work. For example, we never set out to market
software for the apparel industry, but they use AutoCAD-based applications
just the same. There's wonderful synergy here--customers, us, developers."
Godfrey Sullivan, Vice President, the Americas
People with Vision
"A company is only as good as its people, and I think we have some of the
best and the brightest in the industry. When you've got people like these
behind every business effort, it's easy to see an exciting future for
Autodesk."
Christine Tsingos, Vice President and Treasurer
We share responsibility for the Company's success, which requires vision
and clarity and a focus on customers.
"In Product Support we get e-mails and calls from all over the company
asking us to help provide customer solutions. We know we've succeeded when
a partner comes back with the message that the solution we offered met the
customer's needs. Our target is customer delight, and we aim for the
bull's-eye."
Jessica Freiberg, AutoCAD Support Specialist
"We owe much of our success to the efforts of our worldwide registered
developer community. To provide them with the world-class marketing and
technical support they need, we launched the Autodesk Developer Network.
After all, delighting partners is an integral part of delighting
customers."
Laks Sampath, Product Manager, Autodesk Developer Network
"We have a rich workplace--rich in people, skills, interests. That's a
great plus for a software company. It leads inevitably to greater
creativity and confidence."
Steve McMahon, Vice President, Human Resources
"We're a high-energy culture, and people are committed to making a
difference, in business and in the world. From late-night, pizza-fueled
brain-storms to early-morning code reviews, we all feel an obligation to
our customers and ourselves to give it our best."
Blair LaCorte, General Manager, Autodesk Data Publishing
"In Operations we work to deliver quality products efficiently, on time,
cost-effectively. Day-to-day it's exciting to be part of the release
process, from the rollout plan to the final sell sheet. We've also earned
ISO 9002 certification, which exemplifies our commitment to quality and to
customer satisfaction."
Catrina Eames, Operations Release Coordinator
"Programming is a science, an art, and a technology, and each programmer's
work is essential to everyone else's. Seeing an idea become a reality and
serving millions of customers at the same time can be a peak experience."
Shui-Sheng Chern, Senior Software Engineer
Financial Information
Table of Contents
Selected Five-Year Financial Data 23
Management's Discussion and Analysis of
Financial Condition and Results of Operations 24
Consolidated Statement of Income 30
Consolidated Balance Sheet 31
Consolidated Statement of Cash Flows 32
Consolidated Statement of Stockholders' Equity 33
Notes to Consolidated Financial Statements 34
Report of Ernst & Young LLP, Independent Auditors 44
Market Information and Dividend Policy 45
Corporate Information 46
Selected Five-Year Financial Data Autodesk, Inc.
Fiscal year ended January 31,
(In thousands, except per share data,
percentages, and employees) 1996 1995 1994 1993 1992
For the fiscal year
- ------------------------------------------------------------------------------------------------------------------
Revenues $ 546,884 $ 465,278 $ 418,720 $ 367,721 $ 284,903
Direct commissions 12,717 10,666 13,124 14,567 10,929
Net revenues 534,167 454,612 405,596 353,154 273,974
Cost of revenues 66,812 61,725 63,338 63,652 39,173
Marketing and sales 183,550 154,562 137,788 119,871 82,520
Research and development 78,678 65,176 56,231 51,481 34,782
General and administrative 76,100 65,738 58,536 54,953 37,268
Income from operations 129,027 107,411 89,703 63,197 80,231
Interest and other income, net 9,253 7,233 7,055 11,566 12,063
Litigation charge -- 25,500 -- 5,000 --
Income before income taxes 138,280 89,144 96,758 69,763 92,294
Net income 87,788 56,606 62,166 43,873 57,794
Net cash provided by
operating activities 106,632 104,412 88,853 68,608 72,858
At year end
- ------------------------------------------------------------------------------------------------------------------
Cash, cash equivalents,
and marketable securities $ 272,402 $ 255,373 $ 217,011 $ 192,277 $ 191,330
Current assets 347,834 373,085 279,557 249,341 247,538
Total assets 517,929 482,076 404,874 358,283 328,026
Current liabilities 144,295 154,990 102,316 84,080 56,984
Total liabilities 175,601 158,592 107,995 90,450 60,721
Stockholders' equity 342,328 323,484 296,879 267,833 267,305
Working capital 203,539 218,095 177,241 165,261 190,554
Number of employees 1,894 1,788 1,788 1,565 1,272
Common stock data
- ------------------------------------------------------------------------------------------------------------------
Net income per share $ 1.76 $ 1.14 $ 1.25 $ 0.88 $ 1.15
Book value per share $ 7.39 $ 6.85 $ 6.25 $ 5.58 $ 5.44
Dividends paid per share $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.23
Shares used in computing
net income per share 49,800 49,840 49,740 49,800 49,980
Shares outstanding at year end 46,351 47,241 47,480 48,022 49,176
Financial ratios
- ------------------------------------------------------------------------------------------------------------------
Current ratio 2.4 2.4 2.7 3.0 4.3
Return on net revenues 16.4% 12.5% 15.3% 12.4% 21.1%
Return on average assets 17.6% 12.8% 16.3% 12.8% 19.5%
Return on average stockholders' equity 26.4% 18.2% 22.0% 16.4% 23.8%
Growth percentages
- ------------------------------------------------------------------------------------------------------------------
Net revenues 17.5% 12.1% 14.8% 28.9% 18.9%
Net income 55.1% (8.9%) 41.7% (24.1%) 1.8%
Net income per share 54.4% (8.8%) 42.0% (23.5%) 0%
23
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Operating Results
Net Revenues
Percentage Percentage
(In millions) 1996 change 1995 change 1994
- -------------------------------------------------------------------------------------------------
Revenues $ 546.9 18% $ 465.3 11% $ 418.7
Direct commissions 12.7 19% 10.7 (19%) 13.1
Net revenues $ 534.2 18% $ 454.6 12% $ 405.6
Autodesk's consolidated net revenues increased 18 percent to $534.2 million in
fiscal year 1996 from $454.6 million in fiscal year 1995. The Company achieved
net revenue growth in all sales geographies, the most significant occurring in
the Company's European operations. Growth in revenues resulted from higher sales
of AutoCAD(R) software, the Company's flagship product, as well as increased
sales of multimedia, data management, and low-end CAD product offerings, most
notably AutoCAD(R) LT.
