10-QPeriod: Q2 FY2007

Autodesk, Inc. Quarterly Report for Q2 Ended Jul 31, 2006

Filed June 4, 2007For Securities:ADSK

Summary

Autodesk, Inc.'s (ADSK) Form 10-Q for the period ending July 31, 2006, highlights a period of solid revenue growth driven by both new product sales and a significant increase in maintenance/subscription revenues. The most notable aspect of this filing is the extensive disclosure regarding a voluntary review of the company's historical stock option granting practices. This review resulted in restatements of prior financial statements due to accounting errors related to stock-based compensation. While this investigation consumed significant management and accounting resources, the company emphasizes that there was no evidence of intentional backdating by officers or directors. The filing also details adjustments to net revenues due to accounting for reseller credits. Financially, the company demonstrated strong operating cash flow generation and maintained a healthy cash position. Despite increased operating expenses, partly due to the adoption of SFAS 123R (affecting stock-based compensation) and integration costs from acquisitions like Alias, Autodesk reported increased income from operations for the quarter compared to the prior year.

Key Highlights

  • 1Revenue increased by 19% year-over-year for the three months ended July 31, 2006, driven by growth in new seat sales and a 63% increase in maintenance revenues from the Subscription Program.
  • 2The company undertook a voluntary review of its stock option granting practices, leading to restatements of prior financial statements due to accounting errors related to stock-based compensation, totaling $34.8 million pre-tax.
  • 3There was no evidence found of intentional backdating of stock options by officers or directors during the review.
  • 4Net revenues were adjusted upwards by $14.0 million in fiscal 2006 and $5.1 million in fiscal 2005 due to restatements related to the accounting for reseller credits.
  • 5Operating income increased by 12% for the three months ended July 31, 2006, despite a 24% increase in marketing and sales expenses and a 33% increase in R&D expenses.
  • 6The company generated $252.9 million in cash from operating activities for the six months ended July 31, 2006, a significant increase from $176.5 million in the prior year.
  • 7As of July 31, 2006, Autodesk had $468.2 million in cash, cash equivalents, and marketable securities, with a stock repurchase program remaining with 16.3 million shares authorized for repurchase.

Frequently Asked Questions

Autodesk restated its financial statements primarily due to errors found in accounting for stock-based compensation related to historical stock option granting practices. A voluntary review identified that incorrect measurement dates were used for certain stock option grants.

The stock option review resulted in the recognition of additional pre-tax stock-based compensation expense of $34.8 million over an 18-year period. Additionally, adjustments were made to increase net revenues by $19.1 million and decrease deferred revenues, impacting net income and retained earnings.

Autodesk experienced strong revenue growth, with total net revenues increasing by 19% year-over-year for the three months ended July 31, 2006, reaching $449.6 million. This growth was driven by increases in license and other revenues, and a significant 63% surge in maintenance revenues from its Subscription Program.

The company's operations are primarily organized into two reportable segments: the Design Solutions Segment and the Media and Entertainment Segment. The Design Solutions Segment is the larger contributor, with revenues increasing by 19% year-over-year to $388.6 million for the quarter. The Media and Entertainment Segment also saw growth, with revenues up 30% to $58.5 million.

Autodesk demonstrated strong liquidity, with $468.2 million in cash, cash equivalents, and marketable securities at July 31, 2006. Operating cash flow was robust at $252.9 million for the six months ended July 31, 2006. The company also continued its share repurchase program and made strategic acquisitions, including Constructware.