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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- - --- Act of 1934
FOR THE PERIOD ENDED OCTOBER 31, 1995
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
- - --- Exchange Act of 1934
COMMISSION FILE NUMBER: 0-14338
AUTODESK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2819853
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 MCINNIS PARKWAY
SAN RAFAEL, CALIFORNIA 94903
(Address of principal executive offices)
TELEPHONE NUMBER (415) 507-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of December 11, 1995, there were 43,315,000 shares of the Registrant's
Common Stock outstanding.
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AUTODESK, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Statement of Income
Three and nine months ended October 31, 1995 and 1994........ 3
Condensed Consolidated Balance Sheet
October 31, 1995 and January 31, 1995........................ 4
Condensed Consolidated Statement of Cash Flows
Nine months ended October 31, 1995 and 1994.................. 6
Notes to Condensed Consolidated Financial Statements........... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 11
SIGNATURES..................................................... 12
PART I. FINANCIAL INFORMATION
- - ------------------------------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
October 31, October 31,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
Revenues $131,779 $111,208 $417,503 $333,590
Direct commissions 3,242 3,029 9,622 8,574
-------- -------- -------- --------
Net revenues 128,537 108,179 407,881 325,016
Costs and expenses:
Cost of revenues 16,118 14,185 50,765 44,420
Marketing and sales 46,246 38,204 137,144 112,339
Research and development 19,584 16,022 58,246 48,467
General and administrative 18,543 16,538 56,375 47,822
-------- -------- -------- --------
100,491 84,949 302,530 253,048
-------- -------- -------- --------
Income from operations 28,046 23,230 105,351 71,968
Interest and other income, net 2,201 1,803 7,252 5,085
-------- -------- -------- --------
Income before income taxes 30,247 25,033 112,603 77,053
Provision for income taxes 11,040 9,137 41,120 28,124
-------- -------- -------- --------
Net income $ 19,207 $ 15,896 $ 71,483 $ 48,929
======== ======== ======== ========
Net income per share $.38 $.32 $1.41 $.99
======== ======== ======== ========
Shares used in computing
net income per share 50,180 49,590 50,520 49,610
======== ======== ======== ========
See accompanying notes.
3
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
(In thousands)
October 31, 1995 January 31, 1995
----------------- -----------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $172,308 $195,038
Marketable securities 34,533 45,316
Accounts receivable, net 98,723 86,340
Inventories 9,108 5,769
Deferred income taxes 26,837 29,915
Prepaid expenses and other current assets 13,853 10,707
-------- --------
Total current assets 355,362 373,085
-------- --------
Marketable securities, including a restricted balance
of $28,000 at October 31, 1995 80,943 15,019
Computer equipment, furniture and leasehold
improvements, at cost:
Computer equipment and furniture 104,017 91,557
Leasehold improvements 21,323 20,048
Accumulated depreciation (75,416) (65,090)
-------- --------
Net computer equipment, furniture and leasehold
improvements 49,924 46,515
Capitalized software 23,415 26,406
Other assets 19,925 21,051
-------- --------
$529,569 $482,076
======== ========
See accompanying notes.
4
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands)
October 31, 1995 January 31, 1995
----------------- ----------------
(Unaudited) (Audited)
Current liabilities:
Accounts payable $ 28,573 $ 21,535
Accrued compensation 21,327 18,165
Accrued income taxes 46,889 53,202
Litigation accrual - 25,800
Other accrued liabilities 38,857 36,288
-------- --------
Total current liabilities 135,646 154,990
-------- --------
Deferred income taxes 1,327 2,625
Litigation accrual 27,180 -
Other liabilities 2,701 977
Stockholders' equity:
Common stock 141,001 100,870
Retained earnings 201,654 215,064
Foreign currency translation adjustment 20,060 7,550
-------- --------
Total stockholders' equity 362,715 323,484
-------- --------
$529,569 $482,076
======== ========
See accompanying notes.