Sales of AutoCAD and AutoCAD updates increased from the prior fiscal year while
continuing to represent approximately 80 percent of consolidated net revenues.
Worldwide demand for AutoCAD remained strong in fiscal year 1996, resulting in
the sale of 233,000 new licenses compared to 203,000 in the prior fiscal year.
Fiscal year 1996 AutoCAD update revenue resulted principally from sales of the
most current AutoCAD version, AutoCAD Release 13, which was released in the
fourth quarter of fiscal year 1995. AutoCAD update revenue increased 17 percent
over the previous fiscal year to approximately $49 million in fiscal year 1996.
When viewed by geography, fiscal year 1996 net revenues increased 33 percent, 23
percent, and 3 percent in Europe, Asia/Pacific, and the Americas, respectively,
compared to fiscal year 1995 growth in these regions of 15 percent, 25 percent,
and 4 percent. Foreign revenues, including export sales from the United States,
accounted for approximately 64 percent, 61 percent, and 58 percent of revenues
in fiscal years 1996, 1995, and 1994, respectively. The weaker value of the
dollar, relative to international currencies, favorably affected fiscal year
1996 international revenues by approximately $18.8 million compared to fiscal
year 1995. Fiscal year 1995 sales were also favorably impacted by currencies by
approximately $12.0 million compared to fiscal year 1994. Since most of the
Company's international production costs and operating expenses are incurred in
foreign currencies, the net impact of exchange rate fluctuations on income from
operations is less than on revenues.
A summary of revenues by geographic area is presented in Note 9, page 43, to the
consolidated financial statements.
The Company records product returns as a reduction of revenues. In fiscal years
1996, 1995, and 1994, product returns, consisting principally of stock rotation,
totaled $51.2 million or 9 percent of consolidated revenues, $28.6 million or 6
percent of consolidated revenues, and $7.7 million or 2 percent of consolidated
revenues, respectively. Returns of AutoCAD products accounted for 79 percent,
75 percent, and 88 percent of total product returns in fiscal years 1996, 1995,
and 1994, respectively. More specifically, returns of AutoCAD Release 13
products accounted for $29.5 million in fiscal year 1996. In fiscal year 1996,
product returns were higher in each successive quarterly period, increasing to
10 percent and 12 percent of consolidated revenues in the third and fourth
fiscal quarters, respectively. Management attributed the increase in product
returns in fiscal year 1996 primarily to product rotation associated with
performance issues with initial versions of the 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 Designer, 3D Studio, and AutoCAD LT. Fiscal year
1995 product returns increased relative to fiscal year 1994 primarily due to
product rotation of previous versions of AutoCAD associated with the
introduction of AutoCAD Release 13. An increase in the number of Autodesk
vertical market applications, including AutoVision and AutoCAD Data Extension,
the introduction of the Company's next generation retail-CAD product offering,
AutoCAD LT, and the elimination of the Generic CADD product family also
contributed to an increase in product returns in fiscal year 1995 as compared to
the prior fiscal year.
The nature and technical complexity of the Company'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 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. Autodesk 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 the Company'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.
Direct commissions paid to dealers represented 2 percent of net revenues in both
fiscal years 1996 and 1995 and increased to $12.7 million in fiscal year 1996
from $10.7 million in fiscal year 1995. This increase resulted from higher sales
to national accounts and US educational institutions. The decrease in direct
commissions in fiscal year 1995 when compared to fiscal year 1994 resulted from
a reduction in the domestic commission rate in the last half of fiscal year
1994, partially offset by increased national account and educational sales in
the US.
The Company expects continued revenue growth during fiscal year 1997 in all
geographies resulting from sales of AutoCAD and new product offerings including
Autodesk Mechanical Desktop,(TM) 3D Studio MAX,(TM) and AutoCAD(R) Map. Delays
in the introduction of new or enhanced products or failure to achieve
significant customer acceptance could have a material adverse effect on the
Company's revenues and consolidated results of operations in future periods. 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 Risk Factors Which May Impact Future Operating
Results," page 27.
24
Autodesk, Inc.
