01—Abstract
Summary
Summary of the 10-K filed April 28, 1998. Cited figures are marked; the original filing is the authoritative source.
Autodesk's fiscal 1998 10-K (year ended January 31, 1998) shows a company with strong top-line growth but sharply lower profitability.
Net revenues rose 24.2% to $617.1 milliona from $496.7 million, driven by the AutoCAD Release 14 launch (May 1997) and the March 1997 Softdesk acquisition. AutoCAD and its upgrades still generated about 70% of revenue, and foreign revenues were about 58% of the total, a meaningful drop from 65% the prior year, with a stronger U.S. dollar reducing international revenues by roughly $30 million. Profitability deteriorated materially.
Net income fell 63% to $15.4 millionb ($0.31 diluted EPS) from $41.6 million, largely because of $58.1 million in nonrecurring charges for purchased in-process R&D from the Softdesk and 3D/Eye acquisitions. Excluding those charges, the business remained profitable, though operating margins compressed as marketing and sales (38% of revenue) and R&D (20%) grew faster than revenue. Operating cash flow was solid at $158.6 million, and the balance sheet stayed strong, with $301.3 million in cash and marketable securities and stockholders' equity of $303.1 million.
Investors should also weigh several risk items disclosed in the filing: concentration in AutoCAD, dependence on a VAR distribution channel, product-return exposure, an April 1998 FTC nonpublic investigation (no charges filed), a pending IRS deficiency dispute for 1992-1993, the Vermont Microsystems litigation (judgment reduced to $7.8 millionc on appeal but not yet reflected in financials), and Asia Pacific economic instability. Heavy share repurchases ($174.9 million in fiscal 1998) partially offset dilution, but the company's ability to sustain growth while controlling costs will be the key question going forward.
02—Key points
Key Highlights
- Net revenues grew 24.2% to $617.1 million, aided by AutoCAD Release 14 and the Softdesk acquisition
- Net income fell 63% to $15.4 million ($0.31 diluted EPS), reflecting $58.1 million in nonrecurring in-process R&D charges
- AutoCAD and upgrades represented roughly 70% of revenues; about 244,000 new AutoCAD licenses were added worldwide
- Operating cash flow of $158.6 million and cash plus marketable securities of $301.3 million provide a strong liquidity position
- Marketing and sales rose 19% to $237.1 million and R&D rose 31% to $122.4 million, outpacing revenue growth in those lines
- Repurchased about 5.3 million shares for $174.9 million during the year under systematic and supplemental plans
- Foreign revenues fell to 58% of total (from 65%) as a stronger dollar cut international revenues by about $30 million; FTC investigation disclosed but not expected to be material
03—Questions
Frequently Asked Questions
Why did Autodesk's net income decline sharply despite revenue growth?
Net income dropped to $15.4 million from $41.6 million mainly due to $58.1 million in nonrecurring charges for acquired in-process R&D, primarily $55.1 million from the Softdesk acquisition. Higher marketing and sales and R&D spending also compressed operating margins, with operating income falling to $45.4 million from $59.8 million.
How dependent is Autodesk on AutoCAD?
Highly dependent. AutoCAD and its upgrades accounted for about 70% of revenues in fiscal 1998 and 1997. The filing notes that any factor adversely affecting AutoCAD sales, such as product life cycle, performance problems, or price competition, could materially harm the business, as happened with the AutoCAD Release 13 issues in fiscal 1996.
What legal and regulatory risks does the filing disclose?
The company disclosed an April 1998 nonpublic FTC investigation of its business practices, with no claims or charges filed, which management does not expect to be material. It also disclosed a Vermont Microsystems trade-secret judgment, reduced on appeal to $7.8 million but not yet reflected in the financial statements, and a Tax Court petition contesting IRS deficiencies for fiscal 1992 and 1993.
How is Autodesk returning capital to shareholders?
Through share repurchases and dividends. In fiscal 1998 the company repurchased 2.3 million shares under its Systematic Plan and 2 million shares via exercised call options plus 1 million in the open market under the Supplemental Plan. Total repurchases were $174.9 million, and quarterly dividends of $0.06 per share totaled $11.3 million. In December 1997 the board authorized additional repurchases of 4 million and 5 million shares under the two plans.
04—Continue