5
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months ended
October 31,
----------------------------
1995 1994
-------- --------
Operating activities
Net income $ 71,483 $ 48,929
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 20,195 19,314
Changes in operating assets and liabilities (9,629) 613
-------- --------
Net cash provided by operating activities 82,049 68,856
-------- --------
Investing activities
Sales (purchases) of marketable securities, net (55,141) 73,528
Purchases of computer equipment, furniture and leasehold
improvements (13,987) (13,209)
Other 9,742 (5,252)
-------- --------
Net cash provided (used) by investing activities (59,386) 55,067
-------- --------
Financing activities
Proceeds from issuance of common shares 44,419 42,559
Repurchase of common shares (81,314) (68,217)
Dividends paid (8,498) (8,473)
-------- --------
Net cash used in financing activities (45,393) (34,131)
-------- --------
Net increase (decrease) in cash and cash equivalents (22,730) 89,792
Cash and cash equivalents at beginning of year 195,038 85,604
-------- --------
Cash and cash equivalents at end of quarter $172,308 $175,396
======== ========
See accompanying notes.
6
AUTODESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements at October 31, 1995 and for
the three- and nine-month periods then ended are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report to Stockholders
incorporated by reference in the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995. The results of operations for the three
and nine months ended October 31, 1995 are not necessarily indicative of the
results for the entire fiscal year ending January 31, 1996.
2. In connection with a $25.5 million judgment against the Company in December
1994 on a claim of trade-secret misappropriation brought by Vermont
Microsystems, Inc., the Company was required by statute to post collateral
approximating the amount of the judgment plus accrued interest. The Company
has filed an appeal to this judgment. At October 31, 1995, 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. At
October 31, 1995, the litigation accrual, representing the judgment and
accrued interest through the balance sheet date, has correspondingly been
reclassified to long-term liabilities.
3. In August 1995, the Company acquired certain assets of Automated Methods
(Pty) Ltd. ("Automated Methods"), a Republic of South Africa company engaged
in the development of automated mapping and geographic information systems.
The acquisition has been accounted for using the purchase method of
accounting with the purchase price being principally allocated to capitalized
software. The results of Automated Methods, which were not material in
relation to those of the Company, have been included in the Company's
consolidated financial results from the acquisition date.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended October 31, 1995 and 1994
- - --------------------------------------------
Net revenues. The Company's third quarter net revenues of $128.5 million
increased 19 percent over third quarter net revenues in the prior fiscal year.
The increase reflected sales growth of 55 percent in Europe and 11 percent in
Asia/Pacific, partially offset by a 2 percent reduction in the Americas
primarily due to lower revenues in Latin America. The growth in consolidated net
revenues resulted primarily from increased update sales of AutoCAD Release 13
which began shipping in the fourth quarter of the prior fiscal year as well as
increased revenues from AutoCAD LT and product offerings from the Company's
mechanical, data management and multimedia market groups. Consolidated revenues
for the quarter ended October 31, 1995 derived from AutoCAD and AutoCAD updates
increased in absolute dollars from the same period in the prior fiscal year and
remained materially consistent as a percentage of consolidated revenues.
International sales, including exports from the US, accounted for approximately
64 percent of the Company's revenues in the third quarter of fiscal year 1996 as
compared to 57 percent in the third quarter of fiscal year 1995. The weaker
value of the dollar, relative to international currencies, favorably affected
third quarter revenues in fiscal year 1996 by approximately $2 million compared
to the same period in the prior fiscal year.
The Company does not expect revenue growth for the fourth fiscal quarter ending
January 31, 1996, either sequentially or compared to the fourth quarter of the
prior fiscal year. The Company currently anticipates the introduction of
AutoCAD Release 13 for Windows 95 late in its fourth fiscal quarter ending
January 31, 1996. Any delays in the introduction of the English or foreign-
language versions of AutoCAD Release 13 for Windows planned in the Company's
fourth fiscal quarter will have a material and adverse effect on revenues in the
quarter ending January 31, 1996. Additionally, fourth quarter revenues may also
be negatively impacted by continued economic difficulties in Latin America and
other emerging markets and on-going external labor issues influencing the
economy in France.