Cost of Revenues
Percentage Percentage
(In millions) 1996 change 1995 change 1994
- ------------------------------------------------------------------------------------------------------
Cost of revenues $ 66.8 8% $ 61.7 (3%) $ 63.3
Percentage of net revenues 13% 14% 16%
Cost of revenues includes the purchase of disks and compact discs (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. The improved gross margin in fiscal years
1996 and 1995 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, the Company expects
that cost of revenues as a percentage of net revenues may be impacted by the mix
of product sales, royalty rates for licensed technology embedded in the
Company's products, the geographic distribution of sales, and sales of product
updates, which have lower gross margins than commercial versions of the
Company's software products.
Operating Expenses
Percentage Percentage
(In millions) 1996 change 1995 change 1994
- ------------------------------------------------------------------------------------------------------
Marketing and sales $ 183.6 19% $ 154.6 12% $ 137.8
Percentage of net revenues 34% 34% 34%
Research and development $ 78.7 21% $ 65.2 16% $ 56.2
Percentage of net revenues 15% 14% 14%
General and administrative $ 76.1 16% $ 65.7 12% $ 58.5
Percentage of net revenues 14% 14% 14%
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. While remaining
constant as a percentage of net revenues, fiscal year 1996 marketing and sales
expenses increased from the prior fiscal year 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. Fiscal year 1995
marketing and sales expenses increased over fiscal year 1994 primarily due to
worldwide marketing programs to support releases of new and enhanced products,
including AutoCAD Release 13. 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 expenses consist principally of salaries and benefits
for software engineers, contract development fees, expenses associated with
product translations, costs of computer equipment used in software development,
and facility expenses. Total research and development spending, including
capitalized expenses, increased $11.4 million or 17 percent during fiscal year
1996 due to the addition of software engineers, costs associated with the
development of new and enhanced products, and the translation of certain of
these products into foreign languages. Research and development
25
Management's Discussion and Analysis of Financial
Condition and Results of Operations
spending, including capitalized expenses, in fiscal year 1995 increased $11.1
million from fiscal year 1994 as a result of development costs for software
products such as AutoCAD Release 13 and expenses for product localization. The
Company capitalized product development expenses of $2.1 million in fiscal year
1995 and none in fiscal years 1996 and 1994. The Company anticipates that
research and development expenses will increase in fiscal year 1997 as a result
of product development efforts by the Company's market groups. Additionally, the
Company intends to continue recruiting and hiring experienced software
developers and to consider the licensing and acquisition of complementary
software technologies and businesses.
General and administrative expenses include the Company's information systems,
human resources, finance, legal, purchasing, and other administrative
operations. The increase in these expenses in fiscal year 1996 resulted from
higher personnel costs associated with increased operations and expenses to
upgrade and maintain the Company's worldwide information systems, partially
offset by a reduction in legal expenses. The increase in general and
administrative expenses in fiscal year 1995 over fiscal year 1994 resulted
primarily from legal expenses incurred in connection with the litigation
discussed below and due to higher personnel and facility costs. In fiscal year
1997, the Company currently expects that general and administrative expenses
will increase at approximately the same rate as, or slightly below, anticipated
revenue growth to support spending on infrastructure, including continued
investment in Autodesk's worldwide information systems.
Interest and Other Income and Litigation Charge
Percentage Percentage
(In millions) 1996 change 1995 change 1994
- -------------------------------------------------------------------------------------------------
Interest and other income, net $ 9.3 28% $ 7.2 3% $ 7.1
Percentage of net revenues 2% 2% 2%
Litigation charge $ 0 $ 25.5 $ 0
Percentage of net revenues 0% 6% 0%
Interest income was $10.6 million, $8.0 million, and $7.9 million for fiscal
years 1996, 1995, and 1994, respectively. 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 investment portfolio when
compared to the same period in the prior fiscal year. Interest and other income
for fiscal years 1996 and 1995 was net of interest expense of $1.8 million and
$0.2 million, respectively, associated with the legal judgment discussed below.
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 currently attempt to hedge
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 $554,000,
($1,043,000), and ($969,000) in fiscal years 1996, 1995, and 1994, respectively.
In December 1994, a $25.5 million judgment was entered against the Company on a
claim of trade secret misappropriation brought by Vermont Microsystems, Inc.
("VMI"). At January 31, 1996, the Company had accrued the judgment plus interest
at the rate specified in the judgment. The Company appealed the judgment, and
VMI cross-appealed, before the US Court of Appeals for the Second Circuit, in
January 1996. Management believes that the ultimate resolution of this matter
will not have a material adverse effect on the Company's consolidated financial
condition or results of operations. See Note 4, page 39, to the consolidated
financial statements.
26
Autodesk, Inc.
Provision for Income Taxes
Percentage Percentage
(In millions) 1996 change 1995 change 1994
- ----------------------------------------------------------------------------------------------------------
Provision for income taxes $ 50.5 55% $ 32.5 (6%) $ 34.6
Percentage of net revenues 9% 7% 9%
Effective income tax rate 36.5% 36.5% 35.8%
See Note 3, page 38, to the consolidated financial statements for an analysis of
the differences between the US statutory and the effective income tax rates.
Net Income and Net Income per Share
Percentage Percentage
(In millions, except per share data) 1996 change 1995 change 1994
- ----------------------------------------------------------------------------------------------------------
Net income $ 87.8 55% $ 56.6 (9%) $ 62.2
Percentage of net revenues 16% 12% 15%
Net income per share $ 1.76 54% $ 1.14 (9%) $ 1.25
Results for fiscal year 1995 include a pre-tax litigation charge of
approximately $26 million resulting in a $0.33 reduction in net income per
share.
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.
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 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.
Fluctuations in Quarterly Operating Results
The Company has experienced some 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 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 technology stocks
and may also be affected by broader market trends unrelated to performance.
27
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Product Concentration
Autodesk derives a substantial portion of its revenues from sales of AutoCAD,
AutoCAD updates, and adjacent products which are interoperable with AutoCAD. As
such, any factor adversely affecting sales of AutoCAD and AutoCAD updates,
including such factors as market acceptance, product performance and
reliability, reputation, price competition, and the availability of third-party
applications, could have a material adverse effect on the Company's business and
consolidated results of operations and financial condition.
Product Development and Introduction
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, the Company 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 the Company 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 releases 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 the Company'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 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, 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, 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 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 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, which could have a
material and 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 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. During the past
fiscal year, the Company's results were adversely impacted by reduced economic
expansion in southeast Asia, most notably in Taiwan, and by economic uncertainty
and instability in Latin America. There can be no assurance that these and other
factors will not have a material and adverse effect on the Company's future
international sales and consequently on the Company's business and consolidated
results of operations.
Dependence on Distribution Channels
The Company sells its software products primarily to distributors and dealers
(value-added resellers or "VARs"). Autodesk's ability to effectively distribute
its products depends in part upon the financial and business condition of its
VAR network. Although the Company has not to date experienced any material
problems with its VAR network, computer software dealers and distributors are
typically not highly capitalized and have experienced difficulties 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 1996, 1995, or 1994, 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 and adverse effect on the
Company's business and consolidated results of operations in future periods.
28
Autodesk, Inc.
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 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 Autodesk believes that product returns will decrease in absolute
dollars in 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 timing of new product
introductions, and other factors. While the Company maintains strict measures to
monitor channel inventories and to provide appropriate reserves, actual product
returns may differ from the Company's reserve estimates, and such differences
could be material to Autodesk's consolidated financial statements.
Intellectual Property
The Company 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
Working capital, which consists principally of cash, cash equivalents, and
marketable securities, was $203.5 million at January 31, 1996, compared to
$218.1 million at January 31, 1995. Cash, cash equivalents, and marketable
securities, which consist primarily of high-quality municipal bonds,
tax-advantaged money market instruments, and US treasury notes, totaled $272.4
million at January 31, 1996 (including a restricted balance of $28.0 million
related to the VMI litigation discussed on page 26), compared to $255.4 million
at January 31, 1995. The increase in cash, cash equivalents, and marketable
securities of $17.0 million was due primarily to cash generated from operations
($106.6 million) and cash proceeds from the issuance of shares through employee
stock option and stock purchase programs ($46.4 million). This increase was
partially offset by cash used to repurchase shares of the Company's common stock
under an ongoing, systematic repurchase program ($108.0 million); to purchase
computer equipment, furniture, and leasehold improvements ($16.3 million); and
to pay dividends on the Company's common stock ($11.2 million).
During fiscal years 1996, 1995, and 1994, the Company repurchased and retired
2,671,000, 2,990,000, and 3,176,000 shares of its common stock at average
repurchase prices of $40.43, $30.05, and $22.54, respectively, pursuant to a
systematic repurchase program approved by its Board of Directors to reduce the
dilutive effect of common shares to be issued under the Company's employee stock
plans. In December 1995, the Board of Directors continued the program by
approving the repurchase of up to 4 million additional shares.
The Company has an unsecured $40 million bank line of credit that may be used
from time to time to facilitate short-term cash flow. At January 31, 1996, there
were no borrowings outstanding under this credit agreement. The line of credit
expires in January 1997.
The Company's principal commitments at January 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.
29
Consolidated Statement of Income
Autodesk, Inc.
Fiscal year ended January 31,
(In thousands, except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------------------
Revenues $ 546,884 $ 465,278 $ 418,720
Direct commissions 12,717 10,666 13,124
Net revenues 534,167 454,612 405,596
Costs and expenses:
Cost of revenues 66,812 61,725 63,338
Marketing and sales 183,550 154,562 137,788
Research and development 78,678 65,176 56,231
General and administrative 76,100 65,738 58,536
Total costs and expenses 405,140 347,201 315,893
Income from operations 129,027 107,411 89,703
Interest and other income, net 9,253 7,233 7,055
Litigation charge -- 25,500 --
Income before income taxes 138,280 89,144 96,758
Provision for income taxes 50,492 32,538 34,592
Net income $ 87,788 $ 56,606 $ 62,166
Net income per share $ 1.76 $ 1.14 $ 1.25
Shares used in computing net income per share 49,800 49,840 49,740
See accompanying notes.
30
Consolidated Balance Sheet
Autodesk, Inc.