Cost of revenues. Cost of revenues as a percentage of net revenues decreased
approximately one-half percent in the third quarter of fiscal year 1996 as
compared to the third quarter of the prior fiscal year. The improved gross
margin in the current quarter resulted from lower material costs and the
delivery of products on lower-cost compact disc media (CD-ROM). In the future,
the Company expects that cost of revenues as a percentage of net revenues may be
impacted by the mix of sales of new products, the geographic distribution of
sales and sales of AutoCAD updates, which have a lower gross margin than
commercial versions of AutoCAD. During the quarter, distribution in the US and
Europe was transitioned from a third-party back to Autodesk operated facilities.
This change is not expected to materially impact the Company's cost of revenues
in future periods.
Marketing and sales. Marketing and sales expenses were 36 percent of net
revenues in the third quarter of fiscal year 1996 as compared to 35 percent for
the third quarter of the prior fiscal year. Actual spending increased 21 percent
resulting from higher personnel costs and due to increased spending to support
worldwide marketing efforts of new and enhanced product introductions, including
promotional activities related to AutoCAD Release 13. The Company expects to
continue its emphasis on marketing and sales activities in the future to promote
Autodesk's competitive position and to support sales and marketing of its
products.
8
Research and development. Research and development expenses were 15 percent of
net revenues in the third quarter of both fiscal years 1996 and 1995, while
absolute spending increased 22 percent. The increased spending was due to the
addition of development personnel, costs associated with the development of new
and enhanced products and the translation of certain of these products into
foreign languages. To maintain its competitive market position, the Company
expects to invest a significant amount of its resources in the development of
new products and product enhancements and to continue recruiting and hiring
experienced software developers, while at the same time considering the
acquisition of complementary software technologies and businesses.
General and administrative. General and administrative expenses were 14 percent
of net revenues in the third quarter of fiscal year 1996 compared to 15 percent
in the same period of fiscal year 1995, while absolute spending increased 12
percent. The increase resulted from higher employee-related costs associated
with increased operations and expenditures to support the Company's
infrastructure, partially offset by a reduction in legal expenses.
Interest and other income. Interest and other income, including foreign currency
losses of $92,000, was $2.2 million in the third quarter of fiscal year 1996.
Third quarter interest income was $2.7 million, an increase of approximately
$700,000 from the third quarter of the prior fiscal year due to a greater
average balance of cash, cash equivalents and marketable securities partially
offset by lower interest rates throughout the world. Interest and other income
in the third quarter of fiscal year 1996 also included accrued interest expense
of $460,000 related to a legal judgment against the Company which is being
appealed. (See Note 2 in the Notes to Condensed Consolidated Financial
Statements.)
Provision for income taxes. The Company's effective income tax rate was 36.5
percent in the third quarter of both fiscal year 1996 and 1995.
Nine Months Ended October 31, 1995 and 1994
- - -------------------------------------------
Net Revenues. The Company's net revenues for the nine months ended October 31,
1995 were $407.9 million which represented a 25 percent increase from the same
period of the prior fiscal year. The increase resulted from revenue growth of 43
percent in Europe, 29 percent in Asia/Pacific and 11 percent in the Americas.
The increases primarily resulted from new and update sales of AutoCAD. Revenues
for AutoCAD LT also increased as did sales of multimedia product offerings which
posted a 43 percent increase from the same period in the prior fiscal year.
International sales accounted for approximately 64 percent of consolidated
revenues for the nine months ended October 31, 1995 as compared to 60 percent
for the same period of the prior fiscal year. Net revenues for the first nine
months of fiscal year 1996 were favorably affected by approximately $15 million
due to changes in foreign exchange rates when compared to the same period in the
prior fiscal year.
Cost of revenues. Cost of revenues as a percentage of net revenues for the nine
months ended October 31, 1995 was 12 percent as compared to 14 percent for the
same period of the prior fiscal year. The improved gross margin resulted from
cost control measures in production, particularly in the areas of media
duplication, packaging, shipping and the delivery of products on lower-cost
compact disc media.
Operating expenses. Operating expenses for the Company's marketing and sales,
research and development and general and administrative functions for the nine
months ended October 31, 1995 increased approximately 21 percent to $251.8
million as compared to $208.6 million for the same period of the prior fiscal
year. For the nine months ended October 31, 1995, operating expenses, when
expressed as a percentage of net revenues, decreased from the same period of the
prior fiscal year. The absolute dollar change was due to increased headcount,
expenses associated with sales and marketing programs, increased spending for
product development and localization and, to a lesser extent, due to the weaker
value of the dollar, relative to international currencies, resulting in
increased operating expenses in the current period.