January 31,
(In thousands) 1996 1995
Assets
- --------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 129,305 $ 195,038
Marketable securities 64,001 45,316
Accounts receivable, net of allowance for
doubtful accounts of $6,731 ($6,457 in 1995) 93,919 86,340
Inventories 9,685 5,769
Deferred income taxes 33,769 29,915
Prepaid expenses and other current assets 17,155 10,707
Total current assets 347,834 373,085
Marketable securities, including a restricted balance
of $28,000 at January 31, 1996 79,096 15,019
Computer equipment, furniture, and leasehold improvements:
Computer equipment and furniture 106,643 91,557
Leasehold improvements 21,100 20,048
Accumulated depreciation (78,778) (65,090)
Net computer equipment, furniture, and
leasehold improvements 48,965 46,515
Capitalized software and purchased technologies 22,141 26,406
Other assets 19,893 21,051
$ 517,929 $ 482,076
Liabilities and stockholders' equity
- --------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 24,547 $ 21,535
Accrued compensation 22,441 18,165
Accrued income taxes 65,517 53,202
Litigation accrual -- 25,800
Other accrued liabilities 31,790 36,288
Total current liabilities 144,295 154,990
Deferred income taxes 1,912 2,625
Litigation accrual 27,640 --
Other liabilities 1,754 977
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value; 100,000 shares authorized,
46,351 issued and outstanding (47,241 in 1995) 140,765 100,870
Retained earnings 191,109 215,064
Foreign currency translation adjustment 10,454 7,550
Total stockholders' equity 342,328 323,484
$ 517,929 $ 482,076
See accompanying notes.
31
Consolidated Statement of Cash Flows Autodesk, Inc.
Fiscal year ended January 31,
(In thousands) 1996 1995 1994
Operating activities
- ---------------------------------------------------------------------------------------------------
Net income $ 87,788 $ 56,606 $ 62,166
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 25,247 24,989 20,568
Changes in operating assets and liabilities,
net of business combinations:
Accounts receivable (7,579) (15,068) (8,283)
Inventories (3,850) 3,034 8,049
Deferred income taxes (4,567) (18,334) (9,133)
Prepaid expenses and other current assets (6,443) (2,898) 923
Accounts payable and accrued liabilities 3,721 48,017 5,031
Accrued income taxes 12,315 8,066 9,532
Net cash provided by operating activities 106,632 104,412 88,853
Investing activities
- ---------------------------------------------------------------------------------------------------
Purchases of available-for-sale
marketable securities (224,655) (74,682) (438,405)
Maturities of available-for-sale
marketable securities 141,893 145,754 426,168
Purchases of computer equipment, furniture,
and leasehold improvements (16,306) (20,019) (21,503)
Business combinations, net of cash acquired (7,194) (4,469) (6,536)
Capitalization of software costs and purchases
of software technologies (1,409) (4,958) (2,479)
Other 8,042 4,642 1,474
Net cash provided (used) by investing activities (99,629) 46,268 (41,281)
Financing activities
- ---------------------------------------------------------------------------------------------------
Proceeds from issuance of common stock 46,424 59,912 47,899
Repurchase of common stock (107,976) (89,851) (71,586)
Dividends paid (11,184) (11,307) (11,388)
Net cash used in financing activities (72,736) (41,246) (35,075)
Net increase (decrease) in cash and cash equivalents (65,733) 109,434 12,497
Cash and cash equivalents at beginning of year 195,038 85,604 73,107
Cash and cash equivalents at end of year $ 129,305 $ 195,038 $ 85,604
See accompanying notes.
32
Consolidated Statement of Stockholders' Equity Autodesk, Inc.
Three-year period ended January 31, 1996
Foreign
currency Total
Common stock Retained translation stockholders'
(In thousands) Shares Amount earnings adjustment equity
Balances, January 31, 1993 48,022 $ 67,456 $ 206,274 $ (5,897) $ 267,833
- ----------------------------------------------------------------------------------------------------------------
Common shares issued under stock
option and stock purchase plans 2,634 41,875 41,875
Tax effect of stock options 6,024 6,024
Net income 62,166 62,166
Dividends paid (11,388) (11,388)
Repurchase of common shares (3,176) (71,586) (71,586)
Foreign currency
translation adjustment 1,955 1,955
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
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
33
Notes to Consolidated Financial Statements
Note 1. Summary of significant accounting policies
Operations
Autodesk, Inc. ("Autodesk" or the "Company"), develops, markets, and sells a
family of design and multimedia software products for use on personal computers
and workstations.
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 $554,000, ($1,043,000), and ($969,000) in fiscal years 1996, 1995, and
1994, respectively.
In August 1993, the Company acquired the remaining outstanding stock of Ithaca
Software and in November 1993, purchased the net assets of Woodbourne, Inc. The
aggregate cash purchase price of these two transactions was approximately $6.5
million. In fiscal year 1995, approximately $3.5 million was paid to the former
Ithaca Software stockholders based on product milestones and revenues. In August
1995, the Company acquired certain assets of Automated Methods (Pty) Ltd. and
during fiscal year 1996 made final payments to the former Ithaca stockholders
based on revenues from specified products. Cash payments associated with these
transactions totaled approximately $7.2 million. Additional consideration may
also be payable to the former shareholders of Automated Methods (Pty) Ltd. based
on future revenues from specified products. 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. The 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 the respective dates of acquisition.
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 as other income or loss 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.
34
Autodesk, Inc.
Effective February 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("FAS No. 115"). FAS No. 115 has been adopted prospectively,
and the financial statements of prior years have not been restated. The
cumulative effect as of February 1, 1994, of adopting FAS No. 115 was not
material.
Under FAS No. 115, the appropriate classification of securities is determined at
the time of purchase and is reevaluated 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 conditions 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.
Capitalized software and purchased technologies
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
$11,765,000, $7,634,000, and $7,478,000 in fiscal years 1996, 1995, and 1994,
respectively. The actual lives of the Company's capitalized software or
purchased technologies may differ from the Company's estimates, and such
differences could cause carrying amounts of these assets to be reduced
materially.
Royalties
The Company licenses software used to develop components of AutoCAD, AutoCAD LT,
3D Studio, 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 $6,102,000, $5,944,000, and $5,128,000 in
fiscal years 1996, 1995, and 1994, respectively. Such costs are included as a
component of cost of revenues.
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
customer consulting and training obligations is deferred, while costs associated
with certain post-sale customer obligations are accrued.
35
Notes to Consolidated Financial Statements
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.
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 two-for-one
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
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("FAS No. 121"). 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. The Company will
adopt FAS No. 121 in the first quarter of fiscal year 1997. Based on current
circumstances, management does not believe the effect of adoption will be
material to the consolidated financial statements.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS No. 123") was issued in October 1995 and is effective for
the Company's fiscal year ending January 31, 1997. FAS No. 123 allows for the
adoption of a new fair-value-based method or the continued use of the
intrinsic-value-based method of accounting prescribed by Accounting Principles
Board Opinion No. 25 ("APB No. 25") to measure compensation expense for the
Company's stock-based compensation plans. The Company intends to continue to
follow APB No. 25 but will be required to make pro forma disclosures of net
income and earnings per share as if the fair-value-based method had been
applied.
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, 1996 January 31, 1995
Carrying Carrying
(In thousands) amount Fair value amount Fair value
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 129,305 $ 129,305 $ 195,038 $ 195,038
Marketable securities 143,097 143,097 60,335 60,335
Forward foreign currency contracts (143) (143) 25 25
36
Autodesk, Inc.
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 $15.5 million and $10.7 million at January 31,
1996 and 1995, 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 debt securities
at January 31, 1996 and 1995:
Gross Gross Estimated
unrealized unrealized fair
(In thousands) Cost gains losses value
January 31, 1996
- --------------------------------------------------------------------------------
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
January 31, 1995
- --------------------------------------------------------------------------------
Short-Term:
Municipal bonds $ 45,312 $ 6 $ 143 $ 45,175
Time deposits 141 141
45,453 6 143 45,316
Long-Term:
Municipal bonds 15,271 252 15,019
$ 60,724 $ 6 $ 395 $ 60,335
Long-term US Treasury notes included a restricted balance of $28 million at
January 31, 1996. The contractual maturities of Autodesk's short-term marketable
securities at January 31, 1996, were one year or less while the Company's long-
term marketable securities had contractual maturities of between one and two
years except $3.8 million maturing in three years. Expected maturities may
differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.
37
Notes to Consolidated Financial Statements
Note 3. Income Taxes
The provision for income taxes consists of the following:
Fiscal year ended January 31,
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------------
Federal:
Current $ 26,711 $ 29,203 $ 21,516
Deferred (3,392) (13,169) (6,282)
State:
Current 8,779 9,417 7,884
Deferred (856) (3,839) (1,110)
Foreign:
Current 19,569 12,252 14,325
Deferred (319) (1,326) (1,741)
$ 50,492 $ 32,538 $ 34,592
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) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
Income tax provision at statutory rate $ 48,398 $ 31,200 $ 33,865
Foreign income taxed at rates different from
the US statutory rate (7,863) (4,916) (4,537)
State income taxes, net of federal benefit 8,616 4,802 5,277
Tax-exempt interest (1,668) (1,608) (1,539)
Other 3,009 3,060 1,526
$ 50,492 $ 32,538 $ 34,592
38
Autodesk, Inc.
Significant sources of the Company's deferred tax assets and liabilities are as
follows:
Fiscal year ended January 31,
(In thousands) 1996 1995
- ----------------------------------------------------------------------
Net deferred tax assets:
Accrued state income taxes $ 5,409 $ 4,607
Expenses not currently deductible 24,303 21,353
Other 4,057 3,955
33,769 29,915
Net deferred tax liabilities:
Capitalized software 2,573 4,384
Other (661) (1,759)
1,912 2,625
Net deferred tax assets $ 31,857 $ 27,290
No provision has been made for federal income taxes on unremitted earnings of
certain of the Company's foreign subsidiaries (cumulative $122,257,000 at
January 31, 1996) since the Company plans to indefinitely reinvest all such
earnings. At January 31, 1996, the unrecognized deferred tax liability for these
earnings was approximately $35.8 million. Foreign pre-tax income was
$64,433,000, $34,294,000, and $35,840,000 in fiscal years 1996, 1995, and 1994,
respectively.