9
Interest and other income. Interest and other income for the nine months ended
October 31, 1995 was $7.3 million as compared to $5.1 million in the same period
of the prior fiscal year. Interest income was $8.2 million for the first nine
months of fiscal year 1996 as compared to $5.8 million in the same period of the
prior fiscal year. The increase in interest income from the same period of the
prior fiscal year resulted from a greater average balance of cash, cash
equivalents and marketable securities. Fiscal year 1996 interest and other
income includes accrued interest expense of $1.4 million related to a legal
judgment against the Company which is being appealed.
Income taxes. The Company's effective income tax rate was 36.5 percent for the
first nine months of both fiscal year 1996 and 1995.
General Risk Factors Affecting Quarterly Results
- - ------------------------------------------------
The software industry is characterized by rapid technological change as well as
changes in customer requirements and preferences. The Company believes that its
future quarterly results will depend in large part upon its ability to offer
products that compete favorably with respect to price, product reliability,
performance, range of useful features, ease-of-use, continuing product
enhancements, reputation, support and training. Further, increased competition
in the market for design automation and multimedia software products could have
a negative impact on the Company's results of operations.
Future results may reflect quarterly fluctuations resulting from factors such as
order deferrals in anticipation of new product releases or product maintenance
releases and delays in the shipment of new products scheduled for release in the
coming quarters. Moreover, there can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products and product enhancements, or that the
Company's new products and product enhancements will adequately meet the
requirements of the marketplace and achieve market acceptance.
With a significant portion of net revenues and net income contributed by
international operations, fluctuations of the US dollar against foreign
currencies and the seasonality of the European, Asia/Pacific and other
international markets could impact the Company's results of operations and
financial condition in a particular quarter. In the short term, the Company
expects the operating expenses associated with the acquisition of Automated
Methods will exceed revenues, resulting in a negative impact on net income.
Additionally, the Company believes the ongoing external labor issues influencing
the economy in France will have an adverse effect on the Company's revenues and
results of operations.
The Company's ability to effectively distribute its products depends in part
upon the financial and business condition of its network of dealers and
distributors. Although the Company has not to date experienced any material
problems with its dealer and distributor network, computer software dealers and
distributors typically are not highly capitalized and have experienced
difficulties during economic recessions or in times of economic contraction and
may do so in the future, which could negatively impact the Company's business.
Due to the factors noted above, the Company's future earnings and stock price
may be subject to significant volatility, particularly on a quarterly basis. Any
shortfall in 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. 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, which could result in an
even more immediate and adverse effect on the trading price of the Company's
common stock.
10
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities, which consist primarily of
high-quality municipal bonds and tax-advantaged money market instruments,
totaled $287.8 million at October 31, 1995 compared to $255.4 million at
January 31, 1995. The increase in cash, cash equivalents and marketable
securities was due primarily to cash generated from operations ($82.0 million)
and cash proceeds from the issuance of shares through the Company's stock option
and stock purchase programs ($44.4 million). This increase was partially offset
by cash used to purchase 1,923,500 shares of the Company's stock under an
ongoing systematic repurchase program ($81.3 million); to purchase computer
equipment, furniture and leasehold improvements ($14.0 million); and to pay
dividends on the Company's common stock ($8.5 million).
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 software products,
technologies and businesses complementary to the Company's business. Management
believes that existing cash, cash equivalents, marketable securities, available
line of credit and anticipated cash generated from operations will be sufficient
to satisfy the Company's currently anticipated cash requirements.
The Company's principal commitments at October 31, 1995 consisted of obligations
under operating leases for facilities.
PART II. OTHER INFORMATION
- - ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended October 31, 1995.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: December 13, 1995
AUTODESK, INC.
(Registrant)
--------------------------------------------
Carol A. Bartz
President and Chief Executive Officer
--------------------------------------------
Eric B. Herr
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
12