Cash payments for income taxes were $32,032,000, $32,361,000, and $28,157,000
for fiscal years 1996, 1995, and 1994, 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 VMI cross-appealed, before the US Court of Appeals
for the Second Circuit, in January 1996. The Company is awaiting a ruling on the
appeal. Management believes the claims in the case, including a cross-appeal by
VMI for additional damages, are without merit and that the ultimate resolution
of this matter will not have a material adverse effect on the Company's
consolidated financial condition or results of operations. However, depending on
the amount and timing, an unfavorable resolution of this matter could materially
affect the Company's future results of operations or cash flows in a particular
period.
The Company was required by statute to post collateral approximating the amount
of the judgment plus accrued interest. At January 31, 1996, 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.
39
Notes to Consolidated Financial Statements
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: $14,280,000 in 1997;
$12,687,000 in 1998; $11,437,000 in 1999; $9,770,000 in 2000; $7,648,000 in
2001; and $32,757,000 thereafter.
Rent expense was $16,992,000, $18,221,000, and $14,806,000 in fiscal years 1996,
1995, and 1994, respectively.
The Company has an unsecured $40 million bank line of credit, which may be used
from time to time to facilitate short-term cash flow. The line of credit expires
in January 1997.
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. A maximum of 20,240,000 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:
Number of Shares Price Per Share
- ----------------------------------------------------------------------------------------
Options outstanding at January 31, 1994 8,710,000 $12.56-$28.19
Granted 2,123,000 $24.25-$38.25
Exercised (2,416,000) $12.56-$25.38
Canceled (420,000) $13.38-$30.25
Options outstanding at January 31, 1995 7,997,000 $12.56-$38.25
Granted 2,546,000 $35.25-$49.25
Exercised (1,484,000) $12.56-$30.50
Canceled (368,000) $13.38-$49.25
Options outstanding at January 31, 1996 8,691,000 $13.38-$49.25
Options exercisable at January 31, 1996 3,379,000 $13.38-$38.25
Options available for grant at January 31, 1996 3,223,000
40
Autodesk, Inc.
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.
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 2,100,000 shares
have been reserved for issuance under the plan. In fiscal years 1996, 1995, and
1994, shares totaling 301,000, 335,000, and 318,000, respectively, were issued
under the plan at average prices of $24.01, $17.90, and $14.30 per share. At
January 31, 1996, a total of 621,000 shares were available for future issuance
under the plan.
Pre-Tax Savings Plans
The Company has pre-tax savings plans 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 $2,442,000, $1,474,000, and $964,000 in fiscal years
1996, 1995, and 1994, respectively.
Note 7. Stockholders' Equity
Reincorporation
In August 1994, the Company was reincorporated in the state of Delaware. As part
of this reincorporation, each outstanding share of the California corporation no
par common stock was converted to one share of the Delaware corporation $0.01
par value common stock.
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.
In December 1995, the Company adopted a Shareholder Rights Plan which provides
existing stockholders with the right to purchase for $200 one one-thousandth of
a share of perferred stock for each share of common stock owned by the
stockholder in the event of certain changes in the Company's ownership. These
rights may serve as a deterrent to certain unauthorized takeover attempts which
are not in the best interests of stockholders. The rights expire in December
2005.
Common Stock Repurchase Program
During fiscal years 1996, 1995, and 1994, the Company repurchased and retired a
total of 2,671,000, 2,990,000, and 3,176,000 shares of its common stock at
average repurchase prices of $40.43, $30.05, and $22.54, respectively, pursuant
to a systematic repurchase plan approved by the Company's Board of Directors to
reduce the dilutive effect of common stock to be issued under the Company's
employee stock plans. In December 1995, the Board of Directors continued the
program by approving the repurchase of up to 4 million additional shares.
41
Notes to Consolidated Financial Statements
Note 8. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for fiscal years 1996, 1995, and 1994
is as follows:
(In thousands, except per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Fiscal Year
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 35,443 107,411
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
Fiscal year 1994:
- -----------------------------------------------------------------------------------------------------------------------
Net revenues $ 101,665 $ 103,613 $ 98,176 $ 102,142 $ 405,596
Gross margin 84,661 86,865 83,481 87,251 342,258
Income from operations 21,830 23,935 21,298 22,640 89,703
Net income 15,442 16,471 14,928 15,325 62,166
Net income per share 0.31 0.33 0.30 0.31 1.25
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.
42
Autodesk, Inc.
Note 9. Information by Geographic Area
Information regarding the Company's operations by geographic area at January 31,
1996, 1995, and 1994 and for the fiscal years then ended is as follows:
Fiscal year ended January 31,
(In thousands) 1996 1995 1994
Revenues:
- ------------------------------------------------------------------------------------
The Americas
Customers in the United States $ 195,272 $ 182,133 $ 177,833
Customers in Asia/Pacific 42,262 36,513 26,788
Customers in Canada 14,619 15,720 16,173
Other exports 11,103 14,951 11,492
Intercompany revenues 67,728 48,539 48,068
330,984 297,856 280,354
Europe 211,480 159,110 138,317
Asia/Pacific 72,148 56,851 48,117
Consolidating eliminations (67,728) (48,539) (48,068)
$ 546,884 $ 465,278 $ 418,720
Income from operations:
- ------------------------------------------------------------------------------------
The Americas $ 63,843 $ 71,518 $ 56,127
Europe 53,696 25,121 24,687
Asia/Pacific 11,488 10,772 8,889
$ 129,027 $ 107,411 $ 89,703
Identifiable assets:
- ------------------------------------------------------------------------------------
The Americas $ 306,795 $ 336,403 $ 261,347
Europe 250,268 211,056 172,328
Asia/Pacific 73,426 51,761 45,555
Consolidating eliminations (112,560) (117,144) (74,356)
$ 517,929 $ 482,076 $ 404,874
Intercompany revenues consist of royalty revenue payable by the Company's
subsidiaries under software license agreements with the US parent company. At
January 31, 1996, 1995, and 1994, total foreign net equity was $133,213,000,
$88,660,000, and $115,025,000, respectively.
43
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, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in the
period ended January 31, 1996. 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, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
January 31, 1996, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Francisco, California
February 20, 1996
44
Market Information and Dividend Policy Autodesk, Inc.
Market Prices
The Company's common stock is traded on the Nasdaq National Market under the
symbol ADSK (previously ACAD). The following table lists the high and low sales
prices for each quarter in the last three fiscal years (as adjusted for the
stock split in October 1994):
Fiscal year 1996 High Low
- ---------------------------------------------------------------
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
Fiscal year 1994
- ---------------------------------------------------------------
First quarter $ 24 3/8 $ 19 3/8
Second quarter 28 3/8 19 7/8
Third quarter 25 7/8 19 7/8
Fourth quarter 26 1/8 18 1/2
Dividends
The Company paid quarterly dividends of $0.06 per share in fiscal years 1996,
1995, and 1994. The Company currently intends to continue paying regular cash
dividends on a quarterly basis.
Stockholders
As of March 31, 1996, the approximate number of common stockholders of record
was 1,430.
Annual Meeting
The Company's Annual Meeting of Stockholders will be held at 3:00 PM on June 27,
1996, at the Wyndham Garden Hotel, 1010 Northgate Drive, San Rafael, California.
Form 10-K
A copy of the Company's Annual Report on Form 10-K for fiscal year 1996 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.
45
Corporate Information
Directors
Carol A. Bartz
President, Chief Executive Officer, and Chairman of the Board,
Autodesk, Inc.
Mark A. Bertelsen
Managing Partner, Wilson, Sonsini, Goodrich & Rosati, Attorneys-at-Law
Crawford W. Beveridge
Chief Executive Officer, Scottish Enterprise, an economic development
company
J. Hallam Dawson
IDI Associates CA, a private investment bank
Jerre L. Stead
Former Chairman and Chief Executive Officer, Legent Computer Corp.
Mary Alice Taylor
Senior Vice President-US and Canada, Federal Express Corporation
Morton L. Topfer
Vice Chairman, Dell Computer Corporation
Officers
Carol Bartz
President and Chief Executive Officer
Dr. Joseph Astroth
Vice President, GIS Market Group
John Calonico
Vice President and Corporate Controller
Robert Carr
Vice President, Engineering Group
Larry Crume
Vice President and General Manager, Kinetix
James D'Arezzo
Vice President, Data Management Market Group, and Vice President,
Corporate Marketing
Dominic Gallello
Vice President, Mechanical CAD Market Group, and Vice President,
Asia/Pacific
Eric Herr
Chief Financial Officer, Vice President, Finance and Administration, and
Vice President, Autodesk Data Publishing
William Kredel
Vice President and Chief Information Officer
John Lynch
Chief Technology Officer, Vice President, Advanced Products Group,
and Vice President, AEC/FM Market Group
Stephen McMahon
Vice President, Human Resources
John Sanders
Vice President, Worldwide Support & Services
Marcia Sterling
Vice President, Business Development, and General Counsel
Godfrey Sullivan
Vice President, the Americas
Michael Sutton
Vice President, Europe
Michael Tabatabai
Vice President, Worldwide Operations
Christine Tsingos
Vice President and Treasurer
Legal Counsel
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
USA
Transfer Agent
Harris Trust & Savings Bank
c/o Shareholder Services
11th Floor
311 West Monroe Street
Chicago, IL 60606
USA
Independent Auditors
Ernst & Young LLP
555 California Street
San Francisco, CA 94104
USA
Corporate Headquarters
Autodesk, Inc.
111 McInnis Parkway
San Rafael, CA 94903
USA
The Americas
Autodesk, Inc.
111 McInnis Parkway
San Rafael, CA 94903
USA
Asia/Pacific
Autodesk, Inc.
111 McInnis Parkway
San Rafael, CA 94903
USA
Europe
Autodesk (Europe) SA
20, route de Pre-Bois
Case Postale 766
CH-1215 Geneva 15
Switzerland
Autodesk, the Autodesk logo, AutoCAD, AutoSurf, Autodesk WorkCenter,
AutoCAD Data Extension, 3D Studio, and AutoVision are registered
trademarks, and Kinetix, Inside Track, Autodesk Mechanical Desktop, 3D
Studio MAX, DXF, the Design Your World logo, and Autodesk WHIP are
trademarks, of Autodesk, Inc., in the USA and/or other countries. Windows
and Windows NT are registered trademarks of Microsoft Corporation.
CompuServe is a registered trademark of H & R Block. All other brand names,
product names, or trademarks belong to their respective holders.
(C) Copyright 1996 Autodesk, Inc. All rights reserved.